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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KT
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended _____________
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from June 29, 2019 to January 3, 2020
Commission File Number 1-3863
L3HARRISLOGOA02.JPG
L3HARRIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
34-0276860
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1025 West NASA Boulevard
 
 
Melbourne,
Florida
 
 
32919
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (321727-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $1.00 per share
 
LHX
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  þ   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨  
  
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 at June 28, 2019 was $22,330,592,127 (based on the quoted closing sale price per share of the stock on the New York Stock Exchange). For purposes of this calculation, the registrant has assumed that its directors and executive officers as of June 28, 2019 are affiliates.
The number of shares outstanding of the registrant’s common stock as of February 28, 2020 was 216,896,195.
Documents Incorporated by Reference:
Portions of the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Shareholders scheduled to be held on April 24, 2020, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s Fiscal Transition Period, are incorporated by reference into Part III of this Transition Report on Form 10-KT to the extent described therein.

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L3HARRIS TECHNOLOGIES, INC.
TRANSITION REPORT ON FORM 10-KT FOR THE FISCAL TRANSITION PERIOD ENDED JANUARY 3, 2020
TABLE OF CONTENTS
 
 
Page No.
 
 
 
Part I:
 
 
 
 
 
 
 
 
 
Information about our Executive Officers
 
 
 
Part II:
 
 
 
 
 
 
 
 
 
 
 
 
 
Part III:
 
 
 
 
 
 
 
 
 
 
Part IV:
 
 
 
 
ITEM 16. Form 10-KT Summary
 
 
Signatures
Exhibits
This Transition Report on Form 10-KT contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.



Cautionary Statement Regarding Forward-Looking Statements
This Transition Report on Form 10-KT (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 integration of Harris Corporation (“Harris”) and L3 Technologies, Inc. (“L3”) and of our acquisitions; the value of contract awards and programs; expected annualized revenue; 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,” “could,” “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.
L3Harris Merger
As described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and Note 5: Business Combination in the Notes to Consolidated Financial Statements in this Report (the “Notes”), on October 12, 2018, Harris entered into an Agreement and Plan of Merger (the “Merger Agreement”) with L3 and Leopard Merger Sub Inc., a newly formed, direct wholly owned subsidiary of Harris (“Merger Sub”), pursuant to which Harris and L3 agreed to combine their respective businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3, with L3 continuing as the surviving corporation and a direct wholly owned subsidiary of Harris (the “L3Harris Merger”). The closing of the L3Harris Merger occurred on June 29, 2019 (“Closing Date”), after the end of Harris’ fiscal 2019 on June 28, 2019.
PART I
 
 ITEM 1.
BUSINESS.
L3HARRIS
General
We were 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 now traded under the ticker symbol “LHX” on the New York Stock Exchange (“NYSE”), and unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and “L3Harris” as used in this Report mean the combined company L3Harris Technologies, Inc. and its subsidiaries, when referring to periods after the end of fiscal 2019 (after the L3Harris Merger) and mean Harris and its subsidiaries when referring to periods prior to the end of fiscal 2019 (prior to the L3Harris Merger).
L3Harris Technologies, Inc. is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. We provide advanced defense and commercial technologies across air, land, sea, space and cyber domains. We support government and commercial customers in 130 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 January 3, 2020, we had approximately 50,000 employees, including approximately 20,000 engineers and scientists.

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We structure our operations primarily around the products, systems and services we sell and the markets we serve. We implemented a new organizational structure effective at the beginning of the Fiscal Transition Period (as defined below), which resulted in changes to our operating segments, which are also our reportable segments and are referred to as our business segments:
Integrated Mission Systems, including multi-mission intelligence, surveillance and reconnaissance (“ISR”) and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-optical and infrared (“EO/IR”) solutions;
Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare;
Communication Systems, including tactical communications; broadband communications; integrated vision solutions; and public safety; and
Aviation Systems, including defense aviation products; security, detection and other commercial aviation products; commercial and military pilot training; and mission networks for air traffic management (“ATM”).
The historical results, discussion and presentation of our business segments as set forth in this Report reflect the impact of these changes to our segment reporting for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these changes.
L3Harris Merger
As noted above and described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and Note 5: Business Combination in the Notes, we completed the L3Harris Merger on June 29, 2019, the day after Harris’ fiscal 2019 ended and the first day of our Fiscal Transition Period (as defined below). L3 was a prime contractor in ISR systems, aircraft sustainment (including modifications and fleet management of special mission aircraft), simulation and training, night vision and image intensification equipment, and security and detection systems. L3 also was a leading provider of a broad range of communication, electro-optical solutions, and electronic and sensor systems used on military, homeland security and commercial platforms. L3 customers included the U.S. Department of Defense (“DoD”) and its prime contractors, the U.S. Intelligence Community, the U.S. Department of Homeland Security (“DHS”), foreign governments and domestic and foreign commercial customers.
Change in Fiscal Year
Through fiscal 2019, our fiscal years ended on the Friday nearest June 30. Commencing June 29, 2019, our fiscal year ends on the Friday nearest December 31, and the period that commenced on June 29, 2019 was a fiscal transition period that ended on January 3, 2020 (“Fiscal Transition Period”).
Subsequent Events
As described in more detail in Note 28: Subsequent Events in the Notes, on February 4, 2020, we entered into a definitive agreement under which we will sell Security & Detection Systems and MacDonald Humfrey Automation solutions (“airport security and automation business”) to Leidos, Inc. for $1 billion in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The sale transaction is conditioned on customary closing conditions, including receipt of regulatory approvals. We expect the sale transaction to close in mid-2020; however, there can be no assurances that the conditions will be satisfied (or waived, if applicable) or that closing will occur in mid-2020 or at all. We intend to use the proceeds from the sale of the airport security and automation businesses to repurchase shares of our common stock. The airport security and automation business provides solutions used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities. The decision to divest the airport security and automation business represented a significant milestone in our strategic priority to reshape our portfolio and focus our resources on core technologies following the L3Harris Merger. Because the expected disposal of the airport security and automation business did not meet the held for sale criteria as of January 3, 2020, the assets and liabilities of the airport security and automation business were not classified as held for sale in our Consolidated Balance Sheet at January 3, 2020.
Divestitures
The following paragraphs summarize recent divestitures. For additional information related to divestitures, some of which were reported as discontinued operations, see Note 3: Divestitures, Asset Sales and Discontinued Operations 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.
Divestiture of the Harris Night Vision Business. On September 13, 2019, we completed the sale of the Harris Night Vision business to Elbit Systems of America, LLC, a subsidiary of Elbit Systems Ltd., for $350 million (net cash proceeds of $343 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments as set forth in the definitive agreement. The Harris Night Vision business was not included in any of the business segments in our new

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organizational structure and the operating results of the Harris Night Vision business through the date of the divestiture are discussed and presented as part of “Other non-reportable business segments” in this Report.
Divestiture of Government IT Services Business. On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Management, L.L.C. 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 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 IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses. IT Services is reported as discontinued operations in this Report.
Divestiture of Harris CapRock Communications Commercial Business. On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. 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 $368 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 model to focus on technology-differentiated, high-margin businesses. CapRock is reported as discontinued operations in this Report.
Description of Business by Segment
Our four business segments provide a wide-range of products and services to various customers and are described below. 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 25: Business Segments in the Notes and is incorporated herein by reference, and for additional information with respect to our business segments, see “Discussion of Business Segment Results of Operations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. For a discussion of certain risks affecting our business segments, 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.
Integrated Mission Systems
Integrated Mission Systems segment revenue of $2,774 million for the two quarters ended January 3, 2020, represented 30 percent of our total revenue. With a diverse portfolio of more than 300 programs, this segment is comprised of three business sectors: ISR, Maritime and Electro Optical, the principal products and services of which are described below. This segment principally consists of operating businesses acquired in the L3Harris Merger.
ISR: We develop and maintain multi-mission ISR and communication systems, including fleet management support services, sensor development, modifications and periodic depot maintenance for ISR and airborne missions. Significant customers include DoD and classified customers within the U.S. Government, U.K. Ministry of Defence, Royal Australian Air Force and other select foreign military services.
Maritime: We are a manufacturer and integrator of maritime integrated command, control, communications, computers and cyber ISR (“C5ISR”) systems for maritime platforms, specializing in signals intelligence and multi-intelligence platforms; unmanned surface and undersea autonomous solutions; power and ship control systems and other electronic and electrical products and systems. Significant customers include the U.S. Navy (“USN”), the U.S. Coast Guard, U.S. Army, allied navies, other military customers and commercial ship owners.
Electro Optical: We design and manufacture advanced EO/IR sensors and surveillance and targeting systems and provide modernization and life extension maintenance upgrade and support services for military aircraft. Significant customers include the National Aeronautics Space Administration, DoD, USN, U.S. Air Force (“USAF”), select foreign militaries and commercial space companies.
Additional information regarding the composition of Integrated Mission Systems revenue for the two quarters ended January 3, 2020 is as follows:
75 percent 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;
69 percent was derived from contracts under which we are the prime contractor;
17 percent was derived from products and services for which the end consumer is located outside the U.S.; and
8 percent and 44 percent was derived from this segment’s largest and ten largest programs, respectively.
Space and Airborne Systems
Space and Airborne Systems segment revenue of $2,360 million for the two quarters ended January 3, 2020, represented 25 percent of our total revenue. With a diverse portfolio of more than 300 programs, this segment is comprised of four business sectors: Space, Intel & Cyber, Avionics and Electronic Warfare, the principal products and services of which are described below. This segment consists of a mix of operating businesses acquired in the L3Harris Merger and legacy Harris operating businesses,

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including nearly all of the operating businesses of our pre-merger Space and Intelligence Systems and Electronic Systems segments, except: the mission networks ATM operating business noted below in the description of Aviation Systems.
Space: We provide 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. Many of these solutions include reliable resilient and innovative capabilities. We are a global provider of PNT products, systems and solutions. Our navigation payload technology is an integral component of U.S. Global Positioning System (‘GPS”) satellites and supports GPS availability, accuracy and integrity. We also provide space antenna systems and precision space structures. We are an experienced space reflector manufacturer and specialize in large, high-accuracy reflectors, which can range from unfurlable and fixed-mesh reflector antennas to solid spot beam antennas. Some of the more significant programs in this sector include:
System Engineering and Sustainment Integrator (“SENSOR”), a program to maintain and modernize radar installations and provide engineering support and sustainment for ground-based systems for the USAF:
Geostationary Operational Environmental Satellite - Series R (“GOES-R”), a program to design, develop and build systems to measure, understand and monitor weather and environmental trends for the U.S. National Oceanic and Atmospheric Administration; and
GPS III, a program to modernize the GPS satellite system for the USAF.
Intel & Cyber: We provide situational awareness optical networks and advanced wireless solutions for classified intelligence and cyber defense. Although classified programs are generally not discussed in this Report, the operating results relating to classified programs are included in our Consolidated Financial Statements in this Report. 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.
Avionics: We provide avionic sensors, hardened electronics, release systems, data links and antennas supporting fixed wing and rotary platforms. Significant customers include military aircraft manufacturers, DoD customers within the U.S. Government and select foreign military services. For the F-35 Lightning II Joint Strike Fighter (“F-35”) and F/A-18E/F Super Hornet (“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 Mulifunction Advanced Data Link communication subsystems primarily intended for stealth platform air-to-air communications.
Electronic Warfare: We provide multi-spectral situational awareness, threat warning and countermeasures capabilities for electronic warfare solutions for airborne and maritime platforms. Significant customers include military aircraft manufacturers, DoD customers within the U.S. Government and select foreign military services. Examples of our electronic warfare technology include:
Our advanced integrated defense electronic warfare systems (“AIDEWS”) that provide integrated and podded self-protection and jamming;
Our integrated defensive electronic countermeasures (“IDECM”) system for the F/A-18;
Our counter-radio controlled improvised explosive device technology that protects ground forces in asymmetrical combat environments; and
Our land-based surveillance radar that provides three-dimensional radar capability for airborne defensive
surveillance for the USN.
Additional information regarding the composition of Space and Airborne Systems revenue for the two quarters ended January 3, 2020 is as follows:
88 percent 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;
57 percent was derived from contracts under which we are the prime contractor;
14 percent was derived from products and services for which the end consumer is located outside the U.S.; and
5 percent and 35 percent was derived from this segment’s largest and ten largest programs, respectively.
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.
Communication Systems
Communication Systems segment revenue of $2,151 million for the two quarters ended January 3, 2020, represented 23 percent of our total revenue. This segment is comprised of four business sectors: Tactical Communications, Broadband Communications. Integrated Vision Solutions and Public Safety, the principal products and services of which are described below. This segment consists of a mix of operating businesses acquired in the L3Harris Merger and operating businesses from our pre-merger Communication Systems segment.

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Tactical Communications: We provide tactical radio communications, SATCOM terminals and battlefield management networks for U.S. and international defense customers. Some of our more significant tactical radio products include:
Our 2-channel handheld radio, the AN/PRC-163, for the U.S. Special Operations Command (“SOCOM”) Special Operations Forces Tactical Communications (“STC”) program and the U.S. Army 2-Channel Leader Radio program;
Our multi-channel manpack radio, the AN/PRC-158;
Our wideband high frequency (“HF”) manpack radios, the AN/PRC-160; and
Our multiband manpack radio, the AN/PRC-117G, for which we have been providing Mobile User Objective System (“MUOS”) waveform software upgrades to enable connectivity to DoD’s next-generation MUOS satellite system.
We operate in this market principally on a “commercial” market-driven business model. 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.
Broadband Communications: We develop, design, manufacture and integrate broadband secured mobile networked communication equipment, including airborne, space and surface data link terminals, ground stations and transportable tactical SATCOM systems used on manned aircraft, unmanned aerial vehicles (“UAVs”) and naval ships. Significant customers include U.S. defense and intelligence agencies.
Integrated Visions Solutions: We provide a full suite of helmet and weapon mounted integrated night vision systems for U.S. and international customers.
Public Safety: We provide radios, systems applications and equipment for critical public safety and professional communications.
We design, build, supply and maintain wireless communications systems, including digital trunked, statewide, multi-agency systems for public safety communications and large, wide-area and multi-state land mobile radio (“LMR”) and radio frequency (“RF”) systems for some of the largest utility companies in the U.S.
We offer a full range of single-band LMR terminals, as well as multiband radios that include a handheld radio and a full-spectrum mobile radio for vehicles.
Additional information regarding the composition of Communication Systems revenue for the two quarters ended January 3, 2020 is as follows:
69 percent 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;
65 percent was derived from contracts under which we are the prime contractor; and
29 percent was derived from products and services for which the end consumer is located outside the U.S.
Aviation Systems
Aviation Systems segment revenue of $2,038 million for the two quarters ended January 3, 2020, represented 22 percent of our total revenue. This segment is comprised of four business sectors: Defense Aviation Products, Commercial Aviation Products, Commercial and Military Training and Mission Networks, the principal products and services of which are described below. This segment principally consists of operating businesses acquired in the L3Harris Merger, but includes the mission networks ATM operating business from Harris’ former Electronic Systems segment.
Defense Aviation Products: We provide precision engagement sensors and systems, small UAVs, antennas and arrays, RF amplifiers and microwave electronic devices. In addition, this business sector provides combat vehicle engines, transmissions and GPS receivers for guided projectiles and precision munitions as well as navigation for fire control systems. Significant customers include U.S. defense and foreign military agencies.
Commercial Aviation Products: We provide airport security and detection solutions, including offerings such as airport security screening solutions and threat and contraband detection and body scanning systems. In addition, we provide automation and integration services for airports, automotive manufacturing and other industries. We also provide airborne avionics products, such as traffic collision avoidance and flight recorders. Significant customers include the U.S. Transportation Security Administration, domestic and international airports and port operators, the U.S. Customs and Border Control agency and international equivalents, commercial airplane manufacturers, commercial airlines and automotive manufacturers.
On February 4, 2020, as part of our ongoing process to reshape our business portfolio to focus on technology-differentiated, high-margin businesses, we entered into a definitive agreement to sell the airport security and automation business within our Commercial Aviation Products business sector to Leidos, Inc. for $1 billion in cash. See Note 28: Subsequent Events in the Notes for additional information.
Commercial and Military Training: We provide commercial and military pilot training and flight and maintenance simulation solutions to commercial airlines, aircraft manufacturers, DoD and foreign military agencies.
Mission Networks: We provide mission-critical infrastructure communications and networking solutions for ATM for the U.S. Federal Aviation Administration (“FAA”) and international airspace national service providers. We are the prime contractor

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and system architect for the FAA Telecommunications Infrastructure (“FTI”) program and several major FAA Next Generation Air Transportation System (“NextGen”) programs to transform and upgrade the National Airspace System (“NAS”), including the Automatic Depend4ent Surveillance-Broadcast (“ADS-B”) program.
Additional information regarding the composition of Aviation Systems revenue for the two quarters ended January 3, 2020 is as follows:
59 percent 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;
61 percent was derived from contracts under which we are the prime contractor; and
26 percent was derived from products and services for which the end consumer is located outside the U.S.
International Business
Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $2.0 billion (21 percent of our revenue) in the two quarters ended January 3, 2020. Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $1.5 billion (22 percent of our revenue), $1.4 billion (23 percent of our revenue) and $1.5 billion (25 percent of our revenue) in fiscal 2019, 2018 and 2017, respectively. 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 25: 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 the EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific) regions and Canada. We also have established international marketing organizations and several regional sales offices. For further information regarding our international subsidiaries, see Exhibit 21 of this Report.
International revenue for the two quarters ended January 3, 2020 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 on an open account. Advance payments, progress payments or other similar payments received prior to or 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.
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 particular economic, social and political conditions for business conducted outside the U.S. differ from those encountered by businesses in the U.S. 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. Some 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. Our principal competitors include BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon, Thales and United Technologies.
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, was approximately 73 percent in the two quarters ended January 3, 2020, and was approximately 77 percent, 75 percent and 74 percent in fiscal 2019, 2018 and 2017,

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respectively. No other customer accounted for more than 5 percent of our revenue in the two quarters ended January 3, 2020. 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 departments and agencies of, and prime contractors to, the U.S. Government. Most of the sales in our Space and Airborne Systems and Integrated Mission 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 indefinite duration-indefinite quantity (“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 or sell a specific product 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 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.
In addition, the U.S. Government recently has increased its focus on procurement process improvement initiatives and has implemented certain changes in its procurement practices. These developments may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact to our business, financial condition, results of operations and cash flows. For example, contracts awarded under the DoD’s Other Transaction Authority for research and prototypes generally require cost-sharing and may not follow, or may follow only in part, standard U.S. Government contracting practices and terms, such as the Federal Acquisition Regulation (“FAR”) and Cost Accounting Standards.
For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.

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Backlog
Company-wide total backlog was $20.6 billion at January 3, 2020, of which $16.2 billion was funded backlog, compared with $8.3 billion at June 28, 2019, of which $5.8 billion was funded backlog. We acquired $11.7 billion of total backlog in the L3Harris Merger, of which $10.3 billion was funded backlog. We expect to recognize approximately 60 percent of the revenue associated with Company-wide total backlog within the next twelve months and the substantial majority of the revenue associated with Company-wide total backlog within the next three years. However, we can give no assurance of such fulfillment or that our 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.
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. The level of order activity related to U.S. Government programs can be affected by the 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. The determination of the unfunded portion of total backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursable or incentive nature.
Backlog information for each of our business segments is contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report and is incorporated herein by reference.
See Note 24: Backlog in the Notes for additional information regarding Company-wide total backlog.
Research and Development
Company-sponsored research and development (“R&D”) costs, which include R&D for commercial products and services and independent R&D related to government products and services, were approximately $329 million in the two quarters ended January 3, 2020. R&D costs were approximately $331 million, $311 million and $310 million in fiscal 2019, 2018 and 2017, 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 January 3, 2020, we held approximately 2,460 U.S. patents and 2,070 foreign patents, and had approximately 280 U.S. patent applications pending and 280 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 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 waste 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

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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 the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017. Based on currently available information, we do not expect capital expenditures in fiscal 2020 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 26: 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 and Space and Airborne Systems segments, 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 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-wide supply chain shortages. As of January 3, 2020, 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 50,000 employees at January 3, 2020, approximately 86 percent of which 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. As of January 3, 2020, approximately 3,000 of our U.S. employees were 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.

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Website Access to L3Harris Reports; Available Information
General.    We maintain an Internet website at https://www.l3harris.com. Our annual reports on Form 10-K, this Report, 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 L3Harris Technologies, Inc., 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.l3harris.com/corporate-governance. In addition, the charters of each of the standing committees of our Board of Directors, namely, the Audit Committee, Compensation Committee, Finance Committee and Nominating and Governance 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 L3Harris Technologies, Inc., 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 2019 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation by L3Harris 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, primarily defense-related programs with the DoD and a
broad range of programs with the U.S. Intelligence Community and other U.S. Government departments and agencies. 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, was approximately 73 percent in the two quarters ended January 3, 2020 and 77 percent, 75 percent and 74 percent in fiscal 2019, 2018 and 2017, respectively. Therefore, any significant disruption or deterioration of our relationship with the U.S. Government (in particular, the DoD) would significantly reduce our revenue and have an adverse impact on our business, financial condition, results of operations and cash flows.
Our competitors continuously engage in efforts to expand their business relationships with the 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. Some of our competitors have greater financial resources than we do and may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. 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 with 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 an increase of bid protests from unsuccessful bidders, which typically extends the time until work on a contract can begin. 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.

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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. Any inability of the U.S. Government to complete its budget process for any government fiscal year and consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution” or shut down 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. In recent years, U.S.
Government appropriations have been affected by larger U.S. Government budgetary issues and related legislation. 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 initially receive only partial funding, and additional funds are obligated only as Congress authorizes further appropriations. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual appropriations process ultimately approved by Congress and the President or in separate supplemental appropriations or continuing resolutions, as applicable. 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 or 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. For some contracts, we are a subcontractor and not the prime contractor, and in those arrangements, the U.S. Government could terminate the prime contractor for convenience without regard for our performance as a subcontractor. We can give no assurance that one or more of our U.S. Government contracts will not be terminated under those 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 U.S. 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. In addition, the U.S. Government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth and other changes to its procurement practices. These initiatives and changes to procurement practices may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact on our business, financial condition, results of operations and cash flows. For example, contracts awarded under the DoD’s Other Transaction Authority for research and prototypes generally require cost-sharing and may not follow, or may follow only in part, standard U.S. Government contracting practices and terms, such as the FAR and Cost Accounting Standards.

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Failure to comply with applicable regulations and 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 and regulations, including those related to procurement integrity, export control (including International Traffic in Arms Regulations (“ITAR”)), U.S. Government security, 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.
The U.S. Government’s budget deficit and the national debt, as well as any inability of the U.S. Government to complete its budget process for any government fiscal year and consequently having to shut down or operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution,” could have an adverse impact on our business, financial condition, results of operations and cash flows.
Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the U.S. Government, what challenges budget reductions will present for the defense industry and whether annual appropriations bills for all agencies will be enacted for U.S. Government fiscal 2021 and thereafter. The U.S. Government’s budget deficit and the national debt 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;
U.S. Government spending could be impacted by alternate arrangements to sequestration, 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.
Furthermore, we believe continued budget pressures could have serious negative consequences for the security of the U.S., the defense industrial base and the customers, employees, suppliers, investors and communities that rely on companies in the defense industrial base. Budget and program decisions made in this environment would have long-term implications for L3Harris and the entire defense industry.
We could be negatively impacted by a security breach, through cyber attack, cyber intrusion, insider threats 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, cyber intrusion or insider threat via the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or with access to systems inside our organization, threats to the physical security of our facilities and employees or other significant disruption of our IT networks and related systems or those of our suppliers or subcontractors. 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, is persistent and substantial as the volume, intensity and sophistication of attempted attacks, intrusions and threats from around the world remain elevated and unlikely to diminish. As an advanced technology-based solutions provider, and particularly as a government contractor with access to national security or other sensitive government information, 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. 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. Our efforts and measures have not been entirely effective in the case of every cyber security incident, but no incident has had a material negative impact on us to date. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber attacks and cyber 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. Thus, it is impossible for us to entirely mitigate this risk, and there can be no assurance that future cyber security incidents will not have a material negative impact on us. A security breach or other significant disruption involving these types of information and IT networks and related systems could:

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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;
Result in costs which exceed our insurance coverage and/or indemnification arrangements;
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 general public.    
We must also rely on the safeguards put in place by customers, suppliers, vendors, subcontractors or other third parties to minimize the impact of cyber threats, other security threats or business disruptions. These third parties may have varying levels of cybersecurity expertise and safeguards, and their relationships with government contractors, such as L3Harris, may increase the likelihood that they are targeted by the same cyber threats we face. In the event of a breach affecting these third parties, our business and financial results could suffer materially. With respect to our commercial arrangements with these third parties, we have processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection processes, which may not be as sophisticated as ours, or a cyber attack on a third party’s information network and systems.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of operations and cash flows.
Our ability to successfully manage ongoing business and organizational changes could impact our business results.
We have recently undergone several significant business and organizational changes, including the L3Harris Merger. In addition, competition to retain or recruit talent can be heightened during a time when we are experiencing significant changes. Effectively managing these business and organizational changes is critical to retaining talent, servicing customers and our business success overall. The failure to effectively manage such changes could adversely impact our business or financial results.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. In particular, our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in inflation.
We generate revenue through various fixed-price, cost-plus and time-and-material contracts. 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. For a description of our revenue recognition policies, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Estimates - Revenue Recognition” of this Report.
In the two quarters ended January 3, 2020, approximately 76 percent of our revenue was derived from 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, a significant increase in inflation in the U.S. or other countries, problems with our suppliers and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time. 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.
In the two quarters ended January 3, 2020, approximately 24 percent of our revenue was derived from cost-plus and time-and-material contracts. Substantially all of our cost-plus contracts and time-and-material contracts are with U.S. Government customers, while sales to foreign government and commercial customers are generally transacted under fixed-price sales

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arrangements and are included in our fixed-price contract sales. For a cost-plus contract, we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels established by our customers. On a time-and-material contract, we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (which include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. Therefore, on cost-plus and time-and-material type contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts.
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 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 contracts should be accounted for as having one or more performance obligations based on the goods and services promised to the customer; (iii) incentives or penalties related to performance on contracts in estimating revenue and profit rates, and recording 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. For additional information regarding our critical accounting policies and estimates applicable to our accounting for our contracts, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Estimates” of this Report.
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, systems and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was 21 percent in the two quarters ended January 3, 2020 and 22 percent, 23 percent and 25 percent in fiscal 2019, 2018 and 2017, respectively. Approximately 40 percent of our international business in the two quarters ended January 3, 2020 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. Other risks of doing business internationally include:
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, including ITAR, 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;

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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.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could affect our financial condition, results of operations 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”). 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. These assumptions and other actuarial assumptions may change significantly due to changes in economic, legislative, and/or demographic experience or circumstances. Our financial condition 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. We expect to continue to seek reimbursement from the U.S. Government for a portion of our postretirement costs and plan contributions; however, pension plan cost recoveries under our U.S. Government contracts may occur in different periods from when those pension costs are recognized for financial statement purposes or when pension funding is made. CAS rules have been revised to partially harmonize the measurement and period of assignment of pension plan costs allocable to U.S. Government contracts and minimum required contributions under the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006. However, there is still a lag between the time when we contribute cash to our plans under pension funding rules and when we recover pension costs under CAS rules. These timing differences could have a material adverse effect on our cash flows.
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. Our ability to obtain these licenses and authorizations timely or at all is subject to risks and uncertainties, including changing U.S. Government policies or laws or delays in Congressional action due to geopolitical and other factors. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be reversed, prevented or delayed, and 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.
Disputes with our subcontractors or the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts or services, could cause our products, systems 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, systems 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. Tariffs recently imposed on certain materials and other trade issues may create or exacerbate existing materials shortages and may result in further supplier business closures. Our supply chain could also be disrupted by external events, such as natural disasters or other significant disruptions (including extreme weather

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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, or availability constraints from increased demand from customers. In addition, the ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain businesses in the region. These or any further political or governmental developments or health concerns in China or other countries in which we operate could result in social, economic and labor instability. 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, systems and services to our customers. We can give no assurances that we will be free from disputes with our subcontractors; material supply constraints or 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, which may be unable to meet our needs. Each of these subcontractor and supplier risks could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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, training, policies and procedures designed to prevent and detect 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, the protection of export controlled or classified information, such as ITAR, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy and the terms of our contracts. This risk of improper conduct may increase as we continue to grow and expand our operations. We cannot ensure, however, that our controls, training, 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 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.
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 market needs and growth opportunities;
Identify emerging technological trends in our current and target markets;
Identify additional uses for our existing technology to address customer needs;
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; 
Develop, manufacture and bring to market cost-effective offerings quickly;
Enhance product designs for export and releasability to international markets; and
Effectively structure our businesses to reflect the competitive environment, including through the use of joint ventures, collaborative agreements and other forms of alliances.
We believe that, in order to remain competitive in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products, systems, services and technologies, which will require the investment of significant financial resources. In the past, we have allocated substantial funds for such investments through customer funded and internal research and development, acquisitions or other teaming arrangements. This practice will continue to be required in the future, but we may not be able to successfully identify new opportunities and may not have the necessary financial resources to develop new products, systems, services and technologies in a timely or cost-effective manner. Furthermore, 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

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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, that we will be successful in newly identified markets as we currently anticipate, or that acquisitions, joint ventures or other teaming arrangements we may enter into to pursue developing new products, systems, services or technologies will be successful. 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, electronic systems or other products, systems, services or technologies. 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 new or increased tariffs and potential trade wars and the withdrawal of the United Kingdom from the European Union on January 31, 2020 (commonly referred to as “Brexit”), have created and may continue to create economic and political uncertainties and impacts 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 social instability in the geographic areas in which we operate. If credit in financial markets outside of the U.S. tightened, it could adversely affect the ability of our customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders for our products, systems and services or impact the ability of our customers to make payments. 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.
Although the transition period subsequent to Brexit maintains all existing trade agreements, the effects of Brexit will depend on the agreements, if any, the United Kingdom makes to retain access to European markets either during the transition period or more permanently. An exit from the European Union without an agreement in place could result in more significant disruptions to our supply chain, the imposition of increased tariffs and currency devaluation in the United Kingdom and have an adverse impact on our consolidated revenue, earnings and cash flow. For the two quarters ended January 3, 2020, L3Harris generated 2 percent of its net revenues in the United Kingdom.
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations and cash flows.
Strategic mergers, acquisitions and divestitures we have made in the past and may make in the future present significant risks and uncertainties that could adversely affect our business, financial condition, results of operations and cash flows, which include:
Difficulty in identifying and evaluating potential mergers and acquisitions, including the risk that our due diligence does not identify or fully assess valuation issues, potential liabilities or other merger or acquisition risks;
Difficulty and expense in integrating newly merged or 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;

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Difficulty and expense in consolidating and rationalizing IT infrastructure, which may include multiple legacy systems from various mergers and acquisitions and integrating software code;
Challenges in achieving strategic objectives, cost savings and other benefits expected from mergers and acquisitions;
Risk that our markets do not evolve as anticipated and that the strategic mergers, acquisitions and divestitures do not prove to be those needed to be successful in those markets;
Risk that we assume or retain, or that companies we have merged with or acquired have assumed or retained or otherwise become subject to, significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties;
Risk that indemnification related to businesses divested or spun off that we may be required to provide or otherwise bear may be significant and could negatively impact our business;
Risk that mergers, acquisitions, divestitures, spin offs and other strategic transactions, including the L3Harris Merger, fail to qualify for the intended tax treatment for U.S. Federal income tax purposes, such as a tax-free reorganization in the case of the L3Harris Merger;
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 merged with or acquired or to be divested; and
Risk of diverting the attention of senior management from our existing operations.
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.
The size, nature and complexity of our business make us susceptible to investigations, claims, disputes, enforcement actions, litigation and other legal proceedings, particularly those involving governments. From time to time, we are defendants in a number of litigation matters and are involved in a number of arbitration matters. 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. Although we maintain insurance policies, these policies may not be adequate to protect us from all material judgments and expenses related to current or future claims and may not cover the conduct that is the subject of the litigation or arbitration. Desired levels of insurance may not be available in the future at economical prices or at all. In addition, we believe that while we have valid defenses with respect to legal matters pending against us, the results of litigation or arbitration can be difficult to predict, including litigation involving jury trials. Accordingly, our current judgment as to the likelihood of our loss (or our current estimate as to the potential range of loss, if applicable) with respect to any particular litigation or arbitration matter may be wrong. A significant judgment or arbitration award against us arising out of any of our current or future litigation or arbitration matters could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.
We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.
U.S. Government contractors are subject to extensive legal and regulatory requirements, including ITAR and FCPA, and from time to time agencies of the U.S. Government investigate whether we have been and are operating in accordance with these requirements. We may cooperate with the U.S. Government in those investigations. Under U.S. Government regulations, an indictment of L3Harris by a federal grand jury, or an administrative finding against us as to our present responsibility to be a U.S. Government contractor or subcontractor, could result in us being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges, which could have a material adverse effect on our results of operations and cash flows. A conviction, or an administrative finding against us that satisfies the requisite level of seriousness, could result in debarment from contracting with the U.S. Government for a specific term, which could have a material adverse effect on our results of operations and cash flows.
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. Our efforts to gain awards of contracts and ensure a competitive position in the market depends in part on our ability to ensure that our intellectual property is protected, that our intellectual property rights are not diluted or subject to misuse, and that we are able to license certain third party intellectual property on reasonable terms. 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. There can be no assurance that any of our patents and other intellectual property will not be challenged, invalidated, misappropriated or circumvented by third parties. 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

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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. In addition, the laws concerning intellectual property vary among nations and the protection provided to our intellectual property by the laws and courts of foreign nations may differ from those of the U.S. 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 enforce our intellectual property rights. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business.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.
Our commercial aviation products, systems and services business is affected by global demand and economic factors that could negatively impact our financial results.
The operating results of our commercial aviation products, systems and services business may be adversely affected by downturns in the global demand for air travel which impacts new aircraft production and orders, and global flying hours, which impacts air transport, regional and business aircraft utilization rates and pilot training needs. The aviation industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and international economies and is impacted by long-term trends in airline passenger and cargo traffic. The results of our commercial aviation business also depend on other factors, including general economic growth, political stability in both developed and emerging markets, pricing pressures, trends in capital goods markets and changes in original equipment manufacturer production rates.
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, systems 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 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 mergers or 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
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.

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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 January 3, 2020, L3Harris had $6.8 billion in aggregate principal amount of outstanding debt and approximately $1.8 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 various U.S. Federal, state and local, as well as certain foreign, environmental laws and regulations within the countries in which we operate relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations. In addition, we could be affected by future environmental laws or regulations, including, for example, new restrictions on materials used in our operations, or future regulations imposed or claims asserted in response to concerns over climate change, other aspects of the environment or natural resources. 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 us, 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 and customers 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, pandemics, 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 or customers, including inability of employees to work; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses, delay or decrease orders and revenue from our customers and have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the ongoing outbreak of the novel COVID-19 strain of coronavirus in early 2020, which emanated from China and has spread to other

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countries globally, has resulted in travel restrictions and business shutdowns in certain regions. These or any further political, governmental or other actions to contain the spread or treat the impact of coronavirus, and resulting developments, are highly uncertain and unpredictable and could result in social, economic and labor instability. These uncertainties could have a material adverse effect on the continuity of our business and our 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.
From time to time, we 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. As of January 3, 2020, we had goodwill of $20.0 billion recorded in our Consolidated Balance Sheet, $14.6 billion of which was recorded in connection with the L3Harris Merger during the two quarters ended January 3, 2020. 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. We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level or one level below the business segment. 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. In addition, following the L3Harris Merger, our reporting units are generally one level below the segment level and two of our segments are comprised of several reporting units. Allocation of goodwill to several reporting units could make it more likely that we will have an impairment charge in the future. 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 10: Goodwill in the Notes.
We must attract and retain key employees, and any failure to do so could seriously harm us.
Our future success depends to a significant degree upon the continued contributions of our management and our ability to attract and retain highly qualified management and technical personnel, including employees who have U.S. Government security clearances, particularly clearances of top-secret and above. 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. Failure to attract and retain such personnel would damage our future prospects.
Some of our workforce is represented by labor unions, so our business could be harmed in the event of a prolonged work stoppage.
At January 3, 2020, approximately 3,000 of L3Harris’ U.S. employees were unionized, which represents approximately 7 percent of L3Harris’ employee-base. If we encounter difficulties with renegotiations or renewals of collective bargaining arrangements or are unsuccessful in those efforts, we could incur additional costs and experience work stoppages. Union actions at suppliers can also affect us. 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 products or provide services on a timely basis, which could negatively impact our business, financial condition, results of operations and cash flows.

Risks Relating to Integration Following the L3Harris Merger
We may fail to realize all of the anticipated benefits of the L3Harris Merger or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating the businesses.
Our ability to realize the anticipated benefits of the L3Harris Merger will depend, to a large extent, on our ability to integrate the businesses. The combination of independent businesses is a complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and resources to integration activities. The integration process may disrupt the businesses and, if implemented ineffectively, could restrict the realization of the full benefits anticipated. The failure to meet the challenges involved in integrating the businesses and to realize the anticipated benefits of the L3Harris Merger could cause an interruption of or a loss of momentum in our activities and could adversely affect our results of operations. In addition, the overall integration may result in material unanticipated problems, expenses, liabilities, competitive responses, loss

21


of customer relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:
the diversion of management’s attention to integration matters;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the combination;
difficulties in the integration of operations and systems;
conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the companies;
difficulties in the assimilation of employees;
difficulties in managing the expanded operations of a significantly larger and more complex company;
difficulties in establishing effective uniform controls, systems, procedures and policies for the combined company;
challenges in keeping existing customers and obtaining new customers;
challenges in attracting and retaining key personnel; and
coordinating a geographically dispersed organization.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations. In addition, even if our operations are integrated successfully, the full benefits of the L3Harris Merger may not be realized, including the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame or at all. Further, additional unanticipated costs may be incurred in the integration. All of these factors could cause dilution to our earnings per share, decrease or delay the expected benefits of the L3Harris Merger and negatively impact the price of our stock. As a result, we can give no assurances that the L3Harris Merger will result in the realization of the full benefits anticipated.
Certain business uncertainties arising from the L3Harris Merger could adversely affect our businesses and operations.
Uncertainties about the effect of the L3Harris Merger on employees, customers, suppliers, business partners and other persons with whom we have a business relationship may have an adverse effect on us. During times of significant change and uncertainty such as the period following the L3Harris Merger, customers, suppliers, business partners and other persons with whom we have a business relationship may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships with us, or take other actions as a result of the L3Harris Merger that could negatively affect our revenues, earnings and cash flows, as well as the market price of our securities. Our ability to raise additional capital through the debt markets, and the associated borrowing costs, may also be negatively impacted. Any such effects could limit our ability to achieve the anticipated benefits of the L3Harris Merger. These uncertainties about the effect of the L3Harris Merger may also impair our ability to attract, retain and motivate key personnel. Employee retention may be challenging, as certain employees may experience uncertainty about their future roles or may be dissatisfied with their new roles. If key employees depart, our business could be materially harmed. If key employees join a competitor or form a new competitor, existing and potential clients could choose to use the products or services of that competitor instead of our products or services.
We have incurred and will incur direct and indirect costs as a result of the L3Harris Merger.
We have incurred substantial expenses in connection with completing the L3Harris Merger and coordinating and integrating the businesses, operations, policies and procedures of the combined companies and expect to continue to incur such expenses. While we have assumed that a certain level of transaction and coordination expenses will be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of these transaction and coordination expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our financial condition and results of operation.

 ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not applicable.
 
 ITEM 2.
PROPERTIES.
Our principal executive offices are located at owned facilities in Melbourne, Florida. As of January 3, 2020, we operated approximately 400 locations in the U.S., Canada, Europe, Australia, Asia, the Middle East and South America, consisting of approximately 27 million square feet of manufacturing, administrative, R&D, warehousing, engineering and office space, of which we owned approximately 12 million square feet and leased approximately 15 million square feet. There are no material encumbrances on any of our owned facilities. As of January 3, 2020, we had major operations at the following locations:
Integrated Mission Systems — Greenville, Rockwall and Waco, Texas; Burlington and Mirabel, Canada; Camden, New Jersey; Mason, Ohio; Sylmar, California; Tulsa, Oklahoma; Pittsburgh and Philadelphia, Pennsylvania; and Salt Lake City, Utah.

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Space and Airborne Systems — Palm Bay, Melbourne and Malabar, Florida; Rochester and Amityville, New York; Clifton, New Jersey; Colorado Springs, Colorado; Van Nuys and San Diego, California; Fort Wayne, Indiana; Wilmington, Massachusetts; Alpharetta, Georgia; and Tewkesbury, United Kingdom.
Communication Systems — Salt Lake City, Utah; Rochester, New York; Londonderry, New Hampshire; Lynchburg, Virginia; Tempe, Arizona; Farnborough, United Kingdom; Melbourne, Florida; San Diego, California; and Ann Arbor, Michigan.
Aviation Systems — Melbourne, Florida; Muskegon and Grand Rapids, Michigan; Torrance, Menlo Park and Anaheim, California; Arlington and Plano, Texas; Cincinnati, Ohio; Hauppauge, New York; Herndon, Virginia; Tewksbury, Massachusetts; Crawley and Luton, United Kingdom; and Phoenix, Arizona.
Corporate — Melbourne, Florida.
The following is a summary of the approximate floor space of our offices and facilities in productive use, by segment, at January 3, 2020:
Segment
Approximate
Total Sq. Ft.
Owned
 
Approximate
Total Sq. Ft.
Leased
 
Approximate
Total
Sq. Ft.
 
 
 
 
 
 
 
(In millions)
Integrated Mission Systems
2.2

 
6.7

 
8.9

Space and Airborne Systems
5.0

 
2.4

 
7.4

Communication Systems
1.6

 
1.6

 
3.2

Aviation Systems
2.4

 
4.0

 
6.4

Corporate
0.4

 
0.4

 
0.8

Total
11.6

 
15.1

 
26.7

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 or were engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including, but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At January 3, 2020, 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 January 3, 2020 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 or conducted 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. 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

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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 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, including ITAR and FCPA. These investigations may be conducted with or without our knowledge or cooperation. 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 (such as ITAR), the FCPA and other similar U.S. and international laws.
In September 2019, we reached an administrative settlement with the Department of State to resolve alleged U.S. export control regulation violations. Under the terms of the settlement we have committed to strengthen our trade compliance program under the supervision of a special compliance officer and will pay a civil penalty of $13 million over three years (with $7 million suspended on the condition of use for qualified remedial compliance measures). The settlement did not result in any debarment or limitation on export licensing.
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 or companies we have acquired are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in some cases our liability is considered de minimis. Notices from the U.S. Environmental Protection Agency (“EPA”) or equivalent state or international environmental agencies allege 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 of us being 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, in June 2014, the U.S. Department of Justice, Environment and Natural Resources Division, notified several potentially responsible parties, including Exelis Inc., which we acquired on May 29, 2015 (“Exelis”), of potential responsibility for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, in March 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of potential liability for the cost of remediation for the lower 8.3-mile stretch of the Lower Passaic River, estimated by the EPA to be $1.38 billion, but the parties’ respective allocations have not been determined. Although it is not feasible to predict the outcome of environmental claims, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims in existence at January 3, 2020 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.


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 ITEM 4.
MINE SAFETY DISCLOSURES.
Not Applicable.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
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 February 28, 2020, were as follows:
Name and Age
  
Position Currently Held and Past Business Experience
William M. Brown, 57
  
Chairman and Chief Executive Officer since June 29, 2019. Chairman, President and Chief Executive Officer from April 2014 to June 2019. 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.
Todd W. Gautier, 56
  
President, Aviation Systems since June 29, 2019. Served with L3 as Senior Vice President and President of Electronic Systems Segment from March 2017 to June 2019; as President of Precision Engagement and Training Sector from January 2014 to March 2017; as President of Precision Engagement Sector from January 2010 to January 2014; and as Vice President of Business Development and Strategy for the Sensors and Simulation Group from January 2005 to January 2010. Before joining L3 in 2001, Mr. Gautier served in the U.S. Navy for 15 years as a Strike/Fighter Pilot; was Vice President of Navy Operations for BGI, LLC; and worked for United Airlines as a flight crew member.
James P. Girard, 43
  
Vice President and Chief Human Resources Officer since June 29, 2019. Vice President, Human Resources from July 2015 to June 2019. Vice President, Human Resources - Government Communications Systems from May 2014 to June 2015. Before joining L3Harris in May 2014, Mr. Girard worked for UTC, as Vice President, Human Resources at Sikorsky Aircraft from February 2014 to April 2014; as Director, Talent Resources from November 2011 to January 2014; as Vice President, Human Resources at UTC’s Global Fire Products from June 2010 to October 2011; and served in various Human Resources roles from 1995 to 2010.
Christopher E. Kubasik, 58
  
Vice Chairman, President and Chief Operating Officer since June 29, 2019. Served with L3, as Chairman, Chief Executive Officer and President from May 2018 to June 2019; as Chief Executive Officer and President from January 2018 to May 2018; and as President and Chief Operating Officer from October 2015 to December 2017. Before joining L3 in October 2015, Mr. Kubasik worked for Seabury Advisory Group as President and Chief Executive Officer from March 2014 to October 2015; for Ackuity Advisors, Inc., as President and Chief Executive Officer from January 2013 to March 2014; and for Lockheed Martin Corporation, where he held various senior executive and finance roles from 1999 to 2012, including Vice Chairman, President and Chief Operating Officer from 2010 to 2012. Prior to that, he worked for Ernst & Young LLP, including as a partner from 1996 to 1999.

Jesus “Jay” Malave Jr., 51
  
Senior Vice President and Chief Financial Officer since June 29, 2019. Before joining L3Harris, Mr. Malave worked at UTC, as Vice President and Chief Financial Officer of UTC’s Carrier Corporation from April 2018 to June 2019; as Chief Financial Officer of UTC’s Aerospace Systems from January 2015 to April 2018; as Head of Investor Relations from June 2012 to December 2014; as Vice President, Financial Planning and Treasury at Hamilton Sundstrand, with responsibility for planning the integration of Goodrich Corporation from May 2011 to June 2012; as Director of Investor Relations from June 2009 to May 2011; and prior to that, in other roles of increasing responsibility in financial planning and analysis, treasury and accounting.
Dana A. Mehnert, 57
  
President, Communication Systems since September 2018. Senior Vice President, Chief Global Business Development Officer from July 2015 to September 2018. Group President, RF Communications from May 2009 to July 2015. President, RF Communications from July 2006 to May 2009. Mr. Mehnert joined L3Harris in 1984.
Scott T. Mikuen, 58
  
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 L3Harris in 1996 as Finance Counsel.

26


Sean J. Stackley, 62
  
President, Integrated Mission Systems since June 29, 2019. Served with L3 as Senior Vice President and President of Communications & Networked Systems Segment from September 2018 to June 2019; and as Corporate Vice President, Strategic Advance Programs and Technologies from January 2018 to September 2018. Before joining L3 in January 2018, (Hon.) Mr. Stackley spent four decades in public service, including a 27-year career with the U.S. Navy, where he most recently was Acting Secretary of the Navy from January 2017 to July 2017 and Secretary of the Navy for Research, Development and Acquisition from 2008 to 2017.
Todd A. Taylor, 47
  
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; as Director of Finance and Corporate Controller from September 2010 to September 2012; and as Director of Accounting from June 2008 to September 2010; Before joining Molex, Mr. Taylor worked for PricewaterhouseCoopers as Internal Audit Advisory Director from March 2003 to June 2008; for Wells Fargo as Internal Controls Manager from September 1999 to February 2003; and for RSM McGladrey.
Edward J. Zoiss, 55
  
President, Space and Airborne Systems since June 29, 2019. President, Electronic Systems from July 2015 to June 2019. 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 L3Harris 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.

27


PART II
 
 ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock, par value $1.00 per share, is listed and traded on the NYSE, under the ticker symbol “LHX.” According to the records of our transfer agent, as of February 28, 2020, there were approximately 11,306 holders of record of our common stock.
Dividends
We paid cash dividends on our common stock of $.75 per share each quarterly period of the two quarters ended January 3, 2020, $.685 per share each quarterly period of fiscal 2019 and $.57 per share each quarterly period of fiscal 2018. On February 28, 2020, our Board of Directors increased the quarterly cash dividend rate on our common stock from $.75 per share to $.85 per share, for an annualized cash dividend rate of $3.40 per share, which was our nineteenth consecutive annual increase in our quarterly cash dividend rate. Our annualized cash dividend rate was $3.00 per share in the two quarters ended January 3, 2020 and $2.74 per share, $2.28 per share and $2.12 per share in fiscal 2019, 2018 and 2017, respectively. 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 or future dividend increases. The declaration of dividends and the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant.
L3Harris 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 and Fiscal Transition Period cumulative total shareholder return of our common stock (the common stock of Harris Corporation prior to the L3Harris Merger and the common stock of L3Harris Technologies, Inc. after the L3Harris Merger) with the comparable 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 27, 2014 in L3Harris common stock, the S&P 500 and the S&P 500 Aerospace & Defense and the reinvestment of all dividends.


28


COMPARISON OF FIVE-YEAR (PRIOR TO L3HARRIS MERGER) AND FISCAL TRANSITION PERIOD (AFTER L3HARRIS MERGER) CUMULATIVE TOTAL RETURN AMONG L3HARRIS, S&P 500 AND S&P 500 AEROSPACE & DEFENSE
CHART-B8B8B3DFF695511484F.JPG

L3HARRIS PERIOD END
June 27,
2014
July 3,
2015
July 1,
2016
June 30,
2017
June 29,
2018
June 28,
2019
January 3,
2020
L3Harris Technologies, Inc.
$
100

$
105

$
114

$
154

$
208

$
276

$
310

S&P 500
$
100

$
108

$
112

$
132

$
151

$
166

$
185

S&P 500 Aerospace & Defense
$
100

$
108

$
122

$
156

$
196

$
217

$
237



Sales of Unregistered Securities
In connection with the L3Harris Merger, in July 2019, we issued $501 million in aggregate principal amount of 4.95% Senior Notes due 2021, $741 million in aggregate principal amount of 3.85% Senior Notes due 2023, $326 million in aggregate principal amount of 3.95% Senior Notes due 2024, $535 million in aggregate principal amount of 3.85% Senior Notes due 2026 and $918 million in aggregate principal amount of 4.40% Senior Notes due 2028 (collectively, the “Debt Exchange Notes”). The Debt Exchange Notes were issued in a private offering exempt from the registration requirements of the Securities Act, to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside of the U.S. pursuant to Regulation S under the Securities Act. See Note 14: Debt in the Notes for additional information regarding our Debt Exchange Notes.

29


Issuer Purchases of Equity Securities
During the two quarters ended January 3, 2020, we repurchased 7,356,168 shares of our common stock under our current repurchase program for $1.5 billion at an average share price of $203.90, excluding commissions of $.02 per share. 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 and management 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 January 3, 2020:
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
 
 
 
 
 
 
 
(September 28, 2019-October 25, 2019)
 
 
 
 
 
 
 
Repurchase program(1)
580,000

 
$
205.39

 
580,000

 

$3,130,775,855

Employee transactions(2)
4,373

 
$
206.63

 

 

Month No. 2
 
 
 
 
 
 
 
(October 26, 2019-November 29, 2019)
 
 
 
 
 
 
 
Repurchase program(1)
2,535,640

 
$
198.10

 
2,535,640

 

$2,628,454,481

Employee transactions(2)
9,312

 
$
202.12

 

 

Month No. 3
 
 
 
 
 
 
 
(November 30, 2019-January 3, 2020)
 
 
 
 
 
 
 
Repurchase program(1)
658,028

 
$
195.04

 
658,028

 

$2,500,113,105

Employee transactions(2)
19,324

 
$
205.42

 

 

Total
3,806,677

 
 
 
3,773,668

 

$2,500,113,105

_______________
*
Periods represent our fiscal months.
(1)
On July 1, 2019, we announced that our Board of Directors approved a new $4 billion share repurchase authorization (our “2019 Repurchase Program”) replacing our prior share repurchase programs and authorizing us to repurchase up to $4 billion in shares of our common stock through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. As of January 3, 2020, $2,500,113,105 (as reflected in the table above) was the approximate dollar amount of our common stock that could still be purchased under the 2019 Repurchase Program.
(2)
Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance units, restricted units or restricted shares that vested during the quarter and (b) performance units, restricted 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 16: Stock Options and Other Share-Based Compensation in the Notes for a general description of our share-based incentive plans.

30


 ITEM 6.
SELECTED FINANCIAL DATA.
The following table summarizes our selected historical financial information for the two quarters ended January 3, 2020 and each of the prior five fiscal years. Amounts pertaining to our results of operations are presented on a continuing operations basis, which includes divested business not reported as discontinued operations. See Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes for information regarding discontinued operations and divestitures. The selected financial information shown below has been derived from our audited Consolidated Financial Statements, which for data presented for the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017, 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.
 
Two Quarters Ended
 
Fiscal Years Ended
 
January, 3
2020(2)
 
June 28, 2019(3)
 
June 29, 2018(4)
 
June 30, 2017(5)
 
July 1, 2016(6)(8)
 
July 3, 2015(7)(8)
 
(In millions, except per share amounts)
Results of Operations:(1)
Revenue from product sales and services
$
9,263

 
$
6,801

 
$
6,168

 
$
5,897

 
$
5,992

 
$
3,885

Cost of product sales and services
6,726

 
4,467

 
4,066

 
3,854

 
3,832

 
2,304

Interest expense
135

 
169

 
170

 
172

 
183

 
130

Income from continuing operations before income taxes
908

 
1,113

 
908

 
889

 
884

 
396

Income taxes
73

 
160

 
206

 
261

 
273

 
109

Income from continuing operations
835

 
953

 
702

 
628

 
611

 
287

Discontinued operations, net of income taxes
(1
)
 
(4
)
 
(3
)
 
(85
)
 
(287
)
 
47

Net income
834

 
949

 
699

 
543

 
324

 
334

Noncontrolling interests, net of income taxes
(12
)
 

 

 

 

 

Net income attributable to L3Harris Technologies, Inc.
822

 
949

 
699

 
543

 
324

 
334

Average shares outstanding (diluted)
223.7

 
120.5

 
121.1

 
124.3

 
125.0

 
106.8

Per Share Data (Diluted) Attributable to L3Harris Technologies, Inc. Common Shareholders:
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
3.68

 
$
7.89

 
$
5.78

 
$
5.04

 
$
4.87

 
$
2.67

Income (loss) from discontinued operations, net of income taxes
(0.01
)
 
(0.03
)
 
(0.02
)
 
(0.68
)
 
(2.28
)
 
0.44

Net income
3.67

 
7.86

 
5.76

 
4.36

 
2.59

 
3.11

Cash dividends
1.50

 
2.74

 
2.28

 
2.12

 
2.00

 
1.88

Financial Position at Fiscal Period-End:
Net working capital(9)
$
2,303

 
$
310

 
$
374

 
$
105

 
$
643

 
$
909

Property, plant and equipment
2,117

 
894

 
900

 
904

 
924

 
1,031

Long-term debt, net
6,694

 
2,763

 
3,408

 
3,396

 
4,120

 
5,053

Total assets
38,336

 
10,117

 
9,851

 
10,112

 
12,009

 
13,127

Equity
22,744

 
3,363

 
3,278

 
2,903

 
3,057

 
3,402

Book value per share
104.22

 
28.37

 
27.71

 
24.27

 
24.53

 
27.51

_______________
(1)
Includes the operating results of L3 businesses after the L3Harris Merger on June 29, 2019.
(2)
Results for the two quarters ended January 3, 2020 included: (i) $390 million of L3Harris Merger-related transaction and integration expenses and losses; (ii) $289 million of amortization of acquisition-related intangibles, including $239 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger and $50 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis; (iii) a $229 million gain on the sale of the Harris Night Vision business; (iv) $142 million of additional cost of sales related to the fair value step-up in inventory sold; (v) a $23 million gain on pension plain curtailment; (vi) a $12 million gain on the sale of an asset group; (vii) a $10 million non-cash cumulative adjustment to lease expense; and (viii) $3 million of losses and other costs related to debt refinancing. The net after-tax impact from these two quarters ended January 3, 2020 items was $392 million or $1.75 per diluted common share.

31


(3)
Results for fiscal 2019 included: (i) $101 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis and (ii) $65 million of L3Harris Merger-related transaction and integration costs. The net after-tax impact from these fiscal 2019 items was $128 million or $1.06 per diluted common share.
(4)
Results for fiscal 2018 included: (i) $101 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis; (ii) $47 million of charges related to our decision to transition and exit a commercial air-to-ground Long Term Evolution (“LTE”) radio communications line of business and other items; (iii) $27 million of losses and other costs related to debt refinancing; (iv) $20 million of charges related to non-cash adjustments for deferred compensation and the impact of tax reform; and (v) a $5 million charge related to consolidation of certain Exelis facilities initiated in fiscal 2017. The net after-tax impact from these fiscal 2018 items was $145 million or $1.20 per diluted common share.
(5)
Results for fiscal 2017 included: (i) $109 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis and (ii) a $58 million charge for Exelis acquisition-related and other items. The net after-tax impact from these fiscal 2017 items was $124 million or $1.00 per diluted common share.
(6)
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) $109 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis; (iii) a net liability reduction of $101 million for certain post-employment benefit plans; (iii) $33 million of charges for restructuring and other items; and (iv) a $10 million net gain on the sale of our aerostructures business. The net after-tax impact from these fiscal 2016 items was $108 million or $0.86 per diluted common share.
(7)
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.
(8)
Historical financial information for fiscal 2016 and 2015 has not been updated for our adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended (“ASC 606”), and ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”) on a retrospective basis, and consequently, the selected financial data for such fiscal years in this Item are not necessarily comparable to fiscal 2019, 2018 and 2017 in this Item.
(9)
Net working capital increased in the two quarters ended January 3, 2020 compared with fiscal 2019 primarily due to net working capital of L3 businesses recognized in connection with the L3Harris Merger on June 29, 2019. 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.

32


 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 Transition Period 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 periods 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 condition, 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 meet government and commercial customers’ mission-critical needs. We support government and commercial customers in 130 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 January 3, 2020, we had approximately 50,000 employees, including approximately 20,000 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. As discussed in “Item 1: Business” and Note 25: Business Segments in the Notes, we implemented a new organizational structure effective on June 29, 2019, and starting with the Fiscal Transition Period, we report the financial results of our continuing operations in the following four reportable segments, which are also referred to as our business segments:
Integrated Mission Systems, including multi-mission ISR and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced EO/IR solutions;
Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare;
Communication Systems, including tactical communications; broadband communications; integrated vision solutions; and public safety; and
Aviation Systems, including defense aviation products; security, detection and other commercial aviation products; commercial and military pilot training; and mission networks for ATM.
The historical results, discussion and presentation of our business segments as set forth in this MD&A reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our

33


previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these changes.
See Note 25: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.
As discussed in further detail in Note 5: Business Combination and Note 4: Restructuring and Other Exit Costs in the Notes, in the two quarters ended January 3, 2020, we recorded $532 million of charges at our corporate headquarters in connection with the L3Harris Merger, consisting of restructuring, integration, transaction and other costs as follows:
$142 million of additional cost of sales related to the fair value step-up in inventory sold;
$117 million of costs for workforce reductions, including severance and other employee-related exit costs;
$83 million of transaction costs, recognized as incurred;
$72 million of integration costs, recognized as incurred;
$70 million of equity award acceleration charges, recognized upon the change in control; and
$48 million of impairment and other losses related to operating lease right-of-use assets.
All of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for the $142 million of additional cost of sales related to the fair value step-up in inventory sold, which is included in the “Cost of product sales and services” line item in our Consolidated Statement of Income.
As described in more detail in Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes, we completed the divestitures of the Harris Night Vision business during the two quarters ended January 3, 2020 and CapRock and IT Services in fiscal 2017. Through fiscal 2019, the Harris Night Vision business was reported as part of our former Communication Systems segment. As a result of the then-pending divestiture, the Harris Night Vision business was not included in any of our new business segments and, consequently, the operating results of the business are included in “Other non-reportable business segments” in this Report. CapRock and IT Services 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.
As described in more detail in Note 1: Significant Accounting Policies in the Notes, effective June 29, 2019, we changed our fiscal year end to the Friday nearest December 31, and the period that commenced on June 29, 2019 was a fiscal transition period that ended on January 3, 2020 (the “Fiscal Transition Period”). References herein to the two quarters ended December 28, 2018 represent the unaudited prior year results for the comparative period ended December 28, 2018.
Value Drivers of Our Business
In recent years, we have successfully integrated Exelis, reshaped our portfolio of businesses to focus on high-growth, high-margin, technology-differentiated businesses, combined with L3 in a transformative merger of equals and have made investments in technology and innovation that have led to several new product launches and strategic program awards. Execution of this multi-year strategy set the stage for financial results during the Fiscal Transition Period that have exceeded the targets we set at the beginning of the period.
The Fiscal Transition Period has been transformative. Our dedicated integration team executed its plan for a successful day one transition to the new L3Harris following the closing of the L3Harris Merger on June 29, 2019. We successfully implemented a new organizational structure, accelerated growth across all four business segments and expanded margins through our focus on operational excellence. We refinanced debt and made voluntary contributions to our U.S. qualified defined benefit pension plans, expanding our future financial flexibility. We plan to build on our strong Fiscal Transition Period performance, and together with a well-funded U.S. Government budget and a continued focus on operational excellence and innovation, we believe we are well positioned to achieve our strategic priorities for fiscal 2020 and thereafter, which include the following:
Executing seamless integration of L3 and Harris, including achieving at least $500 million in gross cost synergies from the L3Harris Merger by the end of 2021;
Driving flawless execution and margin expansion through our e3 (excellence everywhere every day) operational excellence program;
Growing revenue through investments in differentiated technology and innovation;
Reshaping our portfolio to focus on high margin, high growth businesses; and
Maximizing cash flow with shareholder friendly capital deployment.
We are focused on successfully completing the integration of the two companies to maximize the benefits of the transformative merger. Our integration efforts focus on driving greater cost and operational efficiencies and capturing opportunities to drive revenue growth, while maintaining our deep customer relationships, commercializing our technology and driving operational excellence.

34


Our operational excellence program, e3 (excellence everywhere every day), is grounded in our deep commitment to excellence, innovation, customer satisfaction and continuous improvement in everything we do. Prior to the L3Harris Merger, we made substantial progress in laying the foundation of our future enterprise-wide digital strategy by standardizing our IT systems, reducing our number of enterprise resource planning platforms and simplifying our operating environment to drive productivity through growth in shared services and automation of core processes. We are working toward eliminating many of our data centers and making the remainder cloud-enabled. We also are continuing to focus on cost savings in our supply chain through “value engineering” and “should-cost” analysis, as well as improving supplier performance and reducing sole-sourced components on legacy solutions. We will continue these efforts as we integrate the two companies.
Innovation is at the core of our success, and R&D investment represents the foundation for innovation. We are
fundamentally reshaping how we design and develop new products to get more out of our R&D investment. We also use standardized processes and common metrics to track progress, gauge success and drive disciplined execution, as well as core technology centers to more fully leverage R&D investment across our Company. We are expanding implementation of “DevOps” to streamline software development, which has grown to be a significant portion of our engineering work today and is expected to increase over time.
Our commitment to excellence and innovation carries through to the L3Harris Merger integration process. Our goal is to maximize the benefits of this transformative merger, creating significantly greater scale and bringing together two engineering-driven companies and workforces with similar cultures that value technology leadership. Together, the two companies’ complementary technologies and capabilities strengthen core franchises and provide new opportunities for innovation to solve our customers’ most complex challenges. We are combining top talent and technology from each company in a market-focused reorganization that will align with our strategic growth platforms and will help improve our competitive position, increase operational efficiency, and capture synergies, while we continue to bring innovative and affordable solutions to our customers. As our integration efforts focus on driving greater cost and operational efficiencies and revenue growth through synergies, we intend to maintain our focus on continuing to execute against our strategic priorities and other objectives - including satisfying our customers, driving operational excellence, improving cash flow and optimizing capital deployment. The L3Harris Merger also provides a unique opportunity for portfolio shaping actions, and we will continue to evaluate what businesses are strategic and what businesses are better served under a different owner. See Note 28: Subsequent Events in the Notes for additional information.
During the Fiscal Transition Period, we returned to our shareholders $337 million through dividends and $1,500 million through share repurchases and we used $109 million for net repayments of borrowings. In fiscal 2020, we believe accelerating revenue growth across our business segments and margin expansion will improve our operating cash flow, which we expect to use for increased dividends, share repurchases and investments in technology and innovation.
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; consolidated total indebtedness to total capital ratio; and net unfunded defined benefit plans liability. The measure of our success is reflected in our results of operations and liquidity and capital resources key indicators as discussed below.
Because the L3Harris Merger occurred on June 29, 2019, the two quarters ended January 3, 2020 reflect the results of the combined company, while the two quarters ended December 28, 2018 reflect the results of only Harris operating businesses. Due to the significance of the L3 operating businesses included in the combined company results following the L3Harris Merger, the reported results for the two quarters ended January 3, 2020 and December 28, 2018 generally are not comparable. Therefore, to assist with a discussion of the January 3, 2020 and December 28, 2018 consolidated results of operations on a more comparable basis, certain supplemental unaudited pro forma combined income statement information prepared in accordance with the requirements of Article 11 of Regulation S-X (referred to in this MD&A as “pro forma”) also is provided (see “Supplemental Unaudited Pro Forma Condensed Combined Income Statement Informationbelow in this MD&A).
Fiscal Transition Period 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:
Consolidated as reported
Revenue increased 189 percent to $9.3 billion in the two quarters ended January 3, 2020 from $3.2 billion in the two quarters ended December 28, 2018;
Income from continuing operations attributable to L3Harris common shareholders increased 87 percent to $823 million in the two quarters ended January 3, 2020 from $441 million in the two quarters ended December 28, 2018;

35


Income from continuing operations attributable to L3Harris common shareholders as a percentage of revenue decreased to 9 percent in the two quarters ended January 3, 2020 from 14 percent in the two quarters ended December 28, 2018; and
Income from continuing operations per diluted common share attributable to L3Harris common shareholders increased 1 percent to $3.68 in the two quarters ended January 3, 2020 from $3.66 in the two quarters ended December 28, 2018, reflecting the increase in income from continuing operations as noted above, partially offset by higher diluted common shares outstanding due to additional shares issued in connection with the L3Harris Merger during the two quarters ended January 3, 2020.
Consolidated pro forma
Revenue increased 10 percent to $9.3 billion in the two quarters ended January 3, 2020 from $8.4 billion in the two quarters ended December 28, 2018;
Income from continuing operations attributable to L3Harris common shareholders increased 10 percent to $823 million in the two quarters ended January 3, 2020 from $748 million in the two quarters ended December 28, 2018;
Income from continuing operations attributable to L3Harris common shareholders as a percentage of revenue in the two quarters ended January 3, 2020 was comparable with the two quarters ended December 28, 2018 at 9 percent; and
Income from continuing operations per diluted common share attributable to L3Harris common shareholders increased 13 percent to $3.68 in the two quarters ended January 3, 2020 from $3.27 in the two quarters ended December 28, 2018, 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 two quarters ended January 3, 2020.
Refer to MD&A heading “Operations Review” below in this Report for more information.
Fiscal Transition Period Liquidity and Capital Resources Key Indicators:     Net cash provided by operating activities, return on invested capital, return on average equity, our consolidated total indebtedness to total capital ratio and our net unfunded defined benefit plans liability also represent key measurements of our value drivers:
Net cash provided by operating activities increased to $939 million in the two quarters ended January 3, 2020 from $469 million in the two quarters ended December 28, 2018;
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 period, where invested capital equals equity plus debt, less cash and cash equivalents) decreased to 4 percent in the two quarters ended January 3, 2020 from 6 percent in the two quarters ended December 28, 2018;
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 period) decreased to 6 percent in the two quarters ended January 3, 2020 from 13 percent in the two quarters ended December 28, 2018;
Our consolidated total indebtedness to total capital ratio at January 3, 2020 was 24 percent, compared with our 65 percent covenant limitation under our senior unsecured revolving credit facility; and
Our net unfunded defined benefit pension plan liability increased $577 million in the two quarters ended January 3, 2020 to $1.7 billion at January 3, 2020 compared with $1.2 billion at June 28, 2019, primarily due to the addition of L3’s pension plans assumed in connection with the L3Harris Merger.
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.
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, was approximately 73 percent in the two quarters ended January 3, 2020 and approximately 77 percent, 75 percent and 74 percent in fiscal 2019, 2018 and 2017, respectively.
On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (“BBA 2018”), a two-year budget agreement aimed to provide stability to the U.S. Government budget process for the government fiscal year (“GFY”) 2018 and GFY 2019 (U.S. Government fiscal years begin October 1 and end September 30). While the BBA 2018 raised the spending caps for GFY 2018 and GFY 2019 previously constrained by the Budget Control Act of 2011 (“BCA”) and temporarily suspended the statutory debt ceiling through March 1, 2019, it did not modify the BCA’s spending caps or sequestration mechanisms beyond GFY 2019.

36


On September 28, 2018, President Trump signed a final conference agreement on the GFY 2019 Defense Appropriations Bill into law, providing $716 billion for defense, including $647 billion in defense base funding and $69 billion for overseas contingency operations (“OCO”). Our major programs were fully funded and continue to remain priorities for U.S. Government customers.
On August 2, 2019, President Trump signed into law the Bipartisan Budget Act of 2019 (“BBA 2019”), a two-year budget agreement for GFY 2020 and GFY 2021 that increased defense funding spending caps to $738 billion ($667 billion in defense base funding and $71 billion for OCO funding) for GFY 2020 and $741 billion ($672 billion in defense base funding and $69 billion for OCO funding) for GFY 2021, representing an increase of 3% from GFY 2019 funding levels. The BBA 2019 also temporarily suspended the statutory debt ceiling through July 31, 2021. The BBA 2019 builds on sustained funding increases Congress provided in GFY 2019, GFY 2018 and GFY 2017. On December 20, 2019, President Trump signed into law the Consolidated Appropriations Act of 2020, which provides full-year funding through September 30, 2020 for the U.S. Government. The Consolidated Appropriations Act of 2020 provides $623 billion in base DoD funding and $71 billion in OCO funding, as well as $2 billion in emergency funding. Although we anticipate debate will continue within the U.S. Government over defense spending for future years (which may have a significant impact on defense spending broadly and on our specific programs), our programs have been well supported in recent years.
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 the two quarters ended January 3, 2020. 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.
International:   We believe there is continuing international demand from military and government customers for tactical radios, public safety communications, electronic warfare equipment, ATM, 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
 
Two Quarters Ended
 
January 3,
2020
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
Pro Forma
 
(Dollars in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
Integrated Mission Systems
$
2,774

 
$
23

 
*

 
$
2,517

 
10
 %
Space and Airborne Systems
2,360

 
1,741

 
36
 %
 
2,039

 
16
 %
Communication Systems
2,151

 
1,018

 
111
 %
 
1,949

 
10
 %
Aviation Systems
2,038

 
342

 
*

 
1,970

 
3
 %
Other non-reportable business segments
23

 
86

 
(73
)%
 
12

 
92
 %
Corporate eliminations
(83
)
 
(2
)
 
*

 
(83
)
 

Total revenue
9,263

 
3,208

 
189
 %
 
8,404

 
10
 %
Total cost of product sales and services
(6,726
)
 
(2,105
)
 
220
 %
 
(5,939
)
 
13
 %
% of total revenue
73
%
 
66
%
 
 
 
71
%
 
 
Gross margin
2,537

 
1,103

 
130
 %
 
2,465

 
3
 %
% of total revenue
27
%
 
34
%
 
 
 
29
%
 
 
Engineering, selling and administrative expenses
(1,927
)
 
(583
)
 
231
 %
 
(1,598
)
 
21
 %
% of total revenue
21
%
 
18
%
 
 
 
19
%
 
 
Gain (loss) on sales of businesses
229

 

 
*

 
(6
)
 
*

Non-operating income
192

 
94

 
104
 %
 
122

 
57
 %
Net interest expense
(123
)
 
(86
)
 
43
 %
 
(143
)
 
(14
)%
Income from continuing operations before income taxes
908

 
528

 
72
 %
 
840

 
8
 %
Income taxes
(73
)
 
(87
)
 
(16
)%
 
(80
)
 
(9
)%
Effective tax rate
8
%
 
16
%
 
 
 
10
%
 
 
Income from continuing operations
835

 
441

 
89
 %
 
760

 
10
 %
Noncontrolling interests, net of income taxes
(12
)
 

 
*

 
(12
)
 

Income from continuing operations attributable to L3Harris common shareholders
$
823

 
$
441

 
87
 %
 
$
748

 
10
 %
% of total revenue
9
%
 
14
%
 
 
 
9
%
 
 
Income from continuing operations per diluted common share attributable to L3Harris common shareholders
$
3.68

 
$
3.66

 
1
 %
 
$
3.27

 
13
 %
_______________
*
Not meaningful

38


 
Fiscal Years Ended
 
June 28, 2019
 
June 29, 2018
 
Percent
Increase/
(Decrease)
 
June 30, 2017
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
As Reported
 
(Dollars in millions, except per share amounts)
Revenue:
 
 
 
 
 
 
 
 
 
Integrated Mission Systems
$
48

 
$
45

 
7
 %
 
$
38

 
18
 %
Space and Airborne Systems
3,715

 
3,304

 
12
 %
 
3,156

 
5
 %
Communication Systems
2,208

 
2,015

 
10
 %
 
1,891

 
7
 %
Aviation Systems
672

 
668

 
1
 %
 
697

 
(4
)%
Other non-reportable business segments
165

 
148

 
11
 %
 
121

 
22
 %
Corporate eliminations
(7
)
 
(12
)
 
(42
)%
 
(6
)
 
100
 %
Total revenue
6,801

 
6,168

 
10
 %
 
5,897

 
5
 %
Total cost of product sales and services
(4,467
)
 
(4,066
)
 
10
 %
 
(3,854
)
 
6
 %
% of total revenue
66
%
 
66
%
 
 
 
65
%
 
 
Gross margin
2,334

 
2,102

 
11
 %
 
2,043

 
3
 %
% of total revenue
34
%
 
34
%
 
 
 
35
%
 
 
Engineering, selling and administrative expenses
(1,242
)
 
(1,182
)
 
5
 %
 
(1,150
)
 
3
 %
% of total revenue
18
%
 
19
%
 
 
 
20
%
 
 
Non-operating income
188

 
156

 
21
 %
 
166

 
(6
)%
Net interest expense
(167
)
 
(168
)
 
(1
)%
 
(170
)
 
(1
)%
Income from continuing operations before income taxes
1,113

 
908

 
23
 %
 
889

 
2
 %
Income taxes
(160
)
 
(206
)
 
(22
)%
 
(261
)
 
(21
)%
Effective tax rate
14
%
 
23
%
 
 
 
29
%
 
 
Income from continuing operations
953

 
702

 
36
 %
 
628

 
12
 %
Noncontrolling interests, net of income taxes

 

 
 %
 

 
 %
Income from continuing operations attributable to L3Harris common shareholders
$
953

 
$
702

 
36
 %
 
$
628

 
12
 %
% of total revenue
14
%
 
11
%
 
 
 
11
%
 
 
Income from continuing operations per diluted common share attributable to L3Harris common shareholders
$
7.89

 
$
5.78

 
37
 %
 
$
5.04

 
15
 %
As Reported
Revenue
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increase in revenue in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to the inclusion of $5.7 billion of revenue (net of intercompany sales eliminations) from L3 operations in operating results for the two quarters ended January 3, 2020 and organic revenue growth in all four segments.
Fiscal 2019 Compared With Fiscal 2018:    The increase in revenue in fiscal 2019 compared with fiscal 2018 was primarily due to higher DoD tactical radio sales in our Communication Systems segment, reflecting a ramp in DoD modernization programs, higher Avionics and Electronic Warfare revenue from long-term avionics platforms, including the F-35, F/A-18 and F-16, and higher revenue from classified programs in our Space and Airborne Systems segment.
Fiscal 2018 Compared With Fiscal 2017:    The increase in revenue in fiscal 2018 compared with fiscal 2017 was primarily due to higher DoD tactical radio sales in our Communication Systems segment, reflecting readiness and modernization demand from the U.S. Army and USAF, and higher Avionics and Electronic Warfare revenue from long-term avionics platforms, including the F-35, F/A-18 and F-16, and higher revenue from C4ISR (including wireless solutions).
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

39


Gross Margin
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    Gross margin increased in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 primarily due to the inclusion of L3 operations in operating results for the two quarters ended January 3, 2020. The decrease in gross margin as a percentage of revenue (“gross margin percentage”) for the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to a mix of program revenue and product sales with relatively lower gross margin, $142 million of additional cost of sales related to the fair value step-up in inventory sold and $42 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger in the two quarters ended January 3, 2020.
Fiscal 2019 Compared With Fiscal 2018:     Gross margin increased in fiscal 2019 compared with fiscal 2018 primarily due to higher revenue and productivity savings, partially offset by higher employment costs. Gross margin percentage in fiscal 2019 was comparable with fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    Gross margin increased in fiscal 2018 compared with fiscal 2017 primarily due to higher revenue, partially offset by a 1 percentage point decrease in gross margin percentage. The decrease in gross margin percentage in fiscal 2018 compared with fiscal 2017 reflected a less favorable mix of program revenue and product sales and an unfavorable impact from the ADS-B program, including a favorable contract settlement in the second quarter of fiscal 2017 and the program transition from build-out to sustainment, partially offset by productivity savings and incremental pension income.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Engineering, Selling and Administrative Expenses
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increase in engineering, selling and administrative (“ESA”) expenses and ESA expenses as a percentage of revenue (“ESA percentage”) in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to the inclusion of L3 operations in operating results, as well as $390 million of charges for integration, restructuring and other costs associated with the L3Harris Merger and $197 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger in the two quarters ended January 3, 2020. ESA expenses for the two quarters ended January 3, 2020 also included a $12 million gain on sale of a product line, offset by a $10 million non-cash cumulative adjustment to lease expense.
Overall Company-sponsored R&D costs were $329 million in the two quarters ended January 3, 2020 compared with $144 million in the two quarters ended December 28, 2018.
Fiscal 2019 Compared With Fiscal 2018:    The increase in ESA expenses in fiscal 2019 compared with fiscal 2018 was primarily due to $65 million of L3Harris Merger-related transaction and integration costs and increased investments in R&D and bids and proposals, partially offset by the absence in fiscal 2019 of $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items and a $12 million non-cash adjustment for deferred compensation, which were incurred in fiscal 2018. The decrease in ESA percentage in fiscal 2019 compared with fiscal 2018 was primarily due to management of expenses on higher revenue.
Overall Company-sponsored R&D costs were $331 million in fiscal 2019 compared with $311 million in fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The increase in ESA expenses in fiscal 2018 compared with fiscal 2017 was primarily due to $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items, higher employment and distribution costs and a $12 million non-cash adjustment for deferred compensation, partially offset by a $53 million reduction in Exelis acquisition-related and other charges in fiscal 2018 compared with fiscal 2017. The decrease in ESA percentage in fiscal 2018 compared with fiscal 2017 was primarily due to cost containment.
Overall Company-sponsored R&D costs were $311 million in fiscal 2018 compared with $310 million in fiscal 2017.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Gain (loss) on Sale of Businesses
The increase in gain (loss) on sale of businesses for the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was due to a $229 million pre-tax gain on the sale of the Harris Night Vision business, which was completed on September 13, 2019.
See Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes for further information.
Non-Operating Income
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increase in non-operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was

40


primarily due to an increase in the non-service cost components of pension and other postretirement benefit plan income, including a $23 million gain on pension plan curtailment, reflecting the inclusion in pension and other postretirement benefit plan income of benefit plans assumed in connection with the L3Harris Merger.
Fiscal 2019 Compared With Fiscal 2018:    The increase in non-operating income in fiscal 2019 compared with fiscal 2018 was primarily due to $27 million of losses and other costs related to debt refinancing in the fourth quarter of fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The decrease in non-operating income in fiscal 2018 compared with fiscal 2017 was primarily due to $27 million of losses and other costs related to debt refinancing in the fourth quarter of fiscal 2018, partially offset by a $20 million increase in pension and postretirement benefit income.
See Note 21: Non-Operating Income in the Notes for further information.
Net Interest Expense
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    Our net interest expense increased in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 primarily due to higher average debt levels as a result of the assumption of $3.5 billion of debt in connection with the L3Harris Merger. See Note 14: Debt in the Notes for further information.
Fiscal 2019 Compared With Fiscal 2018:    Our net interest expense decreased in fiscal 2019 compared with fiscal 2018 primarily due to lower average debt levels as a result of $281 million of net repayment of borrowings, which included our repayment at maturity of the entire outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019. See Note 14: Debt in the Notes for further information.
Fiscal 2018 Compared With Fiscal 2017:    Our net interest expense decreased in fiscal 2018 compared with fiscal 2017 primarily due to lower average debt levels as a result of $271 million of net repayment of borrowings, which included our repayment at maturity of the entire outstanding $500 million aggregate principal amount of our 1.999% Notes due April 27, 2018.
Income Taxes
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    In the two quarters ended January 3, 2020, our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) benefited from the favorable impact of:
Excess tax benefits related to equity-based compensation;
The ability to utilize capital loss carryforwards with a full valuation allowance against capital gains generated from the Harris Night Vision business divestiture; and
The release of reserves for uncertain tax positions due to statute of limitations expirations.
In the two quarters ended December 28, 2018, our effective tax rate benefited from the net favorable impact of:
A reduction in the deferred tax liability maintained on the basis differences related to the unremitted foreign earnings;
The favorable impact of excess tax benefits related to equity-based compensation; and
An increase in the R&D credit; partially offset by
An unfavorable impact of the differences in U.S. generally accepted accounting principles (“GAAP”) and tax accounting related to investments.
Fiscal 2019 Compared With Fiscal 2018: In fiscal 2019, our effective tax rate benefited from the net favorable impact of:
Legislative changes from the Tax Cuts and Jobs Act which became applicable to Harris during fiscal 2019, such as: (i) a reduction in our U.S. statutory corporate income tax rate from the blended rate of 28.1% in fiscal 2018 to a flat 21% rate in fiscal 2019; (ii) the recent clarification that foreign military sales qualify for the foreign derived intangible income deduction; (iii) tax planning to allow for the utilization of foreign tax credits that were previously valued; and (iv) the loss of the U.S. domestic manufacturing deduction;
The favorable impact of excess tax benefits related to equity-based compensation; and
Additional research credits claimed on our prior year tax returns.
In fiscal 2018, our effective tax rate benefited from the net favorable impact of:
The enactment of a lower U.S. statutory corporate income tax rate in fiscal 2018;
Additional research credits claimed on our fiscal 2017 tax return compared with our recorded estimates at the end of fiscal 2017; and
The favorable impact of releasing provisions for uncertain tax positions.
Fiscal 2018 Compared With Fiscal 2017:    The major discrete items from which our fiscal 2018 effective tax rate benefited are those noted for fiscal 2018 in the preceding discussion under “Income Taxes.” In fiscal 2017, our effective tax rate benefited from:

41


The favorable impact of excess tax benefits related to equity-based compensation;
Several differences between U.S. 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.
See Note 23: Income Taxes in the Notes for further information.
Income From Continuing Operations
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018: The increase in income from continuing operations in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to the combined effects of the reasons noted above in this “As Reported” discussion regarding the two quarters ended January 3, 2020 and two quarters ended December 28, 2018.
Fiscal 2019 Compared With Fiscal 2018: The increase in income from continuing operations in fiscal 2019 compared with fiscal 2018 was primarily due to the combined effects of the reasons noted above in this “As Reported” discussion regarding fiscal 2019 and 2018.
Fiscal 2018 Compared With Fiscal 2017:    The increase in income from continuing operations in fiscal 2018 compared with fiscal 2017 was primarily due to the combined effects of the reasons noted above in this “As Reported” discussion regarding fiscal 2018 and 2017.
Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increase in income from continuing operations per diluted common share attributable to L3Harris common shareholders in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to higher income from continuing operations, as discussed above, partially offset by the increase in our diluted weighted average common shares outstanding as a result of approximately 104 million shares issued in connection with the L3Harris Merger.
Fiscal 2019 Compared With Fiscal 2018:    The increase in income from continuing operations per diluted common share in fiscal 2019 compared with fiscal 2018 was due to the increase in income from continuing operations in fiscal 2019 compared with fiscal 2018 and the decrease in average common shares outstanding from shares of our common stock repurchased under our repurchase program during fiscal 2019, partially offset by shares issued under our stock incentive and defined contribution plans and the incremental dilutive impact of share-based awards during fiscal 2019 compared with fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The increase in income from continuing operations per diluted common share in fiscal 2018 compared with fiscal 2017 was due to the increase in income from continuing operations in fiscal 2018 compared with fiscal 2017 and the decrease in diluted weighted average common shares outstanding from shares of our common stock repurchased under our repurchase program during fiscal 2018, partially offset by shares issued under our stock incentive and defined contribution plans and the incremental dilutive impact of share-based awards during fiscal 2018 compared with fiscal 2017.
See the “Common Stock Repurchases” discussion below in this MD&A for further information.
Pro Forma
Revenue
The increase in revenue for the two quarters ended January 3, 2020 compared with pro forma revenue for the two quarters ended December 28, 2018 was primarily due to $321 million higher revenue in our Space and Airborne Systems segment, from a ramp in modernization of the F-35 platform in Mission Avionics, increased production of electronic warfare systems for F/A-18 and B-52 aircraft in Electronic Warfare and growth in ground-based adjacencies and exquisite systems in classified areas; $257 million higher revenue in our Integrated Mission Systems segment, driven by growth in all three businesses: ISR, Electro Optical and Maritime; $202 million higher revenue in our Communication Systems segment, from a ramp in DoD modernization programs in Tactical Communications and Integrated Vision Solutions as well as increased demand with state and federal customers in Public Safety and Professional Communications; and higher revenue in our Aviation Systems segment, reflecting organic growth from precision engagement sensors and systems, partially offset by the prior period competitive loss of the USAF C-17 training contract.
Gross Margin
The increase in gross margin and decrease in gross margin percentage for the two quarters ended January 3, 2020 compared with pro forma gross margin and gross margin percentage for the two quarters ended December 28, 2018 were primarily due to higher volume and strong operational performance, partially offset by $142 million of additional cost of sales related to the fair value step-up in inventory sold in the two quarters ended January 3, 2020.

42


Engineering, Selling and Administrative Expenses
The increases in ESA expenses and ESA percentage for the two quarters ended January 3, 2020 compared with pro forma ESA expenses and ESA percentage for the two quarters ended December 28, 2018 were primarily due to $390 million of charges for integration, restructuring and other costs associated with the L3Harris Merger in the two quarters ended January 3, 2020, partially offset by integration savings.
Gain (loss) on Sale of Businesses
The increase in gain (loss) on sale of businesses for the two quarters ended January 3, 2020 compared with pro forma gain (loss) on sale of businesses for the two quarters ended December 28, 2018 was due to a $229 million pre-tax gain on the sale of the Harris Night Vision business, which was completed on September 13, 2019.
See Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes for further information.
Non-Operating Income
The increase in non-operating income for the two quarters ended January 3, 2020 compared with pro forma non-operating income for the two quarters ended December 28, 2018 was primarily due to an increase in the non-service cost components of pension and other postretirement benefit plan income, including a $23 million gain on pension plan curtailment, in the two quarters ended January 3, 2020 and a $21 million debt extinguishment loss recognized by L3 in the two quarters ended December 28, 2018.
Net Interest Expense
The decrease in net interest expense for the two quarters ended January 3, 2020 compared with pro forma net interest expense for the two quarters ended December 28, 2018 was primarily due to lower average debt levels as a result of the repayment at maturity of the entire outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019. See Note 14: Debt in the Notes for further information.
Income Taxes
In the two quarters ended January 3, 2020, our effective tax rate benefited from the favorable impact of:
Excess tax benefits related to equity-based compensation;
The ability to utilize capital loss carryforwards with a full valuation allowance against capital gains generated from the Harris Night Vision business divestiture; and
The release of reserves for uncertain tax positions due to statute of limitations expirations.
See “Supplemental Unaudited Pro Forma Condensed Combined Income Statement Information” below in this MD&A for information regarding our pro forma effective tax rate for the two quarters ended December 28, 2018.
Income From Continuing Operations
The increase in income from continuing operations for the two quarters ended January 3, 2020 compared with pro forma income from continuing operations for the two quarters ended December 28, 2018 was primarily due to the combined effects of the reasons noted above in this “Pro Forma” discussion regarding the two quarters ended January 3, 2020 and two quarters ended December 28, 2018.
Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders
The increase in income from continuing operations per diluted common share attributable to L3Harris common shareholders for the two quarters ended January 3, 2020 compared with pro forma income from continuing operations per diluted common share attributable to L3Harris common shareholders for the two quarters ended December 28, 2018 was primarily due to higher income from continuing operations, as discussed above, and the decrease in our diluted weighted average common shares outstanding from shares of our common stock repurchased under our repurchase program during the two quarters ended January 3, 2020.
See the “Common Stock Repurchases” discussion below in this MD&A for further information.

43


Supplemental Unaudited Pro Forma Condensed Combined Income Statement Information
The following supplemental unaudited pro forma condensed combined income statement information prepared in accordance with the requirements of Article 11 of Regulation S-X provides further information supporting the preparation of the supplemental unaudited pro forma condensed combined financial information for the two quarters ended December 28, 2018 provided above in the “Consolidated Results of Operations” discussion in this MD&A and has been prepared to give effect to the L3Harris Merger under the acquisition method of accounting. It combines the historical results of operations of Harris and L3 and reflects the L3Harris Merger as if it closed on June 30, 2018, the first day of Harris’ fiscal 2019, and gives effect to pro forma events that are (a) directly attributable to the L3Harris Merger, (b) factually supportable and (c) expected to have a continuing impact on our results of operations. The adjustments include adjustments to reflect the sale of the Harris Night Vision business, which is directly attributable to the L3Harris Merger, but do not include any adjustments for the use of proceeds from such sale, because the use is not directly attributable to the L3Harris Merger. The pro forma condensed combined income statement information is provided for informational and supplemental purposes only, and does not purport to indicate what L3Harris’ results of operations would have been, or L3Harris’ future results of operations, had the L3Harris Merger actually occurred on June 30, 2018. The supplemental unaudited pro forma condensed combined income statement information should be read in conjunction with other sections of this MD&A, our Consolidated Financial Statements and the Notes appearing elsewhere in this Report.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Two Quarters Ended December 28, 2018
 
Historical
Harris
 
Historical
L3
 
Pro Forma
Adjustments
 
Note
References
 
Pro Forma
Combined
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Revenue from product sales and services
$
3,208

 
$
5,290

 
$
(8
)
 
a
 
$
8,404

 
 
 
 
 
(86
)
 
b
 
 
Cost of product sales and services
(2,105
)
 
(3,887
)
 
8

 
a
 
(5,939
)
 
 
 
 
 
60

 
b
 
 
 
 
 
 
 
(15
)
 
c
 
 
Engineering, selling and administrative expenses
(583
)
 
(821
)
 
18

 
d
 
(1,598
)
 
 
 
 
 
13

 
b
 
 
 
 
 
 
 
(197
)
 
c
 
 
 
 
 
 
 
(4
)
 
e
 
 
 
 
 
 
 
4

 
f
 
 
 
 
 
 
 
(28
)
 
j
 
 
Loss on sales of businesses

 

 
(6
)
 
j
 
(6
)
Loss on sale of Crestview Aerospace and TCS businesses

 
(6
)
 
6

 
j
 

Merger, acquisition and divestiture related expenses

 
(28
)
 
28

 
j
 

Non-operating income
94

 

 
32

 
g
 
122

 
 
 
 
 
(4
)
 
j
 
 
Interest and other income, net

 
23

 
(23
)
 
j
 

Debt retirement charges

 
(21
)
 
21

 
j
 

Interest income
1

 

 
6

 
j
 
7

Interest expense
(87
)
 
(79
)
 
1

 
h
 
(150
)
 
 
 
 
 
15

 
i
 
 
Income from continuing operations before income taxes
528

 
471

 
(159
)
 
 
 
840

Income taxes
(87
)
 
(31
)
 
38

 
k
 
(80
)
Income from continuing operations
441

 
440

 
(121
)
 
 
 
760

Income from continuing operations attributable to noncontrolling interests

 
(12
)
 

 
 
 
(12
)
Income from continuing operations attributable to common shareholders
$
441

 
$
428

 
$
(121
)
 
 
 
$
748

 
 
 
 
 
 
 
 
 
 
Income from continuing operations per basic common share attributable to common shareholders
$
3.74

 
 
 
 
 
 
 
$
3.37

Income from continuing operations per diluted common share attributable to common shareholders
$
3.66

 
 
 
 
 
 
 
$
3.33

Basic weighted average common shares outstanding
117.8

 
 
 
104.1

 
l
 
221.9

Diluted weighted average common shares outstanding
120.3

 
 
 
104.6

 
l
 
224.9


44


Notes:
a.
Reflects the elimination of intercompany balances and transactions between L3 and Harris.
b.
Reflects the sale of the Harris Night Vision business.
c.
Reflects the net increase in amortization expense related to the fair value of acquired finite-lived identifiable intangible assets and the elimination of historical amortization expense recognized by L3 for the two quarters ended December 28, 2018. Assumptions and details are as follows:
 
Weighted Average Amortization Period
 
Fair Value
 
Two Quarters Ended December 28, 2018
 
 
 
 
 
 
 
(In years)
 
(In millions)
Identifiable Intangible Assets Acquired:
 
 
 
 
 
Customer relationships (Government)
15
 
$
4,677

 
$
175

Customer relationships (Commercial)
15
 
643

 
14

Trade names — Divisions
9
 
123

 
8

Adjustment to engineering, selling and administrative expenses
 
 
 
 
197

Developed technology
7
 
562

 
42

Less: L3 historical amortization
 
 
 
 
(27
)
Adjustment to cost of product sales and services
 
 
 
 
15

Total net adjustment to amortization expense
 
 
 
 
$
212

d.
Represents the elimination of $18 million of transaction costs, of which $9 million were included in merger, acquisition and divestiture related expenses in L3’s historical statement of operations for the two quarters ended December 28, 2018 and $9 million were included in engineering, selling and administrative expenses in Harris’ historical Condensed Consolidated Statement of Income for the two quarters ended December 28, 2018.
e.
In connection with the L3Harris Merger, on October 12, 2018, each company entered into a letter of agreement with its chief executive officer, to outline the terms of each such person’s role and compensation arrangements following the merger. Amounts shown reflect the increase in compensation expense as a result of these modified arrangements.
f.
Reflects the impact of change-in-control payments under certain post-retirement and share-based and deferred compensation arrangements.
g.
Reflects the elimination of amortization of net actuarial losses from accumulated comprehensive loss related to L3’s postretirement benefit plans as part of purchase accounting.
h.
Reflects the elimination of amortization of deferred debt issuance costs as part of purchase accounting.
i.
Reflects amortization of the increase to L3’s long-term debt based on a $172 million fair value adjustment.
j.
Certain amounts from L3’s historical statement of operations data were reclassified to conform their presentation to that of Harris. These reclassifications include:
1.
Merger, acquisition and divestiture related expenses of $28 million for the two quarters ended December 28, 2018 were reclassified to engineering, selling and administrative expenses.
2.
Loss on sale of the Crestview Aerospace and TCS businesses of $6 million for the two quarters ended December 28, 2018 was reclassified to loss on sales of businesses.
3.
Interest and other income, net of $23 million, of which $6 million was reclassified to interest income and $17 million was reclassified to non-operating income for the two quarters ended December 28, 2018.
4.
Debt retirement charges of $21 million for the two quarters ended December 28, 2018 was reclassified to non-operating income
k.
Represents the income tax impact of the pro forma adjustments, using the blended worldwide tax rates for L3, in the case of pro forma adjustments to L3’s historical results, and the federal and state statutory tax rates for Harris, in the case of pro forma adjustments to Harris’ historical results. As a result, the combined statutory tax rate used to tax-effect the pro forma adjustments was approximately 10 percent for the two quarters ended December 28, 2018. This tax rate does not represent the combined company’s effective tax rate, which will include other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact the combined company following the consummation of the L3Harris Merger.

45


l.
Increase in common stock due to shares of L3Harris common stock issued for L3 common stock, L3 restricted stock units and L3 performance stock units. Diluted shares also include the dilutive impact of L3Harris stock options issued for L3 stock options calculated using the treasury stock method.
Discussion of Business Segment Results of Operations
Integrated Mission Systems Segment
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3,
2020
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
June 28,
2019
 
June 29,
2018
 
Percent
Increase/
(Decrease)
 
June 30,
2017
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
2,774

 
$
23

 
*
 
$
48

 
$
45

 
7
%
 
$
38

 
18
%
Operating income
$
377

 
$
3

 
*
 
$
9

 
$
7

 
29
%
 
$
7

 
%
% of revenue
14
%
 
13
%
 
 
 
19
%
 
16
%
 
 
 
18
%
 
 
__________
*    Not meaningful
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:   The increases in segment revenue, operating income and operating income as a percentage of revenue (“operating margin percentage”) in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during the two quarters ended January 3, 2020. Because the Integrated Mission Systems segment is almost entirely comprised of L3 businesses, comparison to prior year segment operating metrics is not meaningful. In the two quarters ended January 3, 2020, segment revenue also benefited from $213 million of revenue growth in ISR and growth in Electro Optical. The funded backlog for this segment was approximately $5.3 billion at January 3, 2020 compared with $5.4 billion at the beginning of the Fiscal Transition Period (including backlog acquired on June 29, 2019 in connection with the L3Harris Merger). Segment revenue, operating income and operating margin percentage were comparable and not material in fiscal 2019, 2018 and 2017.
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 75 percent in the two quarters ended January 3, 2020.
Space and Airborne Systems Segment
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3,
2020
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
June 28,
2019
 
June 29,
2018
 
Percent
Increase/
(Decrease)
 
June 30,
2017
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
2,360

 
$
1,741

 
36
%
 
$
3,715

 
$
3,304

 
12
%
 
$
3,156

 
5
%
Operating income
$
442

 
$
328

 
35
%
 
$
697

 
$
628

 
11
%
 
$
559

 
12
%
% of revenue
19
%
 
19
%
 
 
 
19
%
 
19
%
 
 
 
18
%
 
 
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increases in segment revenue and operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during the two quarters ended January 3, 2020, as well as higher revenue in Mission Avionics from growth on long-term platforms, $54 million higher revenue from growth in ground-based adjacencies and exquisite systems in classified areas and $58 million of higher revenue in Electronic Warfare from increased production of electronic warfare systems for F/A-18 and B-52 aircraft. Segment operating margin percentage in the two quarters ended January 3, 2020 was comparable with the two quarters ended December 28, 2018. The funded backlog for this segment was approximately $3.9 billion at January 3, 2020 compared with $4.3 billion at the beginning of the Fiscal Transition Period (including backlog acquired on June 29, 2019 in connection with the L3Harris Merger).
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 88 percent in the two quarters ended January 3, 2020 compared with 89 percent in the two quarters ended December 28, 2018.
Fiscal 2019 Compared With Fiscal 2018:    The increase in revenue in fiscal 2019 compared with fiscal 2018 was primarily due to higher Mission Avionics and Electronic Warfare revenue from long-term avionics platforms, including the F-35, F/A-18,

46


F-16, CV-22 and B-52, and higher revenue from classified programs, driven by exquisite systems, small satellites and next generation technology, partially offset by lower revenue from environmental programs.
Segment operating income increased in fiscal 2019 and operating margin percentage was comparable with fiscal 2018, reflecting higher volume and strong program execution, offset by higher investments and employment costs.
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 91 percent in fiscal 2019 compared with 90 percent in fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The increase in revenue in fiscal 2018 compared with fiscal 2017 was primarily due to higher Mission Avionics and Electronic Warfare revenue from long-term avionics platforms, including the F-35, F/A-18 and F-16, higher revenue from classified programs, primarily driven by space superiority programs, and higher revenue from commercial customers, partially offset by lower civil revenue reflecting the impact of lower revenue from environmental programs.
Segment operating income and operating margin percentage increased in fiscal 2018 compared with fiscal 2017, reflecting higher volume, a more favorable mix of program revenue, incremental pension income, and productivity savings, partially offset by increased R&D investments, higher employment costs and the timing of other expense accruals.
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 90 percent in fiscal 2018 compared with 89 percent in fiscal 2017.
Communication Systems Segment
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3,
2020
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
June 28,
2019
 
June 29,
2018
 
Percent
Increase/
(Decrease)
 
June 30,
2017
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
2,151

 
$
1,018

 
111
%
 
$
2,208

 
$
2,015

 
10
%
 
$
1,891

 
7
%
Operating income
$
493

 
$
294

 
68
%
 
$
637

 
$
561

 
14
%
 
$
522

 
7
%
% of revenue
23
%
 
29
%
 
 
 
29
%
 
28
%
 
 
 
28
%
 
 
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increases in segment revenue and operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during the two quarters ended January 3, 2020, as well as $112 million of higher revenue in Tactical Communications from a ramp in DoD modernization programs, $46 million of higher revenue in Public Safety, reflecting increased demand from state and federal customers, and $38 million of higher revenue in Integrated Vision Solutions. The funded backlog for this segment was approximately $3.7 billion at January 3, 2020 compared with $3.2 billion at the beginning of the Fiscal Transition Period (including backlog acquired on June 29, 2019 in connection with the L3Harris Merger).
The decrease in segment operating margin percentage in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to a mix of program revenue and product sales with relatively lower operating margin percentage, partially offset by strong operational performance and integration savings.
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 69 percent in the two quarters ended January 3, 2020 compared with 54 percent in the two quarters ended December 28, 2018.
Fiscal 2019 Compared With Fiscal 2018:    The increase in revenue in fiscal 2019 compared with fiscal 2018 was primarily due to higher revenue in Tactical Communications, driven by DoD Tactical from a ramp in DoD modernization programs, and higher revenue in Public Safety and Professional Communications from state and federal agencies.
Segment operating income and operating margin percentage increased in fiscal 2019 compared with fiscal 2018, reflecting higher volume and productivity savings, partially offset by increased investments in R&D and bids and proposals.
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 53 percent in fiscal 2019 compared with 49 percent in fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The increase in revenue in fiscal 2018 compared with fiscal 2017 was primarily due to higher DoD tactical radio sales, reflecting readiness and modernization demand from the U.S. Army and USAF.

47


Segment operating income increased in fiscal 2018 and operating margin percentage was comparable with fiscal 2017, reflecting higher volume and productivity savings, partially offset by a less favorable mix of program revenue and product sales and higher employment costs.
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 49 percent in fiscal 2018 compared with 46 percent in fiscal 2017.
Aviation Systems Segment
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3,
2020
 
December 28,
2018
 
Percent
Increase/
(Decrease)
 
June 28,
2019
 
June 29,
2018
 
Percent
Increase/
(Decrease)
 
June 30,
2017
 
Percent
Increase/
(Decrease)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Revenue
$
2,038

 
$
342

 
496
%
 
$
672

 
$
668

 
1
%
 
$
697

 
(4
%)
Operating income
$
289

 
$
40

 
623
%
 
$
76

 
$
54

 
41
%
 
$
131

 
(59
%)
% of revenue
14
%
 
12
%
 
 
 
11
%
 
8
%
 
 
 
19
%
 
 
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018:    The increases in segment revenue, operating income and operating margin percentage in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during the two quarters ended January 3, 2020. Because the Aviation Systems segment is primarily comprised of L3 businesses, comparison to certain prior year segment operating metrics is not meaningful. In the two quarters ended January 3, 2020, segment revenue also reflected growth from precision engagement sensors and systems and $24 million of higher revenue in Mission Networks, partially offset by a $50 million revenue impact from the prior period competitive loss of the C-17 training contract. The funded backlog for this segment was approximately $3.4 billion at January 3, 2020 compared with $3.1 billion at the beginning of the Fiscal Transition Period (including backlog acquired on June 29, 2019 in connection with the L3Harris Merger).
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 59 percent in the two quarters ended January 3, 2020.
Fiscal 2019 Compared With Fiscal 2018:    The slight increase in revenue in fiscal 2019 compared with fiscal 2018 was primarily due to higher Mission Networks revenue. The increase in segment operating income and operating margin percentage in fiscal 2019 compared with fiscal 2018 was primarily due improved operational performance and cost containment.
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 86 percent in fiscal 2019 compared with 87 percent in fiscal 2018.
Fiscal 2018 Compared With Fiscal 2017:    The slight decrease in revenue in fiscal 2018 compared with fiscal 2017 was primarily due to lower Mission Networks revenue. The decrease in segment operating income and operating margin percentage in fiscal 2018 compared with fiscal 2017 was primarily due to a $36 million unfavorable impact from the ADS-B program, including a favorable contract settlement in the second quarter of fiscal 2017 and the program transition from build-out to sustainment.
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 87 percent in fiscal 2018 compared with 89 percent in fiscal 2017.

48


LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES
Cash Flows
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
December 28, 2018
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Net cash provided by operating activities
$
939

 
$
469

 
$
1,185

 
$
751

 
$
569

Net cash provided by (used in) investing activities
1,320

 
(67
)
 
(159
)
 
(141
)
 
870

Net cash used in financing activities
(1,971
)
 
(342
)
 
(781
)
 
(805
)
 
(1,438
)
Effect of exchange rate changes on cash and cash equivalents
6

 
(5
)
 
(3
)
 
(1
)
 
(4
)
Net increase (decrease) in cash and cash equivalents
294

 
55

 
242

 
(196
)
 
(3
)
Cash and cash equivalents, beginning of period
530

 
288

 
288

 
484

 
487

Cash and cash equivalents, end of period
$
824

 
$
343

 
$
530

 
$
288

 
$
484

Cash and cash equivalents
The $294 million net increase in cash and cash equivalents during the two quarters ended January 3, 2020 was primarily due to:
$1,130 million of net cash acquired in the L3Harris Merger;
$939 million of net cash provided by operating activities;
$343 million of net proceeds from sale of business; and
$109 million of proceeds from exercises of employee stock options; partially offset by
$1,500 million used to repurchase shares of our common stock;
$337 million used to pay cash dividends;
$173 million used for net additions of property, plant and equipment;
$109 million used for net repayments of borrowings, including $400 million in proceeds from the issuance of our 2.900% notes due December 15, 2029, $400 million used for our optional redemption of our 2.7% Notes due April 27, 2020 and $100 million used for repayment of short-term debt;
$86 million used for tax withholding payments associated with vested share-based awards; and
$38 million used in other financing activities.

The $242 million net increase in cash and cash equivalents during fiscal 2019 was primarily due to:
$1,185 million of net cash provided by operating activities; and
$50 million of proceeds from exercises of employee stock options; partially offset by
$325 million used to pay cash dividends;
$281 million used for net repayments of borrowings, including repayment at maturity of the entire outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019;
$200 million used to repurchase shares of our common stock;
$161 million used for net additions of property, plant and equipment; and
$24 million used for tax withholding payments associated with vested share-based awards.

Refer to the Liquidity, Capital Resources and Financial Strategies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 28, 2019 (our “Fiscal 2019 Form 10-K”) for discussion of the changes in cash and cash equivalents during fiscal 2018.
We ended the Fiscal Transition Period with cash and cash equivalents of $824 million, and we have a senior unsecured $2 billion revolving credit facility that expires in June 2024 (all of which was available to us as of January 3, 2020). Additionally, we had $6.7 billion of net long-term debt outstanding at January 3, 2020, the majority of which we incurred in connection with our the L3Harris Merger in the Fiscal Transition Period and the acquisition of Exelis in the fourth quarter of fiscal 2015. For further information regarding our long-term debt, see Note 14: Debt in the Notes. Our $824 million of cash and cash equivalents at January 3, 2020 included $437 million held by our foreign subsidiaries, a significant portion of which can be repatriated to the U.S. with minimal tax cost.
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.

49


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 debt securities at maturity for the next twelve months and reasonably foreseeable future thereafter. Our total capital expenditures for fiscal 2020 are expected to be approximately $400 million. We anticipate tax payments for fiscal 2020 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 (including repayment at maturity of the entire $250 million of our Floating Rate Notes due April 30, 2020), capital expenditures, dividend payments, repurchases under our share repurchase program, L3Harris Merger-related transaction and integration costs and cash payments to counterparties upon termination of yield-based treasury lock agreements (see Note 20: Derivative Instruments and Hedging Activities in the Notes for additional information regarding derivative instruments), we do not anticipate any significant cash outlays in fiscal 2020.
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 $470 million increase in net cash provided by operating activities in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to the impact of higher income, including a $229 million pre-tax gain on sale of business, $182 million decrease in net cash used to fund working capital and $157 million more in share-based compensation, partially offset by $328 million more in qualified pension contributions, including a $302 million voluntary contribution, in the two quarters ended January 3, 2020.
The $434 million increase in net cash provided by operating activities in fiscal 2019 compared with fiscal 2018 was primarily due to the impact of higher income in fiscal 2019 and a $300 million voluntary contribution to our U.S. qualified pension plans in fiscal 2018, partially offset by higher cash paid for income taxes.
Refer to the Liquidity, Capital Resources and Financial Strategies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2019 Form 10-K for discussion of the changes in net cash provided by operating changes during fiscal 2018.
Cash flow from operations was positive in all of our business segments in the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017.
Net cash provided by (used in) investing activities:    The $1.4 billion increase in net cash provided by investing activities in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to $1.1 billion of net cash acquired in the L3Harris Merger and $343 million of net proceeds from the sale of the Harris Night Vision business, partially offset by a $106 million increase in cash used for additions of property, plant and equipment.
The $18 million increase in net cash used in investing activities in fiscal 2019 compared with fiscal 2018 was primarily due to a $25 million increase in cash used for additions of property, plant and equipment.
Refer to the Liquidity, Capital Resources and Financial Strategies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2019 Form 10-K for discussion of the changes in net cash used in investing activities from fiscal 2017 to fiscal 2018.
Net cash used in financing activities:    The $1.6 billion increase in net cash used in financing activities in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to a $1.3 billion increase in cash used to repurchase our common stock, a $174 million increase in cash used to pay dividends, a $132 million increase in net cash used for net repayments of borrowings and a $66 million increase in cash used for tax withholding payments associated with vested share-based awards, partially offset by a $91 million increase in proceeds from exercises of employee stock options.
The $24 million decrease in net cash used in financing activities in fiscal 2019 compared with fiscal 2018 was primarily due to a $72 million decrease in cash used to repurchase our common stock, partially offset by a $53 million increase in cash used to pay dividends.

50


Refer to the Liquidity, Capital Resources and Financial Strategies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2019 Form 10-K for discussion of the changes in net cash used in financing activities from fiscal 2017 to fiscal 2018.
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 and the Bipartisan Budget Act of 2015 further extended the interest rate stabilization provision of MAP-21 until 2020. We made voluntary contributions to our U.S. qualified defined benefit pension plans of $302 million in the two quarters ended January 3, 2020 and $300 million and $400 million in fiscal 2018 and 2017, respectively. As a result, we currently do not anticipate making any contributions to our U.S. qualified defined benefit pension plans and we anticipate making only minor contributions to our non-U.S. pension plans during fiscal 2020.
Future required contributions primarily will depend 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 had unfunded defined benefit pension plan obligations of approximately $1.7 billion as of January 3, 2020 compared with approximately $1.2 billion as of June 28, 2019. This 42 percent increase in unfunded defined benefit pension plan obligations was primarily due to the inclusion of L3’s defined benefit pension plans assumed in the L3Harris Merger. See Note 15: Pension and Other Postretirement Benefits in the Notes for further information regarding our defined benefit plans.
Common Stock Repurchases
During the two quarters ended January 3, 2020, we used $1.5 billion to repurchase 7,356,168 shares of our common stock under our 2019 Repurchase Program at an average price per share of $203.92, including commissions of $.02 per share. During the two quarters ended December 28, 2018 (our first two quarters of fiscal 2019), we repurchased 1,219,750 shares of our common stock under our prior repurchase program for $200 million at an average price per share of $163.99, including commissions of $.02 per share. We did not repurchase any shares of our common stock under our prior repurchase program during the third and fourth quarters of fiscal 2019. In the two quarters ended January 3, 2020, $86 million in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. In fiscal 2019, $24 million 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 July 1, 2019, we announced that our Board of Directors approved the 2019 Repurchase Program, a $4 billion share repurchase authorization that does not have a stated expiration date. The 2019 Repurchase Program replaced our prior share repurchase program, which had a remaining unused authorization of approximately $501 million, as well as L3’s prior share repurchase program. At January 3, 2020, we had a remaining, unused authorization of approximately $2.5 billion under our 2019 Repurchase Program. Repurchases under the 2019 Repurchase Program may be made through open-market transactions, 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 and management 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 2019 Repurchase Program 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

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On February 28, 2020, our Board of Directors increased the quarterly cash dividend rate on our common stock from $.75 per share to $.85 per share, for an annualized cash dividend rate of $3.40 per share, which was our nineteenth consecutive annual increase in our quarterly cash dividend rate. Our annualized cash dividend rate was $3.00 per share in the two quarters ended January 3, 2020 and $2.74 per share, $2.28 per share and $2.12 per share in fiscal 2019, 2018 and 2017, respectively. 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 or future dividend increases. The declaration of dividends and the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors 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
2019 Credit Agreement:    As discussed in Note 13: Credit Arrangements in the Notes, on June 28, 2019, we established a new $2 billion, 5-year senior unsecured revolving credit facility (the “2019 Credit Facility”) by entering into a Revolving Credit Agreement (the “2019 Credit Agreement”) with a syndicate of lenders. The 2019 Credit Facility replaced our prior $1 billion, 5-year senior unsecured revolving credit facility (the “2018 Credit Facility”). The description of the 2019 Credit Facility and the 2019 Credit Agreement set forth in Note 13: Credit Arrangements in the Notes is incorporated herein by reference.
We were in compliance with the covenants in the 2019 Credit Agreement at January 3, 2020, including the covenant requiring that we not permit our ratio of consolidated total indebtedness to total capital, each as defined in the 2019 Credit Agreement, to be greater than 0.65 to 1.00. At January 3, 2020, we had no borrowings outstanding under the 2019 Credit Arrangement.
Exchange Offer:    In connection with the L3Harris Merger, on May 30, 2019, we commenced offers to eligible holders to exchange any and all outstanding 4.950% Senior Notes due 2021, 3.850% Senior Notes due 2023, 3.950% Senior Notes due 2024, 3.850% Senior Notes due 2026 and 4.400% Senior Notes due 2028 issued by L3 for up to $3.35 billion aggregate principal amount of new notes issued by L3Harris and cash. On July 2, 2019, we settled the debt exchange offer. See Note 14: Debt in the Notes for additional information.
Short-Term Debt:    Our short-term debt at January 3, 2020, June 28, 2019 and June 29, 2018 was $3 million, $103 million and $78 million, respectively, consisting of commercial paper and local borrowing by international subsidiaries for working capital needs. Our commercial paper program was supported by the 2019 Credit Facility at January 3, 2020 and June 28, 2019 and the 2018 Credit Facility at June 29, 2018. See Note 13: Credit Arrangements in the Notes for additional information regarding credit arrangements.
Long-Term Variable-Rate Debt:    The description of our long-term variable-rate debt set forth in Note 14: Debt in the Notes is incorporated herein by reference. As discussed in Note 14: Debt in the Notes, during the third quarter of fiscal 2019, we repaid at maturity the entire outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019 that had been issued in the third quarter of fiscal 2018. During the second quarter of fiscal 2018, we completed the issuance and sale of $250 million in aggregate principal amount of Floating Rate Notes due April 30, 2020 and used the net proceeds, together with cash on hand, to repay in full the $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March 16, 2015. We repaid the entire $305 million in remaining outstanding indebtedness under our variable-rate term loans during fiscal 2018.
Long-Term Fixed-Rate Debt:    The description of our long-term fixed-rate debt set forth in Note 14: Debt in the Notes is incorporated herein by reference. As discussed in Note 14: Debt in the Notes, on November 27, 2019, in order to fund our optional redemption of our 2.7% Notes due April 27, 2020 (the “2.7% 2020 Notes”), we completed the issuance and sale of $400 million in aggregate principal amount of 2.900% Notes due December 15, 2029. On December 16, 2019, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of the 2.7% 2020 Notes at a “make-whole” redemption price of $403 million, as set forth in the 2.7% 2020 Notes. The 2.7% 2020 Notes were terminated and cancelled. On June 4, 2018, in order to fund our optional redemption of the 2018 Redeemed Notes described below, we completed the issuance and sale of $850 million in aggregate principal amount of 4.400% Notes due June 15, 2028. On June 22, 2018, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 4.4% Notes due December 15, 2020 (the “4.4% 2020 Notes”) and $400 million aggregate principal amount of our 5.55% Notes due October 1, 2021 (the “5.55% 2021 Notes” and collectively with the 4.4% 2020 Notes, the “2018 Redeemed Notes”) at a “make-whole” redemption price as set forth in the 4.4% 2020 Notes and the 5.55% 2021 Notes, respectively. The combined “make-whole” redemption price for the 2018 Redeemed Notes was $844 million. The 2018 Redeemed Notes were terminated and cancelled. During the fourth quarter of fiscal 2018, we also repaid at maturity the entire outstanding $500 million aggregate principal amount of our 1.999% Notes due April 27, 2018.
During fiscal 2017, we repaid at maturity the entire outstanding $250 million aggregate principal amount of our 4.25% Notes due October 1, 2016.
Other Agreements: We have a receivable sales agreement (“RSA”) with a third-party financial institution that permits us to sell, on a non-recourse basis, up to $100 million of outstanding receivables at any given time. From time to time, we have sold certain customer receivables under the RSA, which we continue to service and collect on behalf of the third-party financial institution and which we account for as sales of receivables with sale proceeds included in net cash from operating activities. The impact to net cash from operating activities from these transactions was not material in the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017.

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Contractual Obligations
At January 3, 2020, 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:
 
 
 
 
Payment Due by Period
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
Less than 1 Year
 
Years
1 - 3
 
Years
3 - 5
 
More than
5 Years
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Long-term debt
$
6,825

 
$
257

 
$
662

 
$
1,156

 
$
4,750

Purchase obligations (1)
3,395

 
2,818

 
528

 
40

 
9

Operating lease commitments
1,058

 
162

 
257

 
189

 
450

Interest on long-term debt
2,603

 
273

 
496

 
441

 
1,393

Minimum pension contributions (2)
5

 
5

 

 

 

Total(3)
$
13,886

 
$
3,515

 
$
1,943

 
$
1,826

 
$
6,602

_______________
(1)
The purchase obligations of $3.4 billion included $568 million of purchase obligations related to cost-plus type contracts where our costs are fully reimbursable.
(2)
Amount includes fiscal 2020 minimum contributions to non-U.S. pension plans. Contributions beyond fiscal 2020 have not been determined. During the two quarters ended January 3, 2020, we contributed $328 million to our qualified pension plans, including voluntary contributions of $302 million to our U.S. qualified defined benefit pension plans. During fiscal 2018 and 2017, we also made voluntary contributions of $700 million to our U.S. qualified defined benefit pension plans. As a result, we currently do not anticipate making any contributions to our U.S. qualified defined benefit pension plans and only minor contributions to non-U.S. pension plans during fiscal 2020.
(3)
The above table does not include unrecognized tax benefits of $438 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, arising out of a 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 January 3, 2020, 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 January 3, 2020, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect our financial condition, results of operations or cash flows, and we were not a party to any related party transactions that materially affect our financial condition, 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 condition, results of operations or cash flows.
Due to our downsizing of certain operations pursuant to acquisitions, divestitures, 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 condition, results of operations or cash flows.

53


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 January 3, 2020, we had commercial commitments on outstanding surety bonds, standby letters of credit and other arrangements, as follows:
 
 
 
Expiration of Commitments
 
Total
 
Less than
1 Year
 
Year 2
 
Year 3
 
After 3 years
 
(In millions)
Surety bonds used for:
 
 
 
 
 
 
 
 
 
Performance
$
539

 
$
395

 
$
16

 
$
10

 
$
118

Standby letters of credit used for:
 
 
 
 
 
 
 
 
 
Down payments
271

 
155

 
65

 
40

 
11

Performance
345

 
171

 
55

 
47

 
72

Warranty
77

 
59

 
17

 

 
1

 
693

 
385

 
137

 
87

 
84

Total commitments
$
1,232

 
$
780

 
$
153

 
$
97

 
$
202

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:    Our U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than functional currencies of such businesses. We use foreign currency forward contracts and options to hedge both balance sheet and off-balance sheet future foreign currency commitments. Factors that could impact the effectiveness of our hedging programs for foreign currency include accuracy of sales estimates, volatility of currency markets and the cost and availability of hedging instruments. A 10 percent change in currency exchange rates for our foreign currency derivatives held at January 3, 2020 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 January 3, 2020, we had long-term fixed-rate debt obligations. The fair value of these obligations is impacted by changes in interest rates; however, a 10 percent change in interest rates for our long-term fixed-rate debt obligations at January 3, 2020 would not have had a material impact on the fair value of these obligations. There is no interest-rate risk associated with long-term fixed-rate debt obligations on our results of operations and cash flows unless existing obligations are refinanced upon maturity at then-current interest rates, because the interest rates are fixed until maturity, 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,

54


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. See Note 14: Debt in the Notes for information regarding the maturities of our long-term fixed-rate debt obligations.
We use derivative instruments from time to time to manage our exposure to interest rate risk associated with our anticipated issuance of new long-term fixed-rate notes to repay at maturity our existing long-term fixed-rate debt obligations. If the derivative instrument is designated as a cash flow hedge, gains and losses from changes in the fair value of such instrument are deferred and included as a component of accumulated other comprehensive loss and reclassified to interest expense in the period in which the hedged transaction affects earnings. See Note 20: Derivative Instruments and Hedging Activities in the Notes for additional information.
At January 3, 2020, we had two outstanding treasury lock agreements, with a notional amount of $650 million, to hedge our exposure to fluctuations in the benchmark interest rate (10-year U.S. Treasury rate) associated with our anticipated issuance of long-term fixed-rate notes to redeem or repay at maturity the entire $650 million outstanding principal amount of the 4.95% Notes due February 15, 2021 (“4.95% 2021 Notes”). We designated these treasury locks as cash flow hedges against fluctuations in interest payments on the 4.95% 2021 Notes due to changes in the benchmark interest rate prior to issuance, which we expect to occur before the date of maturity of the 4.95% 2021 Notes. An unrealized after-tax loss of $16 million associated with these treasury locks was deferred in accumulated other comprehensive loss at January 3, 2020. A 10 percent change in the 10-year U.S. Treasury rate at September 27, 2019 would not have had a material impact on the fair value of these treasury lock agreements or our results of operations or cash flows. See Note 20: Derivative Instruments and Hedging Activities in the Notes for additional information.
As of January 3, 2020, we also had long-term variable-rate debt obligations of $250 million of Floating Rate Notes due April 30, 2020. These debt obligations 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 debt obligations at January 3, 2020 would not have had a material impact on our results of operations or cash flows. See Note 14: Debt in the Notes for further information.
We have also used short-term variable-rate debt borrowings, primarily under our commercial paper program, which are 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 40 percent of our international business was transacted in local currency environments in the two quarters ended January 3, 2020 compared with 18 percent in fiscal 2019 and 22 percent in fiscal 2018. 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 January 3, 2020, the cumulative foreign currency translation adjustment included in shareholders’ equity was a $81 million loss compared with a $106 million loss at June 28, 2019 and $99 million loss at June 29, 2018. 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 the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017.
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 the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017.
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, liabilities, revenue, expenses and backlog as well as disclosure of contingent assets and liabilities. Actual results may differ from those estimates.

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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.”
Revenue Recognition
A significant portion of our business is derived from development and production contracts. Revenue and profit related to development and production contracts are generally recognized over time, typically using the percentage of completion (“POC”) cost-to-cost method of revenue recognition, whereby we measure our progress toward completion of performance obligations based on the ratio of costs incurred to date to estimated total costs at completion under the contract. Because costs incurred represent work performed, we believe this method best depicts the transfer of control to the customer. Under the POC cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price as well as measurement of progress towards completion. Due to the long-term nature of many of our contracts, developing the estimated total cost at completion and total transaction price 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 and the risk and impact of delayed performance. Factors that must be considered in estimating the total transaction price include contractual cost or performance incentives (such as incentive fees, award fees and penalties) and other forms of variable consideration as well as our historical experience and expectation for performance on the contract. These variable amounts generally are awarded upon achievement of certain negotiated performance metrics, program milestones or cost targets and can be based upon customer discretion. We include such estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
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 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, as the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we receive award fees that are higher or lower than expected. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on 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. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
EAC adjustments had the following impacts to operating income for the periods presented:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Favorable adjustments
$
303

 
$
138

 
$
127

 
$
117

Unfavorable adjustments
(166
)
 
(121
)
 
(146
)
 
(118
)
Net operating income adjustments
$
137

 
$
17

 
$
(19
)
 
$
(1
)
There were no individual impacts to operating income due to EAC adjustments in the two quarters ended January 3, 2020 or in fiscal 2019, 2018 or 2017 that were material to our results of operations on a consolidated or segment basis for such periods.
We recognize revenue from numerous contracts with multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on the relative standalone selling price of the good or service underlying each performance obligation. The standalone selling price represents the amount for which we would sell the good or service to a customer on a standalone basis (i.e., not sold as bundled sale with any other products or services). The allocation of transaction price among separate performance obligations may impact the timing of revenue recognition but will not change the total revenue recognized on the contract.
A substantial majority of our revenue is derived from contracts with the U.S. Government, including foreign military sales contracts. These contracts are subject to the FAR and the prices of our contract deliverables are typically based on our estimated or actual costs plus a reasonable profit margin. As a result, the standalone selling prices of the goods and services in these

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contracts are typically equal to the selling prices stated in the contract, thereby eliminating the need to allocate (or reallocate) the transaction price to the multiple performance obligations. In our non-U.S. Government contracts, when standalone selling prices are not directly observable, we also generally use the expected cost plus a margin approach to determine standalone selling price. In determining the appropriate margin under the cost plus margin approach, we consider historical margins on similar products sold to similar customers or within similar geographies where objective evidence is available. We may also consider our cost structure and profit objectives, the nature of the proposal, the effects of customization of pricing, our practices used to establish pricing of bundled products, the expected technological life of the product, margins earned on similar contracts with different customers and other factors to determine the appropriate margin.
Postretirement Benefit Plans
Certain of our current and former employees participate in defined benefit pension and other postretirement defined benefit plans (collectively, referred to as “defined benefit plans”) in the United States, Canada, United Kingdom and Germany, which are sponsored by L3Harris. 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 15: Pension and Other Postretirement Benefits 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.
As part of our accounting for the L3Harris Merger, we completed a valuation and re-measurement of all L3 pension and other postretirement benefit (“OPEB”) plans as of the June 29, 2019 closing date of the L3Harris Merger and we recorded a $233 million increase to L3’s pension and OPEB liability as of June 29, 2019 based on the results of this valuation. The total L3 pension and OPEB liability assumed by L3Harris was $1.4 billion at June 29, 2019. The discount rate assumption used was a yield curve rather than a single interest rate. For the pension plans, the average June 29, 2019 discount rate used was 3.54 percent for U.S. plans and 2.95 percent for Canadian plans. For OPEB plans, the average June 29, 2019 discount rate used was 3.31 percent for U.S. plans and 2.92 percent for Canadian plans. The long‐term expected rate of return on plan assets for the Fiscal Transition Period was 7.75 percent for the majority of our postretirement benefit plans.
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:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
Discount rate
3.14%
 
3.35%
 
4.05%
Rate of future compensation increase
2.80%
 
2.76%
 
2.76%
 
 
 
 
 
 
Cost assumptions for fiscal periods ended:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
Discount rate to determine service cost
3.11%
 
3.89%
 
3.48%
Discount rate to determine interest cost
2.94%
 
3.75%
 
3.28%
Expected return on plan assets
7.68%
 
7.66%
 
7.66%
Rate of future compensation increase
2.97%
 
2.76%
 
2.76%
Key assumptions for the U.S. Salaried Retirement Plan (“U.S. SRP”) (our largest defined benefit plan, with approximately 54% of the total projected benefit obligation as of January 3, 2020) included a discount rate for obligation assumptions of 3.10% and expected return on plan assets of 7.75% for the two quarters ended January 3, 2020, which is being maintained at 7.75% for fiscal 2020. 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 employees who were not highly compensated on December 31, 2016.
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 15: Pension and Other Postretirement Benefits in the Notes. Future returns are based on independent estimates of long-term asset class returns. Based on this approach, the long-term annual rate of return on assets was estimated at 7.68% for the two quarters ended January 3, 2020 and fiscal 2020.

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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.
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’ pension expense for the next twelve months:
 
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
$
(19.4
)
 
$
19.5

Discount rate used to determine net periodic benefit cost
$
7.4

 
$
(7.7
)
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 $288.7 million and an increase of 25 basis points would decrease the PBO by approximately $274.7 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 managers, as well as general market information. Asset values for other positions were generally measured using market observable prices. See Note 15: Pension and Other Postretirement Benefits in the Notes for further information.
Goodwill
Goodwill in our Consolidated Balance Sheet as of January 3, 2020 and June 28, 2019 was $20.0 billion and $5.3 billion, 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.
L3Harris Merger Goodwill Allocation
As discussed in more detail in Note 25: Business Segments in the Notes, after the completion of the L3Harris Merger, we adjusted our segment reporting to reflect our new organizational structure effective June 29, 2019. Because our accounting for the L3Harris Merger is still preliminary, we assigned goodwill acquired on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed. See Note 5: Business Combination and Note 10: Goodwill in the Notes for additional information.
Harris Night Vision Goodwill Allocation
As described in more detail in Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes, we entered into a definitive agreement to sell the Harris Night Vision business on April 4, 2019 and completed the sale on September 13, 2019. Because the then pending divestiture of the Harris Night Vision business represented the disposal of a portion of a reporting unit within our former Communication System segment, we assigned $30 million of goodwill to the Harris Night Vision business

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disposal group on a relative fair value basis during the fourth quarter of fiscal 2019, when the held for sale criteria were met. The fair value of the Harris Night Vision business 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, and we concluded that goodwill and other assets related to the Harris Night Vision business were not impaired as of June 28, 2019.
IT Services Goodwill Allocation and Impairment
As described in more detail in Note 3: Divestitures, Asset Sales and Discontinued Operations 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 was non-deductible for tax purposes.
Fiscal 2017, 2018 and 2019 and Fiscal Transition Period Impairment Tests
We perform an annual impairment test of our goodwill as of the first day of our fourth fiscal quarter of each year, and more frequently if we believe indicators of impairment exist. Following our fiscal year end change, we made a corresponding change to our annual impairment assessment date and will continue to perform annual impairment test on the first day of our fourth quarter, which for the Fiscal Transition Period was September 28, 2019 (the first day of the last quarter of the Fiscal Transition Period).
We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level or one level below the business segment. Some of our segments are comprised of several reporting units. Allocation of goodwill to several reporting units could make it more likely that we will have an impairment charge in the future. An impairment charge to one of our reporting units could have a material impact on our financial condition and results of operations.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we elect to perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the reporting unit to determine the probability that goodwill is impaired. If we determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment.
Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) deterioration in the general economy; (ii) deterioration in the environment in which the company operates; (iii) increase in raw materials, labor or other costs; (iv) negative or declining cash flows; (v) changes in management, changes in strategy, or significant litigation; (vi) change in the composition or carrying amount of net assets or an expectation of disposing all or a portion of the reporting unit; or (vii) a sustained decrease in share price.
If we perform a quantitative assessment for a certain reporting unit, we calculate the fair value of that reporting unit and compare the fair value to the reporting unit’s net book value. 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.

59


We tested goodwill for impairment as of September 28, 2019 and the estimated fair value for each of our reporting units exceeded its carrying amount.
Accounting for Business Combinations
We follow the acquisition method of accounting to record identifiable assets acquired, liabilities assumed and noncontrolling interests in the acquiree recognized in connection with acquired businesses at their estimated fair value as of the date of acquisition.
Intangible assets from business combinations are recognized at their estimated fair values as of the date of acquisition and generally consist of customer relationships, trade names, developed technology and in-process R&D (“IPR&D”). Determination of the estimated fair value of intangible assets requires judgment. The fair value of customer contractual relationships is determined based on estimates and judgments regarding future after-tax earnings and cash flows arising from follow-on sales on contract renewals expected from customer contractual relationships over their estimated lives, including the probability of expected future contract renewals and sales, less a contributory asset charge, all of which is discounted to present value. The fair value of trade name intangible assets is determined utilizing the relief from royalty method. Under this form of the income approach, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. Intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. Finite-lived intangible assets are amortized to expense over their useful lives, generally ranging from three to twenty years. The preliminary estimated fair value of identifiable intangible assets acquired in connection with the L3Harris Merger was approximately $7.9 billion.
We assess the recoverability of 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 of the assets. If the sum of 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 5: Business Combination and Note 11: Intangible Assets for additional information.
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 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 two quarters ended January 3, 2020 or the previous three fiscal years.
Our Consolidated Balance Sheet as of January 3, 2020 included deferred tax assets of $102 million and deferred tax liabilities of $1.48 billion. This compares with deferred tax assets of $173 million and deferred tax liabilities of $12 million as of June 28, 2019 and deferred tax assets of $119 million and deferred tax liabilities of $79 million as of June 29, 2018. 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 $185 million as of January 3, 2020 compared with $159 million as of June 28, 2019 and $181 million as of June 29, 2018. 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.
The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, involves inherent uncertainty and requires the use of judgment. We evaluate our income tax positions and record tax benefits for all years subject to examination based on our assessment of the facts and circumstances as of the reporting date. For tax positions where it is more likely than not that a tax benefit will be realized, we record the largest amount of tax benefit with a greater than 50 percent probability of being realized upon ultimate settlement with the applicable taxing authority, assuming the taxing authority has full knowledge of all relevant information. For income tax positions where it is not more likely than not that a tax benefit will be realized, we do not recognize a tax benefit in our Consolidated Financial Statements.
As of January 3, 2020, we had $438 million of unrecognized tax benefits, of which $313 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of June 28, 2019, we had $204 million of unrecognized tax benefits, of which $162 million would favorably impact our future tax rates in the event that the tax benefits are

60


eventually recognized. As of June 29, 2018, we had $102 million of unrecognized tax benefits, of which $92 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized.
It is reasonably possible that there could be a significant decrease or increase to our unrecognized tax benefits during the course of the next twelve months as ongoing tax examinations continue, other tax examinations commence or various statutes of limitations expire. However, 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. See Note 23: Income Taxes for additional information.
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 condition, results of operations and cash flows.
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.
The U.S. Government’s budget deficit and the national debt, as well as any inability of the U.S. Government to complete its budget process for any government fiscal year and consequently having to shut down or operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution,” 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, insider threats or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers.
Our ability to successfully manage ongoing business and organizational changes could impact our business results.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. In particular, our fixed-price contracts 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.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could affect our financial condition, results of operations and cash flows in future periods.
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.
Disputes with our subcontractors or the inability of our subcontractors to perform, or our key suppliers to timely deliver our components, parts or services, could cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory manner.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.
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.
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations and cash flows.

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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 are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.
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.
Our commercial aviation products, systems and services business is affected by global demand and economic factors that could negatively impact our financial results.
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.
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.
We must attract and retain key employees, and any failure to do so could seriously harm us.
Some of our workforce is represented by labor unions, so our business could be harmed in the event of a prolonged work stoppage.
We may fail to realize all of the anticipated benefits of the L3Harris Merger or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating the businesses.
Certain business uncertainties arising from the L3Harris Merger could adversely affect our businesses and operations.
We have incurred and will incur direct and indirect costs as a result of the L3Harris Merger.

 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 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 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 15: Pension and Other Postretirement Benefits in the Notes, which information is incorporated by reference into this Item 7A.


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 ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Page
Consolidated Statement of Income — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; and June 30, 2017
Consolidated Statement of Comprehensive Income — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; and June 30, 2017
Consolidated Balance Sheet — January 3, 2020, June 28, 2019 and June 29, 2018
Consolidated Statement of Cash Flows — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; and June 30, 2017
Consolidated Statement of Equity — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; and June 30, 2017


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MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The management of L3Harris Technologies, Inc. (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 January 3, 2020. 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 January 3, 2020.
Management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting the internal controls of L3 Technologies, Inc. (“L3”), which the Company merged with on June 29, 2019, and whose financial statements represent 15 percent of the Company’s total assets, excluding the preliminary value of goodwill and other intangible assets, as of January 3, 2020, and 61 percent of the Company’s total revenue for the two quarters then ended. Management will include the internal controls of L3 in its assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of fiscal 2020.
The Company’s independent registered 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 68 of this Transition Report on Form 10-KT.


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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of L3Harris Technologies, Inc. (the Company) as of January 3, 2020, June 28, 2019 and June 29, 2018, the related consolidated statements of income, comprehensive income, cash flows and equity for the two quarters ended January 3, 2020 and for each of the three years in the period ended June 28, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 3, 2020, June 28, 2019 and June 29, 2018, and the results of its operations and its cash flows for the two quarters ended January 3, 2020 and each of the three years in the period ended June 28, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 3, 2020, 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 March 3, 2020 expressed an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


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Cost estimation for revenue recognition on development and production contracts
Description of the Matter
As described in Note 1 of the consolidated financial statements, the Company recognized revenue for certain of its development and production contracts over time, typically using a percentage of completion cost-to-cost method, which required estimates of the total cost to be incurred for each contract at completion. At the outset of the contract, the Company establishes an estimated total cost to complete, taking into consideration the complexity and perceived risks associated with the technical, schedule and cost aspects of the contract. After establishing the estimated total cost to complete, the Company reviews the progress and performance on its ongoing development and production contracts at least quarterly and updates the estimated total cost to complete as needed. Such estimates are subject to change during the performance of the contract and significant changes in estimates could have a material effect on the Company’s results of operations.
Auditing the cost estimation for development and production contracts involved subjective auditor judgment because the Company’s development of the estimated total cost at completion required estimates of the cost of the work to be completed based on the Company’s assumptions around achieving the technical, schedule and cost aspects of its development and production contracts. In determining the estimates of the cost of the work to be completed, the Company considered the nature and complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. Estimates of total cost at completion were also affected by management’s assessment of the current status of the contract and expectation for performance on the contract, as well as historical experience.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s accounting for cost estimation for development and production contracts. For example, we tested certain controls over management’s review of the estimate at completion analyses and the significant assumptions underlying the estimated total costs to complete. We also tested certain of management’s controls to validate that the data used in the estimate at completion analyses was complete and accurate.
To test the cost estimation for development and production contracts, our audit procedures included, among others, obtaining an understanding of the contract, meeting with program management to confirm our understanding of the risks associated with the arrangement and the current contract performance, review of customer correspondence and contractual milestones, and comparing cost estimates to historical cost experience with similar contracts, when applicable. Additionally, we obtained an understanding of the Company’s past performance of estimating total costs to complete by reviewing changes in the cost estimates from previous periods and reviewing the overall accuracy of management’s cost to completion estimations through lookback analyses.
.

66


 
Valuation of acquired intangible assets
Description of the Matter
As described in Note 5 to the consolidated financial statements, the Company completed its merger with L3 Technologies, Inc. (L3) on June 29, 2019 for net consideration of $18.7 billion. The merger was accounted for using the acquisition method of accounting, and the Company was treated as the accounting acquirer. The Company’s accounting for the acquisition included determining the fair value of the intangible assets acquired of $7.9 billion, which primarily included customer relationships and tradenames.
Auditing the Company's accounting for the acquired intangible assets involved subjective auditor judgment due to the significant estimation required in management’s determination of the fair value of intangible assets. The Company used a discounted cash flow valuation method to measure the customer relationship intangible assets and a relief from royalty valuation method to measure the tradename intangible assets. The significant estimation was due to the sensitivity of the respective fair values to the underlying significant assumptions, which included discount rates, royalty rates, and certain assumptions that formed the basis of the forecasted revenues. These significant assumptions relate to the future performance of L3, are forward-looking, and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for accounting for the acquired intangible assets. For example, we tested controls over management’s review of the valuation of acquired intangible assets, including the review of the valuation models and the significant assumptions used in the valuations. We also tested management’s controls to validate that the data used in the valuation models was complete and accurate.
To test the fair value of these acquired intangible assets, our audit procedures included, among others, evaluating the Company's use of valuation methodologies, evaluating the prospective financial information and testing the completeness and accuracy of underlying data. For example, we involved our valuation specialists to assist in evaluating the valuation methods used by the Company and testing the significant assumptions used to value the acquired intangible assets. We compared the significant assumptions to current industry, market and economic trends, historical results of L3 and other relevant factors. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value of the acquired intangible assets resulting from changes in such assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since at least 1932, but we are unable to determine the specific year.
Orlando, Florida
March 3, 2020




67


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.
Opinion on Internal Control over Financial Reporting
We have audited L3Harris Technologies, Inc.’s internal control over financial reporting as of January 3, 2020, 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). In our opinion, L3Harris Technologies, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 3, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 3, 2020, June 28, 2019 and June 29, 2018, the related consolidated statements of income, comprehensive income, cash flows and equity for the two quarters ended January 3, 2020 and for each of the three years in the period ended June 28, 2019, and the related notes and our report dated March 3, 2020 expressed an unqualified opinion thereon.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of L3 Technologies, Inc., which is included in the 2019 consolidated financial statements of the Company as of January 3, 2020 and constituted 15% of L3Harris Technologies’ total assets, excluding the preliminary value of goodwill and other intangible assets as of January 3, 2020, and 61% of L3Harris Technologies’ total revenue for the two quarters then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of L3 Technologies, Inc.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulation of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitation of Internal Control Over Financial Reporting
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 transaction 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 generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorization 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.

/s/ Ernst & Young LLP
Orlando, Florida
March 3, 2020

68


CONSOLIDATED STATEMENT OF INCOME
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
(In millions, except per share amounts)
Revenue from product sales and services
 
 
 
 
 
 
 
Revenue from product sales
$
6,908

 
$
5,638

 
$
5,038

 
$
4,667

Revenue from services
2,355

 
1,163

 
1,130

 
1,230

 
9,263

 
6,801

 
6,168

 
5,897

Cost of product sales and services
 
 
 
 
 
 
 
Cost of product sales
(4,996
)
 
(3,615
)
 
(3,239
)
 
(3,058
)
Cost of services
(1,730
)
 
(852
)
 
(827
)
 
(796
)
 
(6,726
)
 
(4,467
)
 
(4,066
)
 
(3,854
)
Engineering, selling and administrative expenses
(1,927
)
 
(1,242
)
 
(1,182
)
 
(1,150
)
Gain on sale of business
229

 

 

 

Non-operating income
192

 
188

 
156

 
166

Interest income
12

 
2

 
2

 
2

Interest expense
(135
)
 
(169
)
 
(170
)
 
(172
)
Income from continuing operations before income taxes
908

 
1,113

 
908

 
889

Income taxes
(73
)
 
(160
)
 
(206
)
 
(261
)
Income from continuing operations
835

 
953

 
702

 
628

Discontinued operations, net of income taxes
(1
)
 
(4
)
 
(3
)
 
(85
)
Net income
834

 
949

 
699

 
543

Noncontrolling interests, net of income taxes
(12
)
 

 

 

Net income attributable to L3Harris Technologies, Inc.
$
822

 
$
949

 
$
699

 
$
543

 
 
 
 
 
 
 
 
Amount attributable to L3Harris Technologies, Inc. common shareholders
 
 
 
 
 
 
 
Income from continuing operations
$
823

 
$
953

 
$
702

 
$
628

Discontinued operations, net of income taxes
(1
)
 
(4
)
 
(3
)
 
(85
)
Net income
$
822

 
$
949

 
$
699

 
$
543

 
 
 
 
 
 
 
 
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Continuing operations
$
3.72

 
$
8.06

 
$
5.90

 
$
5.11

Discontinued operations

 
(0.03
)
 
(0.02
)
 
(0.69
)
 
$
3.72

 
$
8.03

 
$
5.88

 
$
4.42

Diluted
 
 
 
 
 
 
 
Continuing operations
$
3.68

 
$
7.89

 
$
5.78

 
$
5.04

Discontinued operations
(0.01
)
 
(0.03
)
 
(0.02
)
 
(0.68
)
 
$
3.67

 
$
7.86

 
$
5.76

 
$
4.36

See accompanying Notes to Consolidated Financial Statements.


69


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
(In millions)
Net income
$
834

 
$
949

 
$
699

 
$
543

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation gain (loss), net of income taxes
25

 
(7
)
 
15

 
(34
)
Net unrealized gain (loss) on hedging derivatives, net of income taxes
(17
)
 
(18
)
 
1

 
1

Net unrecognized gain (loss) on postretirement obligations, net of income taxes
178

 
(480
)
 
93

 
200

Other comprehensive income (loss), net of income taxes
186

 
(505
)
 
109

 
167

Total comprehensive income
1,020

 
444

 
808

 
710

Comprehensive income attributable to noncontrolling interests
(12
)
 

 

 

Total comprehensive income attributable to L3Harris Technologies, Inc.
$
1,008

 
$
444

 
$
808

 
$
710

See accompanying Notes to Consolidated Financial Statements.


70


CONSOLIDATED BALANCE SHEET
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions, except shares)
Assets
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and cash equivalents
$
824

 
$
530

 
$
288

Receivables
1,216

 
457

 
466

Contract assets
2,459

 
807

 
782

Inventories
1,219

 
360

 
411

Income taxes receivable
202

 
191

 
174

Other current assets
392

 
100

 
103

Assets of disposal group held for sale

 
133

 

Total current assets
6,312

 
2,578

 
2,224

Non-current Assets
 
 
 
 
 
Property, plant and equipment
2,117

 
894

 
900

Operating lease right-of-use assets
837

 

 

Goodwill
20,001

 
5,340

 
5,372

Other intangible assets
8,458

 
870

 
989

Deferred income taxes
102

 
173

 
119

Other non-current assets
509

 
262

 
247

Total non-current assets
32,024

 
7,539

 
7,627

 
$
38,336

 
$
10,117

 
$
9,851

Liabilities and Equity
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Short-term debt
$
3

 
$
103

 
$
78

Accounts payable
1,261

 
525

 
622

Contract liabilities
1,214

 
496

 
372

Compensation and benefits
460

 
161

 
142

Other accrued items
790

 
283

 
317

Income taxes payable
24

 
8

 
15

Current portion of long-term debt, net
257

 
656

 
304

Liabilities of disposal group held for sale

 
36

 

Total current liabilities
4,009

 
2,268

 
1,850

Non-current Liabilities
 
 
 
 
 
Defined benefit plans
1,819

 
1,174

 
714

Operating lease liabilities
781

 

 

Long-term debt, net
6,694

 
2,763

 
3,408

Deferred income taxes
1,481

 
12

 
79

Other long-term liabilities
808

 
537

 
522

Total non-current liabilities
11,583

 
4,486

 
4,723

Equity
 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
 
Preferred stock, without par value; 1,000,000 shares authorized; none issued

 

 

Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 218,226,614, 118,552,599 and 118,280,120 shares at January 3, 2020, June 28, 2019 and June 29, 2018, respectively
218

 
119

 
118

Other capital
20,694

 
1,778

 
1,714

Retained earnings
2,183

 
2,173

 
1,648

Accumulated other comprehensive loss
(508
)
 
(707
)
 
(202
)
Total shareholders’ equity
22,587

 
3,363

 
3,278

Noncontrolling interests
157

 

 

Total equity
22,744

 
3,363

 
3,278

 
$
38,336

 
$
10,117

 
$
9,851

See accompanying Notes to Consolidated Financial Statements.

71


CONSOLIDATED STATEMENT OF CASH FLOWS
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Operating Activities
 
 
 
 
 
 
 
Net income
$
834

 
$
949

 
$
699

 
$
543

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
442

 
258

 
259

 
311

Share-based compensation
227

 
141

 
82

 
42

Qualified pension plan contributions
(328
)
 
(1
)
 
(301
)
 
(589
)
Pension and other postretirement benefit plan income
(129
)
 
(150
)
 
(144
)
 
(105
)
Gain on pension plan curtailment
(23
)
 

 

 

Impairment of goodwill and other assets
46

 

 

 
240

(Gain) loss on sale of businesses, net
(229
)
 

 

 
14

Gain on sale of asset group
(12
)
 

 

 

Loss on extinguishment of debt
2

 

 
24

 

Deferred income taxes

 
44

 
320

 
86

(Increase) decrease in:
 
 
 
 
 
 
 
Accounts receivable
74

 
(9
)
 
(101
)
 
24

Contract assets
15

 
(25
)
 
(76
)
 
156

Inventories
158

 
(1
)
 
(19
)
 
(32
)
Increase (decrease) in:
 
 
 
 
 
 
 
Accounts payable
(148
)
 
(84
)
 
82

 
18

Contract liabilities

 
124

 
81

 
(31
)
Compensation and benefits
(28
)
 
19

 
2

 
(37
)
Other accrued items
(128
)
 
(78
)
 
(38
)
 
(76
)
Income taxes
47

 
(23
)
 
(117
)
 
26

Other
119

 
21

 
(2
)
 
(21
)
Net cash provided by operating activities
939

 
1,185

 
751

 
569

Investing Activities
 
 
 
 
 
 
 
Net cash acquired in L3Harris Merger
1,130

 

 

 

Net additions of property, plant and equipment
(173
)
 
(161
)
 
(136
)
 
(119
)
Proceeds from sales of businesses, net
343

 

 

 
1,014

Adjustment to proceeds from sale of business

 

 
(2
)
 
(25
)
Proceeds from sale of asset group
20

 

 

 

Other investing activities

 
2

 
(3
)
 

Net cash provided by (used in) investing activities
1,320

 
(159
)
 
(141
)
 
870

Financing Activities
 
 
 
 
 
 
 
Net proceeds from borrowings
396

 
27

 
1,387

 
85

Repayments of borrowings
(505
)
 
(308
)
 
(1,658
)
 
(584
)
Proceeds from exercises of employee stock options
109

 
50

 
34

 
54

Repurchases of common stock
(1,500
)
 
(200
)
 
(272
)
 
(710
)
Cash dividends
(337
)
 
(325
)
 
(272
)
 
(262
)
Distributions to noncontrolling interests
(10
)
 

 

 

Tax withholding payments associated with vested share-based awards
(86
)
 
(24
)
 
(17
)
 
(21
)
Other financing activities
(38
)
 
(1
)
 
(7
)
 

Net cash used in financing activities
(1,971
)
 
(781
)
 
(805
)
 
(1,438
)
Effect of exchange rate changes on cash and cash equivalents
6

 
(3
)
 
(1
)
 
(4
)
Net increase (decrease) in cash and cash equivalents
294

 
242

 
(196
)
 
(3
)
Cash and cash equivalents, beginning of period
530

 
288

 
484

 
487

Cash and cash equivalents, end of period
$
824

 
$
530

 
$
288

 
$
484

See accompanying Notes to Consolidated Financial Statements.

72


CONSOLIDATED STATEMENT OF EQUITY
 
Common
Stock
 
Other
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Balance at July 1, 2016 — As Reported
$
125

 
$
2,096

 
$
1,330

 
$
(495
)
 
$
1

 
$
3,057

Cumulative effect of adopting ASC 606

 

 
(15
)
 

 

 
(15
)
Net income

 

 
543

 

 

 
543

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


1,318


(276
)



2,903

Reclassifications due to adoption of accounting standards updates

 

 
35

 
(35
)
 

 

Net income

 

 
699

 

 

 
699

Other comprehensive income

 

 

 
109

 

 
109

Shares issued under stock incentive plans

 
33

 

 

 

 
33

Shares issued under defined contribution plans

 
31

 

 

 

 
31

Share-based compensation expense

 
49

 

 

 

 
49

Repurchases and retirement of common stock
(2
)
 
(178
)
 
(132
)
 

 

 
(312
)
Forward contract component of accelerated share repurchase

 
38

 

 

 

 
38

Cash dividends ($2.28 per share)

 

 
(272
)
 

 

 
(272
)
Balance at June 29, 2018
118

 
1,714

 
1,648

 
(202
)
 

 
3,278

Net income

 

 
949

 

 

 
949

Other comprehensive income

 

 

 
(505
)
 

 
(505
)
Shares issued under stock incentive plans
1

 
49

 

 

 

 
50

Shares issued under defined contribution plans
1

 
82

 

 

 

 
83

Share-based compensation expense

 
57

 

 

 

 
57

Repurchases and retirement of common stock
(1
)
 
(124
)
 
(99
)
 

 

 
(224
)
Cash dividends ($2.74 per share)

 

 
(325
)
 

 

 
(325
)
Balance at June 28, 2019
119

 
1,778

 
2,173

 
(707
)
 

 
3,363

Net income

 

 
822

 

 
12

 
834

Other comprehensive income

 

 

 
186

 

 
186

Shares issued for L3Harris Merger
104

 
19,696

 

 

 

 
19,800

Equity issuance costs

 
(2
)
 

 

 

 
(2
)
Net loss from postretirement obligations and hedging derivatives reclassified to earnings

 

 

 
13

 

 
13

Shares issued under stock incentive plans
2

 
107

 

 

 

 
109

Shares issued under defined contribution plans

 
101

 

 

 

 
101

Share-based compensation expense

 
122

 

 

 

 
122

Repurchases and retirement of common stock
(7
)
 
(1,104
)
 
(475
)
 

 

 
(1,586
)
Cash dividends ($1.50 per share)

 

 
(337
)
 

 

 
(337
)
Distributions to noncontrolling interests

 

 

 

 
(10
)
 
(10
)
Fair value of noncontrolling interest recognized in purchase accounting

 

 

 

 
155

 
155

Other

 
(4
)
 

 

 

 
(4
)
Balance at January 3, 2020
$
218

 
$
20,694

 
$
2,183

 
$
(508
)
 
$
157

 
$
22,744

See accompanying Notes to Consolidated Financial Statements.

73


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Organization — L3Harris Technologies, Inc., together with its subsidiaries, is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. We provide advanced defense and commercial technologies across air, land, sea, space and cyber domains. We support government and commercial customers in 130 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 January 3, 2020, we had approximately 50,000 employees, including approximately 20,000 engineers and scientists.
Principles of Consolidation — Our Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these Notes to Consolidated Financial Statements (these “Notes”), the terms “L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated.
On October 12, 2018, Harris Corporation, a Delaware corporation (“Harris”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with L3 Technologies, Inc., a Delaware corporation (“L3”), and Leopard Merger Sub Inc., a Delaware corporation and a newly formed, direct wholly owned subsidiary of Harris (“Merger Sub”), pursuant to which Harris and L3 agreed to combine their respective businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3, with L3 continuing as the surviving corporation and a direct wholly-owned subsidiary of Harris (the “L3Harris Merger”).
The closing of the L3Harris Merger occurred on June 29, 2019 (“Closing Date”), after the end of Harris’ fiscal 2019 on June 28, 2019. Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.”, and each share of L3 common stock converted into the right to receive 1.30 shares (“Exchange Ratio”) of L3Harris common stock. Shares of L3Harris common stock, which previously traded under ticker symbol “HRS” on the New York Stock Exchange (“NYSE”) prior to completion of the L3Harris Merger, are traded under ticker symbol “LHX” following completion of the L3Harris Merger. L3Harris was owned on a fully diluted basis approximately 54 percent by Harris shareholders and 46 percent by L3 shareholders immediately following the completion of the L3Harris Merger.
We are accounting for the L3Harris Merger under the acquisition method of accounting. Under the acquisition method of accounting, we are required to measure identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at their fair values as of the Closing Date. The excess of the consideration transferred over those fair values is recorded as goodwill. See Note 5: Business Combination in these Notes for additional information related to the L3Harris Merger.
We implemented a new organizational structure effective on June 29, 2019, which resulted in changes to our operating segments, which are also reportable segments and referred to as our business segments. The historical results, discussion and presentation of our business segments as set forth in the accompanying Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these changes.
On September 13, 2019, we completed the sale of the Harris Night Vision business to Elbit Systems of America, LLC, a subsidiary of Elbit Systems Ltd., for $350 million (net cash proceeds of $343 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments as set forth in the definitive agreement. The Harris Night Vision business was not included in any of the business segments in our new organizational structure and the operating results of the Harris Night Vision business through the date of the divestiture are discussed and presented as part of “Other non-reportable business segments” in this Report. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for more information regarding the divestiture of the Harris Night Vision business.
Amounts contained in this Report may not always add to totals due to rounding.
Fiscal Year — This Transition Report on Form 10-KT covers the transition period from June 29, 2019 through January 3, 2020 (“Fiscal Transition Period”). Through fiscal 2019, our fiscal year ended on the Friday nearest June 30. Commencing with the Fiscal Transition Period, our fiscal year ends on the Friday nearest December 31. Our Fiscal Transition Period included 27 weeks and each of our fiscal years ended June 28, 2019, June 29, 2018 and June 30, 2017 included 52 weeks. Prior year financial information comparable to the Fiscal Transition Period for the two quarters ended December 28, 2018 represent the unaudited prior two quarters period results for the comparative period ended December 28, 2018, which included 26 weeks. See Note 27: Transition Period Comparative Data (Unaudited) in these Notes for additional information.
Use of Estimates — The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) requires 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

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experience and other information available prior to issuance of the accompanying Consolidated Financial Statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.
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 14: Debt in these Notes 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.
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 6: Receivables in these Notes for additional information regarding accounts receivable.
Contract Assets and Liabilities — The timing of revenue recognition, customer billings and cash collections results in accounts receivable, contract assets and contract liabilities at the end of each reporting period. Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage of completion (“POC”) cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The non-current portion of contract liabilities is included within the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
Contract assets related to amounts withheld by customers until contract completion are not considered a significant financing component of our contracts because the intent is to protect the customers from our failure to satisfactorily complete our performance obligations. Payments received from customers in advance of revenue recognition are not considered a significant financing component of our contracts because they are utilized to pay for contract costs within a one-year period or are requested by us to ensure the customers meet their payment obligations. See Note 7: Contract Assets and Contract Liabilities in these Notes for additional information.
Inventories — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods) or net realizable value. 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 8: Inventories in these Notes for additional information regarding inventories.

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Costs to Obtain or Fulfill a Contract — Costs to obtain a contract are incremental direct costs incurred to obtain a contract with a customer, including sales commissions and dealer fees, and are capitalized if material. Costs to fulfill a contract include costs directly related to a contract or specific anticipated contract (for example, mobilization, set-up and certain design costs) that generate or enhance our ability to satisfy our performance obligations under these contracts. These costs are capitalized to the extent they are expected to be recovered from the associated contract. Capitalized costs to obtain or fulfill a contract are amortized to expense over the expected period of benefit for contracts with terms greater than one year on a systematic basis that is consistent with the pattern of transfer of the associated goods and services to the customer. As a practical expedient, capitalized costs to obtain or fulfill a contract with a term of one year or less are expensed as incurred. As of January 3, 2020, “Other current assets” and “Other non-current assets” in our Consolidated Balance Sheet included $14 million and $48 million, respectively, of capitalized costs to obtain or fulfill a contract. Capitalized costs to obtain or fulfill a contract were not material as of June 28, 2019.
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 9: Property, Plant and Equipment in these Notes 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 the consideration transferred exceeds the acquisition-date fair value of net identifiable assets acquired.
We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business segment level or one level below the business segment. 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 perform an annual impairment review of our goodwill as of the first day of our fourth fiscal quarter of each year, and more frequently if we believe indicators of impairment exist. Following our fiscal year end change, we made a corresponding change to our annual impairment assessment date and will continue to perform annual impairment review on the first day of our fourth quarter, which for the Fiscal Transition Period was September 28, 2019 (the first day of the last quarter of the Fiscal Transition Period).
To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we elect to perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the reporting unit to determine the probability that goodwill is impaired. If we determine it is more-likely-than-not that the fair value of  the reporting unit is less than its carrying amount, we 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: Divestitures, Asset Sales and Discontinued Operations, Note 5: Business Combination and Note 10: Goodwill in these Notes for additional information regarding goodwill.
Long-Lived Assets, Including Intangible Assets — Long-lived assets, including finite-lived intangible assets, are amortized to expense over their useful lives either according to the underlying economic benefit as reflected by future net cash inflows or on a straight-line basis depending on the nature of the asset. 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. Indefinite-lived intangible assets are not amortized, but are tested annually for impairment. This testing compares the fair value of the asset to its carrying amount, and, when appropriate, the carrying amount of these assets is reduced to its fair value. See Note 9: Property, Plant and Equipment and Note 11: Intangible Assets in these Notes 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, at January 3, 2020, June 28, 2019 or June 29, 2018. No accrued liabilities or expenses within the “Other accrued items” or “Other long-term liabilities” line

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items in our Consolidated Balance Sheet exceeded 5 percent of our total current liabilities or total liabilities, respectively, at January 3, 2020, June 28, 2019 or June 29, 2018.
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 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 in these Notes for additional information regarding income taxes.
Standard Warranties — We record estimated standard warranty costs in the period in which the related products are delivered. Factors that affect the estimated cost for warranties include the terms of the contract, the type and complexity of the delivered product, number of installed units, historical experience and management’s assumptions regarding anticipated rates of warranty claims and cost per claim. Our standard warranties start from the shipment, delivery or customer acceptance date and continue as follows:
Segment
  
Average Warranty Period
Integrated Mission Systems
 
One to three years
Space and Airborne Systems
  
One to three years
Communication Systems
  
One to five years
Aviation Systems
  
One 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 12: Accrued Warranties in these Notes 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 16: Stock Options and Other Share-Based Compensation in these Notes for additional information regarding share-based compensation.
Restructuring and Other Exit Costs — We record restructuring and other exit costs 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 costs 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. See Note 4: Restructuring and Other Exit Costs in these Notes for additional information regarding restructuring and other exit costs.
Revenue Recognition — We account for a contract when it has approval and commitment from all parties, the rights and payment terms of the parties can be identified, the contract has commercial substance and the collectibility of the consideration, or transaction price, is probable. Our contracts are often subsequently modified to include changes in specifications, requirements or price that may create new or change existing enforceable rights and obligations. We do not account for contract modifications (including unexercised options) or follow-on contracts until they meet the requirements noted above to account for a contract.
At the inception of each contract, we evaluate the promised goods and services to determine whether the contract should be accounted for as having one or more performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. A substantial majority of our revenue is derived from long-term development and production contracts involving the design, development, manufacture or modification of aerospace and defense products and related services according to the customers’ specifications. Due to the highly interdependent and interrelated nature of the underlying goods and services and the significant service of integration that we provide, which often result in the delivery of multiple units, we account for these contracts as one performance obligation. For contracts that include both development/production and follow-on support services (for example, operations and maintenance), we generally consider the follow-on services distinct in the context of the contract and account for them as separate performance obligations. Additionally, a significant amount of our revenue is derived from contracts to provide multiple distinct goods to a customer where

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the goods can readily be sold to other customers based on their commercial nature and, accordingly, these goods are accounted for as separate performance obligations. Shipping and handling costs incurred after control of a product has transferred to the customer (for example, in free on board shipping arrangements) are treated as fulfillment costs and, therefore, are not accounted for as separate performance obligations. Also, we record taxes collected from customers and remitted to governmental authorities on a net basis in that they are excluded from revenue.
As discussed above, our contracts are often subsequently modified to include changes in specifications, requirements or price. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Often, the deliverables in our contract modifications are not distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract, and we may be required to recognize a cumulative catch-up adjustment to revenue at the date of the contract modification.
We determine the transaction price for each contract based on our best estimate of the consideration we expect to receive, which includes assumptions regarding variable consideration, such as award and incentive fees. These variable amounts are generally awarded upon achievement of certain negotiated performance metrics, program milestones or cost targets and can be based upon customer discretion. We include such estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We estimate variable consideration primarily using the most likely amount method.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price of the good or service underlying each performance obligation. The standalone selling price represents the amount for which we would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundle with any other products or services). Our contracts with the U.S. Government, including foreign military sales contracts, are subject to the Federal Acquisition Regulations (“FAR”) and the prices of our contract deliverables are typically based on our estimated or actual costs plus a reasonable profit margin. As a result, the standalone selling prices of the goods and services in these contracts are typically equal to the selling prices stated in the contract, thereby, eliminating the need to allocate (or reallocate) the transaction price to the multiple performance obligations. In our non-U.S. Government contracts, we also generally use the expected cost plus a reasonable profit margin approach to determine standalone selling price. In addition, we determine standalone selling price for certain contracts that are commercial in nature based on observable selling prices.
We recognize revenue for each performance obligation when (or as) the performance obligation is satisfied by transferring control of the promised goods or services underlying the performance obligation to the customer. The transfer of control can occur over time or at a point in time.
Point in Time Revenue Recognition: Our performance obligations are satisfied at a point in time unless they meet at least one of the following criteria, in which case they are satisfied over time:
The customer simultaneously receives and consumes the benefits provided by our performance as we perform;
Our performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced; or
Our performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date.
As noted above, a significant amount of our revenue is derived from contracts to provide multiple distinct goods to a customer that are commercial in nature and can readily be sold to other customers. These performance obligations do not meet any of the three criteria listed above to recognize revenue over time; therefore, we recognize revenue at a point in time, generally when the goods are received and accepted by the customer.
Over Time Revenue Recognition: For U.S. Government development and production contracts, there is a continuous transfer of control of the asset to the customer as it is being produced based on FAR clauses in the contract that provide the customer with lien rights to work in process and allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. This also typically applies to our contracts with prime contractors for U.S. Government development and production contracts, when the above-described FAR clauses are flowed down to us by the prime contractors.
Our non-U.S. Government development and production contracts, including international direct commercial contracts and U.S. contracts with state and local agencies, utilities and commercial and transportation organizations, often do not include the FAR clauses described above. However, over time revenue recognition is typically supported either through our performance creating or enhancing an asset that the customer controls as it is created or enhanced or based on other contractual provisions or relevant laws that provide us with an enforceable right to payment for our work performed to date plus a reasonable profit if our customer were permitted to and did terminate the contract for reasons other than our failure to perform as promised.

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Revenue for our development and production contracts is recognized over time, typically using the POC cost-to-cost method, whereby we measure our progress towards completion of the performance obligation based on the ratio of costs incurred to date to estimated costs at completion under the contract. Because costs incurred represent work performed, we believe this method best depicts transfer of control of the asset to the customer.
For performance obligations to provide services that are satisfied over time, we recognize revenue either on a straight-line basis, the POC cost-to-cost method, or based on the right-to-invoice method (i.e., based on our right to bill the customer), depending on which method best depicts transfer of control to the customer.
Contract Estimates: Under the POC cost-to-cost method of revenue recognition, a single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the long-term nature of many of our contracts, developing the estimated total cost at completion and total transaction price 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 and the risk and impact of delayed performance. Factors that must be considered in estimating the total transaction price include contractual cost or performance incentives (such as incentive fees, award fees and penalties) and other forms of variable consideration as well as our historical experience and our expectation for performance on the contract. 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 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, as the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we receive award fees that are higher or lower than expected. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on 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. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.
Net EAC adjustments had the following impact to earnings for the periods presented:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Net EAC adjustments, before income taxes
$
137

 
$
17

 
$
(19
)
 
$
(1
)
Net EAC adjustments, net of income taxes
$
103

 
$
13

 
$
(13
)
 
$
(1
)
Net EAC adjustments, net of income taxes, per diluted share
$
0.46

 
$
0.10

 
$
(0.11
)
 
$
(0.01
)

Revenue recognized from performance obligations satisfied in prior periods was $98 million for the two quarters ended January 3, 2020. Revenue recognized from performance obligations satisfied in prior periods was $59 million, $43 million and $45 million for fiscal 2019, 2018 and 2017, respectively.
Bill-and-Hold Arrangements: For certain of our contracts, the finished product may temporarily be stored at our location under a bill-and-hold arrangement. Revenue is recognized on bill-and-hold arrangements at the point in time when the customer obtains control of the product and all of the following criteria have been met: the arrangement is substantive (for example, the customer has requested the arrangement); the product is identified separately as belonging to the customer; the product is ready for physical transfer to the customer; and we do not have the ability to use the product or direct it to another customer. In determining when the customer obtains control of the product, we consider certain indicators, including whether we have a present right to payment from the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and whether customer acceptance has been received (in the case of arrangements with customer acceptance provisions).
Backlog: Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity (“IDIQ”) contracts.

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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 in 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 the “Accumulated other comprehensive loss” line item within equity in our Consolidated Balance Sheet, 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, the rate of future compensation increases, mortality, termination, and health care 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.
We record the service cost component of net periodic benefit income in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. The non-service cost components of net periodic benefit income are included in the “Non-operating income” line item in our Consolidated Statement of Income.
See Note 15: Pension and Other Postretirement Benefits in these Notes 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 rate of future compensation increases, 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.
As of January 3, 2020, we were named, and continue to be named, as a potentially responsible party at 84 sites where future liabilities could exist. These sites included 8 sites owned by us, 66 sites associated with our former and current locations or operations and 10 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 $115 million. 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

80


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 January 3, 2020, 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 may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. 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. We do not hold or issue derivatives for speculative trading purposes. See Note 20: Derivative Instruments and Hedging Activities in these Notes 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. Historically, our restricted stock awards and restricted stock unit awards generally have met the definition of participating securities and were included in the computations of income from continuing operations per basic and diluted common share. However, restricted stock awards and restricted stock unit awards granted during the two quarters ended January 3, 2020 did not meet the definition of participating securities. 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 17: Income From Continuing Operations Per Share in these Notes for additional information.
Business Segments — We evaluate each business segment’s performance based on its operating income or loss, which we define as profit or loss from operations before income taxes, including pension income and 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 item in Note 25: Business Segments in these Notes represents the elimination of intersegment sales. Corporate expenses are primarily allocated to our business segments using an allocation methodology prescribed by U.S. Government regulations for government contractors. The “Unallocated corporate expenses and corporate eliminations” line item in Note 25: Business Segments in these Notes represents the portion of corporate expenses not allocated to our business segments and elimination of intersegment profits. The “Pension adjustment” line item in Note 25: Business Segments in these Notes represents the reconciliation of the non-service components of net periodic pension and postretirement benefit costs, which are a component of segment operating income but are included in the “Non-operating income” line item in our Consolidated Statement of Income. The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets, amortization of net actuarial gain or loss and effect of curtailments or settlements.
NOTE 2: ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
Leases
Effective June 29, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended (“ASC 842”) using the optional transition method. We initially applied ASC 842 for leases existing as of June 29, 2019 and

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recognized $270 million of right-of-use (“ROU”) assets and $289 million of lease liabilities in our Consolidated Balance Sheet. See Note 5: Business Combination in these Notes for ROU assets and lease liabilities assumed as part of the L3Harris Merger.
In accordance with ASC 842, we recognized ROU assets and lease liabilities in our balance sheet for operating and finance leases under which we are the lessee, except for equipment leases and, as permitted by a practical expedient under ASC 842, leases with a term of 12 months or less. Equipment leases were not material at January 3, 2020 and June 29, 2019. We also elected the package of practical expedients permitted under ASC 842 and did not reassess lease classification for existing or expired leases, whether expired or existing contracts contain a lease under the new definition of a lease or whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
Operating lease assets are classified as operating ROU assets, operating lease liabilities for obligations due within 12 months are classified as other accrued items and operating lease liabilities for obligations due longer than 12 months are classified as other long-term liabilities. Finance lease assets are classified as property, plant and equipment. Finance lease liabilities are classified as other accrued items or other long-term debt, net depending on when the obligation is due.
ROU assets and lease liabilities are recognized based on the present value of future lease payments. Lease payments primarily include base rent. We have some lease payments that are based on an index and changes to the index are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. Our lease payments also include non-lease components such as real estate taxes and common-area maintenance costs. We elected the practical expedient to account for lease and non-lease components as a single component. In certain of our leases, the non-lease components are variable and are therefore excluded from lease payments to determine the ROU asset. The present value of future lease payments is determined using our incremental borrowing rate at lease commencement over the expected lease term. We use our incremental borrowing rate because our leases do not provide an implicit lease rate. The expected lease term represents the number of years we expect to lease the property, including options to extend or terminate the lease when it is reasonably certain that we will exercise the option.
Operating lease expense is recognized as an operating cost on a straight-line basis over the expected lease term in our Consolidated Statement of Income. For finance leases, the ROU asset is amortized on a straight-line basis over the lease term, and interest on the lease liability is recognized in interest expense. The amortization of ROU assets for our finance leases and interest expense were not material for the two quarters ended January 3, 2020.
We are a lessor for certain arrangements for flight simulators. These leases meet the criteria for operating lease classification. Lease income associated with these leases was not material for the two quarters ended January 3, 2020.
The adoption of ASC 842 did not have a material effect on our results of operations or cash flows.
Derivatives and Hedging
Effective June 29, 2019, we adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update are intended to better align companies’ risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedge relationships and the presentation of hedge results. The amendments in this update require companies to present the earnings effect of the hedging instrument in the same income statement line in which the earnings effect of the hedged item is reported. Prior to the adoption of this update, GAAP provided hedge accounting for only the portion of the hedge deemed to be highly effective and required companies to separately reflect the amount by which the hedging instrument did not offset the hedged item, which is referred to as the ineffective amount. The amendments in this update include, among other items, removal of the requirement that companies separately measure and recognize in earnings the ineffective amount for highly effective hedges. Adoption of this standard did not have a material effect on our financial condition, results of operations or cash flows.
NOTE 3: DIVESTITURES, ASSET SALES AND DISCONTINUED OPERATIONS
Divestitures
Harris Night Vision. On September 13, 2019, we completed the sale of the Harris Night Vision business, a global supplier of high-performance, vision-enhancing products for U.S. and allied military and security forces and commercial customers, for $350 million (net cash proceeds of $343 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments pursuant to a definitive agreement we entered into on April 4, 2019 as part of the regulatory process in connection with the L3Harris Merger and recognized a pre-tax gain of $229 million.
Through fiscal 2019, the Harris Night Vision business was reported as part of our former Communication Systems segment. As a result of the then-pending divestiture, the Harris Night Vision business was not included in any of our new business segments and, consequently, the operating results of the business are included in “Other non-reportable business segments” for the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017 in this Report.

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Income before income taxes for the Harris Night Vision business was not material for the two quarters ended January 3, 2020 and was $27 million, $20 million and $9 million for fiscal 2019, 2018 and 2017, respectively.
The carrying amounts of the major classes of assets and liabilities of the Harris Night Vision business classified as held for sale at June 28, 2019 are summarized below:
 
June 28, 2019
 
 
 
(In millions)
Receivables
$
18

Inventories
52

Property, plant and equipment
29

Goodwill
30

Other intangible assets
4

Assets of disposal group held for sale
$
133

 
 
Accounts payable
$
13

Contract liabilities
1

Compensation and benefits
3

Other accrued items
3

Defined benefit plans
16

Liabilities of disposal group held for sale
$
36


Asset Sales
Stormscope. On August 30, 2019, we completed the sale of the Stormscope product line for $20 million in cash and recorded a pre-tax gain of $12 million in the “Engineering, selling and administrative expenses” line item of our Consolidated Statement of Income for the two quarters ended January 3, 2020.
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 had a major effect on our operations and financial results.
As a result, IT Services and CapRock are reported as discontinued operations in the accompanying 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.

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The major components of discontinued operations in our Consolidated Statement of Income included the following:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$

 
$

 
$

 
$
1,039

Cost of product sales and services

 

 

 
(885
)
Engineering, selling and administrative expenses

 

 

 
(91
)
Impairment of goodwill and other assets

 

 

 
(240
)
Non-operating loss, net(1)
(1
)
 
(5
)
 
(8
)
 
(7
)
Loss before income taxes
(1
)
 
(5
)
 
(8
)
 
(184
)
Loss on sale of discontinued operations, net(2)

 

 

 
(11
)
Income tax benefit

 
1

 
5

 
110

Discontinued operations, net of income taxes
$
(1
)
 
$
(4
)
 
$
(3
)
 
$
(85
)
_______________
(1)
“Non-operating loss, net” included a loss of $2 million in fiscal 2017 related to our former broadcast communications business (“Broadcast Communications”), which was divested in fiscal 2013.
(2)
“Loss on sale of discontinued operations, net” in fiscal 2017 included a $3 million decrease to the loss on the sale of Broadcast Communications.
Depreciation and amortization, capital expenditures and significant non-cash items of discontinued operations included the following:
 
Fiscal Year Ended
 
June 30, 2017
 
 
 
(In millions)
Depreciation and amortization
$
39

Capital expenditures
4

Significant non-cash items:
 
Impairment of goodwill and other assets
(240
)
Loss on sale of discontinued operations, net
(11
)

IT Services
On April 28, 2017, we completed the divestiture to an affiliate of Veritas Capital Fund Management, L.L.C. of IT Services, which primarily provided IT and engineering managed services to U.S. Government customers, for net cash proceeds of $646 million, and recognized a pre-tax loss of $28 million (an after-tax gain of $55 million after certain tax benefits related to the transaction or $.44 per diluted share) on the sale after transaction expenses. The decision to divest IT Services was part of our strategy to simplify our operating model to focus on technology-differentiated, high-margin businesses.
Because the then-pending divestiture of IT Services represented the disposal of a portion of a reporting unit, 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 was non-deductible for tax purposes.

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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
 
June 28, 2019

June 29, 2018

June 30, 2017
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$

 
$

 
$
895

Cost of product sales and services

 

 
(777
)
Engineering, selling and administrative expenses

 

 
(68
)
Impairment of goodwill and other assets

 

 
(240
)
Non-operating loss
(1
)
 
(4
)
 
(9
)
Loss before income taxes
(1
)
 
(4
)
 
(199
)
Loss on sale of discontinued operations, net

 

 
(28
)
Income tax benefit

 
5

 
69

Discontinued operations, net of income taxes
$
(1
)
 
$
1

 
$
(158
)

CapRock
On January 1, 2017, we completed the divestiture to SpeedCast International Ltd. of CapRock, which provided wireless, terrestrial and satellite communications services to energy and maritime customers, for net cash proceeds of $368 million, and recognized a pre-tax gain of $14 million ($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) on the sale after transaction expenses and purchase adjustments in respect of net cash and net working capital as set forth in the definitive sales agreement entered into on November 1, 2016.
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:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue from product sales and services
$

 
$

 
$

 
$
144

Cost of product sales and services

 

 

 
(108
)
Engineering, selling and administrative expenses

 

 

 
(23
)
Non-operating income (loss)
(1
)
 
(3
)
 
(4
)
 
4

Income (loss) before income taxes
(1
)
 
(3
)
 
(4
)
 
17

Gain on sale of discontinued operations

 

 

 
14

Income tax benefit

 
1

 

 
41

Discontinued operations, net of income taxes
$
(1
)
 
$
(2
)
 
$
(4
)
 
$
72


NOTE 4: RESTRUCTURING AND OTHER EXIT COSTS
We record charges for restructuring and other exit activities related to sales or terminations of product lines, closures or relocations of business activities, changes in management structure, and fundamental reorganizations that affect the nature and focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or relocate employees. We record termination benefits and contract termination costs 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 “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income.
L3Harris Merger-Related Restructuring Costs
During the two quarters ended January 3, 2020, we recorded $117 million of restructuring costs for workforce reductions (including severance and other employee-related exit costs) in connection with the L3Harris Merger. At January 3, 2020, we had

85


liabilities of $58 million associated with these restructuring activities, of which we expect substantially all will be paid in the next twelve months.
During the quarter ended January 3, 2020, we finalized our plan to close L3’s former headquarters offices located at 600 Third Avenue in New York City. On December 3, 2019, we entered into an amended lease agreement with the landlord, which reduced the number of leased floors from six to five effective October 1, 2020 through the expiration of the lease on October 31, 2031. We plan to fully exit the remaining floors during 2020 and sublease the space over the remaining lease term. During the quarter ended January 3, 2020, we recorded a $2 million lease modification and a $46 million impairment charge for ROU and other assets in connection with the termination of the lease.
Previous Restructuring and other Exit Costs
In fiscal 2018 and 2017, we recorded $5 million and $58 million, respectively, for integration and other costs in connection with our acquisition of Exelis Inc., which we acquired in fiscal 2015 (“Exelis”). We had liabilities of $16 million and $27 million as of the end of fiscal 2019 and 2018, respectively, associated with these integration activities and previous restructuring actions. The majority of the remaining liabilities as of January 3, 2020 represent lease obligations associated with exited facilities with remaining terms of four years or less.
In fiscal 2018, we also recorded $45 million of charges in connection with our decision to transition and exit a commercial line of business that had been developing an air-to-ground radio access network for the business aviation market based on the Long Term Evolution (“LTE”) standard operating in the unlicensed spectrum. We had a liability of $18 million at June 29, 2018 associated with this exit activity, which was paid on July 2, 2018.
Our liabilities for restructuring and other exit costs are included in the “Other accrued items” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Changes to our restructuring and other exit costs liabilities during the two quarters ended January 3, 2020 and fiscal 2019 and 2018 were as follows:
 
Employee severance-related costs
 
Facilities consolidation and other exit costs(1)
 
Total
 
 
 
 
 
 
 
(In millions)
Balance at June 30, 2017
$
12

 
$
31

 
$
43

Additional provisions
1

 
50

 
51

Payments
(9
)
 
(38
)
 
(47
)
Other
(2
)
 

 
(2
)
Balance at June 29, 2018
2

 
43

 
45

Payments
(2
)
 
(27
)
 
(29
)
Balance at June 28, 2019

 
16

 
16

Additional provisions
117

 

 
117

Payments
(62
)
 
(1
)
 
(63
)
Other
3

 
(8
)
 
(5
)
Balance at January 3, 2020
$
58

 
$
7

 
$
65


_______________
(1)
Excludes our operating lease liability related to L3’s former headquarter offices.
NOTE 5: BUSINESS COMBINATION
On October 12, 2018, Harris entered into the Merger Agreement with L3 and Merger Sub, pursuant to which Harris and L3 agreed to combine their respective businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3, with L3 continuing as the surviving corporation and a direct wholly-owned subsidiary of Harris.
The closing of the L3Harris Merger occurred on June 29, 2019, the first day of our Fiscal Transition Period. Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.” and each share of L3 common stock converted into the right to receive 1.30 shares of L3Harris common stock. L3Harris was owned on a fully diluted basis approximately 54 percent by Harris shareholders and 46 percent by L3 shareholders immediately following the completion of the L3Harris Merger.
L3 was a prime contractor in intelligence, surveillance and reconnaissance (“ISR”) systems, aircraft sustainment (including modifications and fleet management of special mission aircraft), simulation and training, night vision and image intensification equipment, and security and detection systems. L3 also was a leading provider of a broad range of communication, electronic and

86


sensor systems used on military, homeland security and commercial platforms. L3 employed approximately 31,000 employees and its customers included the U.S. Department of Defense and its prime contractors, the U.S. Intelligence Community, the U.S. Department of Homeland Security, foreign governments and domestic and foreign commercial customers. L3 generated calendar 2018 revenue of approximately $10 billion.
Following the completion of the L3Harris Merger, we issued 104 million shares of L3Harris common stock to L3 shareholders. The trading price of L3Harris common stock was $189.13 per share as of the Closing Date. In addition to shares of our common stock issued to L3 shareholders, replacement L3Harris share-based awards were issued for certain outstanding L3 share-based awards.
We are accounting for the L3Harris Merger under the acquisition method of accounting. Under the acquisition method of accounting, we are required to measure identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at their fair values as of the Closing Date. Due to the timing of the L3Harris Merger relative to its size and complexity, certain aspects of our accounting for the L3Harris Merger remain preliminary, including the acquisition-date fair value of identifiable assets acquired and certain liabilities assumed. Amounts recorded associated with these assets and liabilities are based on preliminary calculations and our estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the Closing Date). As of January 3, 2020, we have completed our determination of the fair value of consideration transferred as well as defined benefit plan liabilities and long-term debt assumed.
Our calculation of consideration transferred is as follows:
(In millions, except exchange ratio and per share amounts)
June 29, 2019
 
 
Outstanding shares of L3 common stock as of June 28, 2019
79.63

L3 restricted stock unit awards settled in shares of L3Harris common stock
0.41

L3 performance unit awards settled in shares of L3Harris common stock
0.04


80.08

Exchange Ratio
1.30

Shares of L3Harris common stock issued for L3 outstanding common stock
104.10

Price per share of L3Harris common stock as of June 28, 2019
$
189.13

Fair value of L3Harris common stock issued for L3 outstanding common stock
$
19,689

Fair value of replacement RSUs attributable to merger consideration
10

Fair value of L3Harris stock options issued for L3 outstanding stock options
101

Withholding tax liability incurred for converted L3 share-based awards
45

Fair value of replacement award consideration
156

Fair value of total consideration
19,845

Less cash acquired
(1,195
)
Total net consideration transferred
$
18,650



87


Our preliminary measurement of assets acquired, liabilities assumed and noncontrolling interests as of the Closing Date and measurement period adjustments during the two quarters ended January 3, 2020, are as follows:
 
Preliminary
Fair Value
 
Measurement Period Adjustments
 
Adjusted
Fair Value
 
 
 
 
 
 
 
(In millions)
Receivables
$
849

 
$
(15
)
 
$
834

Contract assets
1,708

 
(41
)
 
1,667

Inventories
1,056

 
(37
)
 
1,019

Other current assets
517

 
(20
)
 
497

Property, plant and equipment
1,176

 
39

 
1,215

Operating lease right-of-use assets
704

 

 
704

Goodwill
15,423

 
(774
)
 
14,649

Other intangible assets
6,768

 
1,109

 
7,877

Other non-current assets
327

 
(6
)
 
321

Total assets acquired
$
28,528

 
$
255

 
$
28,783


 
 

 

Accounts payable
$
898

 
$
(14
)
 
$
884

Contract liabilities
722

 
(4
)
 
718

Other current liabilities
772

 
60

 
832

Operating lease liabilities
715

 

 
715

Defined benefit plans
1,411

 

 
1,411

Long-term debt, net
3,548

 

 
3,548

Other long-term liabilities
1,661

 
209

 
1,870

Total liabilities assumed
9,727

 
251

 
9,978

Net assets acquired
18,801

 
4

 
18,805

Noncontrolling interests
(151
)
 
(4
)
 
(155
)
Total net consideration transferred
$
18,650

 
$

 
$
18,650


The goodwill resulting from the L3Harris Merger was primarily associated with L3’s market presence and leading positions, growth opportunities in the markets in which L3 businesses operate, experienced work force and established operating infrastructures. Most of the goodwill related to the L3Harris Merger is nondeductible for tax purposes.
See Note 10: Goodwill in these Notes for more information regarding the preliminary allocation of goodwill by business segment.
The following table provides further detail of the fair value and weighted-average amortization period of identified intangible assets acquired by major intangible asset class:
 
Weighted Average Amortization Period
 
Total
 
 
 
 
 
(In years)
 
(In millions)
Identifiable intangible assets acquired:
 
 
 
Customer relationships (Government)
15
 
$
4,677

Customer relationships (Commercial)
15
 
643

Trade names — Divisions
9
 
123

Developed technology
7
 
562

Total identifiable intangible assets subject to amortization
14
 
6,005

Trade names — Corporate
indefinite
 
1,803

In-process research and development
n/a
 
69

Total identifiable intangible assets
 
 
$
7,877



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Merger-Related Charges
During the two quarters ended January 3, 2020, we recorded $532 million of L3Harris Merger-related charges, consisting of restructuring, integration, transaction and other costs as follows:
$142 million of additional cost of sales related to the fair value step-up in inventory sold;
$117 million of costs for workforce reductions, including severance and other employee-related exit costs;
$83 million of transaction costs, recognized as incurred;
$72 million of integration costs, recognized as incurred;
$70 million of equity award acceleration charges, recognized upon change in control; and
$48 million of facility consolidation costs.
See Note 4: Restructuring and Other Exit Costs in these Notes for additional information regarding severance and facility consolidation costs.
Because the L3Harris Merger benefited the entire Company as opposed to any individual business segment, the above costs were not allocated to any business segment. All of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for the $142 million of additional cost of sales related to the fair value step-up in inventory sold, which is included in the “Cost of product sales and services” line item in our Consolidated Statement of Income.
Pro Forma Results
The following summary, prepared on a pro forma basis, presents our unaudited consolidated results of operations for the comparable period ended December 28, 2018 as if the L3Harris Merger had been completed on June 29, 2018, the beginning of the comparable period ended December 28, 2018, after including any post-merger adjustments directly attributable to the L3Harris Merger, such as the sale of the Harris Night Vision business, and after including the impact of adjustments such as amortization of intangible assets as well as the related income tax effects. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations that actually would have been obtained had the L3Harris Merger been completed on the assumed date or for the period presented, or which may be realized in the future.
 
Two Quarters Ended
 
December 28, 2018
 
 
 
(In millions)
Revenue from product sales and services — as reported
$
3,208

Revenue from product sales and services — pro forma

$
8,404

Income from continuing operations — as reported
$
441

Income from continuing operations — pro forma
$
760


For the two quarters ended January 3, 2020, our Consolidated Statement of Income includes the results of L3 operating businesses from the Closing Date, with total revenue of approximately $5.7 billion (net of intercompany sales between L3 operating businesses) and income from continuing operations before income taxes of approximately $0.4 billion (including $142 million of additional cost of sales related to the fair value step-up in inventory sold and $108 million of restructuring charges for workforce reductions associated with the L3Harris Merger).
NOTE 6: RECEIVABLES
Receivables are summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Accounts receivable
$
1,228

 
$
459

 
$
468

Less allowances for collection losses
(12
)
 
(2
)
 
(2
)
 
$
1,216

 
$
457

 
$
466


We have a receivables sale agreement (“RSA”) with a third-party financial institution that permits us to sell, on a nonrecourse basis, up to $100 million of outstanding receivables at any given time. From time to time, we have sold certain
customer receivables under the RSA, which we continue to service and collect on behalf of the third-party financial
institution. Receivables sold pursuant to the RSA meet the requirements for sales accounting under Accounting Standards Codification 860, Transfers and Servicing, and accordingly, are derecognized from our Consolidated Balance Sheet at the time of

89


sale. Outstanding accounts receivable sold pursuant to the RSA were not material at January 3, 2020, June 28, 2019 or June 29, 2018.
NOTE 7: CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the POC cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The increase in contract assets and contract liabilities in the two quarters ended January 3, 2020 was primarily due to contract assets and liabilities acquired in connection with the L3Harris Merger. Changes in contract asset and contract liability balances in the two quarters ended January 3, 2020 were not materially impacted by any factors other than those described above.
Contract assets and contract liabilities are summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Contract assets
$
2,459

 
$
807

 
$
782

Contract liabilities, current
(1,214
)
 
(496
)
 
(372
)
Contract liabilities, noncurrent(1)
(87
)
 
(42
)
 
(35
)
Net contract assets
$
1,158

 
$
269

 
$
375

_______________
(1)
The non-current portion of contract liabilities is included as a component of the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
The components of contract assets are summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Unbilled contract receivables, gross
$
3,690

 
$
916

 
$
881

Progress payments
(1,231
)
 
(109
)
 
(99
)
 
$
2,459

 
$
807

 
$
782


Impairment losses related to our contract assets were not material during the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017. In the two quarters ended January 3, 2020, we recognized $776 million of revenue related to contract liabilities that were outstanding at the end of fiscal 2019. In fiscal 2019, 2018 and 2017, we recognized $287 million, $204 million and $221 million, respectively, of revenue related to contract liabilities that were outstanding at the end of the respective prior fiscal year.
NOTE 8: INVENTORIES
Inventories are summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Finished products
$
216

 
$
77

 
$
91

Work in process
386

 
90

 
121

Raw materials and supplies
617

 
193

 
199

 
$
1,219

 
$
360

 
$
411



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NOTE 9: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Land
$
90

 
$
40

 
$
43

Software capitalized for internal use
287

 
187

 
171

Buildings
1,073

 
631

 
620

Machinery and equipment
2,194

 
1,429

 
1,349

 
3,644

 
2,287

 
2,183

Less accumulated depreciation and amortization
(1,527
)
 
(1,393
)
 
(1,283
)
 
$
2,117

 
$
894

 
$
900


Depreciation and amortization expense related to property, plant and equipment was $157 million in the two quarters ended January 3, 2020. Depreciation and amortization expense related to property, plant and equipment was $138 million, $143 million and $147 million in fiscal 2019, 2018 and 2017, respectively.
NOTE 10: GOODWILL
As discussed in Note 25: Business Segments in these Notes, after the completion of the L3Harris Merger, we adjusted our segment reporting to reflect our new organizational structure effective June 29, 2019. Because our accounting for the L3Harris Merger is still preliminary, we assigned goodwill acquired on a provisional basis. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that no impairment existed.
The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the two quarters ended January 3, 2020, and fiscal 2019 and 2018 were as follows:
 
Integrated Mission Systems
 
Space and Airborne Systems
 
Communication Systems
 
Aviation Systems
 
Other non-reportable business segments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance at June 30, 2017
$
64

 
$
3,733

 
$
927

 
$
612

 
$
30

 
$
5,366

Currency translation adjustments

 
6

 

 

 

 
6

Balance at June 29, 2018
64

 
3,739

 
927

 
612

 
30

 
5,372

Currency translation adjustments

 
(2
)
 

 

 

 
(2
)
Decrease from reclassification to assets of disposal group held for sale(1)

 

 

 

 
(30
)
 
(30
)
Balance at June 28, 2019
64

 
3,737

 
927

 
612

 

 
5,340

Goodwill acquired
5,704

 
1,390

 
3,316

 
4,239

 

 
14,649

Currency translation adjustments
1

 
4

 

 
7

 

 
12

Balance at January 3, 2020
$
5,768

 
$
5,131

 
$
4,243

 
$
4,859

 
$

 
$
20,001


_______________
(1)
In the fourth quarter of fiscal 2019, in connection with our then-pending divestiture of the Harris Night Vision business, which was reported as part of our former Communication Systems segment, we assigned $30 million of goodwill to the Harris Night Vision business on a relative fair value basis, because the divestiture of the Harris Night Vision business represented the disposal of a portion of a reporting unit. The Harris Night Vision business’ assets, including assigned goodwill, are presented as “Assets of disposal group held for sale” in our Consolidated Balance Sheet as of June 28, 2019. We completed the sale of the Harris Night Vision business on September 13, 2019. As a result, the goodwill assigned to the Harris Night Vision business was not allocated to any of our new business segments, and, consequently, it is included in “Other non-reportable business segments” in the table above. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for additional information regarding the sale of the Harris Night Vision business.

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NOTE 11: INTANGIBLE ASSETS
The most significant identifiable intangible asset that is separately recognized for our business combinations is customer relationships. Our customer relationships are established through written customer contracts (revenue arrangements). The fair value for customer relationships is determined, as of the date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows arising from the follow-on sales expected from the customer relationships over the estimated lives, including the probability of expected future contract renewals and sales, less a contributory assets charge, all of which is discounted to present value. We assess the recoverability of the carrying value of our finite-lived intangible assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We assess the recoverability of the carrying value of indefinite-lived intangible assets annually, or under certain circumstances more frequently, such as when events and circumstances indicate there may be an impairment.
Intangible assets are summarized below:
 
January 3, 2020
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
(In millions)
Customer relationships
$
6,518

 
$
653

 
$
5,865

Developed technologies
768

 
183

 
585

Trade names
165

 
35

 
130

Other
10

 
4

 
6

Total intangible assets subject to amortization
7,461

 
875

 
6,586

IPR&D
69

 

 
69

L3 trade name
1,803

 

 
1,803

Total intangible assets
$
9,333

 
$
875

 
$
8,458

 
 
 
 
 
 
 
June 28, 2019
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
(In millions)
Customer relationships
$
1,203

 
$
419

 
$
784

Developed technologies
206

 
136

 
70

Trade names
42

 
26

 
16

Other
2

 
2

 

Total intangible assets
$
1,453

 
$
583

 
$
870

 
 
 
 
 
 
 
June 29, 2018
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
(In millions)
Customer relationships
$
1,206

 
$
327

 
$
879

Developed technologies
208

 
119

 
89

Trade names
43

 
22

 
21

Other
2

 
2

 

Total intangible assets
$
1,459

 
$
470

 
$
989


Amortization expense related to intangible assets was $290 million for the two quarters ended January 3, 2020 and primarily related to the L3Harris Merger and our acquisition of Exelis. Amortization expense related to intangible assets was $115 million, $117 million and $126 million in fiscal 2019, 2018 and 2017, respectively, and primarily related to our acquisition of Exelis.

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Future estimated amortization expense for intangible assets is as follows:
 
(In millions)
2020
$
711

2021
632

2022
617

2023
596

2024
568

Thereafter
3,462

Total
$
6,586


NOTE 12: ACCRUED WARRANTIES
Our liability for standard product warranties is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Changes in our liability for standard product warranties during the two quarters ended January 3, 2020, and fiscal 2019 and 2018, were as follows:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Balance at the beginning of the period
$
25

 
$
24

 
$
26

Acquisitions during the period
83

 

 

Accruals for product warranties issued during the period
23

 
16

 
13

Settlements made during the period
(23
)
 
(11
)
 
(14
)
Other, including adjustments for divestitures and foreign currency translation
4

 
(4
)
 
(1
)
Balance at the end of the period
$
112

 
$
25

 
$
24


NOTE 13: CREDIT ARRANGEMENTS
On June 28, 2019, we established a new $2 billion, 5-year senior unsecured revolving credit facility (the “2019 Credit Facility”) by entering into a Revolving Credit Agreement (the “2019 Credit Agreement”) with a syndicate of lenders. The 2019 Credit Facility replaced our prior $1 billion, 5-year senior unsecured revolving credit facility established under the Revolving Credit Agreement, dated as of June 26, 2018 (the “2018 Credit Agreement”). No loans or letters of credit under the 2018 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 2019 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 2019 Credit Agreement, in an aggregate principal amount at any time outstanding not to exceed $2 billion for both revolving loans and letters of credit, with a sub-limit of $140 million for swingline loans and a sub-limit of $350 million for letters of credit. Borrowings under the 2019 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 foreign currency sub-limit of $400 million. The 2019 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 2019 Credit Agreement by an amount not to exceed $1 billion. 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 2019 Credit Agreement exceed $3 billion. The proceeds of loans or letters of credit borrowings under the 2019 Credit Agreement are restricted from being used for hostile acquisitions (as defined in the 2019 Credit Agreement) or for any purpose in contravention of applicable laws. We are not otherwise restricted under the 2019 Credit Agreement from using the proceeds of loans or letters of credit borrowings under the 2019 Credit Agreement for working capital and other general corporate purposes or from using the 2019 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 2019 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 2019 Credit Agreement at any time during the term of the 2019 Credit Agreement.
The 2019 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 2019 Credit Agreement. The obligations of any such subsidiary borrower shall be guaranteed by us.

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The 2019 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 2019 Credit Agreement do not apply in respect of such subsidiaries.
At our election, borrowings under the 2019 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 1.375%, but may increase (to a maximum amount of 1.875%) 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 for any day is a rate per annum equal to the greatest of (i) the prime lending rate published in the Wall Street Journal, (ii) the Federal Reserve Bank of New York (“NYFRB”) Rate (“NYFRB Rate”) plus 0.500% (the NYFRB Rate is the greater of (a) the federal funds rate and (b) the overnight bank funding rate published by the NYFRB), and (iii) the eurocurrency rate for a one month interest period (as defined in the 2019 Credit Agreement) plus 1.000%. The applicable interest rate margin over the base rate is initially equal to 0.375%, but may increase (to a maximum amount of 0.875%) or decrease (to a minimum amount of 0.125%) based on changes in our Senior Debt Ratings.
Borrowings under the 2019 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 2019 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 2019 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.
The 2019 Credit Agreement contains certain representations and warranties for the benefit of the administrative agent and the lenders, including but not limited to representations relating to: due incorporation and good standing; due authorization of the 2019 Credit Agreement documentation; absence of any requirement for governmental or third party authorization for the due execution, delivery and performance of the 2019 Credit Agreement documentation; enforceability of the 2019 Credit Agreement documentation; accuracy of financial statements; no material adverse effect since June 29, 2018; absence of material undisclosed litigation as of June 28, 2019; 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 2019 Credit Agreement contains certain affirmative covenants, including but not limited to 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; maintenance of accurate books and records; and visitation and inspection by the administrative agent and the lenders. The 2019 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; limiting certain investments in unrestricted subsidiaries; and limiting certain hedging arrangements. The 2019 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 2019 Credit Agreement, to be greater than 0.65:1.00. We were in compliance with the covenants in the 2019 Credit Agreement at January 3, 2020.
The 2019 Credit Agreement contains certain events of default, including: failure to make payments under the 2019 Credit Agreement; failure to perform or observe terms, covenants or agreements contained in the 2019 Credit Agreement; material inaccuracy of any representation or warranty under the 2019 Credit Agreement; payment default by us or certain of our subsidiaries under other indebtedness with a principal amount in excess of $200 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 $200 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA liability in excess of $200 million; any bankruptcy or insolvency of L3Harris or any material subsidiary; invalidity of 2019 Credit Agreement documentation; or a change of control (as defined in the 2019 Credit Agreement) of L3Harris. 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 2019 Credit Agreement are due on June 28, 2024, unless (i) the commitments are terminated earlier either at our request or if certain events of default described in the 2019 Credit Agreement occur or (ii) the maturity date is extended pursuant to provisions allowing us, from time to time after June 28, 2020, 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

94


during the term of the 2019 Credit Agreement), subject to approval by lenders holding a majority of the commitments under the 2019 Credit Agreement and satisfaction of certain conditions stated in the 2019 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 2019 Credit Agreement have not been replaced pursuant to customary replacement rights in our favor shall remain due and payable in full, and all commitments under the 2019 Credit Agreement of such declining lenders shall terminate, on the maturity date in effect prior to the requested extension. At January 3, 2020, we had no borrowings outstanding under the 2019 Credit Facility.
NOTE 14: DEBT
Long-Term Debt
Long-term debt is summarized below:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Variable-rate debt:
 
 
 
 
 
Floating rate notes, due February 27, 2019
$

 
$

 
$
300

Floating rate notes, due April 30, 2020
250

 
250

 
250

Total variable-rate debt
250

 
250

 
550

Fixed-rate debt:
 
 
 
 
 
2.7% notes, due April 27, 2020

 
400

 
400

4.95% notes, due February 15, 2021
650

 

 

3.85% notes, due June 15, 2023
800

 

 

3.95% notes, due May 28, 2024
350

 

 

3.832% notes, due April 27, 2025
600

 
600

 
600

7.0% debentures, due January 15, 2026
100

 
100

 
100

3.85% notes, due December 15, 2026
550

 

 

6.35% debentures, due February 1, 2028
26

 
26

 
26

4.40% notes, due June 15, 2028
1,850

 
850

 
850

2.900% notes, due December 15, 2029
400

 

 

4.854% notes, due April 27, 2035
400

 
400

 
400

6.15% notes, due December 15, 2040
300

 
300

 
300

5.054% notes, due April 27, 2045
500

 
500

 
500

Other
49

 
17

 
14

Total fixed-rate debt
6,575

 
3,193

 
3,190

Total debt
6,825

 
3,443

 
3,740

Plus: unamortized bond premium
154

 

 

Less: unamortized discounts and issuance costs
(28
)
 
(24
)
 
(28
)
Total debt, net
6,951

 
3,419

 
3,712

Less: current portion of long-term debt, net
(257
)
 
(656
)
 
(304
)
Total long-term debt, net
$
6,694

 
$
2,763

 
$
3,408


The potential maturities of long-term debt, including the current portion, for the five years following the end of the Fiscal Transition Period and, in total, thereafter are: $257 million in fiscal 2020; $657 million in fiscal 2021; $5 million in fiscal 2022; $804 million in fiscal 2023; $352 million in fiscal 2024; and $4,750 million thereafter.
As part of our purchase accounting for the L3Harris Merger, the L3 Notes (defined below) were recorded at fair value ($3.52 billion on a combined basis, representing a premium of $171 million). This premium will be amortized to interest expense over the lives of the related New L3Harris Notes (defined below) and such amortization is reflected as a reduction of interest expense in our Consolidated Statement of Income.

95


Debt Exchange. In connection with the L3Harris Merger, on July 2, 2019, we settled our previously announced debt exchange offers in which eligible holders of L3 senior notes (“L3 Notes”) could exchange such outstanding notes for (1) up to $3.35 billion aggregate principal amount of new notes issued by L3Harris (“New L3Harris Notes”) and (2) one dollar in cash for each $1,000 of principal amount. Each series of the New L3Harris Notes issued has an interest rate and maturity date that is identical to the L3 Notes.
 
Aggregate Principal
Amount of L3 Notes
(prior to debt
exchange)
 
Aggregate Principal
Amount of
New L3Harris Notes
Issued
 
Aggregate Principal
Amount of
Remaining L3 Notes
 
 
 
 
 
 
 
(In millions)
4.95% notes due February 15, 2021 (“4.95% 2021 Notes”)
$
650

 
$
501

 
$
149

3.85% notes due June 15, 2023 (“3.85% 2023 Notes”)
800

 
741

 
59

3.95% notes due May 28, 2024 (“3.95% 2024 Notes”)
350

 
326

 
24

3.85% notes due December 15, 2026 (“3.85% 2026 Notes”)
550

 
535

 
15

4.40% notes due June 15, 2028 (“4.40% 2028 Notes”)

1,000

 
918

 
82

Total
$
3,350

 
$
3,021

 
$
329


Interest on the New L3Harris Notes is payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2019, in the case of the 4.95% 2021 Notes; on June 15 and December 15, commencing on December 15, 2019, in the case of the 3.85% 2023 Notes, 3.85% 2026 Notes and 4.40% 2028 Notes; and on May 28 and November 28, commencing on November 28, 2019, in the case of the 3.95% 2024 Notes. The New L3Harris Notes are unsecured senior obligations and rank equally in right of payment with all other L3Harris senior unsecured debt.
The New L3Harris Notes are redeemable in whole or in part at any time or in part from time to time, at our option, until three months prior to the maturity date, in the case of the 4.95% 2021 Notes, 3.95% 2024 Notes, 3.85% 2026 Notes and 4.40% 2028 Notes, and until one month prior to the maturity date, in the case of the 3.85% 2023 Notes, at a redemption price equal to the greater of 100 percent of the principal amount of the notes to be redeemed or the sum of the present values of the principal amount and the remaining scheduled payments of interest on the notes to be redeemed, discounted from the scheduled payment dates to the date of redemption at the “treasury rate” as defined in the note, plus 20 basis points, in the case of the 3.85% 2023 Notes and 3.95% 2024 Notes, or 25 basis points, in the case of the 4.95% 2021 Notes, 3.85% 2026 Notes and 4.40% 2028 Notes, plus, in each case, accrued and unpaid interest due at the date of redemption.
In connection with the issuance of the New L3Harris Notes, we entered into a registration rights agreement, dated July 2, 2019, with BofA Securities, Inc. and Morgan Stanley & Co. LLC, pursuant to which we agreed to use commercially reasonable efforts to complete one or more registered exchange offers for the New L3Harris Notes within 365 days after July 2, 2019. If a registered exchange offer is not consummated within the alloted time, we are required to pay special additional interest, in an amount equal to 0.25% per annum of the principal amount of the New L3Harris Notes, for the first 90 days following the day of default. Thereafter, the amount of special additional interest increases another 0.25% per year, up to a maximum of 0.50% per year, until the default is cured.
Following the settlement of the exchange offers, there was approximately $329 million of existing L3 Senior Notes outstanding, which remain the senior unsecured obligations of L3.
Long-Term Debt Repaid in the Two Quarters Ended January 3, 2020
On December 16, 2019, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 2.7% Notes due April 27, 2020 (the “2.7% 2020 Notes”) at a “make-whole” redemption price as set forth in the 2.7% 2020 Notes. The “make-whole” redemption price for the 2.7% 2020 Notes was $403 million, and after adjusting for the carrying value of our unamortized issuance costs, we recorded a $2 million loss on the extinguishment of the 2.7% 2020 Notes in the two quarters ended January 3, 2020, which is included as a component of the “Non-operating income” line item in our Consolidated Statement of Income.
Long-Term Debt Issued in the Two Quarters Ended January 3, 2020
Fixed-rate Debt: On November 27, 2019, in order to fund our optional redemption of the 2.7% 2020 Notes as described above under “Long-Term Debt Repaid in the Two Quarters Ended January 3, 2020,” we completed the issuance of $400 million in aggregate principal amount of 2.900% notes due December 15, 2029 (the “2.900% 2029 Notes”). Interest on the 2.900% 2029 Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. At any time prior to September 15, 2029, we may redeem the 2.900% 2029 Notes, in whole or in part, at our option, at a “make-whole” redemption price equal to the greater of 100 percent of the principal amount of the 2.900% 2029 Notes or the sum of the present

96


values of the remaining scheduled payments of the principal plus accrued 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 in the 2.900% 2029 Notes, plus 20 basis points. We will pay accrued interest on the principal amount of notes being redeemed to, but not including, the redemption date. At any time on or after September 15, 2029, we may redeem the 2.900% 2029 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 change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the 2.900% 2029 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 $3 million of debt issuance costs related to the issuance of the 2.900% 2029 Notes, which are being amortized using the effective interest rate method over the life of the 2.900% 2029 Notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income.
Long-Term Debt Repaid in Fiscal 2019
During the third quarter of fiscal 2019, we repaid at maturity the entire outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019.
Long-Term Debt Repaid in Fiscal 2018
On June 22, 2018, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount of our 4.4% notes due December 15, 2020 (the “4.4% 2020 Notes”) and $400 million aggregate principal amount of our 5.55% notes due October 1, 2021 (the “2021 Notes” and collectively with the 4.4% 2020 Notes, the “2018 Redeemed Notes”) at a “make-whole” redemption price as set forth in the 2018 Redeemed Notes. The combined “make-whole” redemption price for the 2018 Redeemed Notes was $844 million, and after adjusting for the carrying value of our bond premium, discounts and issuance costs, we recorded a combined $22 million loss on the extinguishment of the 2018 Redeemed Notes in the fourth quarter of fiscal 2018, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income.
During the fourth quarter of fiscal 2018, we also repaid at maturity the entire outstanding $500 million aggregate principal amount of the 1.999% notes due April 27, 2018.
During the second quarter of fiscal 2018, we repaid in full the $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March 16, 2015, and recognized a $1 million extinguishment loss, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income, as a result of associated unamortized debt issuance costs. During the fourth quarter of fiscal 2018, we also repaid in full the $36 million in remaining indebtedness under the 3-year tranche (for a total of $305 million in term loan indebtedness repaid during fiscal 2018), and as a result, our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March 16, 2015, was terminated.
Long-Term Debt Issued in Fiscal 2018
Variable-rate Debt: On November 6, 2017, we completed the issuance and sale of $250 million in aggregate principal amount of Floating Rate Notes due April 30, 2020 (“Floating Rate Notes 2020”). We incurred $2 million of debt issuance costs related to the issuance of the Floating Rate Notes 2020, which are being amortized using the effective interest rate method over the life of the notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income. The Floating Rate Notes 2020 bear interest at a floating rate, reset quarterly, equal to three-month LIBOR plus 0.48% per year. Interest is payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing January 30, 2018. The Floating Rate Notes 2020 are not redeemable at our option prior to maturity. 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 used the net proceeds, together with cash on hand, to repay in full the $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility as described above under “Long-Term Debt Repaid in Fiscal 2018”.
Fixed-rate Debt: On June 4, 2018, in order to fund our optional redemption of the 2018 Redeemed Notes as described above under “Long-Term Debt Repaid in Fiscal 2018,” we completed the issuance of $850 million in aggregate principal amount of 4.400% notes due June 15, 2028 (the “New 2028 Notes”). Interest on the New 2028 Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2018. At any time prior to March 15, 2028, we may redeem the New 2028 Notes, in whole or in part, at our option, at a “make-whole” redemption price equal to the greater of 100 percent of the principal amount of the New 2028 Notes 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 at the “Treasury Rate”, as defined in the New 2028 Notes, plus 25 basis points. We will pay accrued interest on the principal amount of notes being redeemed to, but not including, the redemption date. At any time on or

97


after March 15, 2028, we may redeem the New 2028 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 change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase the New 2028 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 $8 million of debt issuance costs related to the issuance of the New 2028 Notes, which are being amortized using the effective interest rate method over the life of the New 2028 Notes, and such amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income.
Long-Term Debt Issued Prior to Fiscal 2018 that Remained Outstanding at January 3, 2020
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 issued long-term fixed-rate debt securities in the aggregate amount of $2.4 billion. The principal amounts, interest rates and maturity dates of these securities that remained outstanding at January 3, 2020 were as follows:
$600 million in aggregate principal amount of 3.832% notes due April 27, 2025 (the “2025 Notes”),
$400 million in aggregate principal amount of 4.854% notes due April 27, 2035 (the “2035 Notes”), and
$500 million in aggregate principal amount of 5.054% notes due April 27, 2045 (the “2045 Notes” and collectively with the 2025 Notes and 2035 Notes, the “Exelis Notes”).
Interest on each series of the Exelis Notes is payable semi-annually in arrears on April 27 and October 27 of each year, commencing October 27, 2015. The Exelis Notes are redeemable at our option up to one month prior to the scheduled maturity date at a price 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, plus accrued interest, 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) 30 basis points in the case of the 2025 Notes, (ii) 35 basis points in the case of the 2035 Notes, and (iii) 40 basis points in the case of the 2045 Notes. 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 Exelis 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, excluding the date of repurchase.
On December 3, 2010, we completed the issuance of $300 million in aggregate principal amount of 6.15% notes due December 15, 2040 (the “2040 Notes”). The 2040 Notes are redeemable at our option at a price 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, plus accrued interest, 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 35 basis points. 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.
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:
 
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Long-term debt (including current portion)(1)
$
6,951

 
$
7,536

 
$
3,419

 
$
3,802

 
$
3,712

 
$
3,848

_______________
(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.
Short-Term Debt
Our short-term debt at January 3, 2020, June 28, 2019 and June 29, 2018 was $3 million, $103 million (including $100 million outstanding under our commercial paper program) and $78 million (including $75 million outstanding under our

98


commercial paper program), respectively. Interest expense incurred on our short-term debt was not material in the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017.
Interest Paid
Total interest paid was $144 million in the two quarters ended January 3, 2020. Total interest paid was $170 million, $175 million and $168 million in fiscal 2019, 2018 and 2017, respectively.
NOTE 15: PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Contribution Plan
As of January 3, 2020, we sponsor numerous defined contribution savings plans, which allow our eligible employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plans include several match contribution formulas which requires us to match a percentage of the employee contributions up to certain limits, generally totaling between 2.0% to 6.0% of employee eligible pay. Matching contributions charged to expense were $105 million for the two quarters ended January 3, 2020. Matching contributions charged to expense were $85 million, $83 million and $80 million for fiscal 2019, 2018 and 2017, 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.
The following table provides the fair value of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
Total
 
Level 1
 
Total
 
Level 1
 
Total
 
Level 1
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan assets:(1)
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed income securities(2)
$
58

 
$
58

 
$
99

 
$
99

 
$
109

 
$
109

Investments measured at NAV:
 
 
 
 
 
 
 
 
 
 
 
Corporate-owned life insurance
29

 
 
 
28

 
 
 
27

 
 
Total fair value of deferred compensation plan assets
$
87

 
 
 
$
127

 
 
 
$
136

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan liabilities:(3)
 
 
 
 
 
 
 
 
 
 
 
Equity securities and mutual funds
$
2

 
$
2

 
$
25

 
$
25

 
$
38

 
$
38

Investments measured at NAV:
 
 
 
 
 
 
 
 
 
 
 
Common/collective trusts and guaranteed investment contracts
69

 
 
 
132

 
 
 
111

 
 
Total fair value of deferred compensation plan liabilities
$
71

 
 
 
$
157

 
 
 
$
149

 
 

_______________
(1)
Represents diversified assets 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, and which are measured at fair value.
(2)
We have reclassified certain prior-year amounts to conform with current period classifications. Reclassifications include certain equity and fixed income funds that were previously included under “Investments Measured at NAV” and are now reflected in “Equity and fixed income securities” under “Level 1.”
(3)
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 stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.
Defined Benefit Plans
We sponsor numerous defined benefit pension plans for eligible employees. 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.

99


The U.S. Salaried Retirement Plan (“U.S. SRP”) is our largest defined benefit pension plan, with assets valued at $4.5 billion and a projected benefit obligation of $5.6 billion as of January 3, 2020. 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 employees who were not highly compensated on December 31, 2016.
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:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Fair value of plan assets
$
8,618

 
$
274

 
$
4,958

 
$
201

 
$
5,098

 
$
207

Projected benefit obligation
(10,268
)
 
(369
)
 
(6,123
)
 
(221
)
 
(5,774
)
 
(233
)
Funded status
$
(1,650
)
 
$
(95
)
 
$
(1,165
)
 
$
(20
)
 
$
(676
)
 
$
(26
)
Consolidated Balance Sheet line item amounts:
Other non-current assets
$
91

 
$
1

 
$
12

 
$

 
$
15

 
$

Compensation and benefits
(10
)
 
(8
)
 
(7
)
 

 
(2
)
 
(1
)
Liabilities of disposal group held for sale

 

 
(16
)
 

 

 

Defined benefit plans
(1,731
)
 
(88
)
 
(1,154
)
 
(20
)
 
(689
)
 
(25
)

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 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:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Net actuarial loss (gain)
$
819

 
$
(34
)
 
$
781

 
$
(36
)
 
$
156

 
$
(46
)
Net prior service cost (credit)
(282
)
 
(1
)
 
6

 
(1
)
 
4

 
(1
)
 
$
537

 
$
(35
)
 
$
787

 
$
(37
)
 
$
160

 
$
(47
)


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The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Change in benefit obligation
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of fiscal year
$
6,123

 
$
221

 
$
5,774

 
$
233

 
$
6,140

 
$
265

Benefit obligation assumed in L3Harris Merger
4,474

 
156

 

 

 

 

Service cost
42

 
1

 
36

 

 
39

 
1

Interest cost
149

 
5

 
209

 
8

 
195

 
7

Actuarial loss (gain)
301

 
7

 
514

 
(1
)
 
(169
)
 
(22
)
Amendments
(292
)
 

 
3

 

 
2

 

Benefits paid
(342
)
 
(21
)
 
(381
)
 
(19
)
 
(402
)
 
(18
)
Settlements
(5
)
 

 

 

 

 

Expenses paid
(43
)
 

 
(30
)
 

 
(35
)
 

Curtailments
(35
)
 

 
1

 

 

 

Foreign currency exchange rate changes
3

 

 
(3
)
 

 
4

 

Plan participants' contributions
1

 

 

 

 

 

Divestiture
(108
)
 

 

 

 

 

Benefit obligation at end of fiscal year
$
10,268

 
$
369

 
$
6,123

 
$
221

 
$
5,774

 
$
233


The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
Pension
 
Other
Benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
Plan assets at beginning of fiscal year
$
4,958

 
$
201

 
$
5,098

 
$
207

 
$
4,921

 
$
212

Plan assets acquired in L3Harris Merger
3,183

 
68

 

 

 

 

Actual return on plan assets
548

 
18

 
271

 
11

 
307

 
14

Employer contributions
406

 
8

 
3

 
2

 
303

 
(1
)
Benefits paid
(342
)
 
(21
)
 
(381
)
 
(19
)
 
(402
)
 
(18
)
Settlements
(5
)
 

 

 

 

 

Expenses paid
(43
)
 

 
(30
)
 

 
(35
)
 

Foreign currency exchange rate changes
4

 

 
(3
)
 

 
4

 

Plan participants' contributions
1

 

 

 

 

 

Divestiture
(92
)
 

 

 

 

 

Plan assets at end of fiscal year
$
8,618

 
$
274

 
$
4,958

 
$
201

 
$
5,098

 
$
207

 
 
 
 
 
 
 
 
 
 
 
 
Funded status at end of fiscal year
$
(1,650
)
 
$
(95
)
 
$
(1,165
)
 
$
(20
)
 
$
(676
)
 
$
(26
)

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The accumulated benefit obligation for all defined benefit pension plans was $10.2 billion at January 3, 2020. The following table provides information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Projected benefit obligation
$
9,670

 
$
6,041

 
$
5,694

Accumulated benefit obligation
9,656

 
6,041

 
5,694

Fair value of plan assets
7,931

 
4,864

 
5,004


Income Statement Information
The following table provides the components of net periodic benefit income and other amounts recognized in other comprehensive income for the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017 as they pertain to our defined benefit plans:
 
Pension
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Net periodic benefit income
 
 
 
 
 
 
 
Service cost
$
42

 
$
36

 
$
39

 
$
58

Interest cost
149

 
209

 
195

 
184

Expected return on plan assets
(314
)
 
(382
)
 
(369
)
 
(340
)
Amortization of net actuarial loss (gain)
1

 

 

 
1

Amortization of prior service credit
(5
)
 

 

 

Effect of curtailments or settlements(1)
(18
)
 
1

 

 

Net periodic benefit income
$
(145
)
 
$
(136
)
 
$
(135
)
 
$
(97
)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
 
 
 
 
 
 
 
Net actuarial loss (gain)
$
55

 
$
625

 
$
(106
)
 
$
(284
)
Prior service (credit) cost
(292
)
 
3

 
2

 

Amortization of net actuarial gain (loss)
(5
)
 

 

 
(1
)
Amortization of prior service credit (cost)
5

 
(1
)
 

 

Recognized net loss due to divestiture
(13
)
 

 

 

Total change recognized in other comprehensive loss
(250
)
 
627

 
(104
)
 
(285
)
Total impact from net periodic benefit cost and changes in other comprehensive loss
$
(395
)
 
$
491

 
$
(239
)
 
$
(382
)
_______________
(1)
Effective January 1, 2020, for certain acquired L3 U.S. defined benefit pension plans, benefit accruals were frozen and replaced with a 1% cash balance benefit formula for certain employees who were not considered highly compensated on December 31, 2018. During the two quarters ended January 3, 2020, we recognized a $23 million curtailment gain as a result of this change, and a $5 million settlement loss resulting from the payout of the liabilities of a non-qualified benefit plan due to the change in control provisions.

102


 
Other Benefits
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Net periodic benefit income
 
 
 
 
 
 
 
Service cost
$
1

 
$

 
$
1

 
$
1

Interest cost
5

 
8

 
7

 
8

Expected return on plan assets
(10
)
 
(16
)
 
(16
)
 
(17
)
Amortization of net actuarial loss (gain)
(3
)
 
(6
)
 
(1
)
 

Net periodic benefit income
$
(7
)
 
$
(14
)
 
$
(9
)
 
$
(8
)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
 
 
 
 
 
 
 
Net actuarial loss (gain)
$
(1
)
 
$
4

 
$
(20
)
 
$
(38
)
Amortization of net actuarial gain (loss)
3

 
6

 
1

 

Total change recognized in other comprehensive loss
2

 
10

 
(19
)
 
(38
)
Total impact from net periodic benefit cost and changes in other comprehensive loss
$
(5
)
 
$
(4
)
 
$
(28
)
 
$
(46
)

The following table provides estimated amounts for net actuarial gain and prior service cost to be amortized from accumulated other comprehensive loss into net periodic benefit income during the next twelve months for plans in existence as of January 3, 2020.
 
Pension
 
Other
Benefits
 
Total
 
 
 
 
 
 
 
(In millions)
Net actuarial (gain) loss
$
10

 
$
(3
)
 
$
7

Prior service cost
(28
)
 

 
(28
)
 
$
(18
)
 
$
(3
)
 
$
(21
)

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 in existence as of January 3, 2020:
Obligation assumptions as of:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
Discount rate
3.14
%
 
3.35
%
 
4.05
%
 
 
Rate of future compensation increase
2.80
%
 
2.76
%
 
2.76
%
 
 
 
 
 
 
 
 
 
 
Cost assumptions for fiscal periods ended:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
Discount rate to determine service cost
3.11
%
 
3.89
%
 
3.48
%
 
3.80
%
Discount rate to determine interest cost
2.94
%
 
3.75
%
 
3.28
%
 
2.94
%
Expected return on plan assets
7.68
%
 
7.66
%
 
7.66
%
 
7.65
%
Rate of future compensation increase
2.97
%
 
2.76
%
 
2.76
%
 
2.75
%
Key assumptions for the U.S. SRP (our largest defined benefit pension plan with approximately 54% of the total projected benefit obligation) included a discount rate for obligation assumptions of 3.10% and expected return on plan assets of 7.75% for the two quarters ended January 3, 2020, which is being maintained at 7.75% for fiscal 2020.
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 in existence as of January 3, 2020:

103


Obligation assumptions as of:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
Discount rate
2.97
%
 
3.21
%
 
3.99
%
 
 
Rate of future compensation increase
N/A

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
Cost assumptions for fiscal periods ended:
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
Discount rate to determine service cost
3.47
%
 
4.14
%
 
3.62
%
 
3.52
%
Discount rate to determine interest cost
2.74
%
 
3.62
%
 
3.04
%
 
2.60
%
Rate of future compensation increase
N/A

 
N/A

 
N/A

 
N/A


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 2020 for the U.S. defined benefit pension plans. The weighted average long-term annual rate of return on assets for all defined benefit pension plans is estimated at 7.68% for fiscal 2020. In the two quarters ended January 3, 2020, we adopted updated mortality tables, which resulted in a decrease in the defined benefit plans’ projected benefit obligation as of January 3, 2020 and estimated net periodic benefit cost beginning with fiscal 2020.
The assumed composite rate of future increases in the per capita healthcare costs (the healthcare trend rate) was 6.80% for fiscal 2020, decreasing ratably to 4.70% by fiscal 2030. 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
40
%
60%
Fixed income investments
20
%
40%
Hedge funds
0
%
30%
Cash and cash equivalents
0
%
10%


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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, real estate investment trusts 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 funds are valued using a market approach based on NAV calculated by the funds and are not publicly available. Private equity funds generally have liquidity restrictions that extend for ten or more years. At January 3, 2020, June 28, 2019 and June 29, 2018, our defined benefit plans had future unfunded commitments totaling $325 million, $355 million and $246 million, respectively, related to private equity fund investments.
Hedge funds, which include equity long/short, event-driven, fixed-income arbitrage and global macro strategies, are typically limited partnership investment structures. Limited partnership interests in hedge funds are valued using a market approach based on NAV calculated by the funds and are not publicly available. Hedge funds generally permit redemption on a quarterly or more frequent basis with 90 or fewer days-notice. At each of January 3, 2020, June 28, 2019 and June 29, 2018, our defined benefit plans had no future unfunded commitments related to hedge fund investments.
Fixed income investments, which include U.S. Government securities, investment and non-investment grade corporate bonds and securitized 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 generally categorized as Level 2 assets. Fixed income funds valued at the closing price reported on the major market exchanges on which the individual fund is traded are categorized as Level 1 assets.
Other is 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 and corporate owned life insurance policies valued at the accumulated benefit.
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.

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The following tables provide the fair value of plan assets held by our defined benefit plans by asset category and by fair value hierarchy level:
 
January 3, 2020
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
(In millions)
Asset Category
 
 
 
 
 
 
 
Equities:
 
 
 
 
 
 
 
Domestic equities
$
2,968

 
$
2,968

 
$

 
$

International equities
1,217

 
1,217

 

 

Real Estate Investment Trusts
211

 
211

 

 

Fixed income:
 
 
 
 
 
 
 
Corporate bonds
1,176

 

 
1,159

 
17

Government securities
489

 

 
489

 

Securitized Assets
131

 

 
131

 

Fixed Income Funds
101

 
101

 

 

Other
2

 

 

 
2

Cash and cash equivalents
691

 
17

 
674

 

Total
6,986

 
$
4,514

 
$
2,453

 
$
19

Investments Measured at NAV
 
 
 
 
 
 
 
Equity funds
933

 
 
 
 
 
 
Fixed income funds
323

 
 
 
 
 
 
Hedge funds
342

 
 
 
 
 
 
Private equity funds
302

 
 
 
 
 
 
Other
1

 
 
 
 
 
 
Total Investments Measured at NAV
1,901

 
 
 
 
 
 
Receivables, net
5

 
 
 
 
 
 
Total fair value of plan assets
$
8,892

 
 
 
 
 
 
 
June 28, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
(In millions)
Asset Category
 
 
 
 
 
 
 
Equities:
 
 
 
 
 
 
 
Domestic equities
$
1,173

 
$
1,173

 
$

 
$

International equities
896

 
896

 

 

Fixed income:
 
 
 
 
 
 
 
Corporate bonds
923

 

 
906

 
17

Government securities
332

 

 
332

 

Other
2

 

 

 
2

Cash and cash equivalents
59

 
12

 
47

 

Total
3,385

 
$
2,081

 
$
1,285

 
$
19

Investments Measured at NAV
 
 
 
 
 
 
 
Equity funds
703

 
 
 
 
 
 
Fixed income funds
362

 
 
 
 
 
 
Hedge funds
331

 
 
 
 
 
 
Private equity funds
294

 
 
 
 
 
 
Total Investments Measured at NAV
1,690

 
 
 
 
 
 
Receivables, net
84

 
 
 
 
 
 
Total fair value of plan assets
$
5,159

 
 
 
 
 
 

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June 29, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
(In millions)
Asset Category
 
 
 
 
 
 
 
Equities:
 
 
 
 
 
 
 
Domestic equities
$
1,221

 
$
1,189

 
$
32

 
$

International equities
903

 
899

 
4

 

Fixed income:
 
 
 
 
 
 
 
Corporate bonds
811

 

 
800

 
11

Government securities
335

 

 
335

 

Other
2

 

 

 
2

Cash and cash equivalents
209

 
6

 
203

 

Total
3,481

 
$
2,094

 
$
1,374

 
$
13

Investments Measured at NAV
 
 
 
 
 
 
 
Equity funds
714

 
 
 
 
 
 
Fixed income funds
318

 
 
 
 
 
 
Hedge funds
395

 
 
 
 
 
 
Private equity funds
401

 
 
 
 
 
 
Total Investments Measured at NAV
1,828

 
 
 
 
 
 
Payables, net
(4
)
 
 
 
 
 
 
Total fair value of plan assets
$
5,305

 
 
 
 
 
 

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 and the Bipartisan Budget Act of 2015 (“BBA 2015”) further extended the interest rate stabilization provision of MAP-21 until 2020. We made voluntary contributions to our U.S. qualified defined benefit pension plans of $302 million in the two quarters ended January 3, 2020 and $300 million and $400 million in fiscal 2018 and 2017, respectively. As a result, we currently do not anticipate making any contributions to our U.S. qualified defined benefit pension plans and only minor contributions to our non-U.S. pension plans in fiscal 2020.
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 in existence as of January 3, 2020.
 
Pension
 
Other
    Benefits(1)
 
Total
 
 
 
 
 
 
 
(In millions)
Fiscal Years:
 
 
 
 
 
2020
$
572

 
$
32

 
$
604

2021
576

 
31

 
607

2022
583

 
30

 
613

2023
584

 
29

 
613

2024
581

 
27

 
608

2025 — 2028
2,896

 
117

 
3,013


_______________
(1)
Projected payments for Other Benefits reflect net payments from the Company, which include subsidies that reduce the gross payments by less than 10 percent.

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Multi-employer Benefit Plans
Certain of our businesses acquired in connection with the L3Harris Merger participate in multi-employer defined benefit pension plans. We make cash contributions to these plans under the terms of collective-bargaining agreements that cover union employees based on a fixed rate per hour of service worked by the covered employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (3) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Cash contributed and expenses recorded for our multi-employer plans were not material in the two quarters ended January 3, 2020.
See Note 5: Business Combination in these Notes for information regarding postretirement benefit plan liabilities assumed in connection with the L3Harris Merger.
NOTE 16: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION
At January 3, 2020, we had options or other share-based compensation outstanding under two Harris 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”), as well as under employee stock incentive plans of L3 assumed by L3Harris (collectively, “L3Harris SIPs”). We believe that share-based awards more closely align the interests of participants with those of shareholders.
Harris equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in L3Harris Common Stock, except stock options which automatically vested and remained outstanding. Harris equity awards granted on or after October 12, 2018 did not automatically vest upon closing of the L3Harris Merger, and instead remained outstanding as an award with respect to L3Harris common stock in accordance with the terms that were applicable to such award prior to the L3Harris Merger.
L3’s equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in L3Harris common stock (except stock options automatically converted into stock options with respect to L3Harris common stock and remained outstanding), in each case, after giving effect to the Exchange Ratio and appropriate adjustments to reflect the consummation of the L3Harris Merger and the terms and conditions applicable to such awards prior to the L3Harris Merger. Any L3 restricted stock unit or L3 restricted stock award granted on or after October 12, 2018 was converted into a corresponding award with respect to L3Harris common stock, with the number of shares underlying such award adjusted based on the Exchange Ratio, and remained outstanding in accordance with the terms that were applicable to such award prior to the L3Harris Merger. Pursuant to the Merger Agreement, L3Harris assumed the converted L3 equity awards.
Summary of Share-Based Compensation Expense
The following table summarizes the amounts and classification of share-based compensation expense:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Total expense
$
125

 
$
58

 
$
51

 
$
42

Included in:
 
 
 
 
 
 
 
Cost of product sales and services
$
5

 
$
12

 
$
8

 
$
3

Engineering, selling and administrative expenses
120

 
46

 
43

 
39

Income from continuing operations
125

 
58

 
51

 
42

Tax effect on share-based compensation expense
(31
)
 
(14
)
 
(16
)
 
(16
)
Total share-based compensation expense after-tax
$
94

 
$
44

 
$
35

 
$
26

Compensation cost related to share-based compensation arrangements that was capitalized as part of inventory or fixed assets for the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017 was not material.
As of January 3, 2020, a total of 22,071,494 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). During the two quarters ended January 3, 2020, we issued an

108


aggregate of 2,425,153 shares of common stock under the terms of our L3Harris 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 L3Harris 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 of 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 L3Harris SIPs is as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
Expected dividends
1.70
%
 
1.61
%
 
1.80
%
 
2.36
%
Expected volatility
22.18
%
 
19.87
%
 
19.30
%
 
21.78
%
Risk-free interest rates
1.68
%
 
2.72
%
 
1.80
%
 
1.23
%
Expected term (years)
5.65

 
5.03

 
5.00

 
5.03


A summary of stock option activity under our L3 Harris SIPs as of January 3, 2020 and changes during the two quarters ended January 3, 2020 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 June 28, 2019
4,195,201

 
$
80.86

 
 
 
 
Granted
738,956

 
$
204.85

 
 
 
 
Exercised
(1,654,558
)
 
$
79.35

 
 
 
 
Other — L3Harris Merger(1)
1,266,379

 
$
112.83

 
 
 
 
Stock options outstanding January 3, 2020
4,545,978

 
$
110.48

 
6.26
 
$
454.57

Stock options exercisable January 3, 2020
3,807,022

 
$
92.16

 
5.61
 
$
450.42

_______________
(1)
Represents L3 stock options converted to L3Harris stock options in accordance with the Merger Agreement.
The weighted-average grant-date fair value was $38.61 per share for options granted during the two quarters ended January 3, 2020 and $30.05 per share, $18.60 per share and $13.82 per share for options granted during fiscal 2019, 2018, and 2017, respectively. The total intrinsic value of options exercised during the two quarters ended January 3, 2020 was $212 million at the time of exercise. The total intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $75 million, $39 million and $47 million, respectively, at the time of exercise.

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A summary of the status of our nonvested stock options at January 3, 2020 and changes during the two quarters ended January 3, 2020 is as follows:
 
Shares
 
Weighted-Average
Grant-Date Fair Value
Per Share
 
 
 
 
Nonvested stock options June 28, 2019
856,753

 
$
20.28

Granted
738,956

 
$
38.61

Vested
(856,753
)
 
$
20.28

Nonvested stock options January 3, 2020
738,956


$
38.61

As of January 3, 2020, there was $24 million of total unrecognized compensation expense related to nonvested stock options granted under our L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 2.49 years. The total fair value of stock options that vested during the two quarters ended January 3, 2020 was approximately $17 million. The total fair value of stock options that vested during fiscal 2019, 2018 and 2017 was $14 million, $18 million and $17 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 and non-employee directors under our L3Harris SIPs. These awards are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment [or board membership] 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 January 3, 2020, there were 34,869 shares of restricted stock and 500,898 restricted stock units outstanding which were payable in shares.
A summary of the status of these awards at January 3, 2020 and changes during the two quarters ended January 3, 2020 is as follows:
 
Shares or Units
 
Weighted-Average
Grant Price Per Share or Unit
 
 
 
 
Restricted stock and restricted stock units outstanding at June 28, 2019
365,998

 
$
134.06

Granted
260,167

 
$
204.62

Vested
(503,069
)
 
$
149.39

Forfeited
(16,916
)
 
$
193.20

Other — L3Harris Merger(1)
429,587

 
$
189.13

Restricted stock and restricted stock units outstanding at January 3, 2020
535,767

 
$
196.22

_______________
(1)
Represents L3 share-based awards converted to L3Harris restricted stock units in accordance with the Merger Agreement.
As of January 3, 2020, there was $74 million of total unrecognized compensation expense related to these awards under our L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 2.11 years. The weighted-average grant date price per share or per unit was $204.62 for awards granted during the two quarters ended January 3, 2020 and $160.05, $141.46 and $94.60 for awards granted during fiscal 2019, 2018 and 2017, respectively. The total fair value of these awards was approximately $75 million for awards that vested during the two quarters ended January 3, 2020 and $16 million, $11 million and $14 million for awards that vested during fiscal 2019, 2018 and 2017, respectively.
Performance Share Unit Awards
The following information relates to awards of performance share units that have been granted to employees under our L3Harris 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 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 based on the closing price of our common stock on the grant date and is amortized to compensation expense over the vesting period if achievement of the performance measures is considered probable. At January 3, 2020, there were 55,020 performance share units outstanding which were payable in shares.

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A summary of the status of these awards at January 3, 2020 and changes during the two quarters ended January 3, 2020 is as follows:
 
Shares or Units
 
Weighted-Average
Grant Price
Per Share or Unit
 
 
 
 
Performance share units outstanding at June 28, 2019
509,749

 
$
126.73

Granted
55,020

 
$
204.85

Performance based adjustment(1)
326,656

 
$
129.84

Vested
(836,405
)
 
$
127.94

Performance share units outstanding at January 3, 2020
55,020

 
$
204.85

_______________
(1)
Represents adjustments for performance conditions that impact the number of shares that vest. All awards with such criteria automatically vested upon the closing of the L3Harris Merger.
As of January 3, 2020, there was $9 million of total unrecognized compensation expense related to these awards under our L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 2.41 years. The weighted-average grant date price per unit was $204.85 for awards granted during the two quarters ended January 3, 2020 and $155.12, $123.13 and $84.40 for awards granted during fiscal 2019, 2018 and 2017, respectively. The total fair value of these awards was approximately $107 million for awards that vested during the two quarters ended January 3, 2020 and $21 million, $12 million and $21 million for awards that vested during fiscal 2019, 2018 and 2017, respectively.
NOTE 17: INCOME FROM CONTINUING OPERATIONS PER SHARE
The computations of income from continuing operations per common share attributable to L3Harris common shareholders are as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions, except per share amounts)
Income from continuing operations
$
823

 
$
953

 
$
702

 
$
628

Adjustments for participating securities outstanding

 
(2
)
 
(2
)
 
(1
)
Income from continuing operations used in per basic and diluted common share calculations (A)
$
823

 
$
951

 
$
700

 
$
627

Basic weighted average common shares outstanding (B)
221.2

 
118.0

 
118.6

 
122.6

Impact of dilutive share-based awards
2.5

 
2.5

 
2.5

 
1.7

Diluted weighted average common shares outstanding (C)
223.7

 
120.5

 
121.1

 
124.3

Income from continuing operations per basic common share (A)/(B)
$
3.72

 
$
8.06

 
$
5.90

 
$
5.11

Income from continuing operations per diluted common share (A)/(C)
$
3.68

 
$
7.89

 
$
5.78

 
$
5.04


Potential dilutive common shares primarily consist of employee stock options and restricted and performance unit awards. Income from continuing operations per diluted common share excludes the antidilutive impact of 604,969 weighted average share-based awards outstanding for the two quarters ended January 3, 2020 and 271,892, 48,590 and 421,507 weighted average share-based awards outstanding for fiscal 2019, 2018 and 2017, respectively.
NOTE 18: RESEARCH AND DEVELOPMENT
Company-sponsored research and development (“R&D”) costs are expensed as incurred and are included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. These costs were $329 million in the two quarters ended January 3, 2020. Company-sponsored R&D costs were $331 million, $311 million and $310 million in fiscal 2019, 2018 and 2017, respectively. 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), and are accounted for principally by the POC cost-to-cost revenue recognition method. Customer-sponsored R&D is included in our revenue and cost of product sales and services.

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NOTE 19: LEASE COMMITMENTS
As discussed in Note 2: Accounting Changes or Recent Accounting Pronouncements, we adopted ASC 842 effective June 29, 2019. Our operating and finance leases at January 3, 2020 were for real estate such as office space, warehouses, manufacturing, research and development facilities, tower space and land, and for equipment. Finance leases were not material at January 3, 2020 and are not included in the disclosures below.
Operating lease cost was $88 million for the two quarters ended January 3, 2020. Other lease expenses, including short-term and equipment lease cost, variable lease cost and sublease income, were not material for the two quarters ended January 3, 2020.
Supplemental operating lease balance sheet information at January 3, 2020 is as follows:
 
(In millions)
Operating lease right-of-use assets
$
837

 
 
Other accrued items
129

Operating lease liabilities
781

Total operating lease liabilities
$
910


Other supplemental lease information for the two quarters ended January 3, 2020 is as follows:
 
(In millions, except lease term and discount rate)
Cash paid for amounts included in the measurement of operating lease liabilities
$
91

Right-of-use assets obtained in exchange for new operating lease liabilities
17

Weighted average remaining lease term — operating leases (in years)
9.4

Weighted average discount rate — operating leases
3.1
%

Future lease payments under non-cancelable operating leases at January 3, 2020 were as follows:
 
(In millions)
Fiscal Years
 
2020
$
162

2021
134

2022
123

2023
103

2024
86

Thereafter
450

Total future lease payments required
1,058

Less: imputed interest
148

Total
$
910


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 individual lease material to our operations. At January 3, 2020, we had $280 million of additional operating lease commitments for real estate leases that have not yet commenced. These leases will commence in 2021 with lease terms of 15 to 25 years.

112


As discussed in Note 2: Accounting Changes or Recent Accounting Pronouncements in these Notes, we adopted ASC 842 using the optional transition method and, consequently, we are presenting prior period amounts and disclosures under ASC 840. Future minimum lease payments for operating leases under ASC 840 at June 28, 2019 were as follows:
 
(In millions)
 
 
June 29, 2019 to July 3, 2020
$
68

July 4, 2020 to July 2, 2021
62

July 3, 2021 to July 1, 2022
47

July 2, 2022 to June 30, 2023
40

July 1, 2023 to June 28, 2024
32

Thereafter
64

Total minimum lease payments required
$
313


Rent expense was $73 million, $61 million and $65 million for fiscal 2019, 2018 and 2017, respectively.
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 and changes in interest 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 also may enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting. We recognize all derivatives in our Consolidated Balance Sheet at fair value. We do not hold or issue derivatives for speculative trading purposes.
Exchange Rate Risk — Fair Value 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 have used foreign currency forward contracts and options to hedge certain balance sheet items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the related hedged items are reflected in earnings, in the “Cost of product sales and services” line item in our Consolidated Statement of Income.
At January 3, 2020, we had no outstanding foreign currency forward contracts to hedge balance sheet items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017. In addition, no amounts were recognized in earnings in the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017 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 used to hedge currency exposures from cash flows anticipated across our business segments. We also hedge U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. 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 and are categorized in Level 2 of the fair value hierarchy. Gains and losses in accumulated other comprehensive income are reclassified to earnings when the related hedged item is 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. Notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. At January 3, 2020, we had open foreign currency forward contracts with an aggregate notional amount of $511 million denominated in the Euro, British Pound, Australian Dollar, Canadian Dollar and United Arab Emirates Dirham to hedge certain forecasted transactions.
At January 3, 2020, our foreign currency forward contracts had maturities through 2023.

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The table below presents the fair values of our derivatives designated as foreign currency hedging instruments in our Consolidated Balance Sheet at January 3, 2020. As of the end of fiscal 2019, 2018 and 2017, the fair values of our derivatives designated as foreign currency hedging instruments were not material.
 
 
January 3, 2020
 
 
 
 
 
(In millions)
Derivatives designated as hedging instruments:
 
 
Foreign currency forward contracts
 
 
Other current assets
 
$
8

Other non-current assets
 
2

Other accrued items
 
6

Other long-term liabilities
 
2

During the two quarters ended January 3, 2020, we recognized a net unrealized gain of $3 million before income taxes in other comprehensive income from foreign currency derivatives designated as cash flow hedges. During fiscal 2019, 2018 and 2017, the net unrealized gain or loss recognized in other comprehensive income from foreign currency derivatives designated as cash flow hedges was not material.
During the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017, the net gain or loss reclassified from “Accumulated other comprehensive loss” into earnings from foreign currency derivatives designated as cash flow hedges was not material. Gains and losses from foreign currency derivatives designated as cash flow hedges are included in the line item in our Consolidated Statement of Income associated with the hedged transaction, with the exception of the losses resulting from discontinued cash flow hedges, which are included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income.
At January 3, 2020, the estimated amount of existing gains to be reclassified into earnings within the next twelve months was $2 million before income taxes.
Interest-Rate Risk — Cash Flow Hedges
At January 3, 2020, we had two treasury lock agreements (“treasury locks”) with third-party financial institution counterparties with a combined notional amount of $650 million that were classified as cash flow hedges, which were assumed in connection with the L3Harris Merger.
These treasury locks were initiated in January 2019 to hedge against fluctuations in interest payments due to changes in the benchmark interest rate (10-year U.S. Treasury rate) associated with the anticipated issuance of long-term fixed-rate notes (“New Notes”) to redeem or repay at maturity the entire $650 million outstanding principal amount of our 4.95% 2021 Notes.
We designated these treasury locks as cash flow hedges against fluctuations in interest payments on the New Notes due to changes in the benchmark interest rate prior to issuance, which we expected to occur before the date of maturity of the 4.95% 2021 Notes. If the benchmark interest rate increases during the period of the agreement, the treasury locks position becomes an asset and we receive a cash payment from the counterparty when we terminate the treasury locks upon issuance of the New Notes. Conversely, if the benchmark interest rate decreases, the treasury locks position becomes a liability and we make a cash payment to the counterparty when we terminate the treasury locks upon issuance of the New Notes. The fair value of the treasury locks is measured using a pricing model that utilizes observable market data such as the benchmark interest rate.
At January 3, 2020, the combined fair value of these treasury locks was a liability of $56 million, which was categorized in Level 2 of the fair value hierarchy and recorded in the “Other long-term liabilities” line item in our Consolidated Balance Sheet. The unrealized after-tax loss associated with these treasury locks included in the “Accumulated other comprehensive loss” line item in our Consolidated Balance Sheet was $16 million at January 3, 2020. We recognized a $35 million liability for these treasury locks as part of our purchase accounting for the L3Harris Merger.
On November 27, 2019, in order to fund our optional redemption of the 2.7% 2020 Notes as described in Note 14: Debt in these Notes, we completed the issuance of $400 million in aggregate principal amount of the 2.900% 2029 Notes. In January 2019, we initiated a treasury lock to hedge against fluctuations in interest payments due to changes in the benchmark interest rate (10-year U.S. Treasury rate) associated with the anticipated issuance of debt to redeem or repay the 2.7% 2020 Notes. This treasury lock was terminated as planned in connection with our issuance of the 2.900% 2029 notes during the quarter ended January 3, 2020, and because interest rates decreased during the period of the treasury lock, we made a cash payment to our counterparty and recorded an after-tax loss of $24 million in the “Accumulated other comprehensive loss” line item of our Consolidated Balance Sheet. The accumulated other comprehensive loss balance will be amortized to interest expense over the life of the 2.900% 2029 Notes. We classified the cash outflow from the termination of this treasury lock as cash used in financing

114


activities in our Consolidated Statement of Cash Flows. At June 28, 2019, the fair value of this treasury lock was a liability of $26 million, which was categorized in Level 2 of the fair value hierarchy and recorded in the “Other accrued items” line item in our Consolidated Balance Sheet with a corresponding unrealized after-tax loss of $20 million included in the “Accumulated other comprehensive loss” line item in our Consolidated Balance Sheet.
The net gains or losses from cash flow hedges recognized in earnings were not material for the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017. We had no open treasury locks at the end of fiscal 2018 or 2017.
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.
NOTE 21: NON-OPERATING INCOME
The components of non-operating income were as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Pension adjustment(1)
$
172

 
$
186

 
$
184

 
$
164

Gain on pension plan curtailment
23

 

 

 

Loss on extinguishment of debt(2)
(2
)
 

 
(24
)
 

Adjustment to gain on sale of business

 

 

 
2

Other
(1
)
 
2

 
(4
)
 

 
$
192

 
$
188

 
$
156

 
$
166

_______________
(1)
The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets, amortization of net actuarial gain or loss and effect of curtailments or settlements.
(2)
Losses associated with our optional redemption of the entire outstanding $400 million principal amount of our 2.7% 2020 Notes in the two quarters ended January 3, 2020 and our optional redemption of the entire outstanding $800 million aggregate principal amount of our 2018 Redeemed Notes, the repayment in full of $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan facility and the termination of our 2015 Credit Agreement in fiscal 2018. See. Note 14: Debt for additional information.

115


NOTE 22: ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCI")
The components of AOCI are summarized below:
 
Foreign currency translation
 
Net unrealized (losses) gains on hedging derivatives
 
Unrecognized postretirement obligations
 
Total AOCI
 
 
 
 
 
 
 
 
 
(In millions)
Balance at June 30, 2017
$
(113
)
 
$
(17
)
 
$
(146
)
 
$
(276
)
Other comprehensive income
13

 
1

 
122

 
136

Income taxes
2

 

 
(29
)
 
(27
)
Other comprehensive income, net of tax
15

 
1

 
93

 
109

Reclassifications to retained earnings due to adoption of accounting standards update
(1
)
 
(4
)
 
(30
)
 
(35
)
Balance at June 29, 2018
(99
)
 
(20
)
 
(83
)
 
(202
)
Other comprehensive loss
(7
)
 
(24
)
 
(638
)
 
(669
)
Income taxes

 
6

 
158

 
164

Other comprehensive loss, net of tax
(7
)
 
(18
)
 
(480
)
 
(505
)
Balance at June 28, 2019
(106
)
 
(38
)
 
(563
)
 
(707
)
Other comprehensive income (loss)
25

 
(23
)
 
231

 
233

Income taxes

 
6

 
(53
)
 
(47
)
Other comprehensive income (loss), net of tax
25

 
(17
)
 
178

 
186

Amounts reclassified to earnings from AOCI(1)

 

 
18

 
18

Income taxes

 

 
(5
)
 
(5
)
Amounts reclassified to earnings from AOCI, net of tax

 

 
13

 
13

Balance at January 3, 2020
$
(81
)
 
$
(55
)
 
$
(372
)
 
$
(508
)

_______________
(1)
Amounts reclassified to earnings from AOCI are included in the gain on sale of business and non-operating income line items in our Consolidated Statement of Income.
NOTE 23: INCOME TAXES
Income Tax Provision
The provisions for current and deferred income taxes are summarized as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Current:
 
 
 
 
 
 
 
United States
$
11

 
$
105

 
$
(141
)
 
$
117

International
37

 
9

 
12

 
9

State and local
16

 
8

 
(11
)
 
6

 
64

 
122

 
(140
)
 
132

Deferred:
 
 
 
 
 
 
 
United States
33

 
15

 
324

 
121

International
(15
)
 
(3
)
 
(3
)
 
1

State and local
(9
)
 
26

 
25

 
7

 
9

 
38

 
346

 
129

 
$
73

 
$
160

 
$
206

 
$
261



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The total income tax provision is summarized as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Continuing operations
$
73

 
$
160

 
$
206

 
$
261

Discontinued operations

 
(1
)
 
(5
)
 
(110
)
Total income tax provision
$
73

 
$
159

 
$
201

 
$
151


A reconciliation of the U.S. statutory income tax rate to our effective income tax rate follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
U.S. statutory income tax rate
21.0
 %
 
21.0
 %
 
28.1
 %
 
35.0
 %
State taxes
1.4

 
2.4

 
1.9

 
1.0

International income
0.9

 
(0.5
)
 
(0.5
)
 
(1.3
)
Research and development tax credit
(4.7
)
 
(4.5
)
 
(2.9
)
 
(2.0
)
Foreign derived intangibles income deduction
(0.8
)
 
(1.3
)
 

 

Change in valuation allowance
(4.8
)
 
(1.8
)
 
0.2

 
(0.2
)
U.S. production activity benefit

 

 
(0.9
)
 
(0.5
)
Equity-based compensation(1)
(5.4
)
 
(2.1
)
 
(1.8
)
 
(2.6
)
Settlement of tax audits

 

 
(2.2
)
 

U.S. tax reform

 

 
0.4

 

Other items
0.4

 
1.2

 
0.4

 
(0.1
)
Effective income tax rate
8.0
 %
 
14.4
 %
 
22.7
 %
 
29.3
 %

_______________
(1)
Includes non-deductible equity-based compensation and excess tax benefits from equity-based compensation
As of January 3, 2020, we estimate our outside basis difference in foreign subsidiaries that are considered indefinitely reinvested to be approximately $4 billion. The outside basis difference is comprised predominantly of purchase accounting adjustments and to a lesser extent, undistributed earnings and other equity adjustments. In the event of a disposition of the foreign subsidiaries or a distribution, we may be subject to incremental U.S. income taxes, subject to an adjustment for foreign tax credits, and withholding taxes or income taxes payable to the foreign jurisdictions. As of January 3, 2020, the determination of the amount of unrecognized deferred tax liability related to the outside basis difference is not practicable.
Tax Law Changes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into U.S. law. Among other provisions, the Tax Act reduced the U.S. statutory corporate income tax rate from a maximum 35 percent to a flat 21 percent, effective January 1, 2018. Based on our fiscal year end, our blended U.S. statutory corporate income tax rate for fiscal 2018 was 28.1 percent. This drop in the tax rate resulted in a one-time benefit of $26 million ($.21 per diluted share) at the date of enactment. Additionally, we recognized expense of $8 million in fiscal 2018 to revalue our existing net deferred income tax balances.
During the second quarter of fiscal 2019, we completed our accounting for the income tax impact of enactment of the Tax Act and there were no material changes from the estimates reported in our Current Report on Form 8-K filed with the SEC on December 13, 2018.
The implementation of a modified territorial tax system under the Tax Act subjects us to tax on our Global Intangible Low-Taxed Income (“GILTI”) starting with fiscal 2019. The Financial Accounting Standards Board has permitted companies to make an accounting policy decision to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). We have elected to use the period cost method.


117


Deferred Income Tax Assets (Liabilities)
The components of deferred income tax assets (liabilities) were as follows:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Deferred tax assets:
 
 
 
 
 
Accruals
$
240

 
$
152

 
$
178

Tax loss and credit carryforwards
177

 
92

 
119

Share-based compensation
27

 
28

 
26

Capital loss carryforwards
44

 
95

 
101

Pension and other post-employment benefits
431

 
305

 
188

Operating lease obligation
213

 

 

Other
238

 
75

 
64

Valuation allowance(1)
(185
)
 
(159
)
 
(181
)
Deferred tax assets, net
1,185

 
588

 
495

 
 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
 
Property, plant and equipment
(159
)
 
(71
)
 
(65
)
Unbilled receivables
(51
)
 
(65
)
 
(86
)
Acquired intangibles
(2,037
)
 
(260
)
 
(268
)
Operating lease right-of-use asset
(196
)
 

 

Other
(121
)
 
(31
)
 
(36
)
Deferred tax liabilities
(2,564
)
 
(427
)
 
(455
)
Net deferred tax assets (liabilities)
$
(1,379
)
 
$
161

 
$
40


_______________
(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.
Net deferred tax assets (liabilities) were classified as follows in our Consolidated Balance Sheet:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Non-current deferred income tax assets
$
102

 
$
173

 
$
119

Non-current deferred income tax liabilities
(1,481
)
 
(12
)
 
(79
)
 
$
(1,379
)
 
$
161

 
$
40


Tax loss and credit carryforwards at January 3, 2020 have expiration dates ranging from less than one year and no expiration in certain instances. The tax-effected amounts of federal, international, and state and local operating loss carryforwards at January 3, 2020 were $8 million, $46 million and $28 million, respectively. The tax-effected amounts of federal and state and local capital loss carryforwards at January 3, 2020 were $24 million and $21 million, respectively. The amounts of federal, international, and state and local credit carryforwards at January 3, 2020 were $6 million, $14 million and $78 million, respectively
Income from continuing operations before income taxes of international subsidiaries was $96 million in the two quarters ended January 3, 2020. Income from continuing operations before income taxes of international subsidiaries was $37 million, $43 million and $42 million in fiscal 2019, 2018 and 2017, respectively. We received $8 million in income tax refunds, net of income taxes paid, in the two quarters ended January 3, 2020; paid $137 million in income tax, net of refunds received, in fiscal 2019; received $8 million in income tax refunds, net of income taxes paid, in fiscal 2018; and paid $51 million, net of refunds received, in fiscal 2017.

118


Tax Uncertainties
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Balance at beginning of period
$
204

 
$
102

 
$
90

 
$
63

Additions based on tax positions taken during current period
35

 
31

 
17

 
52

Additions based on tax positions taken during prior periods

 
80

 
23

 

Additions for tax positions related to acquired entities
226

 

 

 

Decreases based on tax positions taken during prior periods
(7
)
 
(9
)
 
(28
)
 
(25
)
Decreases from lapse in statutes of limitations
(20
)
 

 

 

Balance at end of period
$
438

 
$
204

 
$
102

 
$
90


As of January 3, 2020, we had $438 million of unrecognized tax benefits, of which $313 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of June 28, 2019, we had $204 million of unrecognized tax benefits, of which $162 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of June 29, 2018, we had $102 million of unrecognized tax benefits, of which $92 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized.
We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. We had accrued $31 million for the potential payment of interest and penalties as of January 3, 2020 (and this amount was not included in the $438 million of unrecognized tax benefits balance at January 3, 2020 shown above). We had accrued $3 million for the potential payment of interest and penalties as of June 28, 2019 (and this amount was not included in the $204 million of unrecognized tax benefits balance at June 28, 2019 shown above). We had accrued $4 million for the potential payment of interest and penalties as of June 29, 2018 (and this amount was not included in the $102 million of unrecognized tax benefits balance at June 29, 2018 shown above).
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 the Harris federal tax returns for fiscal 2017 and 2018 and refund claims related to fiscal 2010 through 2016. In addition, legacy L3’s federal tax returns for calendar years 2017 and 2018 and refund claims related to calendar years 2015 and 2016 are currently under IRS examination.
The Canadian Revenue Agency is currently examining our returns for fiscal 2014 through fiscal 2016, and we are still negotiating the provincial 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 2010 through 2018. 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: BACKLOG
Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as IDIQ contracts.
At January 3, 2020, our ending backlog was $20.6 billion. We expect to recognize approximately 60 percent of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next three years. At June 28, 2019, our ending backlog was $8.3 billion, at which time we expected to recognize approximately half of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next three years.

119


NOTE 25: BUSINESS SEGMENTS
During the two quarters ended January 3, 2020, we adjusted our segment reporting to reflect our new organizational structure announced July 1, 2019. We structure our operations primarily around the products and services we sell and the markets we serve, and effective June 29, 2019, we report the financial results of our operations in the following four operating segments, which are also our reportable segments and are referred to as our business segments:
Integrated Mission Systems, including multi-mission ISR and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-optical and infrared solutions;
Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare;
Communication Systems, including tactical communications; broadband communications; integrated vision solutions; and public safety; and
Aviation Systems, including defense aviation products; security, detection and other commercial aviation products; commercial and military pilot training; and mission networks for air traffic management.
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 adjustments to our segment reporting for all periods presented in order to present the segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these adjustments.
Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue
 
 
 
 
 
 
 
Integrated Mission Systems
$
2,774

 
$
48

 
$
45

 
$
38

Space and Airborne Systems
2,360

 
3,715

 
3,304

 
3,156

Communication Systems
2,151

 
2,208

 
2,015

 
1,891

Aviation Systems
2,038

 
672

 
668

 
697

Other non-reportable business segments(1)
23

 
165

 
148

 
121

Corporate eliminations
(83
)
 
(7
)
 
(12
)
 
(6
)
 
$
9,263

 
$
6,801

 
$
6,168

 
$
5,897

Income from Continuing Operations before Income Taxes
Segment Operating Income:
 
 
 
 
 
 
 
Integrated Mission Systems
$
377

 
$
9

 
$
7

 
$
7

Space and Airborne Systems
442

 
697

 
628

 
559

Communication Systems
493

 
637

 
561

 
522

Aviation Systems
289

 
76

 
54

 
131

Other business activities and non-reportable business segments(1)

 
27

 
20

 
9

Unallocated corporate expenses and corporate eliminations(2)
(140
)
 
(2
)
 
(65
)
 
(62
)
L3Harris Merger-related transaction and integration expenses and losses
(390
)
 
(65
)
 

 

Amortization of acquisition-related intangibles(3)
(289
)
 
(101
)
 
(101
)
 
(109
)
Gain on sale of business
229

 

 

 

Pension adjustment
(172
)
 
(186
)
 
(184
)
 
(164
)
Non-operating income
192

 
188

 
156

 
166

Net interest expense
(123
)
 
(167
)
 
(168
)
 
(170
)
Total
$
908

 
$
1,113

 
$
908

 
$
889

_______________
(1)
Includes the operating results of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for more information.

120


(2)
Includes: (i) $142 million of additional cost of sales related to the fair value step-up in inventory sold (see Note 5: Business Combination in these Notes for more information), a $12 million gain on the sale of an asset group and a $10 million non-cash cumulative adjustment to lease expense for the two quarters ended January 3, 2020; (ii) $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items, a $12 million non-cash adjustment for deferred compensation and $5 million of Exelis acquisition-related and other charges in fiscal 2018; and (iii) $58 million of Exelis acquisition-related and other charges in fiscal 2017.
(3)
Includes $239 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger for the two quarters ended January 3, 2020 and $50 million, $101 million, $101 million and $109 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis for the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017, respectively. Because the L3Harris Merger and the acquisition of Exelis benefited the entire Company as opposed to any individual segment, the amortization of identifiable intangible assets acquired was not allocated to any segment.

Disaggregation of Revenue
Integrated Mission Systems: Integrated Mission Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost revenue recognition method. We disaggregate Integrated Mission Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Integrated Mission Systems revenue and cash flows are affected by economic factors:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue By Customer Relationship
 
 
 
 
 
 
 
Prime contractor
$
1,904

 
$
25

 
$
20

 
$
24

Subcontractor
870

 
23

 
25

 
14

 
$
2,774

 
$
48

 
$
45

 
$
38

Revenue By Contract Type
 
 
 
 
 
 
 
Fixed-price(1)
$
2,138

 
$
48

 
$
45

 
$
37

Cost-reimbursable
636

 

 

 
1

 
$
2,774

 
$
48

 
$
45

 
$
38

Revenue By Geographical Region
 
 
 
 
 
 
 
United States
$
2,300

 
$
30

 
$
39

 
$
27

International
474

 
18

 
6

 
11

 
$
2,774

 
$
48

 
$
45

 
$
38

_______________
(1)
Includes revenue derived from time-and-materials contracts.


121


Space and Airborne Systems: Space and Airborne Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost revenue recognition method. We disaggregate Space and Airborne Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Space and Airborne Systems revenue and cash flows are affected by economic factors:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue By Customer Relationship
 
 
 
 
 
 
 
Prime contractor
$
1,337

 
$
2,246

 
$
2,159

 
$
2,067

Subcontractor
1,023

 
1,469

 
1,145

 
1,089

 
$
2,360

 
$
3,715

 
$
3,304

 
$
3,156

Revenue By Contract Type
 
 
 
 
 
 
 
Fixed-price(1)
$
1,367

 
$
2,097

 
$
1,634

 
$
1,390

Cost-reimbursable
993

 
1,618

 
1,670

 
1,766

 
$
2,360

 
$
3,715

 
$
3,304

 
$
3,156

Revenue By Geographical Region
 
 
 
 
 
 
 
United States
$
2,037

 
$
3,255

 
$
2,937

 
$
2,782

International
323

 
460

 
367

 
374

 
$
2,360

 
$
3,715

 
$
3,304

 
$
3,156

_______________
(1)
Includes revenue derived from time-and-materials contracts.

Communication Systems: Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when products are received and accepted by the customer for standard products offered to multiple customers and over time for customer-specific products, systems and services. We disaggregate Communication Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue By Customer Relationship(1)
 
 
 
 
 
 
 
Prime contractor
$
1,406

 
 
 
 
 
 
Subcontractor
745

 
 
 
 
 
 
 
$
2,151

 
 
 
 
 
 
Revenue By Contract Type(1)
 
 
 
 
 
 
 
Fixed-price(2)
$
1,849

 
 
 
 
 
 
Cost-reimbursable
302

 
 
 
 
 
 
 
$
2,151

 
 
 
 
 
 
Revenue By Geographical Region
 
 
 
 
 
 
 
United States
$
1,518

 
$
1,281

 
$
1,031

 
$
880

International
633

 
927

 
984

 
1,011

 
$
2,151

 
$
2,208

 
$
2,015

 
$
1,891


_______________
(1)
Prior to the L3Harris Merger, Communication Systems did not recognize significant revenue for customer-specific products and systems, and currently, such customer arrangements primarily exist at operating businesses acquired in connection with the L3Harris Merger. The “Revenue by Customer Relationship” and “Revenue by Contract Type” disaggregation categories were added beginning in the Fiscal Transition Period to best depict how the nature, amount, timing and uncertainty of revenue and cash flows from these types of customer arrangements are affected by economic factors.
(2)
Includes revenue derived from time-and-materials contracts.

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Aviation Systems: Aviation Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when products are received and accepted by the customer for standard products offered to multiple customers and over time for customer-specific products, systems and services. We disaggregate Aviation Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Aviation Systems revenue and cash flows are affected by economic factors:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Revenue By Customer Relationship
 
 
 
 
 
 
 
Prime contractor
$
1,246

 
$
654

 
$
656

 
$
697

Subcontractor
792

 
18

 
12

 

 
$
2,038

 
$
672

 
$
668

 
$
697

Revenue By Contract Type
 
 
 
 
 
 
 
Fixed-price(1)
$
1,688

 
$
587

 
$
582

 
$
636

Cost-reimbursable
350

 
85

 
86

 
61

 
$
2,038

 
$
672

 
$
668

 
$
697

Revenue By Geographical Region
 
 
 
 
 
 
 
United States
$
1,514

 
$
644

 
$
627

 
$
647

International
524

 
28

 
41

 
50

 
$
2,038

 
$
672

 
$
668

 
$
697

______________
(1)
Includes revenue derived from time-and-materials contracts.

Total assets by business segment is as follows:
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
 
 
 
 
 
 
(In millions)
Total Assets
 
 
 
 
 
Integrated Mission Systems
$
7,896

 
$
87

 
$
90

Space and Airborne Systems
6,829

 
5,027

 
4,953

Communication Systems
5,930

 
1,683

 
1,724

Aviation Systems
7,569

 
1,036

 
1,046

Corporate(1)
10,112

 
2,284

 
2,038

 
$
38,336

 
$
10,117

 
$
9,851

_______________
(1)
Identifiable intangible assets acquired in connection with the L3Harris Merger in the two quarters ended January 3, 2020 and our acquisition of Exelis in fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segment. Identifiable intangible asset balances recorded as Corporate assets were approximately $8.5 billion, $869 million and $974 million at January 3, 2020, June 28, 2019 and June 29, 2018, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment, as well as any assets of discontinued operations and divestitures. See Note 3: Divestitures, Asset Sales and Discontinued Operations for additional information.

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Other selected financial information by business segment and geographical area is summarized below:
 
Two Quarters Ended
 
Fiscal Years Ended
 
January 3, 2020
 
June 28, 2019
 
June 29, 2018
 
June 30, 2017
 
 
 
 
 
 
 
 
 
(In millions)
Capital Expenditures
 
 
 
 
 
 
 
Integrated Mission Systems
$
29

 
$
1

 
$
1

 
$

Space and Airborne Systems
36

 
48

 
49

 
49

Communication Systems
22

 
29

 
25

 
16

Aviation Systems
64

 
54

 
37

 
22

Other non-reportable business segments(1)

 
6

 
4

 
1

Corporate
22

 
23

 
20

 
27

Discontinued operations

 

 

 
4

 
$
173

 
$
161

 
$
136

 
$
119

Depreciation and Amortization
 
 
 
 
 
 
 
Integrated Mission Systems
$
37

 
$
2

 
$
2

 
$
2

Space and Airborne Systems
31

 
50

 
54

 
55

Communication Systems
32

 
49

 
54

 
60

Aviation Systems
53

 
29

 
22

 
5

Other non-reportable business segments(1)

 
3

 
5

 
8

Corporate
289

 
125

 
122

 
142

Discontinued operations

 

 

 
39

 
$
442

 
$
258

 
$
259

 
$
311

Geographical Information for Continuing Operations
 
 
 
 
 
 
 
U.S. operations:
 
 
 
 
 
 
 
Revenue
$
8,485

 
$
6,530

 
$
5,854

 
$
5,637

Long-lived assets
$
1865

 
$
866

 
$
892

 
$
896

International operations:
 
 
 
 
 
 
 
Revenue
$
778

 
$
271

 
$
314

 
$
260

Long-lived assets
$
252

 
$
28

 
$
8

 
$
8


_______________
(1)
Includes capital expenditures and depreciation and amortization of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for more information.
In addition to depreciation and amortization expense related to property, plant and equipment, “Depreciation and Amortization” in the table above also includes $285 million of amortization related to intangible assets, debt premium, debt discount, debt issuance costs and other items for the two quarters ended January 3, 2020. “Depreciation and Amortization” in the table above also includes amortization related to intangible assets, debt premium, debt discount and debt issuance costs of $120 million, $116 million and $125 million in fiscal 2019, 2018 and 2017, respectively.
Our products and systems are produced principally in the U.S. with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017.
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 73 percent in the two quarters ended January 3, 2020 and 77 percent, 75 percent and 74 percent in fiscal 2019, 2018 and 2017, respectively. Revenue from services in the two quarters ended January 3, 2020 was approximately 32 percent, 16 percent, 15 percent and 39 percent of total revenue in our Integrated Mission Systems, Space and Airborne Systems, Communication Systems and Aviation Systems segments, respectively.
Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $2.0 billion (21 percent of our revenue) in the two quarters ended January 3, 2020. Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $1.5 billion (22 percent of our revenue), $1.4 billion (23 percent of our revenue) and $1.5 billion (25 percent of

124


our revenue) in fiscal 2019, 2018 and 2017, respectively. Export revenue and revenue from international operations in the two quarters ended January 3, 2020 was principally from the EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific) regions and Canada.
NOTE 26: LEGAL PROCEEDINGS AND CONTINGENCIES
From time to time, as a normal incident of the nature and kind of businesses in which we are or were engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At January 3, 2020, 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 January 3, 2020 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 or conducted 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 forth in Note 23: Income Taxes.
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 (such as ITAR), the FCPA and other similar U.S. and international laws.
In September 2019, we reached an administrative settlement with the Department of State to resolve alleged U.S. export control regulation violations. Under the terms of the settlement we have committed to strengthen our trade compliance program under the supervision of a special compliance officer and will pay a civil penalty of $13 million over three years (with $7 million suspended on the condition of use for qualified remedial compliance measures). The settlement did not result in any debarment or limitation on export licensing.
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 or companies we have acquired are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in some cases our liability is considered de minimis. Notices from the U.S. Environmental Protection Agency (“EPA”) or equivalent state or international environmental agencies allege 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 of us being 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, in June 2014, the Department of Justice, Environment and Natural Resources Division, notified several potentially responsible parties, including Exelis, of potential responsibility for contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, in March 2016, the EPA notified over 100 potentially responsible parties, including Exelis, of potential liability for the cost of remediation for the 8.3-mile stretch of the Lower Passaic River, estimated by the EPA to be $1.38 billion, but the parties’ respective allocations have not been determined. Although it is not feasible to predict the outcome of environmental claims, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims in existence at January 3, 2020 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.

125


NOTE 27: TRANSITION PERIOD COMPARATIVE DATA (UNAUDITED)
The following table presents certain comparative financial information for the two quarters ended January 3, 2020 and two quarters ended December 28, 2018:
 
Two Quarters Ended
 
January 3,
2020
 
December 28, 2018
 
 
 
 
 
(In millions, except per share amounts)
Revenue from product sales and services
$
9,263

 
$
3,208

Cost of product sales and services
(6,726
)
 
(2,105
)
Engineering, selling and administrative expenses
(1,927
)
 
(583
)
Gain on sale of business
229

 

Non-operating income
192

 
94

Interest income
12

 
1

Interest expense
(135
)
 
(87
)
Income from continuing operations before income taxes
908

 
528

Income taxes
(73
)
 
(87
)
Income from continuing operations
835

 
441

Discontinued operations, net of income taxes
(1
)
 
(3
)
Net income
834

 
438

Noncontrolling interests, net of income taxes
(12
)
 

Net income attributable to L3Harris Technologies, Inc.
$
822

 
$
438

 
 
 
 
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders

 
 
 
Basic
 
 
 
Continuing operations
$
3.72

 
$
3.74

Discontinued operations

 
(0.03
)
 
$
3.72

 
$
3.71

Diluted
 
 
 
Continuing operations
$
3.68

 
$
3.66

Discontinued operations
(0.01
)
 
(0.02
)
 
$
3.67

 
$
3.64

 
 
 
 
Basic weighted average common shares outstanding
221.2

 
117.8

Diluted weighted average common shares outstanding
223.7

 
120.3


NOTE 28: SUBSEQUENT EVENTS
On February 4, 2020, we entered into a definitive agreement under which we will sell Security & Detection Systems and MacDonald Humfrey Automation solutions (“airport security and automation business”) to Leidos, Inc. for $1 billion in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The sale transaction is conditioned on customary closing conditions, including receipt of regulatory approvals. We expect the sale transaction to close in mid-2020; however, there can be no assurances that the conditions will be satisfied (or waived, if applicable) or that closing will occur
in mid-2020 or at all. We intend to use the proceeds from the sale of the airport security and automation business to repurchase shares of our common stock. The airport security and automation business provides solutions used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities. The decision to divest the airport security and automation business represented a significant milestone in our strategic priority to reshape our portfolio and focus our resources on core technologies following the L3Harris Merger. The airport security and automation business had approximately $500 million in annual revenue. Because the expected disposal did not meet the held for sale criteria as of January 3, 2020, the assets and liabilities of the airport security and automation business were not classified as held for sale in our Consolidated Balance Sheet at January 3, 2020. We do not expect the divestiture of the airport security and automation business will have a significant impact on our financial condition, results of operations or cash flows.

126


SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is summarized below:
 
Quarter Ended
 
Total
Fiscal Transition Period
 
9/27/2019
 
1/3/2020
 
 
 
 
 
 
 
Two Quarters Ended January 3, 2020(1)(2)
(In millions, except per share amounts)
Revenue
$
4,431

 
$
4,832

 
$
9,263

Gross profit
1,189

 
1,348

 
2,537

Income from continuing operations before income taxes
440

 
468

 
908

Income from continuing operations
435

 
400

 
835

Discontinued operations, net of income taxes

 
(1
)
 
(1
)
Net income
435

 
399

 
834

Per common share data:
 
 
 
 
 
Basic
 
 
 
 
 
Income from continuing operations
1.93

 
1.79

 
3.72

Net income
1.93

 
1.79

 
3.72

Diluted
 
 
 
 
 
Income from continuing operations
1.90

 
1.77

 
3.68

Net income
1.90

 
1.77

 
3.67

Cash dividends
0.75

 
0.75

 
1.50

Stock prices — High
217.31

 
212.43

 
 
Low
176.16

 
190.55

 
 
 
Quarter Ended
 
Total
Year
 
9/28/2018
 
12/28/2018
 
3/29/2019
 
6/28/2019
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended June 28, 2019(3)
(In millions, except per share amounts)
Revenue
$
1,542

 
$
1,666

 
$
1,728

 
$
1,865

 
$
6,801

Gross profit
532

 
571

 
589

 
642

 
2,334

Income from continuing operations before income taxes
257

 
271

 
283

 
302

 
1,113

Income from continuing operations
216

 
225

 
243

 
269

 
953

Discontinued operations, net of income taxes
(3
)
 

 

 
(1
)
 
(4
)
Net income
213

 
225

 
243

 
268

 
949

Per common share data:
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.82

 
1.91

 
2.06

 
2.26

 
8.06

Net income
1.81

 
1.91

 
2.06

 
2.26

 
8.03

Diluted
 
 
 
 
 
 
 
 
 
Income from continuing operations
1.78

 
1.88

 
2.02

 
2.21

 
7.89

Net income
1.77

 
1.87

 
2.02

 
2.20

 
7.86

Cash dividends
0.685

 
0.685

 
0.685

 
0.685

 
2.740

Stock prices — High
169.98

 
175.50

 
167.09

 
200.77

 
 
Low
142.95

 
123.24

 
129.46

 
159.29

 
 
_______________
(1)
Includes the operating results of L3 businesses after the L3Harris Merger on June 29, 2019. See Note 5: Business Combination in the Notes for more information.
(2)
Results for the two quarters ended January 3, 2020 included: (i) $390 million of L3Harris Merger-related transaction and integration costs; (ii) $289 million of acquisition-related intangibles, including $239 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger (see Note 5: Business Combination in the Notes for more information) and $50 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis; (iii) a $229 million gain on the sale of the Harris Night Vision business; (iv) $142 million of additional cost of sales related to the fair value step-up in inventory sold; (v) a $23 million gain on pension plain curtailment; (vi) a $12 million gain on the sale of an asset group (see Note 3: Divestitures, Asset Sales and Discontinued Operations in the Notes for more information); (vii) a $10 million non-cash cumulative adjustment to lease expense; and (viii) $3 million of losses and other costs related to debt refinancing. The net after-tax impact from these two quarters ended January 3, 2020 items was $392 million or $1.75 per diluted common share.
(3)
Results for fiscal 2019 included: (i) $101 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis and (ii) $65 million of L3Harris Merger-related transaction and integration costs. The net after-tax impact from these fiscal 2019 items was $128 million or $1.06 per diluted common share.

127


 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 January 3, 2020, 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 January 3, 2020 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. During the two quarters ended January 3, 2020, we completed our multi-year, phased implementation of a new core enterprise resource planning (“ERP”) system in certain business units, which reduced the number of ERP systems across the Company and enhanced our system of internal control over financial reporting. The implementation of the new core ERP system in each affected business unit involved changes to related processes that are part of our system of internal control over financial reporting and required testing for effectiveness. As part of our integration with L3, we are in the process of incorporating our controls and procedures with respect to L3’s operations, and we will include internal controls with respect to L3’s operations in our assessment of the effectiveness of our internal control over financial reporting as of the end of fiscal 2020. Other than the system and related process changes described above as well as changes related to incorporating our controls and procedures with respect to L3’s operations, there have been no changes in our internal control over financial reporting that occurred during the two quarters ended January 3, 2020 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 January 3, 2020. 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). Our management excluded from its assessment of the effectiveness of the our internal control over financial reporting the internal controls of L3, which we merged with on June 29, 2019, and whose financial statements represent 15 percent of our total assets, excluding the preliminary value of goodwill and other intangible assets, as of January 3, 2020, and 61 percent of our total revenue for the two quarters then ended. Our management will include the internal controls of L3 in its assessment of the effectiveness of our internal control over financial reporting as of the end of fiscal 2020. Based on our management’s assessment and those criteria, our management concluded that our internal control over financial reporting was effective as of January 3, 2020. “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.
 

128


 ITEM 9B.
OTHER INFORMATION.
Not applicable.

129


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 headings Proposal 1: Election of Directors and Nominees for Election in our Proxy Statement for our 2020 Annual Meeting of Shareholders scheduled to be held on April 24, 2020 (our “2020 Proxy Statement”), which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
(b) Identification of Executive Officers:    Certain information regarding our executive officers is included in Part I of this Report under the heading “Information about our Executive Officers” in accordance with General Instruction G(3) of Form 10-KT.
(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 Nominees for Election and Board Committees, Audit Committee in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
(d) Delinquent Section 16(a) Reports:    Information related to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the discussion under the heading Delinquent Section 16(a) Reports in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
(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.l3harris.com/content/code-of-conduct and is also available free of charge by written request to our Director of Ethics and Compliance, L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. We intend to disclose on the Code of Conduct section of our website at https://www.l3harris.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 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
(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, submit nominees for inclusion in our proxy materials pursuant to our “proxy access” provision of our By-Laws or directly propose nominees for consideration pursuant to our By-Laws but not pursuant to the proxy access provision contained under the heading Director Nomination Process in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period. No material changes to those procedures have occurred since the disclosure regarding those procedures in our Proxy Statement for our 2019 Annual Meeting of Shareholders.
Additional information concerning requirements and procedures for shareholders directly nominating directors is contained under the heading Shareholder Nominations and Proposals in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
 
 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, Compensation Discussion and Analysis and Compensation Committee Report in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
 

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 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as of January 3, 2020 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)
5,101,896


$110.48

22,071,494

Equity compensation plans not approved by shareholders



Total
5,101,896


$110.48

22,071,494

_______________
(1)
Consists of the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) (the “2005 EIP”) and the Harris Corporation 2015 Equity Incentive Plan (the “2015 EIP”), as well as employee stock incentive plans of L3 assumed by L3Harris (collectively with the 2005 EIP and the 2015 EIP, the “L3Harris SIPs”). No additional awards may be granted under the 2005 EIP.
(2)
Under the L3Harris SIPs, 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 January 3, 2020, there were awards outstanding under those plans with respect to 590,787 shares, consisting of (i) awards of 34,869 shares of restricted stock, for which all 34,869 shares were issued and outstanding; and (ii) awards of 555,918 performance share units and restricted stock units, for which all 555,918 were payable in shares but for which no shares were yet issued and outstanding. The 5,101,896 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 4,545,978 outstanding options and in respect of awards of 555,918 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 16: 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 Principal Shareholders and Shares Owned By Directors, Nominees and Executive Officers in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
 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 Standards and Related Person Transaction Policy in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.
 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 3: Ratification of Appointment of Independent Registered Public Accounting Firm in our 2020 Proxy Statement, which is expected to be filed within 120 days after the end of our Fiscal Transition Period.

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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 L3Harris Technologies, Inc. and its consolidated subsidiaries are included in Item 8 of this Report at the page numbers referenced below:
 
Consolidated Statement of Income — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; June 30, 2017
Consolidated Statement of Comprehensive Income — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; June 30, 2017
Consolidated Balance Sheet — January 3, 2020; June 28, 2019; June 29, 2018
Consolidated Statement of Cash Flows — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; June 30, 2017
Consolidated Statement of Equity — Two Quarters ended January 3, 2020 and Fiscal Years ended June 28, 2019; June 29, 2018; June 30, 2017
(2)    Financial Statement Schedules:
 
All 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) Agreement and Plan of Merger, dated as of October 12, 2018, by and among Harris Corporation, L3 Technologies, Inc. and Leopard Merger Sub, Inc., incorporated herein by reference to Exhibit 2.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on October 16, 2018. (Commission File Number 1-3863)
(2)(b) First Amendment to Agreement and Plan of Merger, dated as of June 28, 2019, among L3 Technologies, Inc., Harris Corporation and Leopard Merger Sub Inc., incorporated herein by reference to Exhibit 2.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
(3)(a) Restated Certificate of Incorporation of L3Harris Technologies, Inc. (1995), as amended, incorporated herein by reference to Exhibit 3.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
(3)(b) Amended and Restated By-Laws of L3Harris Technologies, Inc., incorporated herein by reference to Exhibit 3.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
(4)(b) Specimen Stock Certificate for L3Harris Technologies, Inc.’s common stock, incorporated herein by reference to Exhibit 4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
(4)(c)(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 Harris Corporation when and as authorized by Harris Corporation’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4 to Harris Corporation’s Registration Statement on Form S-3, Registration Statement No. 333-03111, filed with the SEC on May 3, 1996.
(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 Harris

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Corporation’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 Harris Corporation’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 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 Harris Corporation when and as authorized by Harris Corporation’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4 to Harris Corporation’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 Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(e)(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 Harris Corporation when and as authorized by Harris Corporation’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(b) to Harris Corporation’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 Harris Corporation’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 Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(f)(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 Harris Corporation when and as authorized by the Harris Corporation’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(c) to the Harris Corporation’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 Harris Corporation’s Registration Statement on Form S-3, Registration Statement No. 333-159688, filed with the SEC on June 3, 2009.
(4)(g) Form of Floating Rate Global Note due April 2020, incorporated herein by reference to Exhibit 4.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on November 9, 2017. (Commission File Number 1-3863)
(4)(h) Form of 3.832% Global Note due 2025, incorporated herein by reference to Exhibit 4.3 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(i) Form of 4.400% Global Note due 2028, incorporated herein by reference to Exhibit 4.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 4, 2018. (Commission File Number 1-3863)
(4)(j) Form of 2.900% Global Note due 2029, incorporated herein by reference to Exhibit 4.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on November 27, 2019. (Commission File Number 1-3863)
(4)(k) Form of 4.854% Global Note due 2035, incorporated herein by reference to Exhibit 4.4 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)

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(4)(l) Form of 6.15% Note due 2040, incorporated herein by reference to Exhibit 4.2 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on December 3, 2010. (Commission File Number 1-3863)
(4)(m) Form of 5.054% Global Note due 2045, incorporated herein by reference to Exhibit 4.5 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(n) Registration Rights Agreement, dated as of July 2, 2019, by and among L3Harris Technologies, Inc. (f/k/a Harris Corporation), BofA Securities, Inc. and Morgan Stanley & Co. LLC, incorporated herein by reference to Exhibit 4.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(o) Form of New L3Harris 4.950% 2021 Rule 144A Note, incorporated herein by reference to Exhibit 4.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(p) Form of New L3Harris 4.950% 2021 Regulation S Note, incorporated herein by reference to Exhibit 4.3 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(q) Form of New L3Harris 3.850% 2023 Rule 144A Note, incorporated herein by reference to Exhibit 4.4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(r) Form of New L3Harris 3.850% 2023 Regulation S Note, incorporated herein by reference to Exhibit 4.5 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(s) Form of New L3Harris 3.950% 2024 Rule 144A Note, incorporated herein by reference to Exhibit 4.6 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(t) Form of New L3Harris 3.950% 2024 Regulation S Note, incorporated herein by reference to Exhibit 4.7 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(u) Form of New L3Harris 3.850% 2026 Rule 144A Note, incorporated herein by reference to Exhibit 4.8 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(v) Form of New L3Harris 3.850% 2026 Regulation S Note, incorporated herein by reference to Exhibit 4.9 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(w) Form of New L3Harris 4.400% 2028 Rule 144A Note, incorporated herein by reference to Exhibit 4.10 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(x) Form of New L3Harris 4.400% 2028 Regulation S Note, incorporated herein by reference to Exhibit 4.11 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number 1-3863)
(4)(y) Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), L3Harris Technologies, Inc. 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 L3Harris Technologies, Inc. or L3 Technologies, Inc.
(4)(z) Description of L3Harris Technologies, Inc.’s Securities, incorporated by reference to Exhibit (4)(z) to L3Harris Technologies, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 28, 2019. (Commission File Number 1-3863)
*(10)(a) Form of Director and Officer Indemnification Agreement, for use on or after June 29, 2019, incorporated herein by reference to Exhibit 10.5 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
*(10)(c) Annual Incentive Plan, incorporated herein by reference to Exhibit 10.2 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)

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*(10)(d)(i) 2005 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’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 2005 Equity Incentive Plan, effective January 1, 2009, incorporated herein by reference to Exhibit 10(d) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(iii)  Form of Stock Option Award Agreement Terms and Conditions (as of July 4, 2009) for grants under the 2005 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on September 3, 2009. (Commission File Number 1-3863)
*(10)(e)(i) 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10.4 to Harris Corporation’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 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(c) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
(iii)  Form of Stock Option Award Agreement Terms and Conditions (as of August 26, 2011) for grants under the 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10.1 to Harris Corporation’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 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(a) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2013. (Commission File Number 1-3863)
(v)  Form of Performance Stock Option Award Agreement Terms and Conditions (as of May 27, 2015) for grants under the 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to Exhibit 10(e)(xi) to Harris Corporation’s Annual Report on Form 10-K for the fiscal year ended July 3, 2015. (Commission File Number 1-3863)
*(10)(f)(i) 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)
(ii) 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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(iii)  Performance Unit Award Agreement Terms and Conditions (August 1, 2019 CEO-COO Award), incorporated herein by reference to Exhibit 10.3 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(iv)  Performance Unit Award Agreement Terms and Conditions (August 1, 2019 Momentum Award), incorporated herein by reference to Exhibit 10.4 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(v)  Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 CEO-COO Award), incorporated herein by reference to Exhibit 10.5 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(vi)  Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 Momentum Award), incorporated herein by reference to Exhibit 10.6 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(vii)  Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 Integration Award), incorporated herein by reference to Exhibit 10.7 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(viii)  Restricted Unit Award Agreement Terms and Conditions (August 1, 2019 Integration/Retention/Fiscal Transition Period Award), incorporated herein by reference to Exhibit 10.8 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(ix)  Restricted Unit Award Agreement Terms and Conditions (New Hire/Other Award as of August 1, 2019), incorporated herein by reference to Exhibit 10.9 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)

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(x) Non-Employee Director Share Unit Agreement Terms and Conditions (as of June 29, 2019).
*10(g) L3Harris Retirement Savings Plan (Amended and Restated Effective January 1, 2020).
*(10)(h)  L3Harris Excess Retirement Savings Plan, as amended and restated effective January 1, 2020.
*(10)(i)(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 Harris Corporation’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 Harris Corporation’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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
*(10)(j)  L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan.
*(10)(k)(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 Harris Corporation’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 Harris Corporation’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 Harris Corporation’s Registration Statement on Form S-8, Registration Statement No. 333-163647, filed with the SEC on December 10, 2009.
(iv) Amendment to the Harris Corporation Master Trust, dated and effective May 3, 2010, incorporated herein by reference to Exhibit 4(e)(iv) to Harris Corporation’s Registration Statement on Form S-8, Registration Statement No. 333-222821, filed with the SEC on February 1, 2018.
*(10)(l)(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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004. (Commission File Number 1-3863)
(ii)  First Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated September 24, 2004, incorporated herein by reference to Exhibit 10(b) to Harris Corporation’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 Harris Corporation’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 Harris Corporation’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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
(vi)  Fifth Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated and effective as of February 28, 2019, incorporated herein by reference to Exhibit 10 to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2019. (Commission File Number 1-3863)
(10)(m) 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 Harris Corporation’s Current Report on Form 8-K filed with the SEC on April 5, 2005. (Commission File Number 1-3863)
(10)(n) 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 Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 18, 2007. (Commission File Number 1-3863)

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(10)(o) 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 Harris Corporation’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 as of June 14, 2007, between SunTrust Capital Markets, Inc. and Harris Corporation, incorporated herein by reference to Exhibit 10.3 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
*(10)(q)(i) 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 Harris Corporation’s Current Report on Form 8-K filed with the SEC on October 11, 2011. (Commission File Number 1-3863)
(ii) Employment Agreement Amendment, dated October 12, 2018, by and between Harris Corporation and William M. Brown, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 2018. (Commission File Number 1-3863)
*(10)(r) Letter Agreement with Christopher E. Kubasik, dated as of November 5, 2018, incorporated herein by reference to Exhibit 10.4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
*(10)(s) Offer Letter Agreement with Jesus Malave Jr., dated as of June 6, 2019, incorporated herein by reference to Exhibit 10.3 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
*(10)(t) Offer Letter Agreement, dated March 6, 2015, between Harris Corporation and Todd Taylor, incorporated herein by reference to Exhibit 10(e) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2015. (Commission File Number 1-3863)
*(10)(u) Summary of Annual Compensation of Non-Employee Directors of L3Harris Technologies, Inc., effective as of June 29, 2019, incorporated herein by reference to Exhibit 10.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
***(10)(v) Revolving Credit Agreement, dated June 28, 2019, among Harris Corporation and certain of its Subsidiaries from time to time, as the Borrowers, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, L/C Issuer and Swingline Lender, Citibank, N.A., Bank of America, N.A., Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Bank, National Association, as Co-Syndication Agents and JPMorgan Chase Bank, N.A., Citibank, N.A., Bank of America Securities, Inc., Morgan Stanley MUFG Loan Partners, LLC and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners, incorporated herein by reference to Exhibit 10.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
*(10)(w)(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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(x)(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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(y)(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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)

137


*(10)(z)(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)
*(10)(aa) 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 Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2016. (Commission File No. 1-3863)
*(10)(bb) Amendment to the Exelis Excess Pension Plans (as amended and restated as of October 31, 2011), dated April 28, 2017, incorporated herein by reference to Exhibit 10(pp) to Harris Corporation’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. (Commission File No. 1-3863)
*(10)(cc) Amendment to the Exelis Excess Pension Plans (as amended and restated as of October 31, 2011), dated March 28, 2018, incorporated herein by reference to Exhibit 10(c) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2018. (Commission File No. 1-3863)
*(10)(dd) Amendment to the EDO Corporation Employees Pension Plan, dated December 21, 2017, incorporated herein by reference to Exhibit 10(b) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2017. (Commission File No. 1-3863)
(21)  Subsidiaries of the Registrant.
(23)  Consent of Ernst & Young LLP, Independent Registered 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) The financial information from L3Harris Technologies, Inc.’s Transition Report on Form 10-KT for the transition period from June 29, 2019 to January 3, 2020 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Comprehensive Loss, (iv) the Consolidated Statement of Changes in Stockholders Equity, (v) the Consolidated Statement of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.
(104) Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
_______________
*
Management contract or compensatory plan or arrangement.
**
Paper filing.
***
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. L3Harris Technologies, Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
 ITEM 16.
FORM 10-KT SUMMARY.
None.

138


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.
 
 
L3HARRIS TECHNOLOGIES, INC.
 
 
(Registrant)
Date: March 3, 2020
 
By:
 
/S/    WILLIAM M. BROWN
 
 
 
 
William M. Brown
 
 
 
 
Chairman 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/    WILLIAM M. BROWN
 
Chairman and Chief Executive Officer (Principal Executive Officer)
 
March 3, 2020
William M. Brown
 
 
 
 
 
/s/    CHRISTOPHER E. KUBASIK
 
Vice Chairman, President and Chief Operating Officer
 
March 3, 2020
Christopher E. Kubasik
 
 
 
 
 
 
 
/s/    JESUS MALAVE JR.
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 
March 3, 2020
Jesus Malave Jr.
 
 
 
 
 
/s/    TODD A. TAYLOR
 
Vice President, Principal Accounting Officer (Principal Accounting Officer)
 
March 3, 2020
Todd A. Taylor
 
 
 
 
 
 
 
/s/    SALLIE B. BAILEY*

 
Director
 
March 3, 2020
Sallie B. Bailey
 
 
 
 
 
 
 
/s/    PETER W. CHIARELLI*
 
Director
 
March 3, 2020
Peter W. Chiarelli
 
 
 
 
 
 
 
/s/    THOMAS A. CORCORAN*
 
Director
 
March 3, 2020
Thomas A. Corcoran
 
 
 
 
 
/s/    THOMAS A. DATTILO*
 
Director
 
March 3, 2020
Thomas A. Dattilo
 
 
 
 
 
/s/    ROGER B. FRADIN*
 
Director
 
March 3, 2020
Roger B. Fradin
 
 
 
 
 
/s/    LEWIS HAY III*
 
Director
 
March 3, 2020
Lewis Hay III
 
 
 
 
 
/s/    LEWIS KRAMER*
 
Director
 
March 3, 2020
Lewis Kramer
 
 
 
 
 
/s/    RITA S. LANE*
 
Director
 
March 3, 2020
Rita S. Lane
 
 
 
 
 
/s/    ROBERT B. MILLARD*
 
Director
 
March 3, 2020
Robert B. Millard
 
 
 
 
 
/s/    LLOYD W. NEWTON*
 
Director
 
March 3, 2020
Lloyd W. Newton
 
 
 
 
 
*By:
 
/s/    SCOTT T. MIKUEN
 
 
 
 
 
 
Scott T. Mikuen
 
 
 
 
 
 
Attorney-in-Fact
 
 
 
 
 
 
pursuant to a power of attorney
 
 
 
 

139
Exhibit 10(f)(x)

NON-EMPLOYEE DIRECTOR SHARE UNIT AGREEMENT
TERMS AND CONDITIONS
(AS OF June 29, 2019)
1.Director Share Unit Award. Under and subject to the provisions of the Harris Corporation 2015 Equity Incentive Plan (as may be amended from time to time, the “Plan”) and upon the terms and conditions set forth in this award agreement (the “Agreement”), L3Harris Technologies, Inc. (the “Corporation”) has granted on [insert date] (the “Grant Date”) to the Non-Employee Director receiving this Agreement a Director Share Unit Award (the “Award”) of [insert number] Director Share Units (such units, as may be adjusted in accordance with the Plan and Section 1(c) of this Agreement, the “Director Share Units”) under Section 9 of the Plan. At all times, each Director Share Unit shall be equal in value to one share of common stock, $1.00 par value per share (the “Common Stock”), of the Corporation (a “Share”). Such Award is subject to the terms and conditions set forth in this Agreement.
(a)    Vesting Period. For purposes of this Agreement, the Award shall vest and the Vesting Period (as defined below) shall expire as to the total number of Director Share Units subject to the Award on the one-year anniversary of the Grant Date, provided that the Non-Employee Director continuously serves as a Director of the Corporation through such vesting date. Notwithstanding the foregoing, if the Corporation’s Annual Meeting of Stockholders (“Annual Meeting”) occurring following the Grant Date occurs prior to the expiration of the Vesting Period and the Non-Employee Director remains on the Board until such Annual Meeting and elects not to stand for re-election at such Annual Meeting, then the Award shall vest in full upon the date of such Annual Meeting. The period of time during which the Director Share Units subject to the Award shall not be vested shall be referred to herein as the “Vesting Period.” The Board Committee may, in accordance with the Plan and to the extent permitted by Section 409A of the Code (if applicable), accelerate the expiration of the Vesting Period as to, and the vesting of, some or all of the Director Share Units that are not then vested, at any time.
(b)    Payout of Award. Except as otherwise provided for pursuant to an effective deferral election (the “Deferral Election”) under the L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan (the Deferred Compensation Plan”) and provided the Award has not previously been forfeited, as soon as administratively practicable following the expiration of the Vesting Period, but in no event later than sixty (60) days following the expiration of the Vesting Period, the Corporation shall issue to the Non-Employee Director the number of Shares underlying the Director Share Units.
(c)    Rights During Vesting Period; Dividend Equivalents; Adjustments.
(i)    During the Vesting Period, the Non-Employee Director shall not have any rights as a shareholder with respect to the Shares underlying the Director Share Units. The Non-Employee Director may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of Shares acquired upon the expiration of the Vesting Period and payout of the Award hereunder or, if such Director Share Units are subject to an effective Deferral Election, as provided under the Deferred Compensation Plan.
(ii)    During the Vesting Period, if the Corporation pays a cash dividend or makes other cash distributions on the Common Stock, then as of each date on which the Corporation pays a cash dividend or other cash distribution to record owners of Shares (a “Dividend Date”), the number of Shares subject to the Award shall increase by (x) the product of the total number of Shares subject to the Award immediately prior to such Dividend Date multiplied by the dollar amount of the cash dividend or other cash distribution paid per Share by the Corporation on such Dividend Date, divided by (y) the Fair Market Value of a Share on such Dividend Date. Such additional Director Share Units shall be subject to the same restrictions and conditions as the Director Share Units in respect of which such dividend equivalents were paid, including those set forth in Section 3, and subject thereto, shall be paid to the Non-Employee Director in the manner and at the time such Director Share Units are paid to the Non-Employee Director.
(iii)    In the event of a stock dividend, stock split, reverse stock split, share combination or similar event, altering the value of a Share, or the number of Shares outstanding (each, a “Share Change”), the Award shall be

BOD-19-320    1



proportionately and automatically adjusted as necessary to reflect the Share Change and to preserve the value of the Award in accordance with Section 3.2(a) of the Plan.
2.    Prohibition Against Transfer. Until the expiration of the Vesting Period and payout of the Award, the Award, the Director Share Units subject to the Award, any interest in the Shares related thereto, and the rights granted under this Agreement are not transferable except by will or by the laws of descent and distribution in the event of the Non-Employee Director’s death. Without limiting the generality of the foregoing, except as aforesaid, until the expiration of the Vesting Period and payout of the Award, the Award, the Director Share Units subject to the Award, any interest in the Shares related thereto, and the rights granted under this Agreement may not be sold, exchanged, assigned, transferred, pledged, hypothecated, encumbered or otherwise disposed of, shall not be assignable by operation of law, and shall not be subject to execution, attachment, charge, alienation or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect.
3.    Forfeiture; Termination of Service.
(a)    Except as otherwise provided for in Section 1(a) or 3(b) or in the event of a Change in Control, if the Non-Employee Director’s service as a Director terminates prior to the end of the Vesting Period for any reason, then the Award and any right to payment of Shares with respect to the Director Share Units shall be immediately and automatically forfeited by the Non-Employee Director and cancelled by the Corporation.
(b)    If the Non-Employee Director’s service as a Director terminates due to death, permanent disability (as determined by the Corporation), retirement (as determined by the Corporation), or failure to be re-nominated or elected to the Board (excluding, in the case of such failure to be re-nominated or elected, a termination of service due to cause or misconduct (as determined by the Corporation)), in each case, prior to the expiration of the Vesting Period, then as of the date of such termination of service, the Non-Employee Director’s heirs or beneficiaries or the Non-Employee Director, as applicable, immediately shall be fully vested in, and entitled to receive a payout in respect of, the total number of Director Share Units subject to the Award. The timing of such payout shall be (i) as soon as administratively practicable following such immediate expiration of the Vesting Period, but in no event later than sixty (60) days following such immediate expiration of the Vesting Period or (ii) to the extent applicable, in accordance with an effective Deferral Election and the Deferred Compensation Plan; provided, however, that if the Award is subject to Section 409A of the Code, and if the Non-Employee Director is a Specified Employee (within the meaning of the Corporation’s Specified Employee Policy for 409A Arrangements) as of the date of such termination of service, then such payout shall be delayed until and made during the seventh calendar month following the calendar month during which the Non-Employee Director ceased to serve as a Director of the Corporation (or, if earlier, the calendar month following the calendar month of the Non-Employee Director’s death).
4.    Change in Control. Upon a Change in Control prior to the expiration of the Vesting Period, the Non-Employee Director shall be fully vested in, and entitled to receive a release in respect of, the total number of Director Share Units subject to the Award, the Vesting Period shall immediately expire and the payout in respect of the Director Share Units shall be made as soon as administratively practicable following such immediate expiration of the Vesting Period, but in no event later than sixty (60) days following such Change in Control. Notwithstanding the foregoing, if the Award is subject to Section 409A of the Code and the Change in Control does not qualify as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), then the Non-Employee Director shall be fully vested in, and entitled to receive a payout in respect of, the total number of Director Share Units subject to the Award; provided, however, that the Vesting Period shall not immediately expire and the payout with respect to such Director Share Units instead shall occur (i) upon the expiration of the original Vesting Period described in Section 1(a) (without regard to any full vesting under this Section 4) and in accordance with Section 1(b) or (ii) upon the Non-Employee Director’s termination of service (regardless of the reason for termination other than in connection with, or findings of cause or misconduct on the part of the director in which case such award would be forfeited) in accordance with Section 3(b), whichever is earlier.
5.    Securities Law Requirements. The Corporation shall not be required to issue Shares pursuant to the Award unless and until (a) such Shares have been duly listed upon each stock exchange on which the

BOD-19-320    2


Corporation’s Common Stock is then registered; and (b) a registration statement under the Securities Act of 1933, as amended, with respect to such Shares is then effective.
6.    Board Committee Administration. The Board Committee shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Board Committee necessary or desirable for the administration of the Plan. The Board Committee may correct any defect or supply any omission or reconcile any inconsistency in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency.
7.    Incorporation of Plan Provisions. This Agreement is made pursuant to the Plan, the provisions of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of this Agreement and the Plan, the terms of the Plan shall govern. By accepting this Agreement, the Non-Employee Director hereby acknowledges receipt of a copy of the Plan.
8.    Compliance with Section 409A of the Code. To the extent applicable, it is intended that the Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Non-Employee Director. The Agreement and the Plan shall be administered and interpreted in a manner consistent with this intent, and any provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force and effect until amended to comply with Section 409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by the Corporation without the consent of the Non-Employee Director). Notwithstanding the foregoing, no particular tax result for the Non-Employee Director with respect to any income recognized by the Non-Employee Director in connection with the Agreement is guaranteed, and the Non-Employee Director solely shall be responsible for any taxes, penalties or interest imposed on the Non-Employee Director in connection with the Agreement. Reference to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
9.    Data Privacy; Electronic Delivery. By acceptance of the Award, the Non-Employee Director acknowledges and agrees that: (a) data, including the Non-Employee Director’s personal data, necessary to administer the Agreement may be exchanged among the Corporation and its Subsidiaries and Affiliates as necessary, and with any vendor engaged by the Corporation to assist in the administration of equity awards; and (b) unless and until revoked in writing by the Non-Employee Director, information and materials in connection with this Agreement or any awards under the Plan, including, but not limited to, any prospectuses and plan document, may be provided by means of electronic delivery (including by e-mail, by web site access and/or by facsimile).
10.    Limitation on Rights; No Right to Future Grants. By accepting this Agreement and the grant of the Director Share Units contemplated hereunder, the Non-Employee Director expressly acknowledges that (a) the Plan is discretionary in nature and may be suspended or terminated by the Corporation at any time; (b) the grant of Director Share Units is a one-time benefit that does not create any contractual or other right to receive future grants of Director Share Units, or benefits in lieu of Director Share Units or similar benefits; (c) all determinations with respect to future grants of Director Share Units or similar benefits, if any, including the grant date, the number of Shares granted and the vesting period, will be at the sole discretion of the Corporation; (d) the Non-Employee Director’s participation in the Plan is voluntary; and (e) the future value of the underlying Shares is unknown and cannot be predicted with certainty.
11.    Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be resolved and determined by the Board Committee. Any resolution and determination made hereunder shall be final, binding and conclusive on the Non-Employee Director and the Corporation for all purposes.

BOD-19-320    3


12.    Acceptance. By accepting this Agreement, the Non-Employee Director acknowledges the Non-Employee Director has read and understands, and accepts the Director Share Units subject to, all of the terms and conditions of the Plan and this Agreement.
13.    Miscellaneous. This Agreement: (a) shall be binding upon and inure to the benefit of any successor of the Corporation; (b) shall be governed by the laws of the State of Delaware and any applicable laws of the United States; and (c) except as permitted under Sections 3.2, 12 and 13.6 of the Plan and Section 8 of the Agreement, may not be amended without the written consent of both the Corporation and the Non-Employee Director.

BOD-19-320    4
Exhibit 10(g)





L3HARRIS RETIREMENT SAVINGS PLAN

(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2020)






























L3Harris Retirement Savings Plan
(Amended and Restated Effective January 1, 2020)
Table of Contents
Page
ARTICLE 1
TITLE    1
ARTICLE 2
DEFINITIONS    2
ARTICLE 3
PARTICIPATION    19
Section 3.1.
Eligibility for Participation    19
Section 3.2.
Election of Pre-Tax Contributions, Designated Roth Contributions and After-Tax Contributions    19
Section 3.3.
Transfers to Affiliates    21
ARTICLE 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS    21
Section 4.1.
Pre-Tax Contributions and Designated Roth Contributions    21
Section 4.2.
Matching Contributions    24
Section 4.3.
Profit Sharing Contributions    24
Section 4.4.
Fringe Contributions    25
Section 4.5.
Other Employer Contributions    25
Section 4.6.
Deposit of Contributions    25
Section 4.7.
Form of Contributions    26





Section 4.8.
In-Plan Roth Conversions    26
ARTICLE 5
AFTER-TAX AND ROLLOVER CONTRIBUTIONS    27
Section 5.1.
After-Tax Contributions    27
Section 5.2.
Rollover Contributions    28
ARTICLE 6
LIMITATIONS ON CONTRIBUTIONS    28
Section 6.1.
Annual Limit on Pre-Tax Contributions and Designated Roth Contributions    28
Section 6.2.
Limits on Contributions for Highly Compensated Employees    31
Section 6.3.
Maximum Annual Additions under Section 415 of the Code    42
Section 6.4.
Other Limitations on Employer Contributions    43
ARTICLE 7
TRUST AND INVESTMENT FUNDS    44
Section 7.1.
Trust    44
Section 7.2.
Investments    45
ARTICLE 8
PARTICIPANT ACCOUNTS AND INVESTMENT ELECTIONS    46
Section 8.1.
Participant Accounts    46
Section 8.2.
Investment Elections    47
Section 8.3.
Valuation of Funds and Plan Accounts    50
Section 8.4.
Valuation of Units within the L3Harris Stock Fund    50
Section 8.5.
Allocation of Contributions Other than Profit Sharing Contributions    51

ii




Section 8.6.
Allocation of Profit Sharing Contributions    51
Section 8.7.
Correction of Error    52
ARTICLE 9
WITHDRAWALS AND DISTRIBUTIONS    52
Section 9.1.
Withdrawals Prior to Termination of Employment    52
Section 9.2.
Distribution of Account upon Termination of Employment    58
Section 9.3.
Time and Form of Distribution upon Termination of Employment    61
Section 9.4.
Payment of Small Account Balances    64
Section 9.5.
Medium and Order of Withdrawal or Distribution    65
Section 9.6.
Direct Rollover Option    66
Section 9.7.
Designation of Beneficiary    66
Section 9.8.
Missing Persons    68
Section 9.9.
Distributions to Minor and Disabled Distributees    69
Section 9.10.
Payment of Group Welfare Program Premiums    70
Section 9.11.
Dividends in Respect of the L3Harris Stock Fund    70
ARTICLE 10
LOANS    71
Section 10.1.
Making of Loans    71
Section 10.2.
Restrictions    72
Section 10.3.
Default    72

iii




Section 10.4.
Applicability    72
ARTICLE 11
SPECIAL PARTICIPATION AND DISTRIBUTION RULES    73
Section 11.1.
Change of Employment Status    73
Section 11.2.
Reemployment of a Terminated Participant    73
Section 11.3.
Employment by Affiliates    74
Section 11.4.
Leased Employees    74
Section 11.5.
Reemployment of Veterans    75
ARTICLE 12
SHAREHOLDER RIGHTS WITH RESPECT TO L3HARRIS STOCK    78
Section 12.1.
Voting Shares of L3Harris Stock    78
Section 12.2.
Tender Offers    79
ARTICLE 13
ADMINISTRATION    81
Section 13.1.
The Administrative Committee    81
Section 13.2.
Named Fiduciaries    84
Section 13.3.
Allocation and Delegation of Responsibilities    84
Section 13.4.
Professional and Other Services    85
Section 13.5.
Indemnification and Expense Reimbursement    85
Section 13.6.
Claims Procedure    85
Section 13.7.
Notices to Participants    87

iv




Section 13.8.
Notices to Administrative Committee or Employers    88
Section 13.9.
Electronic Media    88
Section 13.10.
Records    88
Section 13.11.
Reports of Trustee and Accounting to Participants    88
Section 13.12.
Limitations on Investments and Transactions/Conversions    89
ARTICLE 14
PARTICIPATION BY EMPLOYERS    90
Section 14.1.
Adoption of Plan    90
Section 14.2.
Withdrawal from Participation    90
Section 14.3.
Company, Administrative Committee and Investment Committee as Agents for Employers    91
Section 14.4.
Continuance by a Successor    91
ARTICLE 15
MISCELLANEOUS    92
Section 15.1.
Expenses    92
Section 15.2.
Non-Assignability    92
Section 15.3.
Employment Non-Contractual    94
Section 15.4.
Merger or Consolidation with Another Plan; Transfer Contributions; Transferred Employees; Divestitures    94
Section 15.5.
Gender and Plurals    95
Section 15.6.
Statute of Limitations for Actions under the Plan    95
Section 15.7.
Applicable Law    96

v




Section 15.8.
Severability    96
Section 15.9.
No Guarantee    96
Section 15.10.
Plan Voluntary    96
Section 15.11.
Legal Fees    97
ARTICLE 16
TOP-HEAVY PLAN REQUIREMENTS    97
Section 16.1.
Top-Heavy Plan Determination    97
Section 16.2.
Definitions and Special Rules    98
Section 16.3.
Minimum Contribution for Top-Heavy Years    99
ARTICLE 17
AMENDMENT, ESTABLISHMENT OF SEPARATE PLAN, PLAN TERMINATION AND CHANGE IN CONTROL    100
Section 17.1.
Amendment    100
Section 17.2.
Establishment of Separate Plan    100
Section 17.3.
Termination    101
Section 17.4.
Change in Control    101
Section 17.5.
Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries    102
SCHEDULE A Special Rules Applying to Transfer Contributions and Transferred Employees    A-1
SCHEDULE B Special Rules Applying to Divestiture Accounts and Divestiture Participants    B-1

vi




APPENDIX 1 Money Purchase Pension Accounts    1-1
APPENDIX 2 Former Exelis Information Systems Professional Benefits Employees’
Savings Plan    2-1
APPENDIX 3 ES/IEWS Employees    3-1
APPENDIX 4 Night Vision Employees    4-1
APPENDIX 5 Electronic Systems Employees    5-1
APPENDIX 6 PMRF Employees    6-1
APPENDIX 7 Benefit Group Employees    7-1
APPENDIX 8     Other Specified Groups    8-1


ARTICLE 1

TITLE
The title of this Plan shall be the “L3Harris Retirement Savings Plan.” This Plan is an amendment and restatement (and renaming) of the Harris Corporation Retirement Plan in effect as of December 31, 2019. This amendment and restatement shall be effective as of January 1, 2020.
The rights and benefits of any Participant whose employment with all Employers and Affiliates terminates on or after January 1, 2020, and the rights and benefits of any Beneficiary of any such Participant, shall be determined solely by reference to the terms of the Plan as amended and restated herein, as such plan may be amended from time to time.
The Plan is designated as a “profit sharing plan” within the meaning of U.S. Treasury Regulation section 1.401-1(a)(2)(ii). In addition, the portion of the Plan invested in the L3Harris Stock Fund is designated as an “employee stock ownership plan” within the meaning of section 4975(e)(7) of the Code and, as such, is designed to invest primarily in “qualifying employer securities” within the meaning of section 4975(e)(8) of the Code.
Certain provisions of the Plan applicable solely to a specified group of Employees are set forth in an Appendix hereto, all of which Appendices are incorporated herein and considered to be part of this Plan. The provisions of an Appendix which modify the Plan’s terms with respect to the Employees covered thereby shall be construed in a manner that harmonizes the Appendix with the other provisions of the Plan to the maximum extent possible, and to the extent that the Plan’s other terms are not expressly inconsistent with the terms of an Appendix, the Employees who participate in the Plan pursuant to such Appendix shall be governed by the Plan’s other terms.
ARTICLE 2    

DEFINITIONS
As used herein, the following words and phrases shall have the following respective meanings when capitalized:
Account. The aggregate of a Participant’s subaccounts described in Section 8.1 and such other subaccounts that may be established from time to time on behalf of a Participant, to be credited with contributions made by or on behalf of the Participant, adjusted for earnings and losses, and debited by distributions to and withdrawals of the Participant and expenses.
Administrative Committee. The Employee Benefits Committee of the Company or any successor thereto that is appointed pursuant to Section 13.1 to administer the Plan. Reference herein to the Administrative Committee also shall include any person or entity to whom the Administrative Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.
Affiliate. (a) A corporation that is a member of the same controlled group of corporations (within the meaning of section 414(b) of the Code) as an Employer, (b) a trade or business (whether or not incorporated) under common control (within the meaning of section 414(c) of the Code) with an Employer, (c) any organization (whether or not incorporated) that is a member of an affiliated service group (within the meaning of section 414(m) of the Code) that includes an Employer, a corporation described in clause (a) of this definition or a trade or business described in clause (b) of this definition, or (d) any other entity that is required to be aggregated with an Employer pursuant to Regulations promulgated under section 414(o) of the Code.
After-Tax Account. The subaccount established pursuant to Section 8.1 to which (i) any after-tax contributions made for the benefit of a Participant pursuant to Section 5.1 and (ii) any amounts that are attributable to after-tax contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon. Notwithstanding the foregoing, a Participant’s After-Tax Account shall exclude any after-tax contributions within the Plan attributable to participation in a money purchase pension plan, which after-tax contributions shall be part of the Participant’s Money Purchase Pension Account.
Beneficiary. A person entitled under Section 9.7 to receive benefits in the event of the death of a Participant. For the avoidance of doubt, any designation of a beneficiary under the Exelis Retirement Savings Plan in effect at the time of the merger of that plan into this Plan shall be void and of no effect.
Board. The Board of Directors of the Company.
Break in Service. A period other than a period included in an Employee’s Service; provided, however, that a Break in Service shall not include a period of absence from employment not in excess of 24 consecutive months because of (a) the Employee’s pregnancy, (b) the birth of the Employee’s child, (c) the placement of a child with the Employee in connection with the Employee’s adoption of such child or (d) the need of the Employee to care for any such child for a period beginning immediately following such birth or placement. The immediately preceding sentence shall not apply unless the Employee timely furnishes to the Administrative Committee or its delegate such information as it may reasonably require to establish the reason for such absence and its duration.
Change in Control. For the purposes hereof, a “Change in Control” shall be deemed to have occurred if:
(i) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (a) by the Company or any Subsidiary, (b) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering of such securities, or (d) pursuant to a Non-Control Transaction (as defined in paragraph (iii));
(ii) individuals who, on January 1, 2020, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board,  provided  that any person becoming a director subsequent to January 1, 2020, whose appointment, election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Director;  provided, however , that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) there is consummated a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a “Business Combination”), unless immediately following such Business Combination: (a) more than 60% of the total voting power of the company resulting from such Business Combination (including, without limitation, any company which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities) eligible to elect directors of such company is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (b) no person (other than any publicly traded holding company resulting from such Business Combination, or any employee benefit plan sponsored or maintained by the Company (or the company resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the company resulting from such Business Combination, and (c) at least a majority of the members of the board of directors of the company resulting from such Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the conditions specified in (a), (b) and (c) shall be deemed to be a “Non-Control Transaction”);
(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(v) the Company consummates a direct or indirect sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries.
Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.
For the purposes of this definition of “Change in Control” the term “Subsidiary” shall mean any entity of which the Company owns or controls, either directly or indirectly, 50% or more of the outstanding shares of stock normally entitled to vote for the election of directors or of comparable equity participation and voting power.
Code. The Internal Revenue Code of 1986, as amended, and the rules and Regulations promulgated thereunder. References to any section of the Code shall include any successor provision thereto.
Company. L3Harris Technologies, Inc., a Delaware corporation, and any successor thereto. Prior to June 29, 2019, L3Harris Technologies, Inc. was known as Harris Corporation.
Compensation. Except as otherwise provided in an Appendix for a specified group of Participants, the following items of remuneration which a Participant is paid for work or personal services performed for an Employer: (a) salary or wages, including lump sum merit increases; (b) commission paid pursuant to a sales incentive plan; (c) overtime premium, shift differential or additional compensation in lieu of overtime premium; (d) except as provided in the immediately following paragraph, compensation in lieu of vacation or paid time off; (e) any bonus or incentive compensation payable in the form of cash pursuant to an Employer’s Annual Incentive Plan or other similar plan or award program adopted from time to time by an Employer; and (f) any differential wage payment (within the meaning of Section 3401(h)(2) of the Code) paid with respect to a period during which the Participant is performing service in the uniformed services while on active duty for more than 30 days; provided, however, that Compensation also shall include any remuneration which would have been paid to the Participant for work or personal services performed for an Employer but for the Participant’s election to have his or her compensation reduced pursuant to a qualified cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code or an arrangement providing qualified transportation fringes described in section 132(f) of the Code; provided further that the remuneration described in this paragraph shall be Compensation for purposes of the Plan only if it is paid on or before the later of (i) 2 ½ months after the Participant’s severance from employment and (ii) the last day of the Plan Year during which the Participant’s severance from employment occurs (the “Timing Limitation”), except that the Timing Limitation shall not apply to payments to a Participant who does not perform services for an Employer at the time of payment by reason of Qualified Military Service to the extent that such payments do not exceed the amounts such Participant would have received if the Participant had continued to perform services for the Employer rather than entering Qualified Military Service.
Notwithstanding the foregoing, and except as otherwise provided in an Appendix for a specified group of Participants, the following items also shall be excluded from “Compensation”: (1) any extraordinary compensation of a recurring or non-recurring nature, including one-time recognition awards and rewards under a referral program of an Employer; (2) any award made or amount paid pursuant to the Company’s Equity Incentive Plan or any predecessor or successor thereto, including, but not limited to, performance shares, stock options, restricted stock, stock appreciation rights or other stock-based awards or dividend equivalents; (3) severance pay, separation pay, special retirement pay or parachute payments; (4) retention bonuses or completion bonuses, unless authorized by the Administrative Committee in a uniform and nondiscriminatory manner to be included in Compensation; (5) reimbursement or allowances with respect to expenses incurred in connection with employment, such as tax equalization, reimbursement for moving expenses, mileage or expense allowance or education expenses; (6) indirect compensation such as employer-paid group insurance premiums or contributions under this Plan or any other qualified employee benefit plan, other than contributions described in the immediately preceding paragraph; (7) compensation in lieu of vacation or paid time off that is paid in a lump sum at or following termination of employment, or that is accrued but unused vacation or paid time off paid in a lump sum during employment due to Company restrictions on carryover of vacation or paid time off; or (8) nonqualified deferred compensation. For the avoidance of doubt, compensation which is attributable to the conversion of certain accrued vacation and paid time off to a deferred lump-sum amount, shall be considered nonqualified deferred compensation for purposes of the Plan and shall be excluded from “Compensation”.
Notwithstanding any provision herein to the contrary, the Compensation of a Participant taken into account for any purpose under the Plan shall not exceed $285,000 (as adjusted pursuant to section 401(a)(17)(B) of the Code). In addition, in the Plan Year in which an Eligible Employee becomes a Participant, only Compensation received on or after the date he or she becomes a Participant shall be taken into account under the Plan. Finally, in no event shall Compensation for purposes of this Plan include any amount that is not “compensation” within the meaning of section 415(c)(3) of the Code and Treasury Regulation section 1.415(c)-2.
Designated Roth Account. The subaccount established pursuant to Section 8.1 to which (i) any designated Roth contributions made for the benefit of a Participant pursuant to Section 4.1 and (ii) any amounts that are attributable to designated Roth contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon. For the avoidance of doubt, the Designated Roth Account shall not include In-Plan Roth Conversions (as defined in Section 4.8).
Designated Roth Conversion Account. The subaccount established pursuant to Section 8.1 to which (i) In-Plan Roth Conversions (as defined in Section 4.8) and (ii) any amounts that are attributable to in-plan Roth conversions pursuant to section 402A(c)(4) under a qualified defined contribution plan that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
Disability. A Participant’s total and permanent physical or mental disability, as evidenced by the Participant’s eligibility for disability benefits under Title II or Title XVI of the Federal Social Security Act. A Participant’s Disability shall be deemed to occur as of the effective date determined by the Social Security Administration.
Effective Date. The effective date of this amendment and restatement of the Plan, which, with respect to the Company and any other Employer as of December 31, 2019, shall, except as otherwise provided herein, be January 1, 2020 and, with respect to an entity that becomes an Employer on or after January 1, 2020, shall be the effective date as of which the Plan is adopted by such entity.
Eligible Cash Balance Pension Participant. A Participant who is an Eligible Employee; who began accruing a cash balance benefit under the Harris Corporation Salaried Retirement Plan effective January 1, 2017 or under a defined benefit pension plan maintained by L3 Technologies, Inc. or a subsidiary thereof effective January 1, 2020; and who continues to be eligible to accrue such cash balance benefit under such plan.
Eligible Employee. An Employee other than an Employee (a) the terms of whose employment are subject to a collective bargaining agreement which does not provide for the participation of such Employee in the Plan; (b) who does not receive any Compensation payable in United States dollars; (c) who is not treated as an Employee of an Employer on such Employer’s payroll records (notwithstanding any determination by a court or administrative agency that such individual is an Employee); (d) who is not a United States citizen or a resident alien and who provides services in a location other than the United States; (e) who is eligible to participate in, or will be eligible to participate in after satisfaction of applicable age, service or entry date requirements, any other United States tax-qualified defined contribution plan sponsored or maintained by the Company or any of its subsidiaries or (f) who is a bona fide resident of Puerto Rico. No individual who renders services for an Employer shall be an Eligible Employee if such individual renders services pursuant to an agreement or arrangement (written or oral) (1) that such services are to be rendered by the individual as an independent contractor; (2) with an entity, including a leasing organization, that is not an Employer or Affiliate or (3) that contains a waiver of participation in the Plan. No reclassification of an individual’s status with an Employer, for any reason, without regard to whether initiated by a court, governmental agency or otherwise and without regard to whether the Employer agrees with such reclassification, shall result in the person being regarded as an Eligible Employee during any retroactive period.
Eligible Profit Sharing Participant. For any Plan Year, a Participant who has completed a Year of Service on or prior to the last day of the applicable Plan Year and (a) who is actively employed as an Eligible Employee on the last day of such Plan Year; (b) was actively employed as an Eligible Employee during such Plan Year but is not actively employed on the last day of such Plan Year due to Leave of Absence or a period of Qualified Military Service; or (c) was actively employed as an Eligible Employee during such Plan Year but terminated employment during such Plan Year (1) on or after the attainment of age 55, (2) due to death or Disability, (3) as a result of a Reduction in Force or (4) as a result of a transfer from employment with an Employer to employment with an Affiliate that is not an Employer.
Eligible Retirement Plan. Any of (i) an individual retirement account described in section 408(a) of the Code (including a Roth IRA described in section 408A of the Code), (ii) an individual retirement annuity described in section 408(b) of the Code (including a Roth IRA described in section 408A of the Code, and excluding any endowment contract), (iii) an employees’ trust described in section 401(a) of the Code which is exempt from tax under section 501(a) of the Code, (iv) an annuity plan described in section 403(a) of the Code, (v) an eligible deferred compensation plan described in section 457(b) of the Code which is maintained by a state, political subdivision of a state or any agency or instrumentality of a state or political subdivision of a state which agrees to account separately for amounts transferred into such plan and (vi) an annuity contract described in section 403(b) of the Code.
Employee. An individual whose relationship with an Employer is, under common law, that of an employee.
Employer. The Company or any other entity that, with the consent of the Administrative Committee, elects to participate in the Plan in the manner described in Section 14.1, including any successor entity that is substituted for an Employer pursuant to Section 14.4. If an Employer withdraws from participation in the Plan pursuant to Section 14.2, or terminates its participation in the Plan pursuant to Section 17.3, it shall thereupon cease to be an Employer. An entity automatically shall cease being an Employer as of the date it ceases to be an Affiliate, unless the Administrative Committee consents to such entity’s continued participation in the Plan.
ERISA. The Employee Retirement Income Security Act of 1974, as amended, and the rules and Regulations promulgated thereunder. References to any section of ERISA shall include any successor provision thereto.
Fringe Account. The subaccount established pursuant to Section 8.1 to which (i) any fringe contributions made for the benefit of a Participant pursuant to Section 4.4 and (ii) any amounts that are attributable to fringe contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
Full-Time Employee. An Employee who regularly is scheduled by an Employer to work 30 or more hours per week and who is not designated on the payroll records of an Employer as a temporary employee, intern, or co-op employee.
Highly Compensated Employee. For a Plan Year, any Employee who (a) is a 5%-owner (as determined under section 416(i)(1) of the Code) at any time during the current Plan Year or the preceding Plan Year or (b) for the preceding Plan Year, was paid compensation in excess of $125,000 (as adjusted in accordance with section 414(q)(1)(B) of the Code) from an Employer or Affiliate and was a member of the “top-paid group” (as defined in section 414(q)(3) of the Code).
Hour of Service. Each hour for which an Employee is paid or entitled to payment for the performance of duties for an Employer.
Investment Committee. The Investment Committee of the Company. Reference herein to the Investment Committee also shall include any person or entity to whom the Investment Committee has delegated any of its authority pursuant to Section 13.3 to the extent of the delegation.
L3Harris Stock. Common stock of the Company.
L3Harris Stock Fund. An investment option, the assets of which consist primarily of shares of L3Harris Stock.
Leave of Absence. A period of interruption of the active employment of an Employee granted by an Employer or Predecessor Company with the understanding that the Employee will return to active employment at the expiration of such period (or such extension thereof granted by the Employer or Predecessor Company).
Matching Account. The subaccount established pursuant to Section 8.1 to which (i) any matching contributions made for the benefit of a Participant pursuant to Section 4.2 and (ii) any amounts that are attributable to matching contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
Maximum Contribution Percentage. The maximum percentage of a Participant’s Compensation for a payroll period that may be contributed to the Plan pursuant to Section 5.1(a), as determined from time to time by the Administrative Committee. The Administrative Committee in its sole discretion may establish different Maximum Contribution Percentages with respect to Participants who are not Highly Compensated Employees for a given Plan Year and Participants who are Highly Compensated Employees for such Plan Year, and with respect to classes of Highly Compensated Employees for a given Plan Year.
Maximum Deferral Percentage. The maximum percentage of a Participant’s Compensation for a payroll period that may be contributed to the Plan pursuant to Section 4.1(a), as determined from time to time by the Administrative Committee. The Administrative Committee in its sole discretion may establish different Maximum Deferral Percentages with respect to Participants who are not Highly Compensated Employees for a given Plan Year and Participants who are Highly Compensated Employees for such Plan Year, and with respect to classes of Highly Compensated Employees for a given Plan Year.
Money Purchase Pension Account. The subaccount established pursuant to Section 8.1 attributable to contributions to a money purchase pension plan and earnings thereon that were transferred to the Plan in connection with the merger of a qualified defined contribution plan into the Plan, as adjusted for earnings and losses thereon.
Other Employer Contribution Account. The subaccount established pursuant to Section 8.1 to which any employer contributions (other than matching contributions) made for the benefit of a Participant pursuant to Appendix 8 are credited, as adjusted for earnings and losses thereon.
Participant. An Eligible Employee who has satisfied the requirements set forth in Section 3.1 or an applicable Appendix. An individual shall cease to be a Participant upon the complete distribution of his or her vested Account.
Plan. The plan herein set forth (including any schedules or appendices), as from time to time amended.
Plan Year. The calendar year.
Predecessor Company. Any entity (a) of which an Affiliate is a successor by reason of having acquired all or substantially all of its business and assets or (b) from which an Affiliate acquired a business formerly conducted by such entity; provided, however, that in the case of any such entity that continues to conduct a trade or business subsequent to the acquisition by an Affiliate referred in (a) or (b) above, the status of such entity as a Predecessor Company relates only to the period of time prior to the date of such acquisition.
Pre-Tax Account. The subaccount established pursuant to Section 8.1 to which (i) any pre-tax contributions made for the benefit of a Participant pursuant to Section 4.1 and (ii) any amounts that are attributable to pre-tax contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
Prior Company Contribution Account. The subaccount established pursuant to Section 8.1 attributable to (i) Company Matching Contributions that were made under the Exelis Retirement Savings Plan prior to January 1, 2012; (ii) Company “Floor Contributions” that were made under the Exelis Retirement Savings Plan prior to January 1, 2012; (iii) any other company or employer contributions that were made to the Exelis Retirement Savings Plan or any predecessor plan thereto prior to October 31, 2011, or any other amounts attributable to company or employer contributions transferred or merged into the Exelis Retirement Savings Plan or any predecessor plan thereto; or (iv) Company “Base Contributions” that were made for the benefit of a Participant pursuant to Appendix 7 of this Plan with respect to service prior to April 28, 2017, or to a qualified defined contribution plan with respect to the Participant that are transferred or merged into this Plan, in each case as adjusted for earnings and losses thereon.
Profit Sharing Account. The subaccount established pursuant to Section 8.1 to which (i) any profit sharing contributions made for the benefit of a Participant pursuant to Section 4.3 and (ii) any amounts that are attributable to profit sharing contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
QNEC Account. The subaccount established pursuant to Section 8.1 to which (i) any “qualified nonelective contributions” within the meaning of section 401(m)(4)(C) of the Code made for the benefit of a Participant under the Plan and (ii) any amounts that are attributable to qualified nonelective contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon.
Qualified Military Service. An individual’s service in the uniformed services (as defined in 38 U.S.C. § 4303) if such individual is entitled to reemployment rights under USERRA with respect to such service.
Reduction in Force. An involuntary or voluntary reduction in force, as defined in the Company’s Severance Pay Plan.
Regulations. Written regulations promulgated by the Department of Labor construing Title I of ERISA or by the Internal Revenue Service construing the Code.
Rollover Account. The subaccount established pursuant to Section 8.1 to which (i) any rollover contributions made by or for the benefit of a Participant pursuant to Section 5.2 and (ii) any amounts that are attributable to rollover contributions made to a qualified defined contribution plan with respect to a Participant that are transferred or merged into this Plan, are credited, in each case as adjusted for earnings and losses thereon. Rollovers attributable to after-tax contributions and rollovers attributable to designated Roth contributions shall be accounted for separately from other amounts in the Rollover Account.
Savings Account. The subaccount established pursuant to Section 8.1 to which any savings contributions under the Plan as in effect prior to July 1, 1983 are credited, as adjusted for earnings and losses thereon.
Service. The aggregate of the periods during which an Employee is employed by an Employer and any periods of employment or service taken into account pursuant to Sections 11.3 and 11.4, subject to the following:
(a)    An Employee shall be deemed to be employed by an Employer during (1) any period of absence from employment by an Employer that is of less than twelve months’ duration, (2) the first twelve months of any period of absence from employment by an Employer for any reason other than the Employee’s quitting, retiring, being discharged or death, and (3) any period of absence from employment by an Employer due to or necessitated by the Employee’s Qualified Military Service, provided that the Employee returns to the employ of an Employer within the period prescribed by USERRA.
(b)    An Employee’s period of employment by an entity other than an Affiliate that becomes a Predecessor Company shall be included as Service only to the extent expressly provided in the documents effecting the acquisition or otherwise required by law.
(c)    An Employee’s period of employment by an entity in which the Company owns less than 80% but more than 1% of the outstanding equity interest (a “joint venture”) shall be included as Service if (1) the Company or its delegate designates employment with the joint venture as eligible for service credit under the Plan; (2) such Employee was employed by an Affiliate prior to such Employee’s employment by the joint venture and was not employed by any person or entity other than an Affiliate (an “unrelated employer”) between such Employee’s employment by an Affiliate and the joint venture; and (3) such Employee returns to employment with an Affiliate following the Employee’s termination of employment with the joint venture without having been employed by an unrelated employer between such Employee’s employment by the joint venture and an Affiliate.
(d)    Solely for purposes of determining the nonforfeitable portion of a Participant’s Account under Section 9.2(b) or an Appendix hereto, if an Employee (1) is terminated by an Employer or Affiliate in connection with a Reduction in Force and (2) has, as of the date of such termination, completed at least one Year of Service, the Service of the Employee shall include the first twelve months of absence from employment, effective as of the date of such termination of employment.
Service shall be computed in terms of completed years, completed months and completed days.
Spouse. A person who is legally married to a Participant under the laws of any domestic or foreign jurisdiction that has the legal authority to sanction marriages. For the avoidance of doubt, the term “Spouse” shall not include a person who, with a Participant, is in a domestic partnership, civil union or other similar formal relationship recognized by applicable law.
Trust. The trust described in Section 7.1 and created by agreement between the Company and the Trustee.
Trust Fund. All money and property of every kind with respect to the Plan held by the Trustee pursuant to the terms of the agreement governing the Trust.
Trustee. The person or entity appointed by the Investment Committee and serving as trustee of the Trust or, if there is more than one such trustee acting at a particular time, all of such trustees collectively.
USERRA. The Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.
Valuation Date. Each day on which the New York Stock Exchange is open for trading and any other day determined by the Administrative Committee.
Year of Service. A period of Service of 365 days.
ARTICLE 3    

PARTICIPATION
Section 3.1.    Eligibility for Participation. Each Eligible Employee who was a Participant immediately before the Effective Date shall continue to be a Participant as of the Effective Date. Except as otherwise provided in an Appendix for a specified group of Employees, each other Eligible Employee shall become a Participant on the day he or she first performs an Hour of Service.
Section 3.2.    Election of Pre-Tax Contributions, Designated Roth Contributions and After-Tax Contributions. Participant Election. A Participant who desires to make pre-tax contributions, designated Roth contributions or after-tax contributions to the Plan shall make an election, in accordance with procedures prescribed by the Administrative Committee, specifying the Participant’s chosen rate of such contributions. Such election shall authorize the Participant’s Employer to reduce the Participant’s Compensation by the amount of any such pre-tax contributions, shall authorize the Participant’s Employer to make regular payroll deductions of any such designated Roth contributions or after-tax contributions, and shall evidence the Participant’s acceptance and agreement to all provisions of the Plan. The Administrative Committee in its discretion may permit a Participant to make separate deferral or contribution elections with respect to his or her Compensation that is bonus or incentive compensation and his or her Compensation that is not bonus or incentive compensation (for the avoidance of doubt, in the event that such separate elections are permitted and the Participant does not make an affirmative election with respect to his or her bonus or incentive compensation, the Participant’s election with respect to his or her Compensation that is not bonus or incentive compensation shall apply to the bonus or incentive compensation). Any election made pursuant to this Section 3.2(a) shall be effective only with respect to Compensation not currently available to the Participant as of the effective date of such election and shall be effective as soon as administratively practical after the date on which the election is received.
(a)    Deemed Election for Full-Time Employees. Except as otherwise provided in a Schedule or an Appendix for a specified group of Employees, a Participant who is a Full-Time Employee and who does not at the time and in the manner prescribed by the Administrative Committee elect otherwise (including for this purpose a reemployed Eligible Employee who is a Full-Time Employee and who does not elect otherwise following the Eligible Employee’s reemployment date) shall be deemed to have elected to make pre-tax contributions to the Plan each payroll period at the rate of 6% of the Participant’s Compensation for such payroll period and to have authorized the Participant’s Employer to reduce his or her Compensation by the amount thereof. Any deemed election described in this Section 3.2(b) shall be effective only with respect to Compensation not currently available to the Participant as of the effective date of the deemed election and shall be effective thirty-five (35) days following the date that the Participant first performs an Hour of Service, or as soon as administratively practicable thereafter.
Section 3.3.    Transfers to Affiliates. If a Participant is transferred from one Employer to another Employer or from an Employer to an Affiliate that is not an Employer, such transfer shall not terminate the Participant’s participation in the Plan, and such Participant shall continue to participate in the Plan until an event occurs which would have entitled the Participant to a complete distribution of the Participant’s vested interest in his or her Account had the Participant continued to be employed by an Employer until the occurrence of such event. Notwithstanding the foregoing, a Participant shall not be entitled to make pre-tax contributions, designated Roth contributions or after-tax contributions, or to receive under the Plan allocations of matching contributions, profit sharing contributions, fringe contributions or other employer contributions during any period of employment by an Affiliate that is not an Employer, and periods of employment by an Affiliate that is not an Employer shall be taken into account only to the extent set forth in Section 11.3. Payments that are received by a Participant from an Affiliate that is not an Employer shall not be treated as Compensation for any purpose under the Plan.
ARTICLE 4    

PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS
Section 4.1.    Pre-Tax Contributions and Designated Roth Contributions. Initial Election. Subject to the limitations set forth in Article 6, each Employer shall make a pre-tax contribution and/or a designated Roth contribution for each payroll period on behalf of each Participant who is an Eligible Employee of such Employer in an amount equal to a whole percentage of such Participant’s Compensation for such payroll period as elected by the Participant pursuant to Section 3.2. The percentage of Compensation so designated by a Participant for a payroll period may not be less than 1% and may not be more than the Maximum Deferral Percentage with respect to such Participant. Notwithstanding the foregoing, the aggregate of a Participant’s pre-tax contributions and designated Roth contributions for a payroll period pursuant to this Section 4.1(a) and a Participant’s after-tax contributions for a payroll period pursuant to Section 5.1(a) may not exceed an amount equal to the Maximum Deferral Percentage with respect to such Participant.
(a)    Changes in the Rate or Suspension of Pre-Tax Contributions and Designated Roth Contributions. A Participant’s pre-tax contributions and designated Roth contributions pursuant to Section 4.1(a) shall continue in effect at the rate elected by the Participant pursuant to Section 3.2 until the Participant changes or suspends such election. A Participant may change or suspend such election at such time and in such manner as may be prescribed by the Administrative Committee, provided that only the last change made by a Participant during a payroll period shall be effectuated. Such change or suspension shall be effective as soon as administratively practicable after the date on which the change or suspension is received. A Participant who has suspended pre-tax contributions or designated Roth contributions pursuant to this subsection may resume pre-tax contributions or designated Roth contributions by making an election at such time and in such manner as may be prescribed by the Administrative Committee.
(b)    Catch-Up Contributions. Each Participant who (i) is eligible to make pre-tax contributions or designated Roth contributions under the Plan and (ii) will attain age 50 before the end of the Plan Year shall be eligible to have pre-tax contributions and/or designated Roth contributions made on his or her behalf in addition to those described in Sections 4.1(a) and (b) (“catch-up contributions”). Catch-up contributions shall be elected, made, suspended, resumed and credited in accordance with and subject to the rules and limitations of section 414(v) of the Code and such other rules and limitations prescribed by the Administrative Committee from time to time; provided, however, that (i) the amount of catch-up contributions made on behalf of a Participant during a Plan Year shall not exceed the maximum amount permitted under section 414(v)(2) of the Code for the calendar year ($6,500 for 2020) and (ii) the amount of catch-up contributions made on behalf of a Participant for a payroll period shall not exceed the percentage of the Participant’s Compensation that is established from time to time by the Administrative Committee. Catch-up contributions shall not be taken into account for purposes of Sections 6.1 and 6.3, and the Plan shall not be treated as failing to satisfy its provisions implementing the requirements of section 401(k)(3), 401(k)(11), 401(k)(12), 410(b) or 416 of the Code, as applicable, by reason of the making of catch-up contributions.
(c)    Designation of Contributions as Pre-Tax Contributions or Designated Roth Contributions. Elections by Participants to commence, change, suspend or resume contributions under this Section 4.1 shall designate (i) the portion of such contributions that are to be pre-tax contributions excludable from the Participant’s gross income pursuant to section 402(g) of the Code and (ii) the portion of such contributions that are to be designated Roth contributions includable in the Participant’s gross income pursuant to section 402A of the Code. Subject to Section 4.8, such designations shall be irrevocable with respect to contributions made pursuant to such elections.
Section 4.2.    Matching Contributions. %3.     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 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 Cash Balance Pension 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).
(a)    Contributions Not Eligible for Match. Notwithstanding the foregoing, and except as otherwise provided in Appendix 8, an Employer shall not make a matching contribution with respect to any catch-up contribution made pursuant to Section 4.1(c).
Section 4.3.    Profit Sharing Contributions. Subject to the limitations set forth in Article 6, each Plan Year the Employers in their discretion may make a profit sharing contribution to the Trust in such amount as the Employers in their discretion may determine. Such discretionary profit sharing contribution shall be allocated pursuant to Section 8.6 among Eligible Profit Sharing Participants for the Plan Year.
Section 4.4.    Fringe Contributions. Subject to the limitations set forth in Article 6, each Plan Year the Employers in their discretion may make, (i) on behalf of a Participant who is covered by the Davis-Bacon Act (40 U.S.C. Section 276(a) at seq., as amended) or the McNamara-O’Hara Service Contract Act (41 U.S.C. Section 351 et seq., as amended), a fringe contribution that shall be an amount equal to the fringe rate determined under the prevailing wage determination for services performed under the aforesaid acts, less any fringe benefit provided outside of the Plan or (ii) on behalf of a Participant who is subject to a collective bargaining agreement or similar contact, a fringe contribution in the amount determined by the Employer which shall be in lieu of certain fringe benefits.
Section 4.5.    Other Employer Contributions. The Employers shall make such other employer contributions as set forth in Appendix 8 hereto.
Section 4.6.    Deposit of Contributions. An Employer shall deliver to the Trustee any pre-tax contributions and designated Roth contributions as soon as administratively practicable after the date such contributions otherwise would have been paid to the Participants as cash compensation, but in no event later than the 15th business day of the month following the month during which such contributions otherwise would have been paid to the Participants. Except with respect to true-up or catch-up matching contributions made pursuant to an Appendix hereto, an Employer shall deliver to the Trustee any matching contributions concurrently with the delivery of the pre-tax contributions, designated Roth contributions or after-tax contributions to which such matching contributions relate. An Employer shall deliver to the Trustee any profit sharing contribution, fringe contributions, true-up or catch-up matching contributions or other employer contributions for a Plan Year no later than the date prescribed by the Code, including any authorized extensions thereof, for filing such Employer’s federal income tax return for the tax year that coincides with the Plan Year.
Section 4.7.    Form of Contributions. Except as provided in Section 5.2(a) with respect to rollover contributions, contributions to the Plan (pursuant to this Article 4 or otherwise) shall be made in cash, shares of L3Harris Stock or a combination thereof at the discretion of the Company.
Section 4.8.    In-Plan Roth Conversions. An “Eligible Convertee,” as defined in this Section, may, at any time, elect to transfer all or any portion of his or her vested Account attributable to (i) pre-tax contributions, (ii) matching contributions made with respect to Plan Years commencing on or after January 1, 2020 and (iii) rollover contributions (excluding any rollover contributions attributable to designated Roth contributions) from its existing subccount to such Eligible Convertee’s Designated Roth Conversion Account, to the extent permitted by section 402A(c)(4) of the Code (including section 402A(c)(4)(E) of the Code), and with the tax consequences set forth in section 402A(c)(4) of the Code (an “In-Plan Roth Conversion”). Notwithstanding any provision of the Plan to the contrary, the Eligible Convertee shall continue to have the same withdrawal, distribution and loan options with respect to amounts attributable to such In-Plan Roth Conversion as he or she had prior to having converted such amounts, subject to any restrictions on rollover described in Section 9.6. For purposes of this Section, an “Eligible Convertee” is a Participant, a Beneficiary who is the surviving Spouse of such Participant or an alternate payee (within the meaning of section 414(p) of the Code) who is a Spouse or former Spouse of such Participant.
ARTICLE 5    

AFTER-TAX AND ROLLOVER CONTRIBUTIONS
Section 5.1.    After-Tax Contributions. Initial Election. Subject to the limitations set forth in Article 6, each Participant may elect in accordance with Section 3.2 to make an after-tax contribution of Compensation for each payroll period by payroll deduction. The percentage of Compensation so designated for a payroll period shall be a whole percentage not less than 1% and not more than the Maximum Contribution Percentage with respect to such Participant. Notwithstanding the foregoing, the aggregate of a Participant’s pre-tax contributions and designated Roth contributions for a payroll period pursuant to Section 4.1(a) and a Participant’s after-tax contributions for a payroll period pursuant to this Section 5.1(a) may not exceed an amount equal to the Maximum Contribution Percentage with respect to such Participant. An Employer shall deliver to the Trustee any after-tax contributions as soon as administratively practicable after the date such contributions otherwise would have been paid to the Participants as cash compensation, but in no event later than the 15th business day of the month following the month during which such contributions otherwise would have been paid to the Participants.
(a)    Changes in the Rate or Suspension of After-Tax Contributions. A Participant’s after-tax contributions pursuant to Section 5.1(a) shall continue in effect at the rate elected by the Participant pursuant to Section 3.2 until the Participant changes or suspends such election. A Participant may change or suspend such election at such time and in such manner as may be prescribed by the Administrative Committee, provided that only the last change made by a Participant during a payroll period shall be effectuated. Such change or suspension shall be effective as soon as administratively practicable after the date on which the change or suspension is received. A Participant who has suspended after-tax contributions pursuant to this subsection may resume after-tax contributions by making an election at such time and in such manner as may be prescribed by the Administrative Committee.
Section 5.2.    Rollover Contributions. Requirements for Rollover Contributions. If a Participant receives an “eligible rollover distribution” (within the meaning of section 402(c)(4) of the Code) from an Eligible Retirement Plan, then such Participant may contribute to the Plan an amount that does not exceed the amount of such eligible rollover distribution (including the proceeds from the sale of any property received as part of such eligible rollover distribution). A rollover contribution may be in the form of cash or, with the consent of the Administrative Committee or its delegate, a promissory note evidencing an outstanding loan balance.
(a)    Delivery of Rollover Contributions. Any rollover contribution made pursuant to this Section shall be delivered by the Participant to the Trustee on or before the 60th day after the day on which the Participant receives the distribution (or on or before such later date as may be prescribed by law) or shall be transferred to the Trustee on behalf of the Participant directly from the trust from which the eligible rollover distribution is made. Any such contribution must be accompanied by any information or documentation in connection therewith requested by the Administrative Committee or the Trustee. Notwithstanding the foregoing, the Administrative Committee shall not permit a rollover contribution if in its judgment accepting such contribution would cause the Plan to violate any provision of the Code or Regulations.
ARTICLE 6    

LIMITATIONS ON CONTRIBUTIONS
Section 6.1.    Annual Limit on Pre-Tax Contributions and Designated Roth Contributions. General Rule. Notwithstanding the provisions of Section 4.1, the aggregate of pre-tax contributions and designated Roth contributions made on behalf of a Participant for any calendar year pursuant to such Section and pursuant to any other plan or arrangement described in section 401(k) of the Code which is maintained by an Employer or Affiliate shall not exceed the dollar limitation in effect for such calendar year under section 402(g) of the Code, except to the extent permitted under Section 4.1(c) of the Plan and section 414(v) of the Code with respect to “catch-up contributions.”
(a)    Excess Pre-Tax Contributions and Designated Roth Contributions.
(1)    Characterization as After-Tax Contributions. Except to the extent set forth in Section 4.1(c) of the Plan and section 414(v) of the Code with respect to “catch-up contributions,” if for any calendar year the pre-tax contributions and designated Roth contributions to the Plan reach the limit imposed by subsection (a) of this Section for such calendar year, any contributions under the Plan during the calendar year that exceed such limit shall be characterized as after-tax contributions. The Participant for whom any contributions are recharacterized as after-tax contributions pursuant to this paragraph shall designate the extent to which the contributions to be recharacterized shall be pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, the Participant’s pre-tax contributions shall be recharacterized up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that the Participant’s contributions to be recharacterized exceed such pre-tax contributions, the Participant’s designated Roth contributions made to the Plan for the Plan Year shall be recharacterized.
(2)    Distribution. Notwithstanding the foregoing, and except to the extent set forth in Section 4.1(c) of the Plan and section 414(v) of the Code with respect to “catch-up contributions,” if for any calendar year the aggregate of the pre-tax contributions and the designated Roth contributions to the Plan plus elective deferrals contributed under other plans or arrangements described in section 401(k), 403(b), 408(k) or 408(p) of the Code for the Participant exceed the section 402(g) limit for such calendar year and are not characterized as after-tax contributions, because of the limitation set forth in Section 5.1 on the amount of after-tax contributions that may be made to the Plan or otherwise, such Participant shall, pursuant to such rules and at such time following such calendar year as determined by the Administrative Committee, be allowed to submit a written request that the excess deferrals, plus any income and minus any loss allocable thereto, be distributed to the Participant. The amount of any income or loss allocable to such excess deferrals shall be determined pursuant to Regulations. Such amount of excess deferrals, as adjusted for income or loss, shall be distributed to the Participant no later than April 15 following the calendar year for which such contributions were made. Any excess deferrals that are distributed in accordance with this subsection (b)(2) shall not be treated as “annual additions” for purposes of Section 6.3. The amount of excess deferrals that may be distributed under this subsection (b)(2) with respect to a Participant for a calendar year shall be reduced by any amounts previously distributed pursuant to Section 6.2(d)(1) with respect to such Participant for such year. The Participant to whom any excess deferrals are distributed pursuant to this paragraph shall designate the extent to which such distributed excess deferrals are treated as pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, such distributed excess deferrals shall be treated as pre-tax contributions up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that such distributed excess deferrals exceed such pre-tax contributions, such excess deferrals shall be treated as distributions of designated Roth contributions made to the Plan for the Plan Year. Pre-tax contributions or designated Roth contributions with respect to which a matching contribution was not made shall be distributed before pre-tax contributions or designated Roth contributions with respect to which a matching contribution was made. Any matching contributions attributable to excess deferrals that are distributed pursuant to this Section 6.1(b), as adjusted for income or loss, shall be forfeited.
Section 6.2.    Limits on Contributions for Highly Compensated Employees.
(a)    Actual Deferral Percentage Test Imposed by Section 401(k)(3) of the Code. Notwithstanding the provisions of Section 4.1, if the pre-tax contributions and designated Roth contributions made pursuant to Section 4.1 for a Plan Year fail, or in the judgment of the Administrative Committee are likely to fail, to satisfy both of the tests set forth in paragraphs (1) and (2) of this subsection, the adjustments prescribed in Section 6.2(d)(1) shall be made. Any pre-tax contributions or designated Roth contributions which are “catch-up contributions” described in Section 4.1(c) shall not be considered to be pre-tax contributions or designated Roth contributions for purposes of determining whether the tests set forth in paragraphs (1) and (2) of this subsection are satisfied or for purposes of making any adjustments prescribed by Section 6.2(d)(1).
(1)    The HCE average deferral percentage for such year does not exceed the product of the NHCE average deferral percentage for such year and 1.25.
(2)    The HCE average deferral percentage for such year (i) does not exceed the NHCE average deferral percentage for such year by more than two percentage points and (ii) does not exceed the product of the NHCE average deferral percentage for such year and 2.0.
(b)    Actual Contribution Percentage Test Imposed by Section 401(m) of the Code. Notwithstanding the provisions of Sections 4.2 and 5.1, if the aggregate of the matching contributions made pursuant to Section 4.2 and the after-tax contributions made pursuant to Section 5.1 for a Plan Year fail, or in the judgment of the Administrative Committee are likely to fail, to satisfy both of the tests set forth in paragraphs (1) and (2) of this subsection, the adjustments prescribed in Section 6.2(d)(2) shall be made.
(1)    The HCE average contribution percentage for such year does not exceed the product of the NHCE average contribution percentage for such year and 1.25.
(2)    The HCE average contribution percentage for such year (i) does not exceed the NHCE average contribution percentage for such year by more than two percentage points and (ii) does not exceed the product of the NHCE average contribution percentage for such year and 2.0.
(c)    Definitions and Special Rules. For purposes of this Section, the following definitions and special rules shall apply:
(1)    The “actual deferral percentage test” refers collectively to the tests set forth in paragraphs (1) and (2) of subsection (a) of this Section relating to pre-tax contributions and designated Roth contributions. The actual deferral percentage test shall be satisfied if either of such tests are satisfied.
(2)    The “HCE average deferral percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who are eligible to make pre-tax contributions or designated Roth contributions for the current Plan Year and who are Highly Compensated Employees for the current Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the employer contributions for the benefit of such Eligible Employee for the current Plan Year (if any) to the total compensation for the current Plan Year paid to such Eligible Employee. For this purpose, “employer contributions” shall mean pre-tax contributions and designated Roth contributions (including excess deferrals), but excluding any pre-tax contributions and designated Roth contributions that are taken into account under the actual contribution percentage test (provided that the actual deferral percentage test is satisfied both with and without exclusion of such contributions).
(3)    The “NHCE average deferral percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who were eligible to make pre-tax contributions or designated Roth contributions for the immediately preceding Plan Year and who were not Highly Compensated Employees for the immediately preceding Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the employer contributions for the benefit of such Eligible Employee for the immediately preceding Plan Year (if any) to the total compensation for the immediately preceding Plan Year paid to such Eligible Employee. For this purpose, “employer contributions” shall mean pre-tax contributions and designated Roth contributions (including excess deferrals), but excluding (i) excess deferrals that arise solely from pre-tax contributions and designated Roth contributions made under this Plan or other plans maintained by the Employers and Affiliates and (ii) any pre-tax contributions and designated Roth contributions that are taken into account under the actual contribution percentage test (provided that the actual deferral percentage test is satisfied both with and without exclusion of such pre-tax contributions and designated Roth contributions). Notwithstanding the foregoing, in the event of a “plan coverage change” during a Plan Year (as such term is defined in Treasury Regulation §1.401(k)-2(c)(4)(iii)(A)), the “NHCE average deferral percentage” for such Plan Year shall be determined in accordance with Treasury Regulation §1.401(k)-2(c)(4).
(4)    The “actual contribution percentage test” refers collectively to the tests set forth in paragraphs (1) and (2) of subsection (b) of this Section relating to matching contributions and after-tax contributions. The actual contribution percentage test shall be satisfied if either of such tests are satisfied.
(5)    The “HCE average contribution percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who are eligible to have matching contributions, after-tax contributions, or in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for their benefit for the current Plan Year and who are Highly Compensated Employees for the current Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the matching contributions, after-tax contributions and, in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for the benefit of such Eligible Employee for the current Plan Year (if any) to the total compensation for the current Plan Year paid to such Eligible Employee.
(6)    The “NHCE average contribution percentage” for a Plan Year is a percentage determined for the group of Eligible Employees who were eligible to have matching contributions, after-tax contributions, or in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for their benefit for the immediately preceding Plan Year and who were not Highly Compensated Employees for the immediately preceding Plan Year. Such percentage shall be equal to the average of the ratios, calculated separately for each such Eligible Employee to the nearest one-hundredth of one percent, of the matching contributions, after-tax contributions and, in the discretion of the Administrative Committee and to the extent permitted under rules prescribed by the Secretary of the Treasury or otherwise under the law, pre-tax contributions and designated Roth contributions, made for the benefit of such Eligible Employee for the immediately preceding Plan Year (if any) to the total compensation for the immediately preceding Plan Year paid to such Eligible Employee. Notwithstanding the foregoing, in the event of a “plan coverage change” during a Plan Year (as such term is defined in Treasury Regulation §1.401(m)-2(c)(4)(iii)(A)), the “NHCE average contribution percentage” for such Plan Year shall be determined in accordance with Treasury Regulation §1.401(m)-2(c)(4).
(7)    The term “compensation” shall have the meaning set forth in section 414(s) of the Code or, in the discretion of the Administrative Committee, any other meaning in accordance with the Code for these purposes. In any event, the term “compensation” shall not include any amount excludable under Treasury Regulation section 1.415(c)-2(g)(5)(ii).
(8)    If the Plan and one or more other plans of an Employer to which pre-tax contributions, designated Roth contributions, matching contributions or employee contributions (as such terms are defined for purposes of section 401(m) of the Code), or qualified nonelective contributions (as such term is defined in section 401(m)(4)(C) of the Code), are made are treated as one plan for purposes of section 410(b) of the Code, such plans shall be treated as one plan for purposes of this Section. If a Highly Compensated Employee participates in the Plan and one or more other plans of an Employer to which any such contributions are made, all such contributions shall be aggregated for purposes of this Section.
(d)    Adjustments to Comply with Limits.
(1)    Adjustments to Comply with Actual Deferral Percentage Test. The Administrative Committee shall cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether the actual deferral percentage test will be satisfied during a Plan Year, and, if it appears to the Administrative Committee that such test will not be satisfied, the Administrative Committee shall take such steps as it deems necessary or appropriate to adjust the pre-tax contributions and designated Roth contributions made pursuant to Section 4.1 for all or a portion of the remainder of such Plan Year for the benefit of some or all of the Highly Compensated Employees to the extent necessary in order for the actual deferral percentage test to be satisfied. If, after the end of the Plan Year, the Administrative Committee determines that, notwithstanding any adjustments made pursuant to the preceding sentence, the actual deferral percentage test was not satisfied, the Administrative Committee shall calculate a total amount by which pre-tax contributions and designated Roth contributions must be reduced in order to satisfy such test in the manner prescribed by section 401(k)(8)(B) of the Code (the “excess contributions amount”). The amount of pre-tax contributions and designated Roth contributions to be reduced for each Participant who is a Highly Compensated Employee shall be determined by first reducing the pre-tax contributions and designated Roth contributions of each Participant whose actual dollar amount of pre-tax contributions and designated Roth contributions for such Plan Year is highest until such reduced dollar amount equals the next highest actual dollar amount of pre-tax contributions and designated Roth contributions made for such Plan Year on behalf of any Highly Compensated Employee or until the total reduction equals the excess contributions amount. If further reductions are necessary, then the pre-tax contributions and designated Roth contributions on behalf of each Participant who is a Highly Compensated Employee and whose actual dollar amount of pre-tax contributions and designated Roth contributions for such Plan Year is the highest (determined after the reduction described in the preceding sentence) shall be reduced in accordance with the preceding sentence. Such reductions shall continue to be made to the extent necessary so that the total reduction equals the excess contributions amount. The portion of a Participant’s pre-tax contributions and designated Roth contributions to be reduced in accordance with this Section 6.2(d)(1) shall be recharacterized as an after-tax contribution, and the Participant shall be notified of such recharacterization and the tax consequences thereof no later than 2½ months after the end of the Plan Year. The amount of a Participant’s pre-tax contributions and designated Roth contributions to be reduced in accordance with this Section shall be reduced by any excess deferrals previously distributed to such Participant pursuant to Section 6.1 in order to comply with the limitations of section 402(g) of the Code. The amount of any income or loss allocable to any such reductions shall be determined pursuant to the applicable Regulations promulgated by the U.S. Treasury Department. The Participant for whom any contributions are recharacterized as after-tax contributions pursuant to this paragraph shall designate the extent to which the contributions to be recharacterized contributions shall be pre-tax contributions or designated Roth contributions (but only up to the extent that such types of contributions were made by the Participant to the Plan for the Plan Year) and, in the event that any such designation is not made or is incomplete, the Participant’s pre-tax contributions shall be recharacterized up to the extent pre-tax contributions were made to the Plan for the Plan Year and, to the extent that the Participant’s excess contributions exceed such pre-tax contributions, the Participant’s designated Roth contributions made to the Plan for the Plan Year shall be recharacterized.
(2)    Adjustments to Comply with Actual Contribution Percentage Test. The Administrative Committee shall cause to be made such periodic computations as it shall deem necessary or appropriate to determine whether the average contribution percentage test will be satisfied during a Plan Year, and, if it appears to the Administrative Committee that such test will not be satisfied, the Administrative Committee shall take such steps as it deems necessary or appropriate to adjust the matching contributions and the after-tax contributions made pursuant to Section 4.2 and 5.1, respectively, for all or a portion of the remainder of such Plan Year on behalf of some or all of the Highly Compensated Employees to the extent necessary in order for the average contribution percentage test to be satisfied. If the Administrative Committee determines that, notwithstanding any adjustments made pursuant to the preceding sentence, the average contribution percentage test was or will not satisfied, the Administrative Committee shall, in its discretion, (1) allocate a qualified nonelective contribution pursuant to Section 6.2(e) or (2) reduce the matching contributions and after-tax contributions made on behalf of each Participant who is a Highly Compensated Employee and whose actual dollar amount of matching contributions and after-tax contributions for such Plan Year is the highest in the same manner described in subparagraph (1) of this paragraph to the extent necessary to comply with the average contribution percentage test. The reduction described in the preceding sentence shall be made first with respect to a Participant’s after-tax contributions in excess of six percent of Compensation, second with respect to any remaining after-tax contributions and any matching contributions attributable thereto, and third with respect to any other matching contributions. With respect to contributions to be so reduced, no later than 2½ months after the end of the Plan Year (or if correction by such date is administratively impracticable, no later than the last day of the subsequent Plan Year), the Administrative Committee shall cause to be distributed to each such Participant the amount of such reductions made with respect to vested matching contributions to which such Participant would be entitled under the Plan if such Participant had terminated service on the last day of the Plan Year for which such contributions are made (or on the date of the Participant’s actual termination of employment, if earlier) and with respect to after-tax contributions (plus any income and minus any loss allocable thereto), and any remaining amount of such reductions (plus any income and minus any loss allocable thereto) shall be forfeited. Any amounts forfeited pursuant to this paragraph shall be treated in the same manner as forfeitures described in Section 9.2(b). The amount of any such income or loss allocable to any such reduction to be so distributed or forfeited shall be determined pursuant to applicable Regulations promulgated by the U.S. Treasury Department.
(e)    Qualified Nonelective Contributions. Subject to the limitations set forth in Sections 6.3 and 6.4, and to the extent permitted by Regulations or other pronouncements of the Internal Revenue Service, for purposes of satisfying the actual contribution percentage test set forth in Section 6.2(b), the Employers may contribute for a Plan Year such amount, if any, as may be designated as a “qualified nonelective contribution” within the meaning of section 401(m)(4)(C) of the Code. Any such qualified nonelective contribution to the Plan must be contributed no later than the last day of the Plan Year immediately following the Plan Year to which it relates. Any such qualified nonelective contribution to the Plan shall be allocated to the Accounts of those Participants who are not Highly Compensated Employees for the Plan Year with respect to which such qualified nonelective contribution is made and who are actively employed by the contributing Employer on the last day of the Plan Year with respect to which such qualified nonelective contribution is made, beginning with the Participant with the lowest Compensation for such Plan Year and allocating the maximum amount that may be taken into account under Treasury Regulation §1.401(m)-2(a)(6)(v) (and that is permissible under Section 6.3) before allocating any portion of such qualified nonelective contribution to the Participant with the next lowest Compensation for the Plan Year.
Section 6.3.    Maximum Annual Additions under Section 415 of the Code. Notwithstanding any other provision of the Plan, the amounts allocated to the Account of each Participant for any limitation year shall be limited so that the aggregate annual additions for such year to the Participant’s Account and to the Participant’s accounts in all other defined contribution plans maintained by an employer shall not exceed the lesser of:
(i)
$57,000 (as adjusted pursuant to section 415(d) of the Code); and
(ii)
100% of the Participant’s compensation for such limitation year (or such other percentage of compensation set forth in section 415(c) of the Code).
The “annual additions” to a Participant’s Account and to the Participant’s account in any other defined contribution plan maintained by an employer is the sum for such limitation year of:
(a)    the amount of employer contributions (including pre-tax contributions and designated Roth contributions) allocated to the Participant’s account, excluding, however, (X) pre-tax contributions and designated Roth contributions that are “catch-up contributions” made pursuant to section 414(v) of the Code, (Y) excess deferrals that are distributed in accordance with section 402(g) of the Code and (Z) restorative payments (within the meaning of Treasury Regulation section 1.415(c)-1(b)(2)(ii)(C)),
(b)    the amount of forfeitures allocated to the Participant’s account,
(c)    the amount of contributions by the Participant to any such plan, but excluding any rollover contributions or loan repayments,
(d)     the amount allocated on behalf of the Participant to any individual medical benefit account (as defined in section 415(l) of the Code) or, if the Participant is a key employee within the meaning of section 419A(d)(3) of the Code, to any post-retirement medical benefits account established pursuant to section 419A(d)(1) of the Code, and
(e)    the amount of mandatory employee contributions within the meaning of section 411(c)(2)(C) of the Code by such Participant to a defined benefit plan, regardless of whether such plan is subject to the requirements of section 411 of the Code.
For purposes of this Section, the “limitation year” shall be the Plan Year, the term “compensation” shall have the meaning set forth in Treasury Regulation section 1.415(c)‑2(d)(4), the term “defined contribution plan” shall have the meaning set forth in Treasury Regulation section 1.415(c)-1(a)(2), and a Participant’s employer shall include entities that are members of the same controlled group (within the meaning of section 414(b) of the Code as modified by section 415(h) of the Code) or affiliated service group (within the meaning of section 414(m) of the Code) as the Participant’s employer or under common control (within the meaning of section 414(c) of the Code as modified by section 415(h) of the Code) with the Participant’s employer or such entities.
Section 6.4.    Other Limitations on Employer Contributions. The contributions of the Employers for a Plan Year shall not exceed the maximum amount for which a deduction is allowable to such Employers for federal income tax purposes for the tax year that coincides with the Plan Year.
Any contribution made by an Employer by reason of a good faith mistake of fact, or the portion of any contribution made by an Employer that exceeds the maximum amount for which a deduction is allowable to such Employer for federal income tax purposes by reason of a good faith mistake in determining the maximum allowable deduction, shall upon the request of such Employer be returned by the Trustee to the Employer. An Employer’s request and the return of any such contribution must be made within one year after such contribution was mistakenly made or after the deduction of such excess portion of such contribution was disallowed, as the case may be. The amount to be returned to an Employer pursuant to this paragraph shall be the excess of (i) the amount contributed over (ii) the amount that would have been contributed had there not been a mistake of fact or a mistake in determining the maximum allowable deduction. Earnings attributable to the mistaken contribution shall not be returned to the Employer, but losses attributable thereto shall reduce the amount to be so returned. If the return to the Employer of the amount attributable to the mistaken contribution would cause the balance of any Participant’s Account as of the date such amount is to be returned (determined as if such date coincided with the close of a Plan Year) to be reduced to less than what would have been the balance of such Account as of such date had the mistaken amount not been contributed, the amount to be returned to the Employer shall be limited so as to avoid such reduction.
ARTICLE 7    

TRUST AND INVESTMENT FUNDS
Section 7.1.    Trust. A Trust shall be created by the execution of a trust agreement between the Company or its delegate (acting on behalf of the Employers) and the Trustee. All contributions under the Plan shall be paid to the Trustee. The Trustee shall hold all monies and other property received by it and invest and reinvest the same, together with the income therefrom, on behalf of the Participants collectively in accordance with the provisions of the trust agreement. The Trustee shall make distributions from the Trust Fund at such time or times to such person or persons and in such amounts as the Administrative Committee directs in accordance with the Plan. The Trust may be a master trust, provided that the portion of the Trust attributable to the Plan shall be separately accounted for and all Plan assets shall be utilized exclusively for the Plan.
Section 7.2.    Investments. In General. The Investment Committee shall establish an investment policy for the Plan. The Investment Committee shall cause the Trustee to establish and maintain three or more separate investment funds exclusively for the collective investment and reinvestment as directed by Participants of amounts credited to their Accounts. Additional investment funds may be established as determined by the Investment Committee from time to time in its sole discretion. The Investment Committee, in its sole discretion, may appoint investment managers to provide services in connection with the investment funds established under the Plan.
(a)    L3Harris Stock Fund. In addition to the investment funds established at the direction of the Investment Committee pursuant to Section 7.2(a), the Trustee shall establish and maintain a L3Harris Stock Fund. The assets of the L3Harris Stock Fund shall be invested primarily in shares of L3Harris Stock. The assets of the L3Harris Stock Fund also may be invested in short-term liquid investments. Each Participant’s interest in the L3Harris Stock Fund shall be represented by units of participation, and each such unit shall represent a proportionate interest in all the assets of such fund. The Trustee is authorized to purchase shares of L3Harris Stock on the open market. Except as permitted by section 401(a)(35) of the Code, restrictions (either direct or indirect) or conditions will not be imposed on investment in the L3Harris Stock Fund if such restrictions or conditions are not imposed on investment in the other investment funds available under the Plan.
(b)    Self-Directed Brokerage Account. In addition to the investment funds established pursuant to Sections 7.2(a) and (b), a Participant may establish a self-directed brokerage account, subject to the terms and conditions set forth in this Plan and such other terms and conditions as deemed appropriate by the Administrative Committee or Investment Committee from time to time. In no event shall L3Harris Stock be a permitted investment in the self-directed brokerage account.
ARTICLE 8    

PARTICIPANT ACCOUNTS
AND INVESTMENT ELECTIONS
Section 8.1.    Participant Accounts. The Administrative Committee shall establish and maintain, or cause the Trustee or such other agent as the Administrative Committee may select to establish and maintain, a separate Account for each Participant. Such Account shall be solely for accounting purposes, and no segregation of assets of the Trust Fund among the separate Accounts shall be required. Each Account shall consist of the following subaccounts (and such other subaccounts as may be established by or at the direction of the Administrative Committee from time to time):
(a)    a Pre-Tax Account;
(b)    a Designated Roth Account;
(c)    a Matching Account;
(d)    a Profit Sharing Account;
(e)    an After-Tax Account;
(f)    a Rollover Account;
(g)    a Savings Account;
(h)    a QNEC Account;
(i)    a Fringe Account;
(j)    a Prior Company Contribution Account;
(k)    a Money Purchase Pension Account;
(l)    an Other Employer Contribution Account; and
(m)    a Designated Roth Conversion Account.
The Administrative Committee shall establish and maintain, or cause the Trustee or such other agent as the Administrative Committee may select to establish and maintain, investment subaccounts with respect to each investment fund described in Section 7.2 to which amounts contributed under the Plan shall be credited according to each Participant’s investment elections pursuant to Section 8.2. All such investment subaccounts shall be solely for accounting purposes, and there shall be no segregation of assets within the investment funds among the separate investment subaccounts.
Section 8.2.    Investment Elections. Initial Election. Each Participant shall make, in the manner prescribed by the Administrative Committee, an investment election that shall apply to the investment of contributions made for a Participant’s benefit and any earnings on such contributions, subject to such limitations set forth herein or imposed by the Administrative Committee from time to time. The Administrative Committee in its discretion shall determine whether a single investment election shall apply to a Participant’s entire Account or whether a Participant may make separate investment elections applicable to various sources of contributions under the Plan. A Participant’s election shall specify that such contributions be invested either (i) wholly in one of the funds maintained by the Trustee pursuant to Section 7.2, or (ii) divided among two or more of such funds in increments of 1% (or such larger percentage established by the Administrative Committee from time to time). Unless otherwise determined by the Investment Committee, during any period in which no direction as to the investment of a Participant’s Account is on file with the Administrative Committee (a “Default Period”), contributions made for a Participant’s benefit shall be invested in an age-appropriate LifeCycle Fund (or, if the Employers have no record of the Participant’s age, in the LifeCycle Retirement Fund until such Participant’s age can be determined, at which time all such contributions made for such Participant’s benefit during the Default Period shall be transferred to an age-appropriate LifeCycle Fund). A Participant may enroll in a managed account program under which investment professionals will monitor the Participant’s Account and manage all investment elections and transactions.
(a)    Change of Election. A Participant may change his or her investment election as of any Valuation Date, subject to such limitations as the Administrative Committee from time to time may impose (including restrictions on investment election changes that apply solely to a particular investment fund or option). A Participant’s investment election change shall be limited to the investment funds or options then maintained by the Trustee pursuant to Section 7.2. A change in investment election made pursuant to this Section shall apply to a Participant’s existing Account or contributions made for the benefit of the Participant after such change, or both. Any such change shall specify that such Account or contributions be invested either (i) wholly in one of the funds or options maintained by the Trustee pursuant to Section 7.2 or (ii) divided among two or more of such funds or options in increments of 1% (or such larger percentage established by the Administrative Committee from time to time) or, solely with respect to a Participant’s existing Account, in fixed dollar amounts. A Participant’s change of investment election must be made in the manner and subject to the rules prescribed by the Administrative Committee, including rules regarding the time by which such an election must be made in order to be effective for a particular Valuation Date. In the absence of an affirmative election by a Participant to the contrary, the Administrative Committee may deem a Participant to have made an investment election change (e.g., an election to liquidate a fund investment) in accordance with procedures established by the Administrative Committee and communicated to Participants.
(b)    Special Rules Concerning the L3Harris Stock Fund. A Participant may not elect to invest in the L3Harris Stock Fund more than 20% of the aggregate contributions newly made for his or her benefit, and a Participant may not transfer any portion of the Participant’s existing Account from investment in funds other than the L3Harris Stock Fund to investment in the L3Harris Stock Fund if following such transfer more than 20% of the Participant’s existing Account would be invested in the L3Harris Stock Fund. Notwithstanding the foregoing, a Participant (other than a Participant who participates in the Plan pursuant to Appendix 3 or 6 hereto) may elect to invest in the L3Harris Stock Fund up to 100% of the matching contributions newly made for his or her benefit pursuant to Section 4.2.
(c)    Special Rules Concerning the Self-Directed Brokerage Account. Notwithstanding any provision of the Plan to the contrary, (i) a Participant may not elect to invest in the self-directed brokerage account more than 95% of the aggregate contributions newly made for his or her benefit and (ii) a Participant may not transfer any portion of the Participant’s existing Account from investment in funds other than the self-directed brokerage account to investment in the self-directed brokerage account if following such transfer more than 95% of the Participant’s existing Account would be invested in the self-directed brokerage account. Any transfer to the self-directed brokerage account shall be in an amount that is no less than $500 (for the avoidance of doubt, such $500 minimum investment shall not apply to new contributions directly invested in the self-directed brokerage account). Notwithstanding the foregoing, new contributions may be directly invested in the self-directed brokerage account only following the Participant’s establishment of the account and transfer to the account from other investment funds of an investment of no less than $500.
(d)    ERISA Section 404(c) Plan. The Plan is intended to meet the requirements of section 404(c) of ERISA and the Regulations thereunder, and the provisions of the Plan shall be construed and interpreted to meet such requirements.
Section 8.3.    Valuation of Funds and Plan Accounts. The value of an investment fund as of any Valuation Date shall be the market value of all assets (including any uninvested cash) held by the fund on such Valuation Date as determined by the Trustee, reduced by the amount of any accrued liabilities of the fund on such Valuation Date. The Trustee’s determination of market value shall be binding and conclusive upon all parties. The value of a Participant’s Account as of any Valuation Date shall be the sum of the values of his or her investment subaccounts in each of the subaccounts described in Section 8.1.
Section 8.4.    Valuation of Units within the L3Harris Stock Fund. As soon as practicable after the close of business on each Valuation Date, the Trustee shall determine the value of the L3Harris Stock Fund on such Valuation Date in the manner prescribed in Section 8.3, and the value so determined shall be divided by the total number of L3Harris Stock Fund participating units allocated to the investment subaccounts of Participants. The resulting quotient shall be the value of a participating unit in the L3Harris Stock Fund as of such Valuation Date and shall constitute the “price” of a participating unit as of such Valuation Date. Participating units shall be credited, at the price so determined, to the investment subaccounts of Participants with respect to contributions or transfers to such investment subaccounts on their behalf on such Valuation Date. The price of such participating units shall be debited to the investment subaccounts of Participants with respect to divestitures from such investment subaccounts on their behalf on such Valuation Date. The value of all participating units credited to Participants’ investment subaccounts shall be redetermined in a similar manner as of each Valuation Date.
Section 8.5.    Allocation of Contributions Other than Profit Sharing Contributions. Any pre-tax contribution, designated Roth contribution, matching contribution, , fringe contribution, other employer contribution, after-tax contribution, rollover contribution or qualified nonelective contribution shall be allocated to the Pre-Tax Account, Designated Roth Account, Matching Account, Fringe Account, Other Employer Contribution Account, After-Tax Account, Rollover Account or QNEC Account, as applicable, of the Participant for whom such contribution is made on or as soon as practicable after the Valuation Date coinciding with or next following the date on which such contribution is delivered to the Trustee. Notwithstanding any provision of this Article 8 to the contrary, any Designated Roth Account or Designated Roth Conversion Account shall be maintained in a manner that satisfies the separate accounting requirement, and any Regulations or other requirements promulgated, under section 402A of the Code.
Section 8.6.    Allocation of Profit Sharing Contributions. Any profit sharing contribution made by the Employers pursuant to Section 4.3 for a Plan Year shall be allocated among the Eligible Profit Sharing Participants in the proportion that the Compensation of each Eligible Profit Sharing Participant for such Plan Year bears to the total Compensation of all Eligible Profit Sharing Participants for such Plan Year; provided, however, that in the Plan Year during which a Participant becomes an Eligible Profit Sharing Participant, only Compensation received on or after the date he or she becomes an Eligible Profit Sharing Participant shall be taken into account for purposes of this Section 8.6. Any such contribution shall be allocated to the Profit Sharing Accounts of Eligible Profit Sharing Participants as of the last day of the Plan Year but credited as of the Valuation Date coinciding with or next following the date on which the profit sharing contribution is delivered to the Trustee.
Section 8.7.    Correction of Error. If it comes to the attention of the Administrative Committee that an error has been made in any of the allocations prescribed by this Article 8, appropriate adjustment shall be made to the Accounts of all Participants and Beneficiaries that are affected by such error, except that, unless otherwise required by law, no adjustment need be made with respect to any Participant or Beneficiary whose Account has been distributed in full prior to the discovery of such error.
ARTICLE 9    

WITHDRAWALS AND DISTRIBUTIONS
Section 9.1.    Withdrawals Prior to Termination of Employment. Withdrawals from After-Tax Account and Savings Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her After-Tax Account or Savings Account; provided, however, that (i) only one such withdrawal may be made in any three-month period; (ii) such withdrawal shall be in the form of a lump sum payment; (iii) a Participant may not withdraw any amount from his or her Savings Account until the entire balance of his or her After-Tax Account has been withdrawn; and (iv) a Participant’s election under the Plan to make after-tax contributions, if any, shall be suspended, and no after-tax contributions or matching contributions attributable to after-tax contributions shall be allocated to the Participant’s Account, for a period of three months after the date of such withdrawal from the Participant’s After-Tax Account. At the expiration of such three-month suspension period, unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, after-tax contributions to the Plan by the Participant automatically shall resume at the same rate as in effect immediately prior to such suspension.
(a)    Hardship Withdrawals. Subject to the provisions of this subsection, a Participant who has taken all loans currently available to the Participant under Article 10 and under all other plans of the Employers and Affiliates, has taken all withdrawals (other than hardship withdrawals) currently available to the Participant under this Section 9.1, under Section 9.11 or otherwise under this Plan and under all other plans of deferred compensation, whether qualified or nonqualified, of the Employers and Affiliates and has incurred a financial hardship may withdraw as of any Valuation Date all or any portion of the combined balance of his or her (i) Pre-Tax Account, (ii) Designated Roth Account, (iii) vested Profit Sharing Account and (iv) Fringe Account.
(1)    The amount of such withdrawal shall not exceed the amount needed to satisfy the financial hardship, including amounts necessary to pay any federal, state or local income taxes or any penalties reasonably anticipated to result from the hardship withdrawal. The determination of the existence of a financial hardship and the amount required to be distributed to satisfy such hardship shall be made in a non-discriminatory and objective manner. A financial hardship shall be deemed to exist if and only if the Participant certifies (in writing or by an electronic medium, as determined by the Administrative Committee) that (A) the financial need is on account of one or more of the following and (B) the Participant has insufficient cash or other liquid assets reasonably available to satisfy the financial need:
(i)
expenses for (or necessary to obtain) medical care that would be deductible under section 213(d) of the Code determined without regard to the limitations in section 213(a) (relating to the applicable percentage of adjusted gross income and the recipients of the medical care) provided that, if the recipient of the medical care is not listed in section 213(a), the recipient is a primary Beneficiary;
(ii)
costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);
(iii)
payment of tuition, room and board and related educational fees for up to the next 12 months of post-secondary education for the Participant, or the Participant’s Spouse, children, dependents (as defined in section 152 of the Code, and without regard to sections 152(b)(1), (b)(2) and (d)(1)(B)) or primary Beneficiary;
(iv)
payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure of the mortgage on that residence;
(v)
payments for burial or funeral expenses for the Participant’s deceased parent, Spouse, children, dependents (as defined in section 152 of the Code, and without regard to section 152(d)(1)(B)) or primary Beneficiary; and
(vi)
expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income, and effective January 1, 2019, determined without regard to section 165(h)(5)).
(2)    The Participant shall be required to submit any supporting documentation as may be requested by the Administrative Committee.
(3)    Any hardship withdrawal pursuant to this Section 9.1(b) shall be in the form of a lump sum payment.
(4)    A Participant may receive a hardship withdrawal pursuant to this Section 9.1(b) no more than once during any six-month period.
(5)    Amounts distributed to a Participant pursuant to this Section 9.1(b) shall be withdrawn first from the Participant’s Pre-Tax Account, second from the vested portion of the Participant’s Profit Sharing Account, third from the Participant’s Fringe Account and last from the Participant’s Designated Roth Account, and shall not be taken from the next source until the previous source has been depleted.
(6)    The contribution suspension for any Participant whose Plan contributions were suspended due to the Participant’s hardship withdrawal prior to January 1, 2020 shall cease to apply, effective as of January 1, 2020 (or as soon as practicable thereafter). Unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, following the end of such suspension, contributions to the Plan by the Participant automatically shall resume in the same form and at the same rate as in effect immediately prior to such suspension.
(b)    Withdrawals On or After Age 59½. As of any Valuation Date, a Participant who has attained age 59½ may withdraw all or any portion of his or her vested Account. Notwithstanding the foregoing, in no event shall a Participant’s Money Purchase Pension Account be withdrawn prior to the Participant’s attainment of age 62 and if the Participant is married, the Participant’s Spouse must consent in writing (or by such other method permitted by the Internal Revenue Service) to the withdrawal of the Participant’s Money Purchase Pension Account pursuant to this Section 9.1(c) and such consent must be witnessed by a notary public. Any withdrawal pursuant to this Section 9.1(c) shall be made at the Participant’s election in any form of payment provided under Section 9.3(c).
(c)    Withdrawals from Rollover Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her Rollover Account. Any withdrawal pursuant to this Section 9.1(d) shall be in the form of a lump sum payment.
(d)    Military Leave Withdrawals. As of any Valuation Date, a Participant who is performing service in the uniformed services (as described in Section 3401(h)(2)(A) of the Code) while on active duty for more than 30 days may withdraw all or any portion of his or her Pre-Tax Account and Designated Roth Account. Any withdrawal pursuant to this Section 9.1(e) shall be in the form of a lump sum payment. A Participant who receives such a withdrawal shall be prohibited from making any pre-tax contributions or designated Roth contributions under Section 4.1 or after-tax contributions under Section 5.1 until the first payroll period commencing coincident with or next following the date which is six months after the date such withdrawal was made (or such earlier date as may be permitted by applicable Regulations). Unless a Participant elects otherwise at the time and in the manner prescribed by the Administrative Committee, following the period of suspension of the Participant’s contributions prescribed by this Section 9.1(e), contributions to the Plan by the Participant automatically shall resume in the same form and at the same rate as in effect immediately prior to such suspension.
(e)    Qualified Reservist Distributions. As of any Valuation Date, a Participant who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period may withdraw all or any portion of his or her Pre-Tax Account and Designated Roth Account; provided that the distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period. Any withdrawal pursuant to this Section 9.1(f) shall be in the form of a lump sum payment.
(f)    Withdrawals from Prior Company Contribution Account. As of any Valuation Date, a Participant may withdraw all or any portion of his or her Prior Company Contribution Account. Any withdrawal pursuant to this Section 9.1(g) shall be made at the Participant’s election in any form of payment provided under Section 9.3(c).
(g)    Conditions Applicable to All Withdrawals. A Participant’s request for a withdrawal pursuant to this Section 9.1 shall be made at such time and in such manner as may be prescribed by the Administrative Committee. The amount available for withdrawal pursuant to this Section 9.1 shall be reduced by the amount of any loan made pursuant to Article 10 that is outstanding at the time of withdrawal, and no withdrawal pursuant to this Section 9.1 shall be permitted to the extent that such withdrawal would cause the aggregate amount of such outstanding loan to exceed the limits described in Section 10.1. The amount available for withdrawal under this Section 9.1 is subject to reduction in the sole discretion of the Administrative Committee to take into account the investment experience of the Trust Fund between the date of the withdrawal election and the date of the withdrawal.
(h)    Repayment of Withdrawal from Exelis Retirement Savings Plan. If a Participant made a withdrawal under the Exelis Retirement Savings Plan prior to September 30, 1996, as a result of which he or she forfeited all or a portion of the value of the Participant’s “Company Contribution Account” under such plan at such time, he or she shall be permitted to repay in full the amounts previously withdrawn from the Participant’s “Company Contribution Account” by providing to the Administrative Committee prior written notice on a form approved by the Administrative Committee for such purpose. Such repayment may be made at any time provided the Participant is then eligible for the Plan and further provided the Participant has not incurred a Break in Service of five consecutive years. Such repayment amounts shall be deposited into the Participant’s Prior Company Contribution Account.
Section 9.2.    Distribution of Account upon Termination of Employment. Termination of Employment under Circumstances Entitling Participant to Full Distribution of Account. Effective with respect to terminations occurring on or after January 1, 2020, if a Participant’s employment with all Employers and Affiliates terminates under any of the following circumstances, then the Participant or his or her designated Beneficiary, as the case may be, shall be entitled to receive the Participant’s entire Account:
(1)    on or after the date the Participant attains age 55;
(2)    on account of the Participant’s death;
(3)    on account of the Participant’s Disability; or
(4)    on or after the date the Participant is credited with at least three Years of Service (or such other number of Years of Service required for full vesting as set forth in an Appendix or Schedule hereto).
For purposes of this Section 9.2(a), a Participant who dies while performing Qualified Military Service with respect to an Employer shall be treated as if the Participant had resumed employment in accordance with his or her reemployment rights under chapter 43 of title 38, United States Code, on the day preceding the Participant’s death and then terminated employment on account of the Participant’s death.
(b)    Termination of Employment under Circumstances Resulting in Partial Forfeiture of the Participant’s Account. If a Participant’s employment with all Employers and Affiliates terminates under circumstances other than those set forth in Section 9.2(a), then the Participant shall be entitled to receive (i) the entire balance of the Participant’s Pre-Tax Account, Designated Roth Account, After-Tax Account, Rollover Account, Savings Account, QNEC Account, Fringe Account, Prior Company Contribution Account, Designated Roth Conversion Account and Money Purchase Pension Account and (ii) a percentage of the balance of the Participant’s Matching Account and Profit Sharing Account, which percentage shall be determined as follows by reference to the Participant’s Years of Service as of the date of the Participant’s termination of employment:
Participant with an Hour of Service on or after January 1, 2020
Years of Service
Percentage
Less than 1
0%
At least 1 but less than 2
25%
At least 2 but less than 3
50%
3 or more
100%

Participant without an Hour of Service on or after January 1, 2020
Years of Service
Percentage
Less than 1
0%
At least 1 but less than 2
25%
At least 2 but less than 3
50%
At least 3 but less than 4
75%
4 or more
100%
Notwithstanding the foregoing, (i) the portion of a Participant’s Account attributable to cash dividends in respect of the L3Harris Stock Fund payable on or after May 20, 2010 shall be 100% nonforfeitable; (ii) the Account of a Participant who was an employee of Exelis Inc. or a subsidiary thereof on or before December 31, 2015, who was not subject to a collective bargaining agreement and who did not participate in the Exelis Retirement Savings Plan pursuant to Appendix 6 thereto shall be 100% nonforfeitable; and (iii) if an individual participates in this Plan pursuant to an Appendix hereto, the vesting schedule applicable to such Participant shall be the schedule set forth in such Appendix, to the extent inconsistent with this Section 9.2(b).
In the event of the sale or disposition of a business or the sale of substantially all of the assets of a trade or business, the Account of a Participant affected by such sale may become 100% nonforfeitable, irrespective of the Participant’s Years of Service, if expressly provided in the documents effecting the transaction or otherwise authorized by the Company or the Administrative Committee.
Any portion of a Participant’s Matching Account and Profit Sharing Account which the Participant is not entitled to receive pursuant to this Section 9.2(b) shall be charged to such accounts and forfeited as of the earlier of (i) the date the Participant’s vested Account is distributed and (ii) the date the Participant incurs a Break in Service of five consecutive years. If a Participant who receives a distribution of the Participant’s vested Account is reemployed prior to incurring a Break in Service of five consecutive years, then such forfeiture shall be reinstated as prescribed in Section 11.2(b). Amounts forfeited by a Participant pursuant to this Section shall be used (i) first, to restore the Accounts of recently located Participants previously employed by such Participant’s Employer (or the recently located Beneficiaries of Participants previously employed by such Participant’s Employer) whose Accounts were forfeited as described in Section 9.8, (ii) next, to restore the Accounts of Participants who are reemployed by such Participant’s Employer as described in Section 11.2(b), (iii) next, to fund any matching contributions, profit sharing contributions, fringe contributions or other employer contributions to be allocated to Participants who are reemployed by such Participant’s Employer after a period of Qualified Military Service as described in Section 11.5 and (iv) finally, to reduce future contributions to the Plan (including qualified nonelective contributions, qualified matching contributions and other corrective contributions, and earnings thereon) by such Participant’s Employer.
Section 9.3.    Time and Form of Distribution upon Termination of Employment. In General. A Participant shall be entitled to a distribution of his or her vested Account upon the Participant’s termination of employment with all Employers and Affiliates.
(a)    Time of Distribution. A Participant shall be entitled to a distribution of his or her vested Account as soon as administratively practicable after the date of the Participant’s termination of employment, or, subject to Section 9.4, may defer distribution to a later date, in which case distribution shall occur as soon as administratively practicable after the date of the Participant’s distribution election; provided, however, that:
(1)    subject to Section 9.4, a Participant’s Account shall not be distributed prior to the Participant’s 65th birthday unless the Participant has consented in writing to such distribution;
(2)    if a Participant dies before the commencement of distribution of his or her Account, distributions paid or commencing after the Participant’s death shall be completed no later than December 31 of the calendar year which contains the fifth anniversary of the Participant’s death, except that (i) if the Participant’s Beneficiary is the Participant’s Spouse, distribution may be deferred until December 31 of the calendar year in which the Participant would have attained age 70½ and (ii) if the Participant’s Beneficiary is a person other than the Participant’s Spouse and distributions commence on or before December 31 of the calendar year immediately following the calendar year in which the Participant died, such distributions may be made over a period not longer than the life expectancy of such Beneficiary; provided, however, that calendar year 2009 shall be disregarded for purposes of this Section 9.3(b)(2) to the extent permitted by section 401(a)(9)(H) of the Code;
(3)    if at the time of a Participant’s death, distribution of his or her Account has commenced, the remaining portion of the Participant’s Account shall be paid at least as rapidly as under the method of distribution being used prior to the Participant’s death, as determined pursuant to Regulation section 1.401(a)(9)‑2;
(4)    unless a Participant files a written election to defer distribution, distribution shall be made to a Participant by payment in a single lump sum no later than 60 days after the end of the Plan Year which contains the latest of (i) the date of the Participant’s termination of employment, (ii) the tenth anniversary of the date the Participant commenced participation in the Plan and (iii) the Participant’s 65th birthday; provided, however, that if the Participant does not elect a distribution prior to the latest to occur of the events listed above, the Participant shall be deemed to have elected to defer such distribution until a date no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70½; and
(5)    with respect to a Participant who continues in employment after attaining age 70½, distribution of the Participant’s Account shall commence no later than the Participant’s required beginning date. For purposes of this paragraph, the term “required beginning date” shall mean (A) with respect to a Participant who is a 5%-owner (within the meaning of section 416(i) of the Code), April 1 of the calendar year following the calendar year in which the Participant attains age 70½ and (B) with respect to any other Participant, April 1 of the calendar year following the calendar year in which the Participant terminates employment with all Employers and Affiliates. Distributions made under this paragraph shall be made in accordance with Section 9.3(d).
(b)    Form of Distribution. Except as otherwise provided in Appendix 1 hereto, any distribution to which a Participant (or in the event of the Participant’s death, his or her Beneficiary) becomes entitled upon the Participant’s termination of employment shall be distributed by the Trustee by whichever of the following methods the Participant (or Beneficiary) elects:
(1)    an amount not greater than the vested balance of the Participant’s Account, provided, however, that only one such payment may be made in any single month;
(2)    substantially equal periodic installment payments, payable not less frequently than annually and not more frequently than monthly, over a period to be elected by the Participant (or Beneficiary); provided, however, that such period shall not exceed the life expectancy of the Participant or, to the extent permitted by Regulation section 1.401(a)(9)-5, the joint and last survivor expectancy of the Participant and the Participant’s Beneficiary; or
(3)    a combination of (1) and (2).
In accordance with procedures established by the Administrative Committee, a Participant (or Beneficiary) may change his or her election with respect to the form of distribution, or elect to cancel installment payments, at any time before or after distribution of benefits commences.
(c)    Required Minimum Distributions. Notwithstanding any provision of the Plan to the contrary, all distributions under the Plan will be made in accordance with the minimum distribution requirements of section 401(a)(9) of the Code and the final Regulations promulgated thereunder.
Section 9.4.    Payment of Small Account Balances. Notwithstanding any provision of Section 9.3 to the contrary and subject to Section 9.6, if a Participant’s vested Account does not exceed $5,000, then such Account shall be distributed as soon as practicable after the Participant’s termination of employment in the form of a lump sum payment to the Participant.
In the event that a Participant is subject to the immediately preceding paragraph, has a vested Account that exceeds $1,000 and fails to make an affirmative election to either receive the lump sum payment directly in cash or have it directly rolled over pursuant to the provisions of Section 9.6 within such election period as shall be prescribed by the Administrative Committee, the Administrative Committee shall direct the Trustee to transfer such lump sum payment in a direct rollover to an individual retirement plan (within the meaning of section 7701(c)(37) of the Code) selected by the Administrative Committee (an “Automatic Rollover”). The Automatic Rollover provisions of this paragraph shall not apply to a distribution to a Participant who has attained age 62. The provisions of this paragraph are intended to comply with the requirements of section 401(a)(30) of the Code and shall be interpreted consistent therewith.
Section 9.5.    Medium and Order of Withdrawal or Distribution. Medium of Withdrawal or Distribution. All withdrawals and distributions under the Plan shall be made in cash; provided, however, that a Participant or Beneficiary may elect, in accordance with procedures established by the Administrative Committee, to receive the vested portion of his or her Account that is invested in the L3Harris Stock Fund, if any, in shares of L3Harris Stock (with fractional shares distributed in cash).
(a)    Order of Withdrawal or Distribution. To the extent not otherwise set forth in Section 9.1, any withdrawal or distribution under the Plan shall be charged against a Participant’s contribution and investment subaccounts in the order determined by the Administrative Committee; provided, however, that in order to maximize the tax benefits associated with participation in the Plan, any such withdrawal or distribution first shall be charged against the Participant’s After-Tax Account. Amounts invested in a Participant’s self-directed brokerage account are not available as a source of withdrawal or distribution; provided, however, that a Participant may reallocate his or her balance in the self-directed brokerage account to the other investment options under the Plan as provided in Section 8.2 to permit such amounts to be available for withdrawal or distribution.
Section 9.6.    Direct Rollover Option. In the case of a distribution that is an “eligible rollover distribution” within the meaning of section 402(c)(4) of the Code, a Participant, a Beneficiary or a Spouse or former Spouse who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, may elect that all or any portion of such distribution to which he or she is entitled shall be directly transferred from the Plan to an Eligible Retirement Plan. Notwithstanding the foregoing, (i) any portion of an eligible rollover distribution that consists of after-tax contributions may be transferred only to (X) an individual retirement account or annuity described in section 408(a) or (b) of the Code or (Y) a qualified plan described in section 401(a) or 403(a) of the Code or an annuity contract described in section 403(b) of the Code that agrees to account separately for amounts so transferred; (ii) a Participant’s Designated Roth Account or Designated Roth Conversion Account may be transferred only to another designated Roth contributions account under an applicable retirement plan described in section 402A(e)(1) of the Code or to a Roth IRA described in section 408A of the Code, and only to the extent the rollover is permitted by the rules of section 402(c)(2) of the Code; and (iii) if the distributee is a nonspouse Beneficiary, the eligible rollover distribution may be transferred only to an individual retirement account or annuity described in section 408(a) or (b) of the Code and only if such account or annuity has been established for the purpose of receiving such distribution on behalf of the nonspouse Beneficiary and will be treated as an inherited individual retirement account or annuity pursuant to the provisions of section 402(c)(11) of the Code.
Section 9.7.    Designation of Beneficiary. In General. Each Participant shall have the right to designate a Beneficiary or Beneficiaries (who may be designated contingently or successively and that may be an entity other than a natural person) to receive any distribution to be made under the Plan upon the death of such Participant or, in the case of a Participant who dies after his or her termination of employment but prior to the distribution of the entire amount to which he or she is entitled under the Plan, any undistributed balance to which such Participant would have been entitled. No such designation of a Beneficiary other than a Participant’s Spouse shall be effective if the Participant was married through the one-year period ending on the date of his or her death unless such designation was consented to in writing (or by such other method permitted by the Internal Revenue Service) at the time of such designation by the person who was the Participant’s Spouse during such period, acknowledging the effect of such consent and witnessed by a notary public or, prior to October 1, 1993, a Plan representative, or it is established to the satisfaction of the Administrative Committee that such consent could not be obtained because the Participant’s Spouse could not be located or because of the existence of other circumstances as the Secretary of the Treasury may prescribe as excusing the requirement of such consent. Subject to the immediately preceding sentence, a Participant may from time to time, without the consent of any Beneficiary, change or cancel any such designation. Such designation and each change thereof shall be made in the manner prescribed by the Administrative Committee and shall be filed with the Administrative Committee. If (i) no Beneficiary has been named by a deceased Participant, (ii) a Beneficiary designation is not effective pursuant to the second sentence of this section or (iii) all Beneficiaries designated by a Participant have predeceased the Participant, then any undistributed Account of the deceased Participant shall be distributed by the Trustee (a) to the surviving Spouse of such deceased Participant, if any, (b) if there is no surviving Spouse, to the then living descendants, if any, of the deceased Participant, per stirpes, or (c) if there is no surviving Spouse and there are no living descendants, to the estate of such deceased Participant. The divorce of a Participant shall be deemed to revoke any prior designation of the Participant’s former Spouse as a Beneficiary if written evidence of such divorce shall be received by the Administrative Committee before distribution of the Participant’s Account has been made in accordance with such designation.
(a)    Successor Beneficiaries. A Beneficiary who has been designated in accordance with Section 9.7(a) may name a successor beneficiary or beneficiaries in the manner prescribed by the Administrative Committee. Unless otherwise set forth in the applicable form pursuant to which a Participant designates a Beneficiary or the instructions thereto, if such Beneficiary dies after the Participant and before distribution of the entire amount of the Participant’s benefit under the Plan in which the Beneficiary has an interest, then any remaining amount shall be distributed, as soon as practicable after the death of such Beneficiary, in the form of a lump sum payment to the successor beneficiary or beneficiaries or, if there is no such successor beneficiary, to the estate of such deceased Beneficiary.
Section 9.8.    Missing Persons. If following the date on which pursuant to Section 9.3(b) or 9.4 a Participant’s Account may be distributed without the Participant’s consent, the Administrative Committee in the exercise of reasonable diligence has been unable to locate the person or persons entitled to the Participant’s Account, then the Participant’s Account shall be forfeited; provided, however, that to the extent required by law the Plan shall reinstate and pay to such person or persons the amount so forfeited upon a claim for such amount made by such person or persons. The amount to be so reinstated shall be obtained from the total amount that shall have been forfeited under the Plan during the Plan Year that the claim for such forfeited benefit is made, and shall not include any earnings or losses from the date of the forfeiture under this Section. If the amount to be reinstated exceeds the amount of such forfeitures, the Employer in respect of whose Eligible Employee the claim for forfeited benefit is made shall make a contribution in an amount equal to such excess. To the extent the forfeitures under this Section exceed any claims for forfeited benefits made pursuant to this Section, such excess shall be utilized (i) first, to restore the Accounts as described in Section 11.2(b) of Participants who are reemployed by the Employer in respect of whose Eligible Employee experienced the forfeiture hereunder, (ii) next, to fund any matching contributions, profit sharing contributions, fringe contributions or other employer contributions to be allocated to Participants who are reemployed by such Employer after a period of Qualified Military Service as described in Section 11.5 and (iii) finally, to reduce future contributions to the Plan by such Employer.
Section 9.9.    Distributions to Minor and Disabled Distributees. Any distribution that is payable to a distributee who is a minor or to a distributee who has been legally determined to be unable to manage his or her affairs by reason of illness or mental incompetency may be made to, or for the benefit of, any such distributee at such time consistent with the provisions of this Plan and in such of the following ways as the legal representative of such distributee shall direct: (a) directly to any such minor distributee if, in the opinion of such legal representative, he or she is able to manage his or her affairs, (b) to such legal representative, (c) to a custodian under a Uniform Gifts to Minors Act for any such minor distributee, or (d) as otherwise directed by such legal representative. Neither the Administrative Committee nor the Trustee shall be required to oversee the application by any third party other than the legal representative of a distributee of any distribution made to or for the benefit of such distributee pursuant to this Section, and distributions made pursuant to this Section 9.9 shall operate as a complete discharge of the Plan, Trust, Trustee, Employers, Administrative Committee and other Plan fiduciaries with respect to such amounts.
Section 9.10.    Payment of Group Welfare Program Premiums. The Administrative Committee may, in its sole discretion, permit a Participant who (i) is eligible to be included in any contributory group welfare program maintained or sponsored by an Employer, (ii) elects to be covered under such contributory group welfare program and (iii) is receiving benefits under the Plan in monthly installments to direct that a specified portion of the installment payments be withheld and paid by the Trustee on the Participant’s behalf to the Employer as the Participant’s contribution under such contributory group welfare program. Such direction by a Participant, if permitted by the Administrative Committee, shall be made at the time and in the manner prescribed by the Administrative Committee. Any such direction may be revoked by a Participant upon at least 15 days’ prior written notice to the Administrative Committee (or such other period of prior written notice acceptable to the Administrative Committee). Any withholding and payment of welfare program costs on behalf of a Participant shall be made in accordance with Treasury Regulation section 1.401(a)-13.
Section 9.11.    Dividends in Respect of the L3Harris Stock Fund. Dividends in respect of the L3Harris Stock Fund, if any, shall be allocated to the Accounts of Participants and Beneficiaries invested in the L3Harris Stock Fund, based upon their proportionate share of the L3Harris Stock Fund as of such date as may be determined by the Administrative Committee on or before each dividend record date. Cash dividends shall be reinvested in the L3Harris Stock Fund unless the Participant or Beneficiary elects, at the time and in the manner prescribed by the Administrative Committee, to receive a cash distribution in an amount equal to such dividend. Any such cash distribution shall be made at the time determined by the Administrative Committee not later than 90 days after the end of the Plan Year in which the dividend was paid. Dividends in respect of the L3Harris Stock Fund in a form other than cash shall be invested in the L3Harris Stock Fund.
ARTICLE 10    

LOANS
Section 10.1.    Making of Loans. Subject to the provisions of this Article 10, the Administrative Committee shall establish a loan program whereby any Participant who is an Employee may request, by such method prescribed by the Administrative Committee, to borrow funds from the Participant’s Pre-Tax Account, Designated Roth Account, After-Tax Account, Savings Account, Rollover Account and QNEC Account, and which loan program hereby is incorporated into this Plan by reference. The principal balance of such loan, when aggregated with the outstanding balances of all other loans of the Participant from plans maintained by the Employers and Affiliates, shall not exceed the least of:
(a)    $50,000, reduced by the excess, if any, of (x) the highest outstanding loan balance of the Participant under all plans maintained by the Employers and Affiliates during the period beginning one year and one day prior to the date on which such loan is made and ending on the day prior to the date on which such loan is made, over (y) the outstanding loan balance from all such plans on the date on which such loan is made;
(b)    fifty percent (50%) of the vested portion of the Participant’s Account as of the Valuation Date coinciding with or immediately preceding the date on which the loan is made; and
(c)    the aggregate value of the Participant’s Pre-Tax Account, Designated Roth Account, After-Tax Account, Savings Account, Rollover Account and QNEC Account as of the Valuation Date coinciding with or immediately preceding the date on which the loan is made.
Section 10.2.    Restrictions. An application for a loan shall be made at the time and in the manner prescribed by the Administrative Committee. The action of the Administrative Committee or its delegate in approving or disapproving a request for a loan shall be final. Any loan under the Plan shall be subject to the terms, conditions and restrictions set forth in the loan program established by the Administrative Committee.
Section 10.3.    Default. If any loan or portion of a loan made to a Participant under the Plan, together with the accrued interest thereon, is in default, the Trustee, upon direction from the Administrative Committee, shall take appropriate steps to collect the outstanding balance of the loan and to foreclose on the security; provided, however, that the Trustee shall not levy against any portion of the Participant’s Account until such time as a distribution from such Account otherwise could be made under the Plan. Subject to any corrective action permitted by the Internal Revenue Service, default shall occur (i) if the Participant fails to make any scheduled loan payment by the last day of the calendar quarter following the calendar quarter in which such payment is due (or within such other grace period as permitted under applicable law and by the Administrative Committee) or (ii) upon the occurrence of any other event that is considered a default event under the loan program established by the Administrative Committee. On the date a Participant is entitled to receive a distribution of his or her Account pursuant to Article 9, any defaulted loan or portion thereof, together with the accrued interest thereon, shall be charged to the Participant’s Account after all other adjustments required under the Plan, but before any distribution pursuant to Article 9.
Section 10.4.    Applicability. Notwithstanding the foregoing, for purposes of this Article 10, any Participant or Beneficiary who is a “party in interest” as defined in section 3(14) of ERISA may apply for a loan from the Plan, regardless of such Participant’s or Beneficiary’s employment status. As a condition of receiving a loan from the Plan, such a Participant or Beneficiary who is not an Employee shall consent to have such loan repaid in substantially equal installments at the times and in the manner determined by the Administrative Committee, but not less frequently than quarterly.
ARTICLE 11    

SPECIAL PARTICIPATION AND DISTRIBUTION RULES
Section 11.1.    Change of Employment Status. If an Employee who is not an Eligible Employee becomes an Eligible Employee, then the Employee shall become a Participant as of the date such Employee becomes an Eligible Employee, provided that the Eligible Employee has satisfied any eligibility period set forth in an Appendix applicable to such Eligible Employee, if any.
Section 11.2.    Reemployment of a Terminated Participant. Participation. If a terminated Participant is reemployed as an Eligible Employee, then the terminated Participant again shall become a Participant as of the date of the terminated Participant’s reemployment. If a terminated Participant is receiving installment payments pursuant to Section 9.3(c), such payments shall be suspended upon such terminated Participant’s reemployment unless such Participant has attained age 59½ on or before the date of such reemployment.
(a)    Restoration of Forfeitures. If a terminated Participant is reemployed prior to incurring a Break in Service of five consecutive years, and, at or after the Participant’s termination of employment, any portion of the Participant’s Account was forfeited pursuant to Section 9.2(b), then an amount equal to the portion of the Participant’s Account that was forfeited shall be credited to the Participant’s Account as soon as administratively practicable after the Participant is reemployed. Any amount to be restored pursuant to this subsection shall be obtained from the total amounts that have been forfeited pursuant to Sections 9.2(b) and 9.8 during the Plan Year in which such Participant is reemployed from the Accounts of Participants employed by the same Employer as the reemployed Participant. If the aggregate amount to be so restored to the Accounts of Participants who are Employees of a particular Employer exceeds the amount of such forfeitures, such Employer shall make a contribution in an amount equal to such excess. Any such contribution shall be made without regard to whether or not the limitations set forth in Article 6 will be exceeded by such contribution.
Section 11.3.    Employment by Affiliates. If an individual is employed by an Affiliate that is not an Employer, then any period of such employment shall be taken into account under the Plan solely for the purposes of (i) measuring such individual’s Service and (ii) determining when such individual has terminated his or her employment for purposes of Article 9, to the same extent it would have been had such period of employment been as an Employee.
Section 11.4.    Leased Employees. If an individual who performed services as a leased employee (defined as any person (other than an Employee of an Employer) who pursuant to an agreement between an Employer and a leasing organization has performed services for the Employer (or for the Employer and related persons determined in accordance with section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one year, where such services are performed under the primary direction or control of the Employer) of an Employer or an Affiliate becomes an Employee, or if an Employee becomes such a leased employee, then any period during which such services were so performed shall be taken into account under the Plan solely for the purposes of (i) satisfying any eligibility period set forth in an Appendix applicable to such individual, if any, (ii) measuring such individual’s Service and (iii) determining when such individual has terminated his or her employment for purposes of Article 9, to the same extent it would have been had such period of service been as an Employee. This Section shall not apply to any period of service during which such a leased employee was covered by a plan described in section 414(n)(5) of the Code.
Section 11.5.    Reemployment of Veterans. The provisions of this Section shall apply in the case of the reemployment (or deemed reemployment) by an Employer of an Eligible Employee, within the period prescribed by USERRA, after the Eligible Employee’s completion of a period of Qualified Military Service. The provisions of this Section are intended to provide such Eligible Employee with the rights required by USERRA and section 414(u) of the Code, and shall be interpreted in accordance with such intent. Notwithstanding any provisions of this Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with section 414(u) of the Code.
(a)    Make-Up of Pre-Tax, Designated Roth and After-Tax Contributions. Such Eligible Employee shall be entitled to make contributions under the Plan (“make-up participant contributions”), in addition to any pre-tax, designated Roth and after-tax contributions which the Eligible Employee elects to have made under the Plan pursuant to Sections 4.1 and 5.1. From time to time while employed by an Employer, such Eligible Employee may elect to contribute such make-up participant contributions during the period beginning on the date of such Eligible Employee’s reemployment and ending on the earlier of:
(1)    the end of the period equal to the product of three and such Eligible Employee’s period of Qualified Military Service, and
(2)    the fifth anniversary of the date of such reemployment.
Such Eligible Employee shall not be permitted to contribute make-up participant contributions to the Plan in excess of the amount which the Eligible Employee could have elected to have made under the Plan in the form of pre-tax, designated Roth and after-tax contributions if the Eligible Employee had continued in active employment with his or her Employer during such period of Qualified Military Service. The manner in which an Eligible Employee may elect to contribute make-up participant contributions pursuant to this subsection (a) shall be prescribed by the Administrative Committee.
(b)    Make-Up of Matching Contributions. An Eligible Employee who contributes make-up participant contributions as described in subsection (a) of this Section shall be entitled to an allocation of matching contributions to his or her Account in an amount equal to the amount of matching contributions that would have been allocated to the Account of such Eligible Employee during the period of Qualified Military Service if such make-up participant contributions had been made in the form of pre-tax, designated Roth and after-tax contributions during such period. The amount necessary to make such allocation of matching contributions shall be derived from forfeitures during the Plan Year in which such matching contributions are made, and if such forfeitures are not sufficient for this purpose, then the Eligible Employee’s Employer shall make a special contribution to the Plan which shall be utilized solely for purposes of such allocation.
(c)    Make-Up of Profit Sharing Contributions, Fringe Contributions and Other Employer Contributions. Upon the timely reemployment of an Eligible Employee following the completion of a period of Qualified Military Service, such Eligible Employee shall be entitled to an allocation of profit sharing contributions, fringe contributions or other employer contributions, as applicable, to his or her Account in an amount equal to the difference between (i) the amount of profit sharing contributions, fringe contributions or other employer contributions, if any, that would have been allocated to the Account of such Eligible Employee during the period of Qualified Military Service if the Eligible Employee had continued in active employment with his or her Employer during such period and (ii) the amount of profit sharing contributions, fringe contributions or other employer contributions that was allocated to the Account of such Eligible Employee during the period of Qualified Military Service pursuant to Section 8.5 or Section 8.6, as applicable. Such allocation shall be made by the Eligible Employee’s Employer no later than the later of (i) the date that is 90 days after the date of the Eligible Employee’s reemployment and (ii) the date that profit sharing contributions, fringe contributions or other employer contributions, as applicable, normally are due for the Plan Year in which the Qualified Military Service was performed (or, if allocation by such latest date is impossible or unreasonable, as soon as practicable thereafter). The amount necessary to make such allocation of profit sharing contributions, fringe contributions or other employer contributions shall be derived from forfeitures during the Plan Year in which such profit sharing contributions, fringe contributions or other employer contributions are made, and if such forfeitures are not sufficient for this purpose, then the Eligible Employee’s Employer shall make a special contribution to the Plan which shall be utilized solely for purposes of such allocation.
(d)    Miscellaneous Rules Regarding Make-Up Contributions. For purposes of determining the amount of contributions to be made under this Section, an Eligible Employee’s “Compensation” during any period of Qualified Military Service shall be determined in accordance with section 414(u) of the Code. Any contributions made by an Eligible Employee or an Employer pursuant to this Section on account of a period of Qualified Military Service in a prior Plan Year shall not be subject to the limitations prescribed by Sections 6.1, 6.3 and 6.4 of the Plan (relating to sections 402(g), 415, and 404 of the Code) for the Plan Year in which such contributions are made. The Plan shall not be treated as failing to satisfy the nondiscrimination rules of Section 6.2 of the Plan (relating to sections 401(k)(3) and 401(m) of the Code) for any Plan Year solely on account of any make-up contributions made by an Eligible Employee or an Employer pursuant to this Section. Earnings (or losses) on make-up contributions pursuant to this Section 11.5 shall be credited commencing with the date the contributions are made.
(e)    Deemed Reemployment following Death or Disability. In accordance with section 414(u)(9) of the Code, for purposes of crediting Service under the Plan and accrual of contributions under Article 4 or an Appendix hereto, a Participant who dies or suffers a Disability while performing Qualified Military Service with respect to an Employer shall be treated as if the Participant had resumed employment in accordance with his or her reemployment rights under chapter 43 of title 38, United States Code, on the day preceding the Participant’s death or Disability, as applicable, and terminated employment on the actual date of his or her death or Disability (and on account of such death or Disability).
ARTICLE 12    

SHAREHOLDER RIGHTS WITH RESPECT TO L3HARRIS STOCK
Section 12.1.    Voting Shares of L3Harris Stock. The Trustee, or the Company upon written notice to the Trustee, shall furnish to each Participant (and Beneficiary) whose Account is credited with participating units in the L3Harris Stock Fund the date and purpose of each meeting of the shareholders of the Company at which L3Harris Stock is entitled to be voted. The Trustee, or the Company if it has furnished such information to such Participants (and Beneficiaries) with respect to a particular shareholders’ meeting, shall request from each such Participant (or Beneficiary) instructions to be furnished to the Trustee (or to a tabulating agent appointed by the Trustee, which may be the Company’s transfer agent) regarding the voting at such meeting of L3Harris Stock represented by participating units credited to the Participant’s (or Beneficiary’s) Account. If the Participant (or Beneficiary) furnishes such instructions to the Trustee or its agent within the time specified in the notification, then the Trustee shall vote L3Harris Stock represented by such participating units in accordance with such instructions. All L3Harris Stock represented by participating units credited to Accounts as to which the Trustee or its agent do not receive instructions as specified above and all unallocated L3Harris Stock held in the L3Harris Stock Fund shall be voted by the Trustee proportionately in the same manner as it votes L3Harris Stock as to which the Trustee or its agent has received voting instructions as specified above.
Section 12.2.    Tender Offers. Rights of Participants. In the event a tender offer is made generally to the shareholders of the Company to transfer all or a portion of their shares of L3Harris Stock in return for valuable consideration, including, but not limited to, offers regulated by section 14(d) of the Securities Exchange Act of 1934, as amended, the Trustee shall respond to such tender offer in respect of shares of L3Harris Stock held by the Trustee in the L3Harris Stock Fund in accordance with instructions obtained from Participants (or Beneficiaries). Each Participant (or Beneficiary) shall be entitled to instruct the Trustee regarding how to respond to any such tender offer with respect to the number of shares of L3Harris Stock represented by the participating units in the L3Harris Stock Fund then allocated to his or her Account. Each Participant (or Beneficiary) who does not provide timely instructions to the Trustee shall be presumed to have directed the Trustee not to tender shares of L3Harris Stock represented by the participating units then allocated to his or her Account. A Participant (or Beneficiary) shall not be limited in the number of instructions to tender or withdraw from tender which he or she can give, but a Participant (or Beneficiary) shall not have the right to give instructions to tender or withdraw from tender after a reasonable time established by the Trustee pursuant to subsection (c) of this Section. For purposes of this Section, the shares of L3Harris Stock held in the L3Harris Stock Fund shall be treated as allocated to the accounts of Participants in proportion to their respective participating units in the L3Harris Stock Fund as of the immediately preceding record date for ownership of L3Harris Stock for stockholders entitled to tender. The Administrative Committee may direct the Trustee to make a special valuation of the L3Harris Stock Fund in connection with such tender offer. Any securities or other property received by the Trustee as a result of having tendered L3Harris Stock shall be held, and any cash so received shall be invested in short term investments, pending any further action which the Trustee may be required or directed to take pursuant to the Plan. Notwithstanding anything to the contrary, during the period of any public offer for L3Harris Stock, the Trustee shall refrain from making purchases of L3Harris Stock in connection with the Plan and the Trust. In addition to compensation otherwise payable, the Trustee shall be entitled to reasonable compensation and reimbursement for its reasonable out-of-pocket expenses for any services attributable to the duties and responsibilities described in this Section.
(a)    Duties of the Administrative Committee. Within a reasonable time after the commencement of a tender offer, the Administrative Committee shall cause the Trustee to provide to each Participant or Beneficiary, as the case may be:
(1)    the offer to purchase as distributed by the offeror to the shareholders of the Company;
(2)    a statement of the number of shares of L3Harris Stock represented by the participating units in the L3Harris Stock Fund allocated to his or her Account; and
(3)    directions as to the means by which instructions with respect to the tender offer can be given.
The Administrative Committee shall establish, and the Company shall pay for, a means by which instructions with respect to a tender offer expeditiously can be delivered to the Trustee. The Administrative Committee at its election may engage an agent to receive such instructions and transmit them to the Trustee. All such individual instructions shall be confidential and shall not be disclosed to any person, including any Employer.
For purposes of allocating the proceeds of any sale or exchange pursuant to a tender offer, the Trustee shall treat as having been sold or exchanged from each of the Accounts of Participants (and Beneficiaries) who provided timely directions to the Trustee under this Section to tender that number of shares of L3Harris Stock represented by participating units in the L3Harris Stock Fund subject to such directions and the proceeds of such sale or exchange shall be allocated accordingly. Any cash proceeds from the sale or exchange of shares of L3Harris Stock in the L3Harris Stock Fund shall be invested in a commingled fund maintained by the Trustee designated to hold such amounts, and any securities or other property received as a result of such a sale or exchange shall be held by the Trustee, in each case pending investment instructions from the Participants (and Beneficiaries) or the Investment Committee, as the case may be.
(b)    Duties of the Trustee. The Trustee shall follow the instructions of the Participants (and Beneficiaries) with respect to the tender offer as transmitted to the Trustee. The Trustee may establish a reasonable time, taking into account the time restrictions of the tender offer, after which it shall not accept instructions of Participants (or Beneficiaries).
ARTICLE 13    

ADMINISTRATION
Section 13.1.    The Administrative Committee. The most senior human resources officer of the Company shall appoint at least two members to the Administrative Committee. The Administrative Committee shall be the “administrator” of the Plan within the meaning of such term as used in ERISA and shall be responsible for the administration of the Plan. The most senior human resources officer of the Company shall have the right at any time, with or without cause, to remove any member of the Administrative Committee. In addition, any member of the Administrative Committee at any time may resign by giving at least fifteen (15) days’ advance written notice to the most senior human resources officer of the Company (or such shorter period of advance written notice acceptable to the most senior human resources officer of the Company). An Employee who serves on the Administrative Committee shall be deemed to have resigned from such committee upon the termination of the Employee’s employment with the Company and its Affiliates, effective as of the date of the termination of employment. Upon the removal or resignation of any member of the Administrative Committee, or the failure or inability for any reason of any member of the Administrative Committee to act hereunder, the most senior human resources officer of the Company shall appoint a successor member of the Administrative Committee if such removal, resignation, failure or inability causes the Administrative Committee to have fewer than two members. Any successor member of the Administrative Committee shall have all the rights, privileges and duties of the predecessor, but shall not be held accountable for the acts of the predecessor.
(a)    Any member of the Administrative Committee may, but need not, be an employee, director, officer or shareholder of an Employer and such status shall not disqualify him or her from taking any action hereunder or render him or her accountable for any distribution or other material advantage received by such member under the Plan, provided that no member of the Administrative Committee who is a Participant shall take part in any action of the Administrative Committee or any matter involving solely his or her rights under the Plan.
(b)    Promptly after the appointment of the members of the Administrative Committee and promptly after the appointment of any successor member of the Administrative Committee, the Trustee shall be notified in writing as to the names of the persons so appointed as members or successor members.
(c)    The Administrative Committee shall have the duty and authority to interpret and construe, in its sole discretion, the terms of the Plan in all respects, including, but not limited to, all questions of eligibility, the status and rights of Participants, distributees and other persons under the Plan, and the manner, time and amount of payment of any distribution under the Plan. Each Employer shall, from time to time, upon request of the Administrative Committee, furnish to the Administrative Committee such data and information as the Administrative Committee shall require in the performance of its duties. All determinations and actions of the Administrative Committee shall be conclusive and binding upon all affected parties, except that the Administrative Committee may revoke or modify a determination or action that it determines to have been in error. Benefits will be paid under the Plan only if the Administrative Committee decides in its sole discretion that the applicant is entitled to the benefits.
(d)    The Administrative Committee shall direct the Trustee to make payments of amounts to be distributed from the Trust under Article 9 or an Appendix hereto.
(e)    The Administrative Committee may act at a meeting by the vote of a majority of a quorum of its members or without a meeting by the unanimous written consent of its members. The Administrative Committee shall keep records of all of its meetings and forward all necessary communications to the Trustee. The Administrative Committee may adopt such rules and procedures as it deems desirable for the conduct of its affairs and the administration of the Plan, provided that any such rules and procedures shall be consistent with the provisions of the Plan and ERISA.
(f)    The members of the Administrative Committee shall discharge their duties with respect to the Plan (i) solely in the interest of the Participants and Beneficiaries, (ii) for the exclusive purpose of providing benefits to the Participants and Beneficiaries and of defraying reasonable expenses of administering the Plan and (iii) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
(g)    The members of the Administrative Committee shall not receive any compensation or fee for services as members of the Administrative Committee.
Section 13.2.    Named Fiduciaries. The Investment Committee shall be a “named fiduciary” of the Plan within the meaning of such term as used in ERISA solely with respect to its power to appoint certain fiduciaries under the Plan and its management of the assets of the Plan. The Administrative Committee shall be a “named fiduciary” of the Plan within the meaning of such term as used in ERISA solely with respect to its power to appoint certain fiduciaries under the Plan and the exercise of its administrative duties set forth in the Plan that are fiduciary acts. Each fiduciary has only those duties and responsibilities specifically assigned to such fiduciary under the Plan.
Section 13.3.    Allocation and Delegation of Responsibilities. Each of the Administrative Committee and the Investment Committee may allocate its responsibilities among its members and may designate any person, partnership, corporation or another committee to carry out any of its responsibilities with respect to the Plan (in each case irrespective of whether such responsibilities are fiduciary or settlor in nature).
Section 13.4.    Professional and Other Services. The Company may employ counsel (who may be counsel for an Employer) to advise the Administrative Committee and the Investment Committee and their agents and may arrange for clerical and other services as the Administrative Committee and the Investment Committee and their agents may require in carrying out their duties hereunder.
Section 13.5.    Indemnification and Expense Reimbursement. To the fullest extent permitted by law, the Employers hereby jointly and severally indemnify the members of the Administrative Committee and the members of the Investment Committee from the effects and consequences of their acts, omissions and conduct in their official capacity, except to the extent that such effects and consequences result from their own willful or gross misconduct or criminal acts. The Employers shall reimburse the members of each of the Administrative Committee and Investment Committee for any necessary expenditures incurred in the discharge of their duties hereunder.
Section 13.6.    Claims Procedure. If any Participant, distributee or other person believes he or she is entitled to benefits in an amount greater than those which he or she is receiving or has received, he or she (or his or her duly authorized representative) may file a claim with the Administrative Committee. Such a claim shall be in writing and state the nature of the claim, the facts supporting the claim, the amount claimed and the address of the claimant. The Administrative Committee shall review the claim and, unless special circumstances require an extension of time, within 90 days after receipt of the claim give written or electronic notice to the claimant of its decision with respect to the claim. If special circumstances require an extension of time, the claimant shall be so advised in writing or by electronic means within the initial 90-day period and in no event shall such an extension exceed 90 days. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrative Committee expects to render a decision. The notice of the decision of the Administrative Committee with respect to the claim shall be written in a manner calculated to be understood by the claimant and, if the claim is wholly or partially denied, shall set forth the specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and an explanation of the claim review procedure under the Plan and the time limits applicable to such procedure (including a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following the final denial of a claim).
The claimant (or his or her duly authorized representative) may request a review of the denial by filing with the Administrative Committee a written request for such review within 60 days after notice of the denial has been received by the claimant. Within the same 60-day period, the claimant may submit to the Administrative Committee written comments, documents, records and other information relating to the claim. Upon request and free of charge, 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 period for actions under the Plan as set forth in Section 15.6.
In making determinations regarding claims for benefits, the Administrative Committee shall consider all of the relevant facts and circumstances, including, without limitation, governing plan documents, consistent application of Plan provisions with respect to similarly situated claimants and any comments, documents, records and other information with respect to the claim submitted by the claimant (the “Claimant’s Submissions”). The Claimant’s Submissions shall be considered by the Administrative Committee without regard to whether the Claimant’s Submissions were submitted or considered by the Administrative Committee in the initial benefit determination. In no event shall a Participant, distribute or other person be entitled to challenge a decision of the Administrative Committee in court or in any administrative proceeding unless and until the claims procedures set forth in this Section 13.6 have been complied with and exhausted.
Section 13.7.    Notices to Participants. All notices, reports and statements given, made, delivered or transmitted to a Participant or distributee or any other person entitled to or claiming benefits under the Plan shall be deemed to have been duly given, made, delivered or transmitted when provided via such written or other means as may be permitted by applicable Regulations. A Participant, distributee or other person entitled to or claiming benefits under the Plan is obligated to keep the Administrative Committee informed as to his or her current address at all times.
Section 13.8.    Notices to Administrative Committee or Employers. Written directions and notices and other written or electronic communications from Participants, distributees or other persons entitled to or claiming benefits under the Plan to the Administrative Committee or the Employers shall be deemed to have been duly given, made, delivered or transmitted when given, made, delivered or transmitted in the manner and to the location prescribed by the Administrative Committee or the Employers for the giving of such directions, notices and other communications.
Section 13.9.    Electronic Media. Notwithstanding any provision of the Plan to the contrary, the use of electronic technologies shall be deemed to satisfy any written notice, consent, delivery, signature or disclosure requirement under the Plan, the Code or ERISA to the extent permitted by the Administrative Committee and permissible under and consistent with applicable law and regulations.
Section 13.10.    Records. The Administrative Committee shall keep a record of all of its proceedings with respect to the Plan and shall keep or cause to be kept all books of account, records and other data as may be necessary or advisable in its judgment for the administration of the Plan.
Section 13.11.    Reports of Trustee and Accounting to Participants. The Administrative Committee shall keep on file, in such form as it shall deem convenient and proper, all reports concerning the Trust Fund received by it from the Trustee, and, at least once each calendar quarter, each Participant (or, in the event of the death of a Participant, each Beneficiary) shall be provided or have available a written or electronic benefit statement indicating the balance credited to any Account for such individual. Any Participant or Beneficiary claiming that an error has been made with respect to such balance shall notify the Administrative Committee in writing within ninety (90) days following the delivery of such benefit statement. If no notice of error timely is provided, the benefit statement shall be presumed to be correct.
Section 13.12.    Limitations on Investments and Transactions/Conversions. Notwithstanding any provision of the Plan to the contrary:
(a)    The Administrative Committee, in its sole and absolute discretion, may temporarily suspend, limit or restrict, in whole or in part, certain Plan transactions, including without limitation, the right to change or suspend contributions and/or the right to receive a distribution, loan or withdrawal from an Account in the event of any conversion, change in recordkeeper, change in investment funds, Plan merger or spinoff or other appropriate event.
(b)    The Administrative Committee, in its sole and absolute discretion, may temporarily suspend, limit or restrict, in whole or in part, Plan transactions dealing with investments, including without limitation, the right to change investment elections or reallocate Account balances in the event of any conversion, change in recordkeeper, change in investment funds, Plan merger or spinoff or other appropriate event.
(c)    In the event of a conversion, change in recordkeeper, change in investment funds, Plan merger or spinoff or other appropriate event, the Administrative Committee, in its sole and absolute discretion, may decide to map investments from a Participant’s prior investment fund elections to the then available investment funds under the Plan. In the event that investments are mapped in this manner, the Participant shall be permitted to reallocate funds among the investment funds (in accordance with Article 8 and any relevant rules and procedures adopted for this purpose) after the suspension period (if any) is lifted.
(d)    Notwithstanding any provision of the Plan to the contrary, the investment funds shall be subject to, and governed by, (1) all applicable legal rules and restrictions, (2) the rules specified by the investment fund providers in the fund prospectus(es) or other governing documents thereof and/or (3) any rules or procedures adopted by the Administrative Committee governing the transfers of assets into or out of such funds. Such rules, procedures and restrictions in certain cases may limit the ability of a Participant to make transfers into or out of a particular investment fund and/or may result in additional transaction fees or other costs relating to such transfers. In furtherance of, but without limiting the foregoing, the Plan may decline to implement any investment election or instruction where it deems appropriate.
ARTICLE 14    

PARTICIPATION BY EMPLOYERS
Section 14.1.    Adoption of Plan. With the consent of the Administrative Committee, any entity may become an Employer under the Plan by (a) taking such action as shall be necessary to adopt the Plan and (b) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan and Trust into effect with respect to such entity, as prescribed by the Administrative Committee. The powers and control of the Company, as provided in the Plan and the trust agreement, shall not be diminished by reason of participation of any such adopting entity in the Plan.
Section 14.2.    Withdrawal from Participation. An Employer may withdraw from participation in the Plan at any time by filing with the Administrative Committee a duly certified copy of a written instrument duly adopted by the Employer to that effect and giving notice of its intended withdrawal to the Administrative Committee, the Company and the Trustee prior to the effective date of withdrawal.
Section 14.3.    Company, Administrative Committee and Investment Committee as Agents for Employers. Each entity which becomes an Employer pursuant to Section 14.1 or Section 14.4 by so doing shall be deemed to have appointed the Company, the Administrative Committee and the Investment Committee as its agents to exercise on its behalf all of the powers and authorities conferred upon the Company, the Administrative Committee and the Investment Committee by the terms of the Plan. The authority of the Company, the Administrative Committee or the Investment Committee to act as such agent shall continue unless and until the portion of the Trust Fund held for the benefit of Employees of the particular Employer and their Beneficiaries is set aside in a separate Trust Fund as provided in Section 17.2.
Section 14.4.    Continuance by a Successor. In the event that an Employer other than the Company is reorganized by way of merger, consolidation, transfer of assets or otherwise, so that another entity other than an Employer succeeds to all or substantially all of such Employer’s business, such successor entity may, with the consent of the Administrative Committee, be substituted for such Employer under the Plan by adopting the Plan. Contributions by such Employer automatically shall be suspended from the effective date of any such reorganization until the date upon which the substitution of such successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, such successor entity shall not have elected to adopt the Plan or the Administrative Committee fails to consent to such adoption, or an Employer adopts a plan of complete liquidation other than in connection with a reorganization, such Employer’s participation in the Plan automatically shall be permanently terminated as of the close of business on the 90th day following the effective date of such reorganization or as of the close of business on the date of adoption of such plan of complete liquidation, as the case may be.
If such successor entity is substituted for an Employer as described above, then, for all purposes of the Plan, employment of each Employee with such Employer, including service with and compensation paid by such Employer, shall be considered to be employment with such successor entity.
ARTICLE 15    

MISCELLANEOUS
Section 15.1.    Expenses. All costs and expenses of administering the Plan and the Trust, including the expenses of the Company, the Administrative Committee and the Investment Committee, the fees of counsel and of any agents for the Company or such committees, investment advisory, recordkeeping and audit fees, the fees and expenses of the Trustee, the fees of counsel for the Trustee and other administrative expenses, shall be paid under the direction of the Administrative Committee from the Trust Fund to the extent such expenses are not paid by the Employers. The Administrative Committee, in its sole discretion, having regard to the nature of a particular expense, shall determine the portion of such expense that is to be borne by each Employer or the manner in which such expense is to be allocated among Accounts. An Employer may seek reimbursement from the Trust Fund of any expense paid by such Employer that the Administrative Committee determines is properly payable from the Trust Fund.
Section 15.2.    Non-Assignability.
(a)    In General. No right or interest of any Participant or Beneficiary in the Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, but excluding devolution by death or mental incompetency, and any attempt to do so shall be void, and no right or interest of any Participant or Beneficiary in the Plan shall be liable for, or subject to, any obligation or liability of such Participant or Beneficiary, including claims for alimony or the support of any Spouse, except as provided below.
(b)    Exception for Qualified Domestic Relations Orders. Notwithstanding any provision of the Plan to the contrary, if a Participant’s Account under the Plan, or any portion thereof, is the subject of one or more qualified domestic relations orders (as defined in section 414(p) of the Code), such Account or portion thereof shall be paid to the person, at the time and in the manner specified in any such order. The Administrative Committee shall adopt rules and procedures, in accordance with section 414(p) of the Code, relating to its (i) review of any domestic relations order for purposes of determining whether the order is a qualified domestic relations order and (ii) administration of a qualified domestic relations order. A domestic relations order shall not fail to constitute a qualified domestic relations order solely because such order provides for distribution to an alternate payee of the benefit assigned to the alternate payee under the Plan prior to the applicable Participant’s earliest retirement age (as defined in section 414(p) of the Code) under the Plan.
(c)    Other Exception. Notwithstanding any provision of the Plan to the contrary, if a Participant is ordered or required to pay an amount to the Plan pursuant to (i) a judgment in a criminal action, (ii) a civil judgment in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA or (iii) a settlement agreement between the Secretary of Labor and the Participant in connection with a violation (or alleged violation) of Part 4 of Subtitle B of Title I of ERISA, the Participant’s Account under the Plan may, to the extent permitted by law, be offset by such amount.
Section 15.3.    Employment Non-Contractual. The Plan confers no right upon an Employee to continue in employment.
Section 15.4.    Merger or Consolidation with Another Plan; Transfer Contributions; Transferred Employees; Divestitures.
(a)    The Administrative Committee shall have the right to merge or consolidate all or a portion of the Plan with, or transfer all or part of the assets or liabilities of the Plan to, any other plan; provided, however, that the terms of such merger, consolidation or transfer are such that each Participant, distributee, Beneficiary or other person entitled to receive benefits from the Plan would, if the Plan were to terminate immediately after the merger, consolidation or transfer, receive a benefit equal to or greater than the benefit such person would be entitled to receive if the Plan were to terminate immediately before the merger, consolidation or transfer.
(b)    Amounts transferred to the Plan pursuant to Subsection (a) above (“Transfer Contributions”) and participation in the Plan by Employees who become eligible for the Plan in anticipation or at the time of a plan merger, consolidation or transfer or in connection with a business acquisition by an Employer (“Transferred Employees”) shall be subject to all terms and conditions of the Plan as in effect from time to time, except to the extent provided on Schedule A or an Appendix to the Plan which may contain additional terms and conditions governing the application of the Plan to the Transfer Contributions and Transferred Employees. The terms of Schedule A and the Appendices hereby are incorporated and made part of the Plan and, in the event of any inconsistency between the terms of the Plan and the terms of Schedule A or an Appendix, Schedule A or the Appendix, as applicable, shall control with respect to the Transfer Contributions and Transferred Employees covered by the Schedule or Appendix; provided, however, that if such inconsistency results from changes made in the provisions of the Plan to comply with applicable law, then such provisions of the Plan shall control.
(c)    The Accounts of Employees who will cease to participate in the Plan as a result of a divestiture or similar corporate transaction (such Accounts, “Divestiture Accounts”, and such Employees, “Divestiture Participants”) shall be subject to all terms and conditions of the Plan as in effect from time to time, except to the extent provided on Schedule B to the Plan which may contain additional terms and conditions governing the application of the Plan to the Divestiture Accounts and Divestiture Participants. The terms of Schedule B hereby are incorporated and made part of the Plan and, in the event of any inconsistency between the terms of the Plan and the terms of Schedule B, Schedule B shall control with respect to the Divestiture Accounts and Divestiture Participants covered by the Schedule; provided, however, that if such inconsistency results from changes made in the provisions of the Plan to comply with applicable law, then such provisions of the Plan shall control.
Section 15.5.    Gender and Plurals. Wherever used in the Plan, words in the masculine gender shall include the masculine or feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural, and words in the plural shall include the singular.
Section 15.6.    Statute of Limitations for Actions under the Plan. Except for actions to which the statute of limitations prescribed by section 413 of ERISA applies, (a) no legal or equitable action relating to a claim under section 502 of ERISA may be commenced later than one (1) year after the claimant receives a final decision from the Administrative Committee in response to the claimant’s request for review of an adverse benefit determination and (b) no other legal or equitable action involving the Plan may be commenced later than two (2) years after the date the person bringing the action knew, or had reason to know, of the circumstances giving rise to the action. This provision shall not bar the Plan or its fiduciaries from recovering overpayments of benefits or other amounts incorrectly paid to any person under the Plan at any time or bringing any legal or equitable action against any party.
Section 15.7.    Applicable Law. The Plan and all rights hereunder shall be governed by and construed in accordance with the laws of the State of Florida (without regard to principles of conflicts of law) to the extent such laws have not been preempted by applicable federal law. Venue for any action arising under the Plan shall be in Brevard County, Florida.
Section 15.8.    Severability. If any provision of the Plan is held illegal or invalid, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.
Section 15.9.    No Guarantee. None of the Company, the Employers, the Administrative Committee, the Investment Committee or the Trustee in any way guarantees the Trust from loss or depreciation nor the payment of any benefit that may be or become due to any person from the Trust Fund. Nothing in the Plan shall be deemed to give any Participant, distributee or Beneficiary an interest in any specific part of the Trust Fund or any other interest except the right to receive benefits from the Trust Fund in accordance with the provisions of the Plan and the trust agreement.
Section 15.10.    Plan Voluntary. Although it is intended that the Plan shall be continued and that contributions shall be made as herein provided, the Plan is entirely voluntary on the part of the Employers and the continuance of the Plan and the contributions hereunder are not and shall not be regarded as contractual obligations of the Employers.
Section 15.11.    Legal Fees. Any award of legal fees in connection with an action involving the Plan shall be calculated pursuant to a method that results in the lowest amount of fees being paid, which amount shall be no more than the amount that is reasonable. In no event shall legal fees be awarded for work related to: (a) administrative proceedings under the Plan; (b) unsuccessful claims brought by a Participant or any other person; or (c) actions that are not brought under ERISA. In calculating any award of legal fees, there shall be no enhancement for the risk of contingency, nonpayment or any other risk, nor shall there be applied a contingency multiplier or any other multiplier. In any action brought by a Participant or any other person against the Plan, the Administrative Committee, the Investment Committee, any Plan fiduciary, any Employer or their respective affiliates or their or their affiliates’ respective officers, directors, trustees, employees, or agents (collectively, the “Plan Parties”), legal fees of the Plan Parties in connection with such action shall be paid by the Participant or other person bringing the action, unless the court specifically finds that there was a reasonable basis for the action.
ARTICLE 16    

TOP-HEAVY PLAN REQUIREMENTS
Section 16.1.    Top-Heavy Plan Determination. If as of the determination date (as hereinafter defined) for any Plan Year the aggregate of (a) the account balances under the Plan and all other defined contribution plans in the aggregation group (as hereinafter defined) and (b) the present value of accrued benefits under all defined benefit plans in such aggregation group of all participants in such plans who are key employees (as hereinafter defined) for such Plan Year exceeds 60% of the aggregate of the account balances and the present value of accrued benefits of all participants in such plans as of the determination date, then the Plan shall be a “top-heavy plan” for such Plan Year, and the requirements of Section 16.3 shall be applicable for such Plan Year as of the first day thereof. If the Plan is a top-heavy plan for any Plan Year and is not a top-heavy plan for any subsequent Plan Year, the requirements of Section 16.3 shall not be applicable for such subsequent Plan Year.
Section 16.2.    Definitions and Special Rules.
(a)    Definitions. For purposes of this Article 16, the following definitions shall apply:
(1)    Determination Date. The determination date for all plans in the aggregation group shall be the last day of the preceding Plan Year, and the valuation date applicable to a determination date shall be (i) in the case of a defined contribution plan, the date as of which account balances are determined that coincides with or immediately precedes the determination date, and (ii) in the case of a defined benefit plan, the date as of which the most recent actuarial valuation for the Plan Year that includes the determination date is prepared, except that if any such plan specifies a different determination or valuation date, such different date shall be used with respect to such plan.
(2)    Aggregation Group. The aggregation group shall consist of (a) each plan of an Employer in which a key employee is a participant, (b) each other plan that enables such a plan to be qualified under section 401(a) of the Code, and (c) any other plans of an Employer that the Company designates as part of the aggregation group.
(3)    Key Employee. Key employee shall have the meaning set forth in section 416(i) of the Code.
(4)    Compensation. Compensation shall have the meaning set forth in Treasury Regulation section 1.415(c)-2(d)(4). Compensation for this purpose shall not include any amount excludable under Treasury Regulation section 1.415(c)-2(g)(5)(ii).
(b)    Special Rules. For the purpose of determining the account balance or accrued benefit of a participant, (i) the account balance or accrued benefit of any person who has not performed services for an Employer at any time during the one-year period ending on the determination date shall not be taken into account pursuant to this Section, and (ii) any person who received a distribution from a plan (including a plan that has terminated) in the aggregation group during the one-year period ending on the determination date shall be treated as a participant in such plan, and any such distribution shall be included in such participant’s account balance or accrued benefit, as the case may be; provided, however, that in the case of a distribution made for a reason other than a person’s severance from employment, death or disability, clause (ii) of this Section 16.2(b) shall be applied by substituting “five-year period” for “one-year period.”
Section 16.3.    Minimum Contribution for Top-Heavy Years. Notwithstanding any provision of the Plan to the contrary, for any Plan Year for which the Plan is a top-heavy plan, a minimum contribution shall be made on behalf of each Participant (other than a key employee) who is an Employee on the last day of the Plan Year in an amount equal to the lesser of (i) 3% of such Participant’s compensation during such Plan Year and (ii) the highest percentage at which Employer contributions (including pre-tax contributions) are made on behalf of any key employee for such Plan Year. If during any Plan Year for which this Section 16.3 is applicable a defined benefit plan is included in the aggregation group and such defined benefit plan is a top-heavy plan for such Plan Year, the percentage set forth in clause (i) of the first sentence of this Section 16.3 shall be 5%. The percentage referred to in clause (ii) of the first sentence of this Section 16.3 shall be obtained by dividing the aggregate of Employer contributions made pursuant to Article 4 or any Appendix hereto and pursuant to any other defined contribution plan that is required to be included in the aggregation group (other than a defined contribution plan that enables a defined benefit plan that is required to be included in such group to be qualified under section 401(a) of the Code) during the Plan Year on behalf of such key employee by such key employee’s compensation for the Plan Year. Notwithstanding the foregoing, the minimum contribution described in this Section 16.3 for any Plan Year for which the Plan is a top-heavy plan shall not be made under this Plan with respect to any Participant who receives a minimum contribution or minimum benefit for purposes of section 416(c) of the Code under another plan maintained by an Employer or Affiliate.
ARTICLE 17    

AMENDMENT, ESTABLISHMENT OF
SEPARATE PLAN, PLAN TERMINATION AND CHANGE IN CONTROL
Section 17.1.    Amendment. The Administrative Committee may, at any time and from time to time, amend or modify the Plan. Any such amendment or modification shall be in writing, shall become effective as of such date determined by the Administrative Committee, including retroactively to the extent permitted by law, and may apply to Participants in the Plan at the time thereof as well as to future Participants.
Section 17.2.    Establishment of Separate Plan. If an Employer withdraws from the Plan pursuant to Section 14.2, then the Administrative Committee shall determine the portion of each of the funds of the Trust Fund that is applicable to the Participants of such Employer and their Beneficiaries and direct the Trustee to segregate such portions in a separate trust. Such separate trust thereafter shall be held and administered as a part of the separate plan of such Employer. The portion of a fund of the Trust Fund applicable to the Participants (and Beneficiaries) of a particular Employer shall be an amount that bears the same ratio to the value of such fund as the total value of the fund accounts of Participants (and Beneficiaries) of such Employer bears to the total value of the fund accounts of all Participants (and Beneficiaries).
Section 17.3.    Termination. The Company at any time may terminate the Plan by action of the chief human resources officer of the Company. An Employer at any time may terminate its participation in the Plan by resolution of its board of directors. In the event of any such termination, or in the event of the partial termination of the Plan with respect to a group of Participants, the Accounts of Participants with respect to whom the Plan is terminated shall become fully vested and thereafter shall not be subject to forfeiture. In the event that an Employer terminates its participation in the Plan, the Administrative Committee shall determine, in the manner provided in Section 17.2, the portion of each of the funds of the Trust Fund that is applicable to the Participants of such Employer and their Beneficiaries and direct the Trustee to distribute such portions to such Participants and Beneficiaries ratably in proportion to the balances of their respective Accounts.
A complete discontinuance of contributions by an Employer shall be deemed a termination of such Employer’s participation in the Plan for purposes of this Section.
Section 17.4.    Change in Control. Effect. Notwithstanding any provision of the Plan to the contrary, during the period commencing on the date of a Change in Control and ending at the close of business on the last day of the Plan Year during which the Change in Control occurs (the “Restriction Period”), the Plan may not be terminated, and the Plan may not be amended to:
(1)    revise the definition of Eligible Employee such that fewer Employees are eligible to participate in the Plan, lengthen the service requirement for participation in the Plan, create an age requirement or entry dates for participation in the Plan or otherwise reduce coverage under the Plan;
(2)    reduce the amount of pre-tax contributions, designated Roth contributions or after-tax contributions that a Participant is permitted to make under the Plan; or
(3)    reduce the amount of matching contributions, fringe contributions or other employer contributions required to be made under the Plan.
(b)    Miscellaneous. Any person who was an Eligible Employee on the day immediately preceding a Change in Control shall be deemed to be an Eligible Employee during the Restriction Period so long as the person is employed by a member of a “controlled group of corporations” which includes, or by a trade or business that is under common control with (as those terms are defined in sections 414(b) and (c) of the Code), the Company, any corporation which is the survivor of any merger or consolidation to which the Company was a party, or any corporation into which the Company has been liquidated.
Section 17.5.    Trust Fund to Be Applied Exclusively for Participants and Their Beneficiaries. Subject only to the provisions of Article 6 and Sections 15.2(b) and (c), and any other provision of the Plan to the contrary notwithstanding, no part of the Trust Fund (or if the Trust is a master trust, no part of the Trust Fund with respect to the Plan) shall be used for or diverted to any purpose not for the exclusive benefit of the Participants and their Beneficiaries, either by operation or termination of the Plan, power of amendment or other means.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent this ___________ day of December, 2019.

L3HARRIS TECHNOLOGIES, INC.
By:     
Title:     


SCHEDULE A
Special Rules Applying to Transfer Contributions and Transferred Employees
This Schedule A sets forth special rules applying to Transfer Contributions and Transferred Employees (each as defined in Section 15.4 of the Plan). Each of the provisions of the Plan shall be fully applicable to the Transfer Contributions and Transferred Employees, to the extent that such provisions are not inconsistent with this Schedule A. All capitalized terms used in this Schedule A and not otherwise defined herein shall have the meanings assigned to them by the Plan.
1.    Encoda Systems, Inc. Profit Sharing Plan and Trust
(a)    In General. Effective March 31, 2005, the Encoda Systems, Inc. Profit Sharing Plan and Trust (the “Encoda Plan”) was merged with and into the Plan. The portion of a Participant’s Account attributable to Transfer Contributions from the Encoda Plan shall be designated herein as the “Encoda Plan Account”.
(b)    Vesting. A Participant’s Encoda Plan Account shall be 100% vested and nonforfeitable.
(c)    Age 70 ½ Distributions. A Participant who continues employment after attaining age 70½ will be entitled to elect to commence distribution of his Encoda Plan Account no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70½ even if such Participant remains employed. Distributions under this paragraph will be made in accordance with Section 9.1(c) (age 59½ withdrawals) or Section 9.3(d) (age 70½ minimum distributions), as elected by the Participant.
2.    Harris Broadcast Communications Division 401(k) Plan
(a)    In General. The Company, Leitch Incorporated (“Leitch”), Optimal Solutions, Inc. (“OSI”) and Viewbridge, Inc. (“Viewbridge”) formerly participated in the Harris Broadcast Communications Division 401(k) Plan (the “Broadcast Plan”), which plan was frozen as to new contributions and new participants effective June 30, 2007. Effective as of June 30, 2007, Leitch and OSI were liquidated into the Company. Effective July 1, 2007, Viewbridge became an Employer under the Plan. The Broadcast Plan shall be merged with and into the Plan, effective September 30, 2007.
(b)    Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the Broadcast Plan who become eligible to participate in the Plan effective July 1, 2007.
(c)    Vesting. Former participants in the Broadcast Plan who were hired by Leitch, OSI or Videotek, Inc. prior to January 1, 2006 shall be 100% vested in their Accounts under the Plan.
(d)    In-Service Withdrawal of Certain Profit Sharing Contributions. A former participant in the Videotek, Inc. 401(k) Plan, which plan was merged into the Broadcast Plan effective June 30, 2006 (the “Videotek Plan”) who has completed at least 10 Years of Service may elect an in-service withdrawal of an amount not to exceed 50% of the portion of his or her Account attributable to employer non-elective discretionary profit sharing contributions made to the Videotek Plan. Notwithstanding any provision of the Plan to the contrary, for this purpose, a “Year of Service” is a Plan Year during which the Participant is credited with at least 1,000 Hours of Service.
(e)    Service. Service shall be credited for purposes of the Plan with Aastra Digital Video and Aastra Telecom U.S., Inc. (in the latter case, provided that the Participant commenced employment by the Company in connection with the acquisition by the Company of the assets of Aastra Telecom U.S., Inc.).
3.    Harris Technical Services Corporation 401(k) Plan
(a)    In General. Harris Technical Services Corporation (“HTSC”) maintained the Harris Technical Services Corporation 401(k) Plan (the “HTSC Plan”) on behalf of its Harris Enterprise Services business unit (business unit 00211) (the “HES Business Unit”). The HTSC Plan was frozen as to new contributions and new participants, effective July 31, 2007, and HTSC adopted the Plan on behalf of its HES Business Unit, effective August 1, 2007. The HTSC Plan was merged with and into the Plan, effective October 31, 2007.
(b)    Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the HTSC Plan who become eligible to participate in the Plan effective August 1, 2007 (or such later date determined by the Administrative Committee).
(c)    Match Eligibility. Former participants in the HTSC Plan who become eligible to participate in the Plan effective August 1, 2007 (or such later date determined by the Administrative Committee) shall be eligible to receive a matching contribution pursuant to Section 4.2 of the Plan, irrespective of whether such participants have completed the service requirement thereunder.
(d)    Service. Service with “Resource Consultants, Inc. USPS MTSC (effective March 1, 2004)” shall be credited for purposes of the Plan.
4.    Multimax, Inc. 401(k) Retirement Savings Plan
(a)    In General. Multimax Incorporated (“Multimax”) formerly sponsored the Multimax, Inc. 401(k) Retirement Savings Plan (the “Multimax Plan”), which plan was frozen as to new participants and new contributions effective September 7, 2007. Effective September 8, 2007, Multimax became an Employer under this Plan. The Multimax Plan shall be merged with and into this Plan effective December 31, 2007.
(b)    Match Eligibility. Participants who were employed by Multimax on September 7, 2007 shall be eligible to receive a matching contribution pursuant to Section 4.2 of the Plan effective as of the first day of the calendar month coinciding with or following 30 days of employment with Multimax or any Affiliate thereof.
(c)    Vesting. The Profit Sharing Accounts of Participants who were employed by Multimax on September 7, 2007 shall be 100% vested and nonforfeitable. The vested and nonforfeitable percentage of the Matching Accounts of Participants who were employed by Multimax on September 7, 2007 shall be determined as follows by reference to a Participant’s Years of Service as of the date of the Participant’s termination of employment:
Years of Service            Percentage
Less than 1                 0%
At least 1 but less than 2         33%
At least 2 but less than 3         66%
3 or more                 100%
(d)    Service. Service with “Legacy Multimax Inc.” shall be credited for purposes of the Plan.
5.    Crucial Security, Inc. 401(k) Plan
Crucial Security, Inc. (“Crucial”) maintained the Crucial Security, Inc. 401(k) Plan (the “Crucial Plan”), which plan was frozen as to new participants and new contributions effective April 15, 2009. Effective April 16, 2009, Crucial became an Employer under this Plan. The Crucial Plan was merged with and into this Plan effective August 28, 2009.
6.    Patriot Technologies, LLC 401(k) Plan
(a) In General. Harris Patriot Healthcare Solutions, LLC (“Harris Patriot”) maintained the Patriot Technologies, LLC 401(k) Plan (the “Patriot Plan”), which plan was frozen as to new participants and new contributions effective November 30, 2009. Effective December 1, 2009, Harris Patriot became an Employer under this Plan. The Patriot Plan was merged with and into this Plan effective June 16, 2010.
(b) Service. For purposes of the Plan, service with Global Technologies Group, Inc. shall be credited to former participants in the Patriot Plan.
7.    CapRock Communications, Inc. 401(k) Plan
(a) In General. CapRock Communications, Inc. (“CapRock”) maintained the CapRock Communications, Inc. 401(k) Plan (the “CapRock Plan”), which plan was frozen as to new participants and new contributions effective September 30, 2010. Effective October 1, 2010, CapRock and its subsidiaries (including without limitation, CapRock Government Solutions, Inc.) became Employers under this Plan. The CapRock Plan was merged with and into this Plan effective as of December 31, 2010.
(b) Service. For purposes of the Plan, service with McLeod USA and Arrowhead Global Solutions, Inc. shall be credited to former participants in the Caprock Plan.
(c) Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to former participants in the CapRock Plan who become eligible to participate in the Plan effective October 1, 2010.
8.    ADP TotalSource Retirement Savings Plan
(a) In General. Prior to April 4, 2011, Carefx Corporation (“Carefx”) participated in the ADP TotalSource Retirement Savings Plan, a multiple employer defined contribution plan sponsored by ADP TotalSource, Inc. (the “ADP Plan”). Effective as of April 4, 2011, Carefx became an Employer under this Plan. The assets and liabilities of the ADP Plan attributable to the employees and former employees of Carefx were transferred to this Plan in a trust-to-trust transfer effective as of September 1, 2011.
(b) Vesting. Notwithstanding any other provision in this Plan, former participants in the ADP Plan whose accounts under such plan were transferred to this Plan in a trust-to-trust transfer effective as of September 1, 2011 (“Former ADP Plan Participants”) shall be 100% vested in their Matching Accounts under this Plan.
(c) Military Leave Withdrawals. In the case of a military leave withdrawal pursuant to Section 9.1(e) of this Plan, a Former ADP Plan Participant shall be permitted to withdraw not only all or any portion of his or her Pre-Tax Account and Designated Roth Account, but also all or any portion of his or her Account attributable to matching contributions. Except as otherwise set forth in this item (c), any such withdrawal shall be subject to the terms and conditions of Section 9.1(e).
9.    Exelis Retirement Savings Plan
(a)    In General. Exelis Inc. (“Exelis”) maintained the Exelis Retirement Savings Plan, which plan was merged with and into this Plan effective December 31, 2015. Effective January 1, 2016, Exelis and certain subsidiaries of Exelis became Employers under this Plan.
10.    Former Employees of Tait Communications
(a)    In General. Effective on or around August 15, 2016, certain former employees of Tait Communications (the “Former Tait Employees”) became employed by the Company and its affiliates as a result of an agreement between the Company and Tait Communications pursuant to which the Company became the exclusive distributor in North America for certain products co-branded by the Company and Tait Communications.
(b)    Service. Service with Tait Communications shall be credited for purposes of the Plan with respect to the Former Tait Employees.

11.    L3 Technologies Master Savings Plan
(a)    In General. L3 Technologies, Inc. (“L3”) maintained the L3 Technologies Master Savings Plan (the “L3 Plan”), which plan was merged with and into this Plan effective December 31, 2019. Effective January 1, 2020, L3 and certain subsidiaries of L3 became Employers under this Plan.
(b)    Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to employees of L3 and its subsidiaries who became eligible to participate in the Plan effective January 1, 2020 as a result of the plan merger.
(c)    Match Eligibility. A former participant in the L3 Plan (an “L3 Participant”) eligible to receive matching contributions under the L3 Plan as of December 31, 2019 shall be eligible to receive matching contributions pursuant to Section 4.2 of the Plan, regardless of whether he or she has been credited with one Year of Service.
(d)    Vesting. If an L3 Participant’s employment with all Employers and Affiliates terminates under circumstances other than those set forth in Section 9.2(a), then the L3 Participant shall be entitled to receive the portion of his or her Account attributable to his or her Employer Contribution Account under the L3 Plan (the “L3 Employer Account”) in accordance with the vesting schedule(s) under the L3 Plan in effect on December 31, 2019 applicable to the L3 Employer Account, considering the L3 Participant’s Years of Service as of the date of the L3 Participant’s termination of employment. The portion of an L3 Participant’s Account attributable to his or her L3 Employer Account shall become fully vested on the date that the L3 Participant attains age 65 if the Participant is actively employed by an Employer or Affiliate on such date.
In addition, the portion of an L3 Participant’s Account attributable to matching contributions under the L3 Plan made on behalf of an hourly employee of the Ocean Systems Division pursuant to Appendix 20 (the “Ocean Systems Hourly Account”) shall be fully vested upon the L3 Participant’s (i) Disability or (ii) termination of employment by reason of retirement (including early retirement) under the terms of the L3Harris Ocean Systems Pension Plan for Hourly Employees or by reason of a manpower reduction or reorganization by the Employer.
(e)    In-Service Withdrawal of Vested L3 Employer Account. An L3 Participant who has attained age 55 may withdraw all or any part of the portion of his or her Account attributable to his or her L3 Employer Account, to the extent vested at the time of withdrawal. Such payment shall be in the form of a lump sum. For the avoidance of doubt, the L3 Employer Account for this purpose shall not include any amount attributable to participation in a money purchase pension plan.
(f)    In-Service Withdrawal of Ocean Systems Hourly Account. An L3 Participant who has been credited with five Years of Service may withdraw all or any part of the portion of his or her Account attributable to his or her Ocean Systems Hourly Account, to the extent vested at the time of withdrawal. Such payment shall be in the form of a lump sum.
(g)    Resumption of Contributions following Hardship Suspension. The contribution suspension for any L3 Participant whose contributions under the L3 Plan were suspended due to the Participant’s hardship withdrawal prior to January 1, 2020 shall cease to apply, effective January 1, 2020 (or as soon as practicable thereafter). Following the end of such suspension, contributions to the Plan by the Participant shall not resume until the Participant has affirmatively elected, in the manner prescribed by the Administrative Committee, to resume contributing to the Plan.
(h)    Beneficiary. Any designation of a beneficiary under the L3 Plan in effect at the time of the merger of the L3 Plan into this Plan shall remain in full force and effect until modified by the L3 Participant in accordance with Plan procedures; provided, however, that in the event that at the time of such merger the L3 Participant had a more recent beneficiary designation under this Plan, that more recent beneficiary designation shall govern until modified by the L3 Participant in accordance with Plan procedures.
12.    Autonomous Surface Vehicles, LLC 401(k) Profit Sharing Plan
(a)    In General. Autonomous Surface Vehicles, LLC (“ASV”) maintained the Autonomous Surface Vehicles, LLC 401(k) Profit Sharing Plan (the “ASV Plan”), which plan was merged with and into this Plan effective December 31, 2019. Effective January 1, 2020, ASV and any subsidiary thereof became an Employer under this Plan.
(b)    Automatic Enrollment. The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to employees of ASV or any subsidiary thereof who became eligible to participate in the Plan effective January 1, 2020 as result of the plan merger.
(c)    Match Eligibility. A former participant in the ASV Plan (an “ASV Participant”) eligible to receive matching contributions under the ASV Plan as of December 31, 2019 shall be eligible to receive matching contributions pursuant to Section 4.2 of the Plan, regardless of whether he or she has been credited with one Year of Service.
(d)    Vesting. If an ASV Participant’s employment with all Employers and Affiliates terminates under circumstances other than those set forth in Section 9.2(a), then the ASV Participant shall be entitled to receive the portion of his or her Matching Account and Profit Sharing Account attributable to participation in the ASV Plan in accordance with the following vesting schedule, by reference to the ASV Participant’s Years of Service as of the date of the ASV Participant’s termination of employment:
Years of Service
Percentage
Less than 1
0
%
At least 1 but less than 2
50
%
2 or more
100%


(e)    In-Service Withdrawal upon Disability. An ASV Participant may elect an in-service withdrawal of all or a portion of his or her Account upon or following his or her Disability. Withdrawal shall be in the form of a lump sum.
(f)    Resumption of Contributions following Hardship Suspension. The contribution suspension for any ASV Participant whose contributions under the ASV Plan were suspended due to the Participant’s hardship withdrawal prior to January 1, 2020 shall cease to apply, effective January 1, 2020 (or as soon as practicable thereafter). Following the end of such suspension, contributions to the Plan by the Participant shall not resume until the Participant has affirmatively elected, in the manner prescribed by the Administrative Committee, to resume contributing to the Plan.
(g)    Beneficiary. Any designation of a beneficiary under the ASV Plan in effect at the time of the merger of the ASV Plan into this Plan shall be void and of no effect on and after January 1, 2020.
(h)    Service. For purposes of the Plan, service with C&C Technologies shall be credited to ASV Participants.


SCHEDULE B
Special Rules Applying to Divestiture Accounts and Divestiture Participants
This Schedule B sets forth special rules applying to Divestiture Accounts and Divestiture Participants (each as defined in Section 15.4 of the Plan). Each of the provisions of the Plan shall be fully applicable to the Divestiture Accounts and Divestiture Participants, to the extent that such provisions are not inconsistent with this Schedule B. All capitalized terms used in this Schedule B and not otherwise defined herein shall have the meanings assigned to them by the Plan.
1.    Divestiture of the Broadcast Communications Division
(a) In General. The Company has entered into an Asset Sale Agreement with HBC Solutions, Inc. (formerly known as Gores Broadcast Solutions, Inc.) dated as of December 5, 2012 pursuant to which the Company will sell its Broadcast Communications Division (such agreement, as it may be amended from time to time, the “BCD Asset Sale Agreement”). The Employees who will cease to be employed by the Company as a result of such transaction shall be designated herein as “BCD Employees.”
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Initial Closing Date” (as such term is defined in the BCD Asset Sale Agreement), the BCD Employees shall be 100% vested in their Accounts under the Plan.
2.    Divestiture of the Healthcare Solutions Business Unit
(a) In General. The Company has entered into an Asset Sale Agreement with Nant Health, LLC dated as of June 16, 2015 pursuant to which the Company will sell its Healthcare Solutions Business Unit (such agreement, as it may be amended from time to time, the “HCS Asset Sale Agreement”). The Employees who will cease to be employed by the Company as a result of such transaction shall be designated herein as “HCS Employees.”
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Closing Date” (as such term is defined in the HCS Asset Sale Agreement), the HCS Employees shall be 100% vested in their Accounts under the Plan.
3.    Sale of Blue Falcon I Inc. (i.e., the Aerostructures Business of EDO LLC)
(a) In General. The Company has entered into a Stock Purchase Agreement with Blue Falcon I Inc. and Albany International Corp. dated as of February 27, 2016 pursuant to which the Company will sell the Aerostructures business of EDO LLC (such agreement, as it may be amended from time to time, the “Blue Falcon Purchase Agreement”).
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Closing Date” (as such term is defined in the Blue Falcon Purchase Agreement), the “Business Employees” and the “Leave Employees” (as each such term is defined in the Blue Falcon Purchase Agreement) shall be 100% vested in their Accounts under the Plan.
4.    Divestiture of the Harris CapRock Communications Business
(a) In General. The Company has entered into a Sale Agreement with Speedcast International Limited dated as of November 1, 2016 pursuant to which the Company will sell the Harris CapRock Communications business to Speedcast International Limited (such agreement, as it may be amended from time to time, the “HCC Sale Agreement”).
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Initial Closing Date” (as such term is defined in the HCC Sale Agreement), the “Transferred U.S. Employees” (as such term is defined in the HCC Sale Agreement) shall be 100% vested in their Accounts under the Plan.
5.    Divestiture of the Critical Networks Government Services Business
(a) In General. The Company has entered into a Sale Agreement with MHVC Acquisition Corp. dated as of January 26, 2017 pursuant to which the Company will sell to MHVC Acquisition Corp. a certain portion of the Company’s government services business operated within its Critical Networks segment (such agreement, as it may be amended from time to time, the “Magnolia Sale Agreement”).
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Closing Date” (as such term is defined in the Magnolia Sale Agreement), the “Transferred U.S. Employees” (as such term is defined in the Magnolia Sale Agreement) shall be 100% vested in their Accounts under the Plan.
6.    Divestiture of the Night Vision Business
(a) In General. The Company has entered into an Asset Purchase Agreement with Elbit Systems Ltd. dated as of April 4, 2019 pursuant to which the Company will sell to Elbit Systems Ltd. its Night Vision business (such agreement, as it may be amended from time to time, the “Night Vision Sale Agreement”).
(b) Vesting. Notwithstanding any other provision in the Plan, effective as of the “Closing Date” (as such term is defined in the Night Vision Sale Agreement), the “Transferred Employees” (as such term is defined in the Night Vision Sale Agreement) shall be 100% vested in their Accounts under the Plan.



APPENDIX 1
MONEY PURCHASE PENSION ACCOUNTS

This Appendix 1 shall apply solely to a Participant with an Account that is attributable, in total or in part, to a Money Purchase Pension Account (such Participant, a “Money Purchase Participant”).

A.
Form of Distribution.     Except as otherwise set forth in this Appendix 1, the Account of a Money Purchase Participant shall be distributed in the form of a single life annuity or, in the case of a Money Purchase Participant who is legally married on his or her annuity commencement date, in the form of a Joint and Survivor Annuity or, if the Money Purchase Participant has died prior to the annuity commencement date, a Pre-Retirement Survivor Annuity. Any annuity payable under this Appendix 1 shall be satisfied by purchase of a nonforfeitable annuity contract for the Money Purchase Participant or Spouse, as applicable.
B.
Joint and Survivor Annuity.    The term “Joint and Survivor Annuity” means an annuity for the life of the Money Purchase Participant with a survivor annuity for the life of his or her surviving Spouse which is equal to 50, 75 or 100 percent of the amount of the annuity payable during the joint lives of the Money Purchase Participant and his or her Spouse and which is the actuarial equivalent of a single life annuity for the life of the Money Purchase Participant.
As soon as practicable after a married Money Purchase Participant’s annuity commencement date, the Administrative Committee will provide him or her with election information consisting of:
(2)
a written description of the Joint and Survivor Annuity and the relative financial effect of payment of his or her Account in that form; and
(3)
a notification of the right to waive payment in that form, the rights of his or her Spouse with respect to such waiver and the right to revoke such waiver.
During an election period commencing on the date the Money Purchase Participant receives such election information and ending on the later of the 180th day thereafter or the date as of which his or her benefits are to commence, a Money Purchase Participant may waive payment in the Joint and Survivor Annuity form and elect payment in a form permitted under Section 9.3(c) of the Plan provided that the Money Purchase Participant’s surviving Spouse, if any, has consented in writing to such waiver and the Spouse’s consent acknowledges the effect of such revocation and is witnessed by a notary public. A Money Purchase Participant may, at any time during his or her election period, revoke any prior waiver of the Joint and Survivor Annuity form. A Money Purchase Participant may request, in a writing filed with the Administrative Committee during his or her election period, an explanation, written in nontechnical language, of the terms, conditions and financial effect (in terms of dollars per monthly benefit payment) of payment in the Joint and Survivor Annuity form. If not previously provided to the Money Purchase Participant, the Administrative Committee shall provide the Money Purchase Participant with such explanation within 30 days of his or her request, and the Money Purchase Participant’s election period will be extended, if necessary, to include the 180th day following the date on which he or she receives such explanation. No distribution shall be made from the Account until the Money Purchase Participant’s election period has terminated. Notwithstanding the foregoing, if the Money Purchase Participant’s Account balance does not exceed $5,000, the Account will be distributed in accordance with Section 9.4 of the Plan.

C.
Pre-Retirement Survivor Annuity.    The term “Pre-Retirement Survivor Annuity” means an annuity for the life of the Money Purchase Participant’s surviving Spouse, the payments under which must be equal to the amount of benefit that can be purchased with the balance in the Money Purchase Participant’s Account as of the date of his or her death. Payment of such benefits will commence as soon as practicable after the date of the Money Purchase Participant’s death, unless the surviving Spouse elects a later date. Any election to waive the Pre-Retirement Survivor Annuity must be made by the Money Purchase Participant in writing during the election period described herein and shall require the Spouse’s consent in the same manner provided for in paragraph B. The election period to waive the Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year in which the Money Purchase Participant attains age 35 and end on the date of the Money Purchase Participant’s death. In the event a Money Purchase Participant separates from service prior to the beginning of the election period, the election period shall begin on the date of such separation from service. In connection with the election, the Administrative Committee shall provide each Money Purchase Participant, within the period beginning with the first day of the Plan Year in which the Money Purchase Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Money Purchase Participant attains age 35, a written explanation of the Pre-Retirement Survivor Annuity containing comparable information to that required pursuant to the provisions of paragraphs B(1) and B(2). If the Money Purchase Participant enters the Plan after such election period has terminated, the Administrative Committee shall provide such explanation no later than one year following the entry of the Money Purchase Participant into the Plan. If the Money Purchase Participant is not married as of the date of his or her death, the Money Purchase Participant’s Account shall be distributed to his or her Beneficiary in the form elected by the Beneficiary pursuant to Section 9.3(c) of the Plan. Notwithstanding the foregoing, if the Participant’s distributable Account balance does not exceed $5,000, the Account will be distributed in a lump sum.

APPENDIX 2
FORMER EXELIS INFORMATION SYSTEMS
PROFESSIONAL BENEFITS EMPLOYEES’ SAVINGS PLAN

This Appendix 2 applies to a Participant who was regularly employed by the Information Systems division of Exelis Inc. under the contracts listed below and who was hired on or after the date set forth below for such person’s specific contract but prior to January 1, 2016 (an “Information Systems Participant”). Certain Information Systems Participants previously participated in the Exelis Information Systems Professional Benefits Employees’ Savings Plan (the “Professional Employees’ Savings Plan”), of which this Plan is a successor. The provisions of this Appendix 2 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 2 with the Plan. Capitalized terms not otherwise defined in this Appendix 2 are defined in Article 2 of the Plan.


Contract Name
Effective Date
Business and Financial Management Support (BFMS)
July 15, 2004
Electromagnetic Spectrum Engineering Services (ESES)
August 5, 2005
Engineering, Technical and Programmatic Support Services Electronic Warfare (EW) – Surface and Airborne (“Crane”)
March 24, 2007
Advisory and Assistance Services (A&AS) for United States Strategic Command (USSTRATCOM) Systems and Mission Support (“USAMS II”)
March 9, 2009
Commander, Navy Installations Command (CNIC)
August 24, 2009
JTF-GN Cyber Defense, Analysis, Operations and Strategic Planning Support (JTF-GN)
October 2, 2009
JIEDDO Omnibus (Omnibus)
April 1, 2010
Solutions for Intelligence Analysis, US Forces to Afghanistan
September 15, 2010
Space Communications Network Services (SCNS)
April 11, 2011
Enterprise Communications Support Systems (ECSS)
September 30, 2011
US INSCOM OMNIB III Program
November 12, 2011
Wideband Satellite Operations and Technical Support (WSOTS)
February 1, 2012
JIEDDO Operations Support Services
March 26, 2012
FAA Command and Control Communications Program Support
April 2, 2012
Global Combat Support System – Marine Corps Sustainment Training (GCSS MC Sustainment Training)
October 15, 2013
Deep Space Network (DSN)
January 1, 2014


Article 9
WITHDRAWALS AND DISTRIBUTIONS
Section 9.1 Withdrawals Prior to Termination of Employment
Notwithstanding any other provision in this Plan, an Information Systems Participant may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Professional Employees’ Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

Section 9.2 Vested Share of Account
Notwithstanding any other provision in this Plan, the entire Account of an Information Systems Participant shall be 100% vested and nonforfeitable.

APPENDIX 3
ES/IEWS EMPLOYEES

This Appendix 3 applies to any person employed by the Electronic Systems/Integrated Electronic Warfare Systems divisions of the Company who is a member of the bargaining unit represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers (I.U.E.)/Communications Workers of America, Local Union 81447, NJ location (an “ES/IEWS Employee”). Certain ES/IEWS Employees previously participated in the Exelis Avionics Division and Exelis Communications Solutions Bargaining Unit Savings Plan (the “Avionics Savings Plan”), of which this Plan is a successor. Any references in this Appendix 3 to the Avionics Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 3 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 3 with the Plan. Capitalized terms not otherwise defined in this Appendix 3 are defined in Article 2 of the Plan.

Article 2
DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 3 means a Participant’s W-2 wages, including overtime, shift premium, etc., which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 3 means an ES/IEWS Employee; provided, however, that an ES/IEWS Employee who is a temporary employee shall not be eligible to participate in the Plan.

For the avoidance of doubt, a Participant who is absent from service due to layoff shall not experience a termination of employment for purposes of this Plan until he or she no longer has recall rights under the Company’s applicable layoff policy.

Article 3
PARTICIPATION

An Employee entitled to participate in the Plan pursuant to this Appendix 3 shall become a Participant as of the first day of the month following one month of Service.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to an ES/IEWS Employee.

Article 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 3 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 3 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 3 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 6 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

Article 9
WITHDRAWALS AND DISTRIBUTIONS
Section 9.1 Withdrawals Prior to Termination of Employment
Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 3 may withdraw all or part of his or her vested Matching Account attributable to Plan Years commencing prior to January 1, 2020, provided that such matching contributions have been in the Avionics Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Avionics Savings Plan) from the Avionics Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Avionics Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

Section 9.2 Vested Share of Account
Notwithstanding any other provision in the Plan, but subject to Section 9.2(a), a Participant who is entitled to matching contributions pursuant to this Appendix 3 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Avionics Savings Plan) credited in the Avionics Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

Service
Nonforfeitable Percentage
less than 1 year
0
%
1 but less than 2 years
20
%
2 but less than 3 years
40
%
3 but less than 4 years
60
%
4 but less than 5 years
80
%
5 or more years
100
%

Article 10
LOANS

A Participant whose Account is subject to this Appendix 3 shall be charged a fee equal to $35 for each loan originated pursuant to Article 10 of the Plan.
APPENDIX 4
NIGHT VISION EMPLOYEES

This Appendix 4 applies to any person employed by the Night Vision division of the Company who is a member of the bargaining unit represented by the IUE, the Industrial Division of the Communications Workers of America AFL-CIO and Local 82162 (a “Night Vision Employee”). Certain Night Vision Employees previously participated in the Exelis Night Vision Savings Plan for Hourly Employees (the “Night Vision Savings Plan”), of which this Plan is a successor. Any references in this Appendix 4 to the Night Vision Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 4 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 4 with the Plan. Capitalized terms not otherwise defined in this Appendix 4 are defined in Article 2 of the Plan.

Article 2
DEFINITIONS

“Employee” for purposes of this Appendix 4 means a Night Vision Employee.

Article 3
PARTICIPATION

No Employee shall newly participate in the Plan pursuant to this Appendix 4 on or after September 15, 2019.

Article 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS

No matching or other contribution to the Plan shall be made pursuant to this Appendix 4 with respect to service on or after September 15, 2019.

Article 9
WITHDRAWALS AND DISTRIBUTIONS
Section 9.1 Withdrawals Prior to Termination of Employment
Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 4 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Night Vision Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Night Vision Savings Plan) from the Night Vision Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Night Vision Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.


Section 9.2 Vested Share of Account
Notwithstanding any other provision in the Plan, but subject to Section 9.2(a) and section 6 of Schedule B, a Participant who was entitled to matching contributions pursuant to this Appendix 4 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Night Vision Savings Plan) credited in the Night Vision Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

Service
Nonforfeitable Percentage
less than 1 year
0
%
1 but less than 2 years
20
%
2 but less than 3 years
40
%
3 but less than 4 years
60
%
4 but less than 5 years
80
%
5 or more years
100
%



APPENDIX 5
ELECTRONIC SYSTEMS EMPLOYEES

This Appendix 5 applies to any person employed by the Electronic Systems division of the Company who is a member of the bargaining unit represented by the IUE-CWA Local 84999 (an “Electronic Systems Employee”). Certain Electronic Systems Employees previously participated in the Exelis Communications Solutions Savings Plan for Hourly Employees (the “Communications Solutions Savings Plan”), of which this Plan is a successor. Any references in this Appendix 5 to the Communications Solutions Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 5 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 5 with the Plan. Capitalized terms not otherwise defined in this Appendix 5 are defined in Article 2 of the Plan.

Article 2
DEFINITIONS

“Employee” for purposes of this Appendix 5 means an Electronic Systems Employee.

Article 3
PARTICIPATION

No Employee shall newly participate in the Plan pursuant to this Appendix 5 on or after June 24, 2016.

Article 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS

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.

Article 9
WITHDRAWALS AND DISTRIBUTIONS
Section 9.1 Withdrawals Prior to Termination of Employment
Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 5 may withdraw all or part of his or her vested Matching Account provided that such matching contributions have been in the Communications Solutions Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the Communications Solutions Savings Plan) from the Communications Solutions Savings Plan as in effect prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the Communications Solutions Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.


Section 9.2 Vested Share of Account
Notwithstanding any other provision in the Plan, but subject to Section 9.2(a) of the Plan, a Participant who is entitled to matching contributions pursuant to this Appendix 5 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the Communications Solutions Savings Plan) credited in the Communications Solutions Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

Service
Nonforfeitable Percentage
less than 1 year
0
%
1 but less than 2 years
20
%
2 but less than 3 years
40
%
3 but less than 4 years
60
%
4 but less than 5 years
80
%
5 or more years
100
%
.

vii




APPENDIX 6
PMRF EMPLOYEES

This Appendix 6 applies to any person employed by L3Harris Technologies, Inc. Critical Networks, Pacific Missile Range Facility, other than an Excluded PMRF Individual (a “PMRF Employee”). For this purpose, an Excluded PMRF Individual means an individual who is engaged by an Employer to perform services in a relationship (i) that the Employer characterizes as other than an employment relationship, or (ii) that the individual has agreed is not an employment relationship and has waived his or her rights to coverage as an employee, such as where the Employer engages the individual to perform services as an independent contractor, even if a determination is made by the Internal Revenue Service or other governmental agency or court, after the individual is engaged to perform such services, that the individual is an employee of the Employer for purposes of the Code.

Certain PMRF Employees previously participated in the Exelis Information Systems Pacific Missile Range Facility Savings Plan for Hourly Employees (the “PMRF Savings Plan”), of which this Plan is a successor. Any references in this Appendix 6 to the PMRF Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 6 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 6 with the Plan. Capitalized terms not otherwise defined in this Appendix 6 are defined in Article 2 of the Plan.

Article 2
DEFINITIONS

Notwithstanding any other provision in the Plan, “Compensation” for purposes of this Appendix 6 means a Participant’s straight time base pay, overtime, including double time, and compensation payable through a formal sales incentive plan, but excluding shift premiums, bonuses, living and other allowances, etc., which is paid during the Plan Year and determined prior to any pre-tax contributions made on behalf of a Participant to the Plan.

Notwithstanding any other provision in the Plan, “Employee” for purposes of this Appendix 6 means a PMRF Employee; provided, however, that a PMRF Employee who is a temporary employee shall not be eligible to participate in the Plan.

For the avoidance of doubt, a Participant who is absent from service due to layoff shall not experience a termination of employment for purposes of the Plan until he or she no longer has recall rights under the Company’s applicable layoff policy.


6-1




Article 3
PARTICIPATION

An Employee entitled to participate in the Plan pursuant to this Appendix 6 shall become a Participant as of the first day of the month following one month of Service.

The provisions of Section 3.2(b) of the Plan with respect to deemed elections to participate in the Plan by Full-Time Employees shall not apply to a PMRF Employee.


Article 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS

Notwithstanding any provision in Section 4.2(a) of the Plan, an Employee who is entitled to participate in the Plan pursuant to this Appendix 6 shall be entitled to receive matching contributions each payroll period equal to 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such payroll period which are at least 1 percent of his or her Compensation and no more than 4 percent of his or her Compensation for such payroll period, which shall be credited to such Participant’s Matching Account. An Employee who is entitled to participate in the Plan pursuant to this Appendix 6 shall not be required to complete one Year of Service as a condition of eligibility for a matching contribution.

If as of the last day of the Plan Year, the amount of matching contributions allocated to an Employee for such Plan Year pursuant to this Appendix 6 is less than 50 percent of the aggregate of the Participant’s pre-tax, designated Roth and after-tax contributions for such Plan Year which are at least 1 percent of his or her Compensation and no more than 4 percent of his or her Compensation for such Plan Year, the Employer shall make a matching contribution on behalf of such Employee in an amount equal to the difference; provided, however, that such true-up matching contribution shall not be made with respect to an Employee who terminates employment during the Plan Year.

Article 9
WITHDRAWALS AND DISTRIBUTIONS
Section 9.1 Withdrawals Prior to Termination of Employment
Notwithstanding any other provision in the Plan, a Participant whose Account is subject to this Appendix 6 may withdraw all or part of his or her vested Matching Account attributable to Plan Years commencing prior to January 1, 2020, provided that such matching contributions have been in the PMRF Savings Plan, the Exelis Retirement Savings Plan or this Plan, or a combination thereof, for at least 24 months prior to such withdrawal.

If a Participant made a withdrawal of his or her Matching Employer Contributions Account (as defined in Section 1.24 of the PMRF Savings Plan) from the PMRF Savings Plan as in effect

6-2



prior to July 1, 1999, that resulted in a forfeiture of a portion of his or her Matching Employer Contributions Account, the Participant may repay in full his or her Matching Employer Contributions (as defined in Section 1.23 of the PMRF Savings Plan) distributed to him or her prior to incurring a Break in Service of five consecutive years. Upon such repayment the forfeited portion of his or her Matching Employer Contributions shall be restored. Repayments of Matching Employer Contributions shall be credited to his or her Matching Account without earnings.

Section 9.2 Vested Share of Account
Notwithstanding any other provision in the Plan, but subject to Section 9.2(a) of the Plan, a Participant who is entitled to matching contributions pursuant to this Appendix 6 shall become vested in, and have a nonforfeitable right to, his or her Matching Account based on his or her Years of Service (as defined in Section 1.44 of the PMRF Savings Plan) credited in the PMRF Savings Plan plus his or her Service from and after January 1, 2015, as set forth in the following provisions:

Service
Nonforfeitable Percentage
less than 1 year
0
%
1 but less than 2 years
20
%
2 but less than 3 years
40
%
3 but less than 4 years
60
%
4 but less than 5 years
80
%
5 or more years
100
%

Article 10
LOANS

A Participant who is a member of the bargaining unit represented by the IBEW – Main Unit, IBEW – Security Unit or the IBU and whose Account is subject to this Appendix 6 shall not be charged an origination fee for loans made pursuant to Article 10 of the Plan.
APPENDIX 7
BENEFIT GROUP EMPLOYEES

This Appendix 7 applies to any individual who is regularly employed by the Company and included in a benefit group specified in Exhibit A hereto (such an employee, a “Benefit Group Employee”). Certain Benefit Group Employees previously participated in the Exelis IS Retirement Savings Plan (the “IS Savings Plan”), of which this Plan is a successor. Any references in this Appendix 7 to the IS Savings Plan shall mean such plan as in effect on December 31, 2014, the date immediately prior to such plan’s merger into the Exelis Retirement Savings Plan. The provisions of this Appendix 7 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 7 with the Plan. Capitalized terms not otherwise defined in this Appendix 7 are defined in Article 2 of the Plan.

Article 2
DEFINITIONS

“Employee” for purposes of this Appendix 7 means a Benefit Group Employee.
    
Article 3
PARTICIPATION

No Employee shall newly participate in the Plan pursuant to this Appendix 7 on or after April 28, 2017.

Article 4
PRE-TAX, DESIGNATED ROTH, MATCHING, PROFIT SHARING, FRINGE AND OTHER EMPLOYER CONTRIBUTIONS

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.
Article 9
WITHDRAWALS AND DISTRIBUTIONS

Section 9.2 Vested Share of Account

Notwithstanding any other provision in this Plan, the entire Account of a Benefit Group Employee shall be 100% vested and nonforfeitable.




EXHIBIT A – BENEFIT GROUPS AND PROJECTS
(Effective 1/1/16)
This list identifies all union contracts in which the Benefit Group Employees are employed. This list will be amended from time to time to reflect changes in union contracts.

Benefit Group
Description
Matching Contributions
Company Base Contributions
Deep Space Network Contract
 
 
 
1. DSNUNION  
1. Union EEs
1. 50% to 10%
1. $220 per month
Space Communications Network Services (SCNS)
 
 
 
1. SCNS UN
1. Union EEs
1. No Match
1. No Base

Tethered Aerostat Radar Systems (TARS)
 
 
 
1. TARSUNYUM
1. Union EEs
1. No Match
1.    3%
2. TARSUNHUA
2. Union EEs
2. No Match
2.    3%
3. RARSUNDEM
3. Union EEs
3. No Match
3.    3%
4. TARUNEAGL
4. Union EEs
4. No Match
4.    1%
5. TARSUNRIO
5. Union EEs
5. No Match
5.    1%
6. TARSUNCUJ
6. Union EEs
6. No Match
6.    3%
7. TARSUNMAR
7. Union EEs
7. No Match
7.    1%
 
 
 
    


APPENDIX 8
OTHER SPECIFIED GROUPS
This Appendix 8 applies to Employees who are members of the bargaining units or other specified groups identified below. The provisions of this Appendix 8 that modify the Plan’s terms shall be construed in a manner that harmonizes this Appendix 8 with the Plan. Capitalized terms not otherwise defined in this Appendix 8 are defined in Article 2 of the Plan.
Bargaining Unit/Specified Group
Maximum Deferral Percentage
Match Eligibility
MATCH FORMULA
Match on Catch-Up
Other Employer Contributions
Plan Expenses
Cincinnati Electronics Business Unit (PA2107)
Cincinnati Electronics & International Brotherhood of Electrical Workers (IBEW 648) – Local Union 648 (205)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan
Combat Propulsion Systems Business Unit (2084)
Combat Propulsion Systems & International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) and its Local 113 (232)
Aerospace and Agricultural Implement Workers of America (UAW) and its Local 1279 (CBU) and (TBU) (233)
25% (pre-tax, after-tax and designated Roth combined)
Immediate
(No Year of Service requirement)
100% of 5%
Yes, to be made on a Plan Year basis, provided that the Participant defers an amount during the Plan Year equal to the section 402(g) limit
No
Employer pays record-keeping and in-service withdrawal expenses
Communication Systems East Business Unit (PA2005)
Communication Systems East & International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers – Communications Workers of America, (AFL-CIO), Local 103 (173)
Communication Systems East & International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers – Communications Workers of America, (AFL-CIO), Local 110 (265)
Communication Systems East & International Federation of Professional & Technical Engineers, AFL-CIO, Local 241 (172)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan
Communication Systems East Business Unit (PA2005)
Communication Systems East & Association of Scientists and Professional Engineering Personnel (ASPEP)
Base Plan
Base Plan
Base Plan
No
No
Base Plan
Doss Business Unit (PA2668)
International Association of Machinists and Aerospace Workers, AFL-CIO, and its Local Lodge No. 47 (IAM 47) (432)
Service Contract Act employees
Base Plan
No Match
No Match
No
No
Base Plan
Electron Devices Business Unit (PA2169)
Electron Devices & United Brotherhood of Carpenters and Joiners of America, Local 721 (105)
Electron Devices & International Brotherhood of Electrical Workers, Local 2295 (IBEW 2295) (160)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan
KEO Business Unit (2399)
KEO & Hassett Lodge No. 1420 of District 15 of the International Association of Machinists and Aerospace Workers (IAMAW) (244)
25% (pre-tax, after-tax and designated Roth combined)
Immediate
(No Year of Service requirement)
50% of 6%
Yes, to be made on a Plan Year basis, provided that the Participant defers an amount during the Plan Year equal to the section 402(g) limit
No
Employer pays record-keeping and in-service withdrawal expenses
Link Simulation & Training Business Unit (2144)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Union 2949, Tuscon ANG, AZ (IAMHW 2949), F-16 Program (134)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 519, Luke AFB, AZ (IAMHW 519), F-16 TS Program (143)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 2003, District Lodge 75, Ft. Rucker, AL (IAMHW 2003), FSXXI Program (144)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 771, Creech AFB, NV (IAMHW 771), PMATS Program (149)
25% (pre-tax, after-tax and designated Roth combined)
Immediate
(No Year of Service requirement)
100% of 4%
No
No
Base Plan
Link Simulation & Training Business Unit (2144)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 850, District Lodge 171, Tinker AFB, OK (IAMAW 850), E-6 ELDES Program (122)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, District Lodge 171, Local Lodge 850, Tinker AFB, OK (IAMAW 850), E-3 Program (145)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, District Lodge 131, Local Lodge 1034, Warner Robins AFB, GA (IAMHW 1034), J-STARS Program (148)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 711, Nellis AFB NV (IAMHW 711), F-16 MTC (159)
Link Simulation & Training & International Association of Machinists and Aerospace Workers Local, Lodge 778, Whiteman AFB, MO (IAMHW 778), B-2 Program (140)
25% (pre-tax, after-tax and designated Roth combined)
Immediate
(No Year of Service requirement)
100% of 5%
No
No
Base Plan
Link Simulation & Training Business Unit (2144)
Service Contract Act employees
Base Plan
No Match
No Match
No
No
Base Plan
Link Simulation & Training Business Unit (2144)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 568, Hill AFB, UT (IAMHW 568), F-16 TS Program (147)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 2003, District Lodge 75, Ft Rucker, AL (IAMHW 2003), ATMP Program (454)
Link Simulation & Training & International Association of Machinists and Aerospace Workers, Local Lodge 2003, District Lodge 75, Ft Rucker, AL (IAMHW 2003), ATMP AVCATT Program (451)
Base Plan
Base Plan
100% of 5%
No
No
Base Plan
L3 Unidyne Inc. Business Unit (PA2221)
Unidyne & International Association of Machinists and Aerospace Workers, District Lodge 947 and its Affiliated Local Lodge 389 (IAM 389) (273 & 275)

Unidyne & International Brotherhood of Electrical Workers, Local Union 569 (IBEW 569) (274)
Base Plan
No Match
No Match
No
No
Base Plan
Mission Integration Division Business Unit (2012)
Mission Integration Division—Greenville, International Union, United Automobile Aerospace and Agricultural Implement Workers of America (UAW) and its Local 967) (200)
Base Plan
Base Plan
100% of 5% if participant in Company pension plan; otherwise, 100% of 6%
No
No
Base Plan
Ocean Systems Business Unit (PA2132)
Ocean Systems & International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) and its Local 179 (272)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan
Space & Navigation Business Unit (PA 2129)
Space & Navigation & International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) (204)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan
SPD Electrical Systems Business Unit (2181)
SPD Electrical Systems & United Automobile Aerospace and Agricultural Implement Workers of America (UAW) and its Local 1612, Amalgamated (203)
Base Plan
Base Plan
100% of 6%
No
Defined Contribution Retirement Plan (DCRP) contribution of 2% of Compensation each payroll period if hired prior to June 1, 2015 and have remained continuously employed by SPD since June 1, 2015. The DCRP contribution (as adjusted for earnings and losses) is fully vested.
Base Plan
Telemetry & RF Products Business Unit (PA2063)
Telemetry RF Products Bristol & IUE/CWA the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, Local 123 AFL-CIO (285)
Base Plan
Base Plan
100% of 6%
No
No
Base Plan




6-3
Exhibit 10(h)


L3HARRIS EXCESS RETIREMENT SAVINGS PLAN

ARTICLE I
– TITLE, PURPOSE AND EFFECTIVE DATE
Section 1.1. Title. The title of this plan shall be the “L3Harris Excess Retirement Savings Plan”.
Section 1.2. Purpose. This plan shall constitute an unfunded nonqualified deferred compensation arrangement established for the purpose of providing deferred compensation for a select group of management or highly compensated employees (within the meaning of ERISA).
Section 1.3. Effective Date. This plan originally was effective as of January 1, 2009, and as amended and restated (and renamed) is effective as of January 1, 2020. This plan is an amendment and restatement of the Harris Corporation 2005 Supplemental Executive Retirement Plan as in effect on December 31, 2019. This plan originally governed (i) deferrals described herein for services performed in calendar years commencing on or after January 1, 2005 (and earnings thereon) and (ii) deferrals under the Prior Harris SERP that were not earned and vested as of December 31, 2004 (and earnings thereon). This plan also reflects the merger into this plan, effective as of December 31, 2019, of the Prior Harris SERP and the L3 SSP II, in each case as defined below.
ARTICLE II
– DEFINITIONS
Each capitalized term used herein shall have the meaning set forth in the L3Harris Retirement Savings Plan, as amended from time to time, except as otherwise set forth below.
2.1.     Account – means an account established on the books of the Corporation, pursuant to Section 5.1, on behalf of a Participant. Subaccounts may be maintained within an Account (i) for each Plan Year with respect to which deferrals under the Plan are made on behalf of a Participant; (ii) for various sources of deferrals under the Plan made on behalf of a Participant and (iii) as otherwise established by the Committee. The Committee may permit a Participant to make separate distribution elections with respect to subaccounts within the Participant’s Account.
2.2.     Account Balance Plan – means an “account balance plan” as defined in Treasury Regulation §1.409A-1(c)(2)(i)(A) (whether elective or non-elective in nature) maintained by the Corporation or an Affiliate, including without limitation, this Plan (including amounts payable under the Appendices hereto), the EDO Nonqualified Deferred Compensation Plan (I and II) and the Corporation’s deferred vacation and paid time off obligations.
2.3.     Affiliate – means an entity, other than the Corporation, that would be treated as a single employer with the Corporation under sections 414(b) and (c) of the Code and accompanying regulations.
2.4.     Beneficiary – means a person entitled to receive Plan benefits in the event of the death of a Participant.

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2.5.     Code – means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
2.6.     Code Limits – means contribution limits under any of section 401(a)(17), 401(k)(3), 402(g) or 415 of the Code.
2.7.     Committee – means the Employee Benefits Committee of the Corporation. Reference herein to the Committee shall include any person or committee to whom the Committee has delegated any of its authority pursuant to Section 7.2, to the extent of such delegation.
2.8.     Compensation Committee – means the Compensation Committee of the Board of Directors of the Corporation. Reference herein to the Compensation Committee shall include any person or committee to whom the Compensation Committee has delegated any of its authority pursuant to Section 7.2, to the extent of such delegation.
2.9.     Compensation Deferral – means a deferral under the Plan equal to (i) Eligible Compensation that would have been contributed to the Retirement Plan as an elective deferral had Code Limits not applied and (ii) the matching contribution related thereto.
2.10.     Corporation – means L3Harris Technologies, Inc., a Delaware corporation, or any successor thereto.
2.11.     Election Form – means the form prescribed by the Committee which is completed by a Participant pursuant to Section 3.2 (which may be in written or electronic form). The Committee shall specify in the Election Form any limitations with respect to the percentage of the employee’s compensation that may be deferred in the aggregate under the Retirement Plan and Plan.
The Committee in its discretion may permit a Participant to make separate elections under the Plan with respect to %5.his or her Eligible Compensation for a Plan Year that is bonus or incentive compensation and%5. his or her Eligible Compensation for the Plan Year that is not bonus or incentive compensation (for the avoidance of doubt, in the event that such separate elections are permitted and the Participant does not make an affirmative election with respect to his or her bonus or incentive compensation, the Participant’s election with respect to his or her Eligible Compensation that is not bonus or incentive compensation shall apply to the bonus or incentive compensation).
2.12.     Eligible Compensation – means “Compensation” as defined in the Retirement Plan, except that the dollar limitation imposed on tax-qualified plans under section 401(a)(17) of the Code shall not apply.
2.13.     ERISA – means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder.
2.14.     Investment Committee – means the Investment Committee of the Corporation. Reference herein to the Investment Committee shall include any person or committee to whom the

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Investment Committee has delegated any of its authority pursuant to Section 7.2, to the extent of such delegation.
2.15.     L3 SSP II – means the L3 Technologies, Inc. Supplemental Savings Plan II, effective January 1, 2018, as amended from time to time.
2.16.     Participant – means an employee of the Corporation or an Affiliate who satisfies the requirements of Section 3.1 and, if applicable, files an Election Form.
2.17.     Plan – means this L3Harris Excess Retirement Savings Plan, which was amended and restated and renamed effective January 1, 2020, as amended from time to time.
2.18.     Plan Year – means the calendar year.
2.19.     Prior Harris SERP – means the Harris Corporation Supplemental Executive Retirement Plan, effective as of March 1, 2003, as amended from time to time, and under which contributions ceased effective December 31, 2004. References herein to the Prior Harris SERP mean deferrals thereunder that were earned and vested as of December 31, 2004 (and earnings thereon). References herein to the Prior Harris SERP do not include deferrals thereunder that were not earned and vested as of December 31, 2004 (and earnings thereon), which were transferred from the Prior Harris SERP to this Plan in connection with the original adoption of this Plan.
2.20.     Retirement Plan – means the L3Harris Retirement Savings Plan, as amended from time to time.
2.21.     Separation from Service – means a termination of employment with the Corporation and its affiliates within the meaning of Treasury Regulation §1.409A-1(h) (without regard to any permissible alternative definition thereunder). Notwithstanding any other provision herein, “affiliate” for purposes of determining whether a Participant has incurred a “Separation from Service” shall be defined to include all entities that would be treated as part of the group of entities comprising the Corporation under sections 414(b) and (c) of the Code and accompanying regulations, but substituting a 50% ownership level for the 80% ownership level set forth therein.
2.22.     Specified Employee – shall have the meaning set forth in the L3Harris Technologies, Inc. Specified Employee Policy for 409A Arrangements, as amended from time to time, or any successor thereto, which policy hereby is incorporated herein.
2.23.     Spouse – means a person who is legally married to a Participant under the laws of any domestic or foreign jurisdiction that has the legal authority to sanction marriages. For the avoidance of doubt, the term “Spouse” shall not include a person who, with a Participant, is in a domestic partnership, civil union or other similar formal relationship recognized by applicable law.
2.24.     Testing Failure Matching Deferral – means a deferral under the Plan equal to a matching contribution that would have been made to the Retirement Plan had section 401(m)(2)(A) or 415

3


of the Code not limited the matching contributions made thereunder. For the avoidance of doubt, “Testing Failure Matching Deferrals” shall not include matching contributions which are classified as “Compensation Deferrals” or “True Up Matching Deferrals” under the Plan, which are subject to the terms thereof.
2.25.     True Up Matching Deferral – means a deferral under the Plan for a Plan Year equal to the True Up Amount, as adjusted for earning and losses through December 31 of such Plan Year, calculated as if the True Up Amount had been credited to the Account on the first pay date following the Limitations Date. For this purpose, the “True Up Amount” means the difference between (i) the matching contribution that would have been made to the Retirement Plan for such Plan Year had section 401(a)(17) of the Code not limited the matching contribution made thereunder and (ii) the matching contribution that was actually made to the Retirement Plan for such Plan Year. The “Limitations Date” is the first pay date during the Plan Year that the Participant’s matching contribution to the Retirement Plan was limited by section 401(a)(17) of the Code.
2.26.     Unforeseeable Emergency – means (i) a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s Spouse or the Participant’s dependent (as defined in section 152 of the Code, without regard to sections 152(b)(1), (b)(2) and (d)(1)(B)), (ii) the loss of a Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, irrespective of whether caused by a natural disaster) or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Examples of what may be considered to be Unforeseeable Emergencies include (a) the imminent foreclosure of or eviction from the Participant’s primary residence, (b) the need to pay for medical expenses, including non-refundable deductibles and the cost of prescription drug medication and (c) the need to pay for funeral expenses of a Participant’s Spouse or dependent.
ARTICLE III
– ELIGIBILITY AND PARTICIPATION
3.1.     Eligibility. An employee of the Corporation or an Affiliate shall be eligible to participate in the Plan for a Plan Year if (i) the employee is a participant in the Retirement Plan during the applicable Plan Year and the requirements set forth in (a), (b) or (c) below are satisfied or (ii) the Committee, in its sole discretion, designates the employee as eligible to participate in the Plan for the applicable Plan Year and the employee is a member of a select group of management or highly compensated employees (within the meaning of ERISA). Notwithstanding the foregoing, an employee of the Corporation or an Affiliate shall not be eligible to participate in the Plan if the employee has waived in writing participation in the Plan.
(a)    Compensation Deferrals. An employee who participates in the Retirement Plan shall be eligible to have Compensation Deferrals made under the Plan on his or her behalf for a Plan Year if the employee’s annual benefits base rate (as defined by the Corporation) for the applicable Plan Year is at least equal to the threshold amount for Plan participation in effect at that time as determined by the Committee in its sole discretion (the “Threshold Compensation Rate”). To be eligible for Compensation Deferrals for a Plan Year, the Threshold Compensation Rate must be attained by such employee as of the November 15 prior to the commencement of

4


the Plan Year, or in the case of an employee who is hired or promoted no later than the November 30 thereafter, no later than the November 30 prior to the commencement of the Plan Year. An employee who attains the Threshold Compensation Rate after such date shall not be eligible to have Compensation Deferrals made on his or her behalf with respect to such Plan Year. The Committee in its sole discretion may adjust the November 15 and November 30 deadlines set forth herein, provided that any applicable Election Form is submitted in accordance with Section 3.2(b).
In the event that the annual benefits base rate of a Participant is reduced below the Threshold Compensation Rate, Plan deferrals on behalf of such employee shall cease with respect to Eligible Compensation earned during the Plan Year subsequent to the Plan Year during which the Participant’s annual benefits base rate is so reduced.
(b)    Testing Failure Matching Deferrals. An employee who participates in the Retirement Plan shall be eligible to have Testing Failure Matching Deferrals made under the Plan on his or her behalf for a Plan Year if the employee’s annual benefits base rate, as in effect on the date that the Testing Failure Matching Deferral is to be allocated, is at least equal to the Threshold Compensation Rate.
(c)    True Up Matching Deferrals. An employee who participates in the Retirement Plan shall be eligible to have a True Up Matching Deferral made under the Plan on his or her behalf for a Plan Year if Compensation Deferrals were made on behalf of such employee during such Plan Year.
3.2.     Participation with respect to Compensation Deferrals.
(a)    In General. An eligible employee may have Compensation Deferrals made on his or her behalf for a Plan Year by submitting to the Committee an Election Form specifying (i) the percentage of the employee’s Eligible Compensation to be deferred in the aggregate under the Retirement Plan and Plan for the Plan Year, with such deferrals being made to the Plan only to the extent that such deferrals cannot be made to the Retirement Plan due to Code Limits, (ii) the form in which the Participant’s Compensation Deferrals for the Plan Year (as adjusted for earnings or losses thereon) shall be distributed and (iii) the treatment of his or her Compensation Deferrals for the Plan Year (as adjusted for earnings or losses thereon) in the event of a Change of Control. A Participant who has elected to have Compensation Deferrals made on his or her behalf, but who fails to elect on a timely basis a form of distribution with respect to such deferrals (and earnings or losses thereon) for a particular Plan Year or the treatment of such deferrals (and earnings or losses thereon) in the event of a Change of Control, shall be deemed to have elected, respectively, (i) a single sum and (ii) distribution in a single sum at the time determined by the Corporation within sixty (60) days following the date of the Change of Control.
(b)    Submission of Election Form. An Election Form must be completed and submitted to the Committee in accordance with procedures prescribed by the Committee, but in any event, prior to the commencement of the Plan Year during which the Eligible Compensation is earned.

5


(c)    Irrevocability of Elections. Subject to Appendices A and B, a Participant’s elections set forth in an Election Form shall become irrevocable as of the latest date on which such elections may be made pursuant to Section 3.2(b). Notwithstanding the foregoing, any election by a Participant to participate in the Plan in effect on the date when the Participant receives a distribution from the Plan or any other nonqualified deferred compensation arrangement maintained by the Corporation or an Affiliate on account of the Participant’s Unforeseeable Emergency shall be cancelled, effective as of the date of such distribution.
3.3.     Participation with respect to Testing Failure Matching Deferrals. An eligible employee automatically shall participate in the Plan in connection with, and need not submit an election form related to, Testing Failure Matching Deferrals with respect to a Plan Year. Notwithstanding any election or elections made by a Participant pursuant to Section 6.3 regarding the form of distribution of his or her Account, a Participant’s Testing Failure Matching Deferrals (as adjusted for earnings or losses thereon) shall be distributed in a single sum. In the event of a Change of Control that qualifies as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), a Participant’s Testing Failure Matching Deferrals (as adjusted for earnings or losses thereon) shall be distributed in a single sum at the time determined by the Corporation within sixty (60) days following the date of the Change of Control.
3.4.     Participation with respect to True Up Matching Deferrals. An eligible employee automatically shall participate in the Plan in connection with, and need not submit an election form related to, True Up Matching Deferrals with respect to a Plan Year. A Participant’s True Up Matching Deferrals (as adjusted for earnings or losses thereon) shall be distributed in accordance with the form of distribution and Change of Control elections applicable to the Participant’s Compensation Deferrals for the same Plan Year.
ARTICLE IV
– ALLOCATIONS
4.1.     Compensation, Testing Failure Matching and True Up Matching Deferrals. Any Compensation Deferral elected by a Participant for a Plan Year, or Testing Failure Matching Deferral automatically made on behalf of a Participant for a Plan Year, shall be credited to the Participant’s Account at the same time as such amount would have been contributed to the Retirement Plan but for the existence of Code Limits. A True Up Matching Deferral shall be credited to the Participant’s Account as of the first business day of February following the Plan Year with respect to which the deferral is being credited.
4.2.     Additional Participant Deferral. In addition to any Compensation Deferral made pursuant to Section 3.2 for a Plan Year, the Committee, in its sole discretion, may permit a Participant to elect to defer under this Plan for a Plan Year a portion of his or her compensation to be earned during such year by completing an election form prescribed by the Committee. Deferral of such amount shall not be contingent upon the attainment of Code Limits. The crediting of such amount to the Participant’s Account, and the Participant’s elections in connection therewith, shall be made in accordance with procedures established by the Committee and the requirements of section 409A of the Code.

6


4.3.     Equity Award Deferral. To the extent that any award or payment under any equity incentive plan maintained by the Corporation or its Affiliate is to be deferred under this Plan pursuant to action of the Compensation Committee, the amount which is so deferred shall be credited to the Account of the affected Participant at the time determined by the Compensation Committee. The crediting of such amount, and any elections by the Participant in connection therewith (if available), shall be made in accordance with procedures established by the Committee and the requirements of section 409A of the Code.
4.4.     Special Awards. The Committee, in its sole discretion, at any time may grant a special award under this Plan to any Participant, and an amount equal to the award shall be credited to the Participant’s Account at the time determined by the Committee. The crediting of such award, and any elections by the Participant in connection therewith (if available), shall be made in accordance with procedures established by the Committee and the requirements of section 409A of the Code.
ARTICLE V
– ACCOUNTS AND INVESTMENT
5.1.     Establishment of Accounts. An Account shall be established on the books of the Corporation in the name and on behalf of each Participant. A Participant’s Account shall be credited in an amount equal to (i) Compensation, Testing Failure Matching and True Up Matching Deferrals made on behalf of a Participant pursuant to Section 4.1, (ii) additional Participant deferrals pursuant to Section 4.2, (iii) deferrals pursuant to Section 4.3 in connection with equity awards, (iv) special awards granted pursuant to Section 4.4, (v) amounts merged into the Plan from the Prior Harris SERP or L3 SSP II and (vi) any deemed investment gains and losses determined pursuant to Section 5.2.
5.2.     Account Investment.
(a)    In General. Each Participant’s Account shall be credited with earnings and losses experienced by the investment funds elected by such Participant, in accordance with rules and procedures established by the Committee, from among the investment funds designated by the Investment Committee from time to time. During any period in which no investment election with respect to a Participant’s Account, or portion thereof, is on file with the Committee, the Participant’s Account, or portion thereof, as applicable, shall be deemed to be invested in an age-appropriate LifeCycle Fund (or such other investment fund designated by the Investment Committee from time to time). The investment funds shall be used to measure earnings and losses to be credited to Participant Accounts, but no provision of the Plan shall require the Corporation to actually invest any amounts in the investment funds elected by Participants.
(b)    L3Harris Stock. If the L3Harris Stock Fund is designated by the Investment Committee as an investment fund hereunder, and except as otherwise determined by the Investment Committee, (i) a Participant may not elect a deemed investment in the L3Harris Stock Fund of more than 20% of the deferrals newly made on his or her behalf under the Plan and (ii) a Participant may not, pursuant to a change in an investment election, cause more than 20% of the Participant’s Account to be deemed to be invested in the L3Harris Stock Fund. If a Participant who is a director or officer of the Corporation within the meaning of Rule 16a-1(f)

7


under Section 16 of the Securities Exchange Act of 1934, as amended, elects to have his or her Account credited with earnings and losses experienced by the L3Harris Stock Fund (if an available investment fund hereunder), then, unless otherwise directed by the Investment Committee with respect to all such directors and officers, such an election with respect to amounts credited during any calendar quarter to such Participant’s Account shall be an election to have those amounts deemed to be invested in the Stable Value Fund (or such other investment fund designated by the Investment Committee from time to time) until the first day of the following calendar quarter and on such day shall be an election to have those amounts deemed to be invested in the L3Harris Stock Fund.
(c)    Investment Election to Remain in Effect. A Participant’s investment election shall remain in effect until the Participant changes it. Investment election changes shall be subject to such limitations as the Committee from time to time may impose (including restrictions on investment election changes that apply solely to a particular investment fund and restrictions designed to insure compliance with securities or other laws).
(d)    Timing of Investment Return. A Participant’s Account shall be credited periodically with amounts equal to the gains and losses that would have been realized by the Corporation if the Account had been invested as it is deemed to be invested.
ARTICLE VI
– VESTING AND DISTRIBUTION
6.1.     Vesting. Amounts credited to a Participant’s Account pursuant to Section 4.1 (as adjusted for deemed earnings and losses pursuant to Section 5.2) shall become vested at the same time and to the same extent as the Participant’s corresponding contributions to the Retirement Plan become vested. Amounts credited to a Participant’s Account pursuant to Section 4.2 (as adjusted for deemed earnings and losses pursuant to Section 5.2) shall be fully vested and nonforfeitable at all times. Amounts credited to a Participant’s Account pursuant to Section 4.3 or Section 4.4 (as adjusted for deemed earnings and losses pursuant to Section 5.2, to the extent applicable) shall become vested as determined by the Compensation Committee or Committee, respectively.
6.2.     Time of Distribution.
(a)    In General. Subject to Sections 6.2(b), 6.4 and 6.5 and the appendices hereto, and except as otherwise provided by the Committee in connection with any special award under Section 4.4, a Participant shall commence distribution of his or her vested Account in January of the calendar year immediately following the later of (i) the calendar year during which the Participant attains age 55 and (ii) the calendar year during which the Participant Separates from Service.
(b)    Special Rule for Specified Employees. If a Participant is a Specified Employee as of the date of the Participant’s Separation from Service and is entitled to payment hereunder on account of such separation, no payment of the Participant’s vested Account under the Plan (including in connection with the Participant’s Unforeseeable Emergency or a Change of Control) shall be made before the date which is six months after the date of the Separation from Service (or, if earlier than the end of such six-month period, the date of the Participant’s death).

8


Any payment delayed pursuant to the immediately preceding sentence shall be paid in a single sum during the seventh calendar month following the calendar month during which the Participant Separates from Service.
6.3.     Form of Distribution. Subject to Appendices A and B, and except as otherwise provided by the Committee in connection with any special award under Section 4.4, a Participant may elect to receive distribution of his or her vested Account in any one of the following forms:
(1)
a single sum;
(2)
installments over a three-year period;
(3)
installments over a five-year period;
(4)
installments over a seven-year period;
(5)
installments over a ten-year period; or
(6)
installments over a fifteen-year period.
Distribution will be in the form of cash. Installment payments shall be made annually. A Participant’s election with respect to the form of distribution of his or her vested Account shall be irrevocable.
6.4.     De Minimis Amounts. Notwithstanding Sections 6.2(a) and 6.3 or any other provision herein to the contrary, but subject to Section 6.2(b), if at the time of the Participant’s Separation from Service, the aggregate of (i) the Participant’s vested Account and (ii) the Participant’s vested interest in any other Account Balance Plan does not exceed the applicable dollar amount under section 402(g)(1)(B) of the Code at such time, then the Participant’s vested Account and the Participant’s vested interest in such other Account Balance Plan shall be distributed in a single sum during the calendar month following the calendar month during which the Participant Separates from Service.
6.5.     Death. Subject to Appendix A, if a Participant shall die before his or her entire vested Account is distributed, then the remaining vested Account shall be paid in a lump sum, as soon as administratively practicable but no later than December 31 of the calendar year following the calendar year of the Participant’s death, to the Beneficiary or Beneficiaries designated by the Participant in the manner prescribed by the Committee. A Participant may revoke or change his or her Beneficiary designation at any time by filing a new Beneficiary designation with the Committee during his or her lifetime. If a Participant does not designate a Beneficiary under the Plan or if no designated Beneficiary survives the Participant, then the Participant’s vested Account shall be distributed to the Beneficiary or Beneficiaries entitled to his or her accounts under the Retirement Plan (or who would be so entitled if the Participant had Retirement Plan accounts).
6.6.     Unforeseeable Emergency. Upon written request by a Participant whom the Committee determines has suffered an Unforeseeable Emergency, the Committee may, in its sole discretion,

9


direct payment to the Participant of all or any portion of the Participant’s vested Account. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not exceed an amount reasonably necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes or penalties reasonably anticipated as a result of such payment after taking into account the extent to which such Unforeseeable Emergency is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (iii) by cessation of deferrals hereunder or under any other Account Balance Plan. A Participant shall provide the Committee with documentation evidencing the Unforeseeable Emergency. In the event that the Committee approves a withdrawal due to an Unforeseeable Emergency, payment shall be made to the Participant in a lump sum as soon as practicable following such approval, but in no event later than ninety (90) days after the occurrence of the Unforeseeable Emergency. A request for an Unforeseeable Emergency withdrawal by a Specified Employee who has incurred a Separation from Service shall be subject to any delay required by Section 6.2(b).
6.7.     Change of Control. Notwithstanding any provision to the contrary in the Plan, in the event of a Change of Control that occurs on or after January 1, 2020, a Participant’s Account (including that attributable to the Appendices hereto) shall become fully vested. In addition, in the event of a Change of Control that qualifies as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), a Participant’s vested Account either (i) shall be distributed to such Participant in a single sum at the time determined by the Corporation within sixty (60) days following the date of the Change of Control or (ii) shall be transferred to (or retained in) a grantor trust established by the Corporation and distributed at the same time and in the same form as such Account would have been distributed if a Change of Control had not occurred, as determined by the Change of Control elections made by the Participant pursuant to Section 3.2(a) or as set forth in Section 3.3 (or as determined by the Committee in connection with any special award under Section 4.4). In the event of a Change of Control that does not qualify as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5), a Participant’s vested Account shall be transferred to (or retained in) a grantor trust established by the Corporation and distributed at the same time and in the same form as such Account would have been distributed if a Change of Control had not occurred. In the case of a Change of Control that occurs on or after January 1, 2020, the grantor trust described in this Section 6.7 must be irrevocable as of the date of the Change of Control.
For the avoidance of doubt, except in the event of a Change of Control that occurs on or after January 1, 2020, neither this Section 6.7 nor any other provision of the Plan shall obligate the continued maintenance of a grantor trust with respect to the Plan, and the Corporation may revoke any grantor trust it may establish for any reason and at any time in accordance with the provisions of such trust. In the event of any such revocation, the Corporation shall satisfy from its general assets any Plan benefit that becomes due.
The provisions of this Section 6.7, paragraph 7 of Appendix A and paragraph 6 of Appendix B may not be amended on or after the date of a Change of Control that occurs on or after January 1,

10


2020 without the written consent of a majority of those individuals with Accounts under the Plan on each of the date of the Change of Control and the date of the proposed amendment.
6.8.     Withholding for Taxes. The Corporation shall have the right to deduct any federal, state, local or other income, employment or other taxes required by law to be withheld with respect to any amounts deferred or paid under the Plan, and to withhold such amounts from any other compensation or payment due the Participant (or his or her Beneficiary).
6.9.     Acceleration or Delay of Payments. The Committee, in its sole and absolute discretion, may accelerate or delay the time of payment of a benefit owed to a Participant or Beneficiary under the Plan, to the extent permissible by applicable law.
6.10.     Reemployment. Subject to Appendix A, the reemployment by the Corporation or an Affiliate of a separated Participant whose Account is being distributed in the form of installments shall not change the time or form of payment of the Participant’s unpaid vested Account, which unpaid vested Account will continue to be paid in installments in accordance with the distribution schedule in effect immediately prior to the Participant’s reemployment.
6.11.     Receipt of Distribution by Direct Deposit. As a condition to participation in the Plan, each eligible employee shall agree to receive any distribution under the Plan in the form of direct deposit (or other method determined by the Committee).
ARTICLE VII
– ADMINISTRATION
7.1.     Authority of Committee. The Plan shall be administered by the Committee. The Committee shall, in its sole discretion, have the complete authority to interpret the Plan, to adopt rules for carrying out the purposes of the Plan and to make all other determinations necessary or advisable for the administration of the Plan. To the extent practicable and consistent with section 409A of the Code, the Plan shall be administered in a manner consistent with the administration of the Retirement Plan. Any decision with respect to, or interpretation of, any provision of the Plan made by the Committee shall be final and conclusive, and shall be binding on all Participants, their Beneficiaries and any other person. Benefits under the Plan shall be paid only if the Committee decides, in its sole discretion, that the Participant or Beneficiary is entitled to them. A Participant who has any authority to make Plan administrative decisions may not participate in any such decision that may affect his or her rights or obligations under the Plan, unless the decision affects all Participants.
7.2.     Delegation of Authority. Each of the Compensation Committee, the Committee and the Investment Committee may delegate any of its responsibilities, powers and duties under the Plan to any person or committee. The Compensation Committee, the Committee and the Investment Committee (or any delegate of such committee) may employ such attorneys, agents and advisors as such committee (or such delegate) may deem necessary or advisable to assist it in carrying out its duties hereunder.
7.3.     Liability. No member of the Compensation Committee, the Committee or the Investment Committee (and no person who is an employee of the Corporation or its Affiliate, or committee,

11


to whom any such committee has delegated any of its responsibilities, powers and duties under the Plan) shall be liable for, and the Corporation hereby indemnifies such members, persons or committees with respect to the effects and consequences of, any action or failure to act under the Plan in an official capacity, except where such action or failure to act was due to willful or gross misconduct or criminal acts. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Corporation or provided by the Corporation under any bylaw, agreement or otherwise (if any), to the extent such indemnities are permitted by law.
7.4.     Claims Procedure. If any Participant or Beneficiary believes he or she is entitled to benefits under the Plan in an amount greater than those which he or she is receiving or has received, he or she (or his or her duly authorized representative) may file a claim with the Committee. Any such claim shall be processed in accordance with, and subject to, the claims procedure set forth in the Retirement Plan, which is incorporated herein by reference. The Committee’s final claim decisions shall be final and binding on all parties. No legal action for benefits under the Plan shall be brought unless and until the claimant has exhausted the claims procedure referenced in this Section 7.4. In any such legal action, the claimant only may present evidence and theories which the claimant presented during the claims procedure, and the claimant agrees that any other evidence or theories are irrevocably waived.
7.5.     Statute of Limitations for Actions under the Plan. Except for actions to which any statute of limitations prescribed by ERISA applies, (a) no legal or equitable action relating to a claim for benefits under section 502 of ERISA with respect to the Plan may be commenced later than one (1) year after the date the claimant receives a final decision from the Committee in response to the claimant’s request for review of an adverse benefit determination and (b) no other legal or equitable action involving the Plan may be commenced later than two (2) years after the date the person bringing the action knew, or had reason to know, of the circumstances giving rise to the action. This provision shall not bar the Plan or the Corporation from recovering, in compliance with section 409A of the Code or other applicable law, 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.
ARTICLE VIII
– GENERAL PROVISIONS
8.1.     Amendment and Termination. Subject to Section 6.7 and item 7 of Appendix A, at any time the Committee may amend the Plan. In addition, (i) at any time the chief human resources officer of the Corporation may terminate the Plan (in its entirety or in part), and (ii) at any time the Committee may terminate the Plan with respect to Participants who have experienced a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5). To the extent consistent with the rules relating to plan termination and liquidation under section 409A of the Code, to the extent applicable, the chief human resources officer of the Corporation or Committee, as applicable, may provide that following the termination of the Plan (or portion thereof), each impacted Participant or Beneficiary shall receive a single sum payment in cash equal to the balance of his or her vested Account. The single sum payment shall be made within sixty (60) days following the date the Plan (or portion thereof) is terminated and shall be in lieu of any other benefit which may be payable to the Participant or Beneficiary under the Plan.

12


Unless so distributed, in the event of a Plan termination, the Corporation shall continue to maintain Participant Accounts until distributed pursuant to the terms of the Plan. Notwithstanding the foregoing, no amendment or termination of the Plan shall reduce or cancel any vested amount credited to any Participant’s Account.
8.2.     Anti-Alienation. A Participant’s or Beneficiary’s rights and interest under the Plan may not be sold, transferred, assigned, pledged, garnished, encumbered, alienated or attached except by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (within the meaning of ERISA). Any other purported transfer, assignment, pledge, encumbrance or attachment of any payments or benefits under the Plan shall not be permitted or recognized and shall be void.
8.3.     Funding. The Corporation may, but except as provided in Section 6.7 or paragraph 7 of Appendix A is not required to, establish a trust to fund the amounts credited to Accounts under the Plan, provided that the assets in such trust shall be subject to the claims of the Corporation's general creditors in the event of insolvency. Participants and Beneficiaries shall have no interest in any fund or specific asset of the Corporation. The rights of each Participant and Beneficiary to any payments under the Plan shall be solely those of an unsecured general creditor of the Corporation. It is the Corporation’s intention that the Plan be unfunded for federal income tax purposes and for purposes of Title I of ERISA.
8.4.     Recordkeeping Fees. As a condition to participation in the Plan, each eligible employee shall agree that recordkeeping fees incurred in connection with the maintenance of the Plan shall be satisfied, as determined by the Corporation, by debit from Participant or Beneficiary Plan distributions, direct payment by the Participant or Beneficiary (through withholding from other compensation or otherwise) or by such other means determined by the Corporation, unless the Corporation or an Affiliate in its discretion elects to pay such fees.
8.5.     Mistaken Payment. No Participant or Beneficiary shall have a right to any payment made in error or in contravention of the terms of the Plan, the Code, ERISA or other applicable law. The Corporation shall have the full right to recover any such mistaken payment, and the right to recover attorney’s fees and other costs incurred with respect to such recovery. Recovery shall be made from future Plan payments, or by any other legally permissible means.
8.6.     Inability to Locate Participant or Beneficiary. If, as of the Latest Payment Date, the Corporation is unable to make payment of all or a portion of a Participant’s Account to such Participant or his or her Beneficiary, as applicable, because the whereabouts of such person cannot be ascertained (notwithstanding the mailing of notice to any last known address or addresses and the exercise by the Committee of other reasonable diligence), then the portion of the Participant’s Account with respect to which payment is due shall be forfeited. For this purpose, the “Latest Payment Date” shall be the latest date on which a Participant’s Account, or portion thereof, as applicable, may be paid to the Participant or the Beneficiary, as applicable, without the imposition of taxes and other penalties under section 409A of the Code.
8.7.     Severability. If any provision of the Plan is found illegal or invalid by any court having proper jurisdiction, then such provision shall be construed by such court to reflect most nearly

13


the Corporation's original intent in adopting the Plan, consistent with applicable law, and the illegality or invalidity shall not affect the remaining provisions of the Plan, which shall continue to be fully effective.
8.8.     Not a Contract of Employment. The Plan shall not constitute a contract of employment or in any manner obligate the Corporation or an Affiliate to continue the employment of any employee or the terms of any such employment (including compensation and benefits).
8.9.     Successors and Assigns. The provisions of the Plan shall bind and inure to the Corporation and its successors and assigns, as well as each Participant and Beneficiary.
8.10.     Applicable Law. The Plan and all rights hereunder shall be governed by and construed in accordance with the laws of the State of Florida (without regard to principles of conflicts of law) to the extent such laws have not been preempted by applicable federal law. Venue for any action arising under the Plan shall be in Brevard County, Florida.
8.11.     Compliance with Section 409A of the Code. Except as otherwise set forth in Appendix A, this Plan shall be subject to, and is intended to comply with, section 409A of the Code and shall be administered and interpreted accordingly. In the event that the Plan does not comply with section 409A of the Code, the Corporation shall have the authority to amend the terms of the Plan (which amendment may be retroactive to the extent permitted by section 409A of the Code and may be made by the Corporation without the consent of any Participant or Beneficiary) to avoid the imposition of taxes, interest and other penalties under section 409A of the Code, to the extent possible. Notwithstanding the foregoing, no particular tax result for any Participant or Beneficiary in connection with participation in the Plan is guaranteed, and the Participant or Beneficiary solely shall be responsible for any taxes, interest, penalties or other losses or expenses incurred by the Participant or Beneficiary in connection with such participation.
8.12.     Legal Fees. Any award of legal fees in connection with an action involving the Plan shall be calculated pursuant to a method that results in the lowest amount of fees being paid, which amount shall be no more than the amount that is reasonable. In no event shall legal fees be awarded for work related to (a) administrative proceedings under the Plan; (b) unsuccessful claims brought by a Participant or any other person; or (c) actions that are not brought under ERISA. In calculating any award of legal fees, there shall be no enhancement for the risk of contingency, nonpayment or any other risk, nor shall there be applied a contingency multiplier or any other multiplier. In any action brought by a Participant or any other person against the Plan, the Committee, the Compensation Committee, the Investment Committee, the Corporation or an Affiliate or their respective affiliates or their and their affiliates’ respective officers, directors, trustees, employees, or agents (collectively, the “Plan Parties”), legal fees of the Plan Parties in connection with such action shall be paid by the Participant or other person bringing the action, unless the court specifically finds that there was a reasonable basis for the action.
IN WITNESS WHEREOF, the L3Harris Technologies, Inc. Employee Benefits Committee has caused this instrument to be executed by its duly authorized representative on this ______ day of December, 2019.

14


 
L3HARRIS TECHNOLOGIES, INC.
EMPLOYEE BENEFITS COMMITTEE
 
By:
 

Title:




15


APPENDIX A
PRIOR HARRIS SERP BALANCES

This Appendix A constitutes part of the Plan and governs the portion of a Participant’s Account, if any, attributable to participation in the Prior Harris SERP (the “Grandfathered Balance”), which Prior Harris SERP was merged into this Plan effective as of December 31, 2019. In the event of an inconsistency between this Appendix A and the other provisions of the Plan, the provisions of this Appendix A shall govern in the case of the Grandfathered Balances. Each of the other provisions of the Plan shall be fully applicable to the Grandfathered Balances, except in the event of such an inconsistency. All capitalized terms used in this Appendix A and not otherwise defined herein shall have the meanings assigned to them by the Plan.

The Grandfathered Balances are intended to be “grandfathered” within the meaning of section 409A of the Code, and thus exempt from the requirements of section 409A of the Code, and the Plan shall be administered and interpreted accordingly. The merger of the Prior Harris SERP into this Plan, and the provisions of this Appendix A, are not intended and shall not be construed to constitute a “material modification” within the meaning of section 409A of the Code with respect to the Grandfathered Balances.

1.
Vesting. All Grandfathered Balances are fully vested and nonforfeitable.

2.
Time of Distribution. Subject to paragraph 4 of this Appendix A, a Participant shall commence distribution of his or her Grandfathered Balance in January of the calendar year immediately following the later of (i) the calendar year during which the Participant attains age 55 and (ii) the calendar year during which the Participant terminates employment with the Corporation and its Affiliates. The special rule for Specified Employees set forth in Section 6.2(b) of the Plan shall not apply to the Grandfathered Balance.

3.
Form of Distribution
A.
Timing of Election. A Participant may elect the form of distribution of his or her Grandfathered Balance by filing an election form with the Committee before October 1st of the calendar year in which such Participant terminates employment with the Corporation and its Affiliates, except that if a Participant terminates employment with the Corporation and its Affiliates on or after October 1st of a calendar year in connection with a Reduction in Force, then the Participant must elect the form of distribution before the end of such calendar year. A Participant may change a prior election regarding the form of distribution of his or her Grandfathered Balance by filing a new election form with the Committee at the time and in the manner permitted by the Committee, provided that such form is received by the Committee no later than a date determined by the Committee within the calendar year prior to the year in which such distribution was to be paid or commence pursuant to the Participant's prior election.

16


B.
Installment Period. A Participant may elect to receive distribution of his or her Grandfathered Balance in any of the forms set forth in Section 6.3; provided, however, that the Participant may not elect such distribution in the form of installments over a three year period.

4.
De Minimis Amounts. Notwithstanding any provision of the Plan to the contrary, if a Participant's Grandfathered Balance is less than $25,000 at the time of the Participant’s termination of employment, then the Participant’s Grandfathered Balance shall be distributed in a single sum as soon as reasonably practicable thereafter. If the Participant’s Grandfathered Balance is greater than or equal to $25,000 at the time of the Participant’s termination of employment, but is less than $25,000 at the time that the Participant later becomes entitled to a distribution, then the Participant’s Grandfathered Balance shall be distributed in a single sum as soon as reasonably practicable after the Participant becomes entitled to a distribution.

5.
Reemployment. Installment payments of a Participant’s Grandfathered Balance shall cease upon such Participant's reemployment by the Corporation or an Affiliate. The remaining Grandfathered Balance shall be distributed to the Participant upon his or her subsequent termination of employment with the Corporation and its Affiliates in accordance with the Participant's most recent distribution election applicable to the Grandfathered Balance.

a.
Death. If a Participant shall die before his or her entire Grandfathered Balance is distributed, then such remaining balance shall be paid at the time and in the manner such balance would have been paid to the Participant, to the Beneficiary or Beneficiaries designated by the Participant in the manner prescribed by the Committee. Any Beneficiary designation made by a Participant under the Prior Harris SERP shall remain in full force and effect and govern distribution of the Participant’s entire Plan account unless revoked or changed by the Participant by filing a new Beneficiary designation with the Committee during his or her lifetime.
6.
Change in Control. Notwithstanding any provision to the contrary in the Plan, in the event of a Change in Control (irrespective of whether the Change in Control qualifies as a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5)), a Participant's Grandfathered Balance either (i) shall be distributed to such Participant in a single sum as soon as practicable or (ii) shall be transferred to (or retained in) a grantor trust established by the Corporation and distributed at the same time and in the same form as the Participant’s Grandfathered Balance would have been distributed if a Change in Control had not occurred, as determined by the Change in Control election made by the Participant. In the case of a Change in Control that occurs on or after January 1, 2020, the grantor trust described in this paragraph 7 must be irrevocable as of the date of the Change in Control.

A Participant may change his or her Change in Control election by filing a new election form with the Committee at the time and in the manner permitted by the Committee,

17


provided that such election form is received by the Committee by the earlier of (i) October 1st of the calendar year before the year in which such Change in Control occurs and (ii) the last date the Committee, in its sole discretion, determines that the Participant was not likely to be aware that a Change in Control was pending.
For the avoidance of doubt, except in the event of a Change in Control that occurs on or after January 1, 2020, neither this provision nor any other provision of the Plan shall obligate the continued maintenance of a grantor trust with respect to the Plan, and the Corporation may revoke any grantor trust it may establish for any reason and at any time (including following a Change in Control) in accordance with the provisions of such trust. In the event of any such revocation, the Corporation shall satisfy from its general assets any Plan benefit that becomes due.


18



APPENDIX B
L3 SSP II BALANCES

This Appendix B constitutes part of the Plan and governs the portion of a Participant’s Account, if any, attributable to participation in the L3 SSP II (the “L3 SSP II Balance”), which L3 SSP II was merged into this Plan effective as of December 31, 2019. In the event of an inconsistency between this Appendix B and the other provisions of the Plan, the provisions of this Appendix B shall govern in the case of the L3 SSP II Balances. Each of the other provisions of the Plan shall be fully applicable to the L3 SSP II Balances, except in the event of such an inconsistency. All capitalized terms used in this Appendix B and not otherwise defined herein shall have the meanings assigned to them by the Plan.

1.
Vesting. The portion of a Participant’s L3 SSP II Balance attributable to his or her Deferral Account (as defined under the L3 SSP II immediately prior to its merger into this Plan), including any related earnings, shall be 100% vested and nonforfeitable at all times. The portion of a Participant’s L3 SSP II Balance attributable to his or her Matching Account or Supplemental Account (in each case as defined under the L3 SSP II immediately prior to its merger into this Plan), including any related earnings, shall become vested at the same time and to the same extent as the Participant’s matching contributions under the Retirement Plan become vested.

2.
Time of Distribution. A Participant shall commence distribution of his or her L3 SSP II Balance as soon as practicable during the month of January or the month of July (whichever is earlier) next following the six month anniversary of the date on which the Participant Separates from Service. In the case distribution is to be made in installments, each subsequent installment shall be paid on the next succeeding anniversary date of the first installment payment until all installment payments have been made.

3.
Form of Distribution. Subject to paragraph 4 of this Appendix B, a Participant may elect to receive distribution of his or her vested L3 SSP II Balance in any one of the following forms:

(1)
a single sum;
(2)
installments over a five-year period;
(3)
installments over a ten-year period;
(4)
installments over a fifteen-year period; or
(5)
installments over a twenty year period.
Distribution will be in the form of cash. Installment payments shall be made annually.


19


If payment is to be made in installments, the amount of each installment shall equal the total L3 SSP II Balance as of the December 31 or June 30 that most immediately precedes the distribution date, divided by the number of remaining installments (including the installment being determined), with the final payment to be in an amount equal to the entire unpaid portion of the L3 SSP II Balance.

A Participant may, at the Committee’s discretion, elect to change the Participant’s form of distribution election with respect to his or her L3 SSP II Balance. Such election must be submitted in such form as the Corporation shall prescribe, and shall be effective only if it satisfies the following: (1) the election must be submitted to the Corporation in writing at least twelve months before the election is to be effective and (2) the election must result in deferral for a period of five years from the date distribution would otherwise have occurred or commenced. A series of payments made in installments shall be treated as a single payment for purposes of any such change in election.

4.
De Minimis Amounts. Notwithstanding any provision of the Plan to the contrary, if a Participant's vested L3 SSP II Balance does not exceed $50,000 at the time the Participant Separates from Service, then the Participant’s L3 SSP II Balance shall be distributed in a single sum as soon as practicable during the month of January or the month of July (whichever is earlier) next following the six month anniversary of the date on which the Participant Separates from Service.

a.
Beneficiary. Any Beneficiary designation made by a Participant under the L3 SSP II shall remain in full force and effect and govern distribution of the Participant’s entire Plan account unless revoked or changed by the Participant by filing a new Beneficiary designation with the Committee during his or her lifetime.
5.
L3 Change in Control. Notwithstanding any provision to the contrary in the Plan, in the event of an L3 Change in Control that occurs on or after January 1, 2020, a Participant's L3 SSP II Balance shall be fully vested and shall be distributed in one lump-sum payment within 60 days following the date of the L3 Change in Control. For purposes of this Appendix B, an “L3 Change in Control” shall mean a “Change in Control” as defined under the L3 SSP II immediately prior to its merger into this Plan. Section 6.7 of the Plan shall not apply to the L3 SSP II Balance, except as related to the full vesting of the L3 SSP II Balance in the event of a Change of Control that occurs on or after January 1, 2020.




20
Exhibit 10(j)


L3HARRIS TECHNOLOGIES, INC.
2019 NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
1. Purpose. The purpose of the L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan is to provide non-employee members of the Board of Directors of L3Harris Technologies, Inc., a Delaware corporation (the “Corporation”), with the opportunity to elect to defer all or a portion of (i) the cash retainer fees otherwise payable to them by the Corporation into deferred units and (ii) the Director Share Units (as defined below) granted to them by the Corporation.
2. Definitions. For purposes of the Plan:
(a)Account shall mean the separate account maintained on the books of the Corporation for each Participant pursuant to Section 7, consisting of the Cash Retainer Sub-Account and the Director Share Unit Sub-Account.
(b)Board shall mean the Board of Directors of the Corporation.
(c)Committee shall mean the Nominating and Governance Committee of the Board, or a subcommittee thereof, or such other committee designated by the Board to administer the Plan.
(d)Common Stock shall mean the common stock, par value $1.00 per share, of the Corporation, and all rights appurtenant thereto or such other class of securities as to which the Stock Plan may be applicable pursuant to Section 3.2 of such Stock Plan.
(e)Deferred Units shall mean deferred units credited to a Participant’s Account pursuant to elections by the Participant under Sections 5 and 6.
(f)Director shall mean any member of the Board who is not an employee of the Corporation or any of its subsidiaries or affiliates.
(g)Director Share Units shall mean Director share units granted to the Participant under Section 9 of the Stock Plan.
(h)Fair Market Value shall mean, as of any date, the closing price of the Common Stock as reported on the New York Stock Exchange for that date or, if no closing price is reported for that date, the closing price on the next preceding date for which a closing price is reported, unless otherwise determined by the Committee.
(i)Participant shall mean a Director who makes a deferral election under Section 5 or 6 of the Plan.
(j)Plan shall mean the L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan, as set forth herein and as amended from time to time.
(k)Section 409A shall mean Section 409A of the Internal Revenue Code of 1986, as amended.
(l)Separation from Service shall mean a “separation from service” from the Corporation, within the meaning of Section 409A and the regulations promulgated thereunder.
(m)Stock Plan shall mean the Harris Corporation 2015 Equity Incentive Plan, as amended from time to time, or any successor equity plan adopted by the Corporation.
3. Administration. The Plan shall be administered by the Committee. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof and establish, amend and revoke rules and

BOD-19-319    1



regulations or impose conditions as it deems necessary or desirable for the administration of the Plan. All such interpretations, rules, regulations and conditions shall be final, binding and conclusive upon the Participants and all other persons having or claiming any right or interest in the Plan or the Deferred Units.
A majority of the Committee shall constitute a quorum. The Committee shall take action either by (i) a majority of the members of the Committee present at any meeting at which a quorum is present or (ii) written approval by all of the members of the Committee without a meeting. The Committee may authorize any one or more of its members or any officer of the Corporation to execute and deliver documents on behalf of the Committee.
No member of the Board or Committee, and no officer of the Corporation to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the Committee and such officers shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Corporation’s Restated Certificate of Incorporation and/or By-Laws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.
4. Eligibility. Each Director shall be eligible to participate in the Plan and to make the elections provided under Sections 5 and 6.
5. Deferral of Cash Retainer.
(a)Annual Elections. Prior to the first day of each calendar year beginning on or after January 1, 2020, each Director may elect, in accordance with rules and procedures established by the Committee, to defer payment of all or a portion of the Director’s cash retainer fees to be earned in such calendar year, which deferred fees will be credited as Deferred Units to the Cash Retainer Sub-Account of the Participant’s Account. To be effective, such election must be completed and delivered to the Corporation prior to the first day of such calendar year. Any election made under this Section shall become irrevocable as of December 31 of the year prior to the year in which the services relating to the cash retainer fee are performed.
(b)Initial Participant Elections. An individual who becomes a Director for the first time after a calendar year has commenced may elect, not later than the 30th day following the date the individual becomes a Director, to defer payment of all or a portion of the Director’s cash retainer fees to be earned with respect to services for that calendar year to be performed after the date of such election, which deferred fees will be credited as Deferred Units to the Cash Retainer Sub-Account of the Participant’s Account.
(c)Effect of Elections. Any election made pursuant to this Section shall remain in effect for future calendar years unless and until the Participant makes a new election in accordance with Section 5(a). In order to change the amount of a deferral for any subsequent calendar year (or to cease deferrals), a Participant must make a new election prior to the calendar year for which the new election is to be effective.
6. Deferral of Director Share Units.
(a)Annual Elections. Prior to the first day of each calendar year beginning on or after January 1, 2020, each Director may elect, in accordance with rules and procedures established by the Committee, to defer all or a portion of the Director Share Units to be granted to the Director in such calendar year, which deferred Director Share Units will be credited as Deferred Units to the Director Share Unit Sub-Account of the Participant’s Account in accordance with Section 7(b). To be effective, such election must be completed and delivered to the Corporation prior to the first day of such calendar year. Any election made under this Section shall become irrevocable as of December 31 of the year prior to the year in which the Director Share Units relating to the election are granted.
(b)Initial Participant Elections. An individual who becomes a Director for the first time after a calendar year has commenced may elect, not later than the earlier of (i) the 30th day following the date the

BOD-19-319    2



individual becomes a Director and (ii) to the extent permitted by Section 409A, the day prior to the grant of Director Share Units in such calendar year to the Director, to defer all or a portion of the Director Share Units to be granted to the Director in such calendar year, which deferred Director Share Units will be credited as Deferred Units to the Director Share Unit Sub-Account of the Participant’s Account.
(c)Effect of Elections. Any election made pursuant to this Section shall remain in effect for future calendar years unless and until the Participant makes a new election in accordance with Section 6(a). In order to change the number of Director Share Units deferred for any subsequent calendar year (or to cease deferrals), a Participant must make a new election prior to the calendar year for which the new election is to be effective.
7. Account.
(a)Cash Retainers. The crediting of Deferred Units to the Cash Retainer Sub-Account of the Participant’s Account with respect to the deferral of cash retainer fees pursuant to Section 5 shall be made as of the dates the fees earned by the Participant during the applicable calendar year would otherwise have been payable to the Participant. The number of Deferred Units to be credited shall be equal to the result of dividing the amount deferred as of each such date by the Fair Market Value of one share of Common Stock on such date.
(b)Director Share Units. The crediting of Deferred Units to the Director Share Unit Sub-Account of the Participant’s Account with respect to the deferral of Director Share Units pursuant to Section 6 shall be made as of the dates the Director Share Units granted to the Participant during the applicable calendar year become vested. The number of Deferred Units to be credited shall be equal to the number of Director Share Units that are deferred by the Participant as of such date.
(c)Cash Dividends. Whenever any cash dividends are declared on the Common Stock, the Corporation will credit each of the Cash Retainer Sub-Account and Director Share Unit Sub-Account of the Account of each Participant on the date such dividend is paid with a number of additional Deferred Units equal to the result of dividing (i) the product of (x) the total number of Deferred Units credited to the Cash Retainer Sub-Account or Director Share Unit Sub-Account, as applicable, on the record date for such dividend and (y) the per share amount of such dividend by (ii) the Fair Market Value of one share of Common Stock on the date such dividend is paid by the Corporation to the holders of Common Stock.
(d)Capitalization Adjustments. In the event of (i) any change in the Common Stock through a merger, consolidation, reorganization, recapitalization or otherwise, (ii) a stock dividend, or (iii) a stock split, combination or other change in the Common Stock, in each case, as described in Section 3.2 of the Stock Plan, the Deferred Units credited to the Cash Retainer Sub-Account and Director Share Unit Sub-Account of the Account of each Participant shall be increased or decreased proportionately in accordance with Section 3.2 of the Stock Plan.
8. Payment of Account. Payment of the Cash Retainer Sub-Account and Director Share Unit Sub-Account of the Participant’s Account shall be made to the Participant (or, in the event of the Participant’s death, to the Participant’s beneficiary, as provided in Section 10) in shares of Common Stock equal to the number of Deferred Units credited to each Sub-Account (provided that any fractional Deferred Units shall be paid in cash based on the Fair Market Value of one share of Common Stock on the payment date), as provided below. Deferred Units issued and settled under this Plan shall be granted under the Stock Plan and shall be considered other “Share-Based Awards” granted pursuant to Section 9 of the Stock Plan.
(a)Distribution Other than upon Death. Amounts credited to the Cash Retainer Sub-Account and Director Share Unit Sub-Account of the Participant’s Account shall be paid, as irrevocably elected by the Participant in accordance with the provisions of, and subject to the deadlines of, Section 5 or 6, as applicable, as follows:


BOD-19-319    3



(i) in a single lump sum within 90 days following the date the Participant incurs a Separation from Service for any reason other than his or her death; or
(ii) in up to ten annual installments beginning within 90 days following the date the Participant incurs a Separation from Service for any reason other than his or her death and, with respect to remaining installments, in January of each calendar year following such Separation from Service.
In the absence of a designation of the form of distribution with respect to a deferral year, payment shall be made in accordance with sub-paragraph (i) above for such deferral year.
(b)Distribution upon Death. If a Participant incurs a Separation from Service due to death or his or her death occurs after Separation from Service but before payment to him or her of the entire balance of his or her Cash Retainer Sub-Account or Director Share Unit Sub-Account, all or the remaining balance of his or her Cash Retainer Sub-Account and/or Director Share Unit Sub-Account shall be paid to such Participant’s beneficiaries in a lump sum within 90 days following the date of death.

9. Change in Control. In the event of a Change in Control (as defined in the Stock Plan) that constitutes a “change in control event” within the meaning of Section 409A, the Account of each Participant shall be paid to the Participant (or, in the event of the Participant’s death, to the Participant’s beneficiary, as provided in Section 10) in a lump sum in cash within ten business days after the date of the Change in Control, in an amount equal to the result of multiplying (i) the number of Deferred Units credited to the Participant’s Account on the Change in Control date by (ii) the Fair Market Value of one share of Common Stock on the Change in Control date.
10. Beneficiary Designation. Each Participant shall have the right, at any time, to designate any person or persons, including a trust, as his or her beneficiary or beneficiaries to whom payment under the Plan shall be paid in the event of his or her death prior to payment to the Participant of the entire balance of his or her Account. Any beneficiary designation may be made or changed by a Participant by a written instrument, in such form prescribed by the Committee, which is filed with the Corporation prior to the Participant’s death. If a Participant fails to designate a beneficiary, or if all designated beneficiaries predecease the Participant, the Account shall be paid to the Participant’s estate.
11. Amendment and Termination. The Board may amend or terminate the Plan at any time in whole or in part; provided, however, that no amendment or termination shall reduce the Deferred Units credited to a Participant’s Account or adversely affect the rights of a Participant to receive such Deferred Units, without the consent of the Participant (or the Participant’s beneficiary in the event of the Participant’s death). Notwithstanding the foregoing, the Plan may be amended at any time, without the consent of any Participant (or beneficiary), if necessary or desirable to comply with the requirements, or avoid the application, of Section 409A.
12. General Provisions.
(a)Unfunded Plan. All payments hereunder shall be made by the Corporation from its general assets at the time and in the manner provided for in the Plan. No funds, securities or other property of any nature shall be segregated or earmarked for any current or former Participant, beneficiary or other person, and any such person’s sole right under the Plan is as a general creditor of the Corporation with an unsecured claim against its general assets.
(b)Non-Alienation of Benefits. Neither a Participant nor any other person shall have any rights to sell, assign, transfer, pledge, anticipate, or otherwise encumber the amounts, if any, payable under the Plan. Any attempted sale, assignment, transfer, pledge, anticipation or encumbrance shall be null and void and without any legal effect. No part of the amounts payable under the Plan shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

BOD-19-319    4



(c)Section 409A. Notwithstanding any provision of the Plan to the contrary, the Plan will be construed, administered or deemed amended as necessary to comply with the requirements of Section 409A so as to avoid taxation under Section 409A to the extent Section 409A applies to the Plan. Each payment and benefit hereunder shall constitute a “separately identified” amount within the meaning of Treasury Regulation §1.409A-2(b)(2). The Committee, in its sole discretion, shall determine the requirements of Section 409A that are applicable to the Plan and shall interpret the terms of the Plan in a manner consistent therewith. Under no circumstances, however, shall the Corporation or any affiliate or any of its or their employees, officers, directors, service providers or agents have any liability to any person for any taxes, penalties or interest due on amounts paid or payable under the Plan, including any taxes, penalties or interest imposed under Section 409A.
(d)No Stockholder Rights. Neither a Participant nor any other person shall have any rights as a stockholder of the Corporation with respect to the Deferred Units credited to the Participant’s Account until shares of Common Stock are issued to the Participant (or the beneficiary of the Participant) in accordance with Section 8.
(e)Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be enforced as if the invalid provisions had never been set forth therein.
(f)Successors in Interest. The obligation of the Corporation under the Plan shall be binding upon any successor or successors of the Corporation, whether by merger, consolidation, sale of assets or otherwise, and for this purpose reference herein to the Corporation shall be deemed to include any such successor or successors.
(g)Governing Law. The Plan shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware, without giving effect to principles of conflict of laws.

ACTIVE 241002300

BOD-19-319    5



Exhibit 21
L3HARRIS TECHNOLOGIES INC.
SUBSIDIARIES AS OF MARCH 3, 2020
(100% direct or indirect ownership by L3Harris Technologies, Inc., unless otherwise noted)
 
 
 
 
Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
1231670 Ontario Inc.
 
Canada
AeroElite Limited
 
United Kingdom
Aerosim Academy, Inc.
 
Florida
Aerosim Bangkok Company Limited
 
Thailand
Aerosim Technologies, Inc.
 
Minnesota
Aerosim Thai Company Limited
 
Thailand
Airline Placement Limited
 
United Kingdom
Airline Recruitment Limited
 
United Kingdom
Applied Defense Solutions, Inc.
 
Delaware
Applied Kilovolts Limited
 
United Kingdom
Asian Aviation Training Centre Ltd.
 
Thailand
ASV Global, L.L.C.
 
Louisiana
Autonomous Surface Vehicles Limited
 
United Kingdom
Autonomous Surface Vehicles, LLC
 
Louisiana
Aviation Communication & Surveillance Systems, LLC
 
Delaware
Aydin Yazilim ve Elektronik Sanayi A.S.
 
Turkey
Azimuth Security Pty Ltd
 
Australia
Azimuth Security Trust
 
Australia
Azimuth Security, LLC
 
Florida
Beijing MAPPS-SERI Technology Company Ltd.
 
China
C.K. Industrial Engineers Limited
 
United Kingdom
Calzoni S.r.l.
 
Italy
Combat Advanced Propulsion, LLC
 
Delaware
CR MSA LLC
  
Delaware
CTC Aviation Group Limited
  
United Kingdom
CTC Aviation Holdings Limited
  
United Kingdom
CTC Aviation International Limited
  
United Kingdom
CTC Aviation Services Limited
 
United Kingdom
CTC Aviation Training (UK) Limited.
 
United Kingdom
Defence Investments Limited
 
United Kingdom
DMRAC-Aviation Corporation - SGPS, Unipessoal LDA
 
Portugal
EAA – Escola de Aviação Aerocondor, S.A.
  
Portugal
Eagle Technology, LLC
  
Delaware
EDO (UK) Ltd.
  
United Kingdom
EDO MBM Technology Ltd.
  
United Kingdom
EDO Western Corporation
  
Utah
Electrodynamics, Inc.
  
Arizona
EMC S.r.l.
  
Italy
ESSCO Collins Limited
  
Ireland
Exelis Arctic Services
  
Delaware
Exelis Australia Holdings Pty Ltd
  
Australia
Exelis Australia Pty Ltd
  
Australia
Exelis Holdings, Inc.
  
Delaware
Exmac Automation Limited
  
United Kingdom
FAST Holdings Limited
  
United Kingdom





Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
FAST Training Services Limited
 
United Kingdom
Felec Services, Inc.
 
Delaware
Flight Data Services Limited
 
United Kingdom
Flight Training Acquisitions LLC
 
Delaware
ForceX, Inc
 
Tennessee
G Air Advanced Training, Lda
 
Portugal
G Air II Maintenance, Lda
 
Portugal
G4U – Gestão de Activos Aeronáuticos, Sociedade, Lda
 
Portugal
Hamilton BioVentures, L.P.
 
Delaware
Harris Asia Pacific Sdn. Bhd.
 
Malaysia
Harris Atlas Systems LLC*
 
UAE
Harris C4i Pty Ltd
 
Australia
Harris Canada Systems, Inc.
 
Canada
Harris Cayman Ltd.
 
Cayman Islands
Harris Communications (Australia) Pty. Ltd.
 
Australia
Harris Communications (Spain), S. L.
 
Spain
Harris Communications FZCO
 
UAE
Harris Communications GmbH
 
Germany
Harris Communications Limited
 
Hong Kong
Harris Communications Malaysia Sdn. Bhd.
 
Malaysia
Harris Communications MH Spain, S. L.
 
Spain
Harris Communications Pakistan (Private) Limited
 
Pakistan
Harris Communications Systems India Private Limited
 
India
Harris Comunicações e Participações do Brasil Ltda.
 
Brazil
Harris Defence Ltd.
 
United Kingdom
Harris Denmark ApS
 
Denmark
Harris Denmark Holding ApS
 
Denmark
Harris Geospatial Solutions B.V.
 
Netherlands
Harris Geospatial Solutions France SARL
 
France
Harris Geospatial Solutions GmbH
 
Germany
Harris Geospatial Solutions Italia SRL
 
Italy
Harris Geospatial Solutions KK
 
Japan
Harris Geospatial Solutions UK Limited
 
United Kingdom
Harris Geospatial Solutions, Inc.*
 
Colorado
Harris Global Communications, Inc.
 
New York
Harris Holdco LLC
 
Delaware
Harris International Chile Limitada
 
Chile
Harris International Holdings, LLC
 
Delaware
Harris International Saudi Communications
 
Saudi Arabia
Harris International Venezuela, C.A.
 
Venezuela
Harris International, Inc.
 
Delaware
Harris Luxembourg Sarl
 
Luxembourg
Harris NV
 
Belgium
Harris Orthogon GmbH
 
Germany
Harris Pension Management Limited
 
United Kingdom
Harris Solid-State (Malaysia) Sdn. Bhd.
 
Malaysia
Harris Systems Limited
 
United Kingdom
Honeywell TCAS Inc.
 
Delaware
Interstate Electronics Corporation
 
California
Jariet Technologies, Inc.
 
Delaware
L-3 Afghanistan, LLC
 
Delaware





Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
L3 Applied Technologies, Inc.
 
Delaware
L3 Australia Group Pty Ltd
 
Australia
L3 Aviation Products, Inc.
 
Delaware
L-3 Brasil Importação, Exportação e Comércio Ltda.
 
Brazil
L-3 Centaur, LLC
 
Delaware
L3 Cincinnati Electronics Corporation
 
Ohio
L3 Commercial Training Solutions Limited
 
United Kingdom
L-3 Communications AIS GP Corporation
 
Delaware
L-3 Communications ASA Limited
 
United Kingdom
L-3 Communications Australia Pty Ltd
 
Australia
L-3 Communications Flight Capital LLC
 
Delaware
L-3 Communications Holding GmbH
 
Germany
L-3 Communications Hong Kong Limited
 
Hong Kong
L-3 Communications India Private Limited
 
India
L-3 Communications Integrated Systems L.P.
 
Delaware
L-3 Communications Investments Inc.
 
Delaware
L-3 Communications Korea Co., Ltd.
 
Korea
L-3 Communications Limited
 
United Kingdom
L-3 Communications Link Simulation and Training UK (Overseas) Limited
 
United Kingdom
L-3 Communications Singapore Pte. Ltd.
 
Singapore
L-3 Communications U.K. Ltd.
 
United Kingdom
L3 CTS Airline Academy (NZ) Limited
 
New Zealand
L3 CTS Airline and Academy Training Limited
 
United Kingdom
L-3 Domestic Holdings, Inc.
 
Delaware
L3 Doss Aviation, Inc.
 
Texas
L3 Electron Devices, Inc.
 
Delaware
L3 ESSCO, Inc.
 
Delaware
L3 Foreign Holdings, Inc.
 
Delaware
L3 Fuzing and Ordnance Systems, Inc.
 
Delaware
L-3 Global Holding UK Ltd.
 
United Kingdom
L3 International Australia Pty Ltd
 
Australia
L-3 International UK Ltd
 
United Kingdom
L3 Investments UK Holdings Ltd
 
United Kingdom
L3 Investments, LLC
 
Delaware
L3 Kenya LTD
 
Kenya
L3 Kigre, Inc.
 
Ohio
L3 Latitude, LLC
 
Arizona
L3 Magnet-Motor GmbH
 
Germany
L3 MAPPS INC.
 
Canada
L3 MAPPS Limited
 
United Kingdom
L3 MAPPS Sdn. Bhd.
 
Malaysia
L3 Micreo Pty Limited
 
Australia
L3 Oceania Pty Limited
 
Australia
L3 Open Water Power, Inc.
 
Delaware
L-3 Saudi Arabia LLC
 
Saudi Arabia
L3 Security and Detection Systems, Inc.
 
Delaware
L-3 Security Equipment Trading (Beijing) Co., Ltd.
 
China
L-3 Societá Srl.
 
Italy
L3 Technologies Australia Group Pty Ltd
 
Australia
L3 Technologies Canada Group Inc.
 
Canada
L3 Technologies Canada Inc.
 
Canada
L3 Technologies Investments Limited
 
Cyprus





Name of Subsidiary
  
State or Other
Jurisdiction of Incorporation
L3 Technologies MAS Inc.
 
Canada
L3 Technologies UK Group Ltd
 
United Kingdom
L3 Technologies, Inc.
 
Delaware
L-3 Technology & Services UK Ltd
 
United Kingdom
L3 Unidyne, Inc.
 
Delaware
L3 Unmanned Systems, Inc.
 
Texas
L3 Westwood Corporation
 
Nevada
Linchpin Labs Inc.
 
Canada
Linchpin Labs Inc.
 
Delaware
Linchpin Labs Limited
 
United Kingdom
Linchpin Labs Limited
 
New Zealand
Linchpin Labs Pty Limited
 
Australia
L-Tres Comunicaciones Costa Rica, S.A.
 
Costa Rica
MacDonald Humfrey (Automation) India Private Limited*
 
India
MacDonald Humfrey (Automation) Limited
 
United Kingdom
MacDonald Humfrey (Automation) SEA PTE. Ltd.
 
Singapore
MacDonald Humfrey Automation Middle East Control Systems LLC*
 
UAE
Manatee Investment, LLC
 
Delaware
Manu Kai, LLC*
 
Hawaii
Melbourne Leasing, LLC
 
Florida
Mustang Technology Group, L.P.
 
Texas
Narda Safety Test Solutions GmbH
 
Germany
Narda Safety Test Solutions S.r.l.
 
Italy
NexGen Communications, LLC
 
Virginia
Peak Nano Optics, LLC
 
Delaware
Power Paragon, Inc.
 
Delaware
Riptide Autonomous Solutions LLC
 
Delaware
S.C. Harris Assured Communications SRL
 
Romania
SARL Assured Communications
 
Algeria
Sovcan Star Satellite Communications Inc.
 
Canada
SPD Electrical Systems, Inc.
 
Delaware
Sunshine General Services, LLC
 
Iraq
TRL Electronics Limited
 
United Kingdom
TRL Technology Limited
 
United Kingdom
Wescam Inc.
 
Canada
Wescam USA, Inc.
 
Florida
_______________
* Subsidiary of L3Harris Technologies, Inc. less than 100% directly or indirectly owned by L3Harris Technologies, Inc.




Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:
Form S-3
 
No. 333-233827
 
L3Harris Technologies, Inc. Debt and Equity Securities
Form S-4/A
 
No. 333-228829
 
Harris Corporation Shares of Common Stock
Form S-8
 
No. 333-232482
 
L3 Technologies, Inc. Amended and Restated 2008 Long Term Performance Plan; L3 Technologies, Inc. Master Savings Plan; and Aviation Communications & Surveillance Systems 401(k) Plan
Form S-8
 
No. 333-222821
 
Harris Corporation Retirement Plan
Form S-8
  
No. 333-192735
  
Harris Corporation Retirement Plan
Form S-8
 
No. 333-163647
 
Harris Corporation Retirement Plan
Form S-8
 
No. 333-75114
 
Harris Corporation Retirement Plan
Form S-8
  
No. 333-130124
  
Harris Corporation 2005 Equity Incentive Plan
Form S-8
  
No. 333-207774
  
Harris Corporation 2015 Equity Incentive Plan

of our reports dated March 3, 2020, with respect to the consolidated financial statements of L3Harris Technologies, Inc. and the effectiveness of internal control over financial reporting of L3Harris Technologies, Inc. included in this Transition Report (Form 10-KT) of L3Harris Technologies, Inc. for the transition period from June 29, 2019 to January 3, 2020.

/s/ Ernst & Young LLP
Orlando, Florida
March 3, 2020





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 Transition Report on Form 10-KT of L3Harris Technologies, Inc., a Delaware corporation, with respect to the fiscal transition period ended January 3, 2020, and to sign any and all amendments to such Transition Report on Form 10-KT 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: March 3, 2020.
 
/s/ WILLIAM M. BROWN
 
/s/ THOMAS A. DATTILO
William M. Brown
  
Thomas A. Dattilo
Chairman and Chief Executive Officer
  
Director
 
 
 
/s/ CHRISTOPHER E. KUBASIK
 
/s/ ROGER B. FRADIN
Christopher E. Kubasik
 
Roger B. Fradin
Vice Chairman, President and Chief Operating Officer
 
Director
 
 
 
/s/ JESUS MALAVE JR.
 
/s/ LEWIS HAY III
Jesus Malave Jr.

  
Lewis Hay III
Senior Vice President and Chief Financial Officer


  
Director
 
 
 
/s/ TODD A. TAYLOR
 
/s/ LEWIS KRAMER
Todd A. Taylor
  
Lewis Kramer
Vice President, Principal Accounting Officer
  
Director
 
 
 
/s/ SALLIE B. BAILEY
 
/s/ RITA S. LANE
Sallie B. Bailey
  
Rita S. Lane
Director
  
Director
 
 
 
/s/ PETER W. CHIARELLI
 
/s/ ROBERT B. MILLARD
Peter W. Chiarelli
  
Robert B. Millard
Director
  
Director
 
 
 
/s/ THOMAS A. CORCORAN
 
/s/ LLOYD W. NEWTON
Thomas A. Corcoran
  
Lloyd W. Newton
Director
  
Director
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 





Exhibit 31.1
CERTIFICATION
I, William M. Brown, Chairman and Chief Executive Officer of L3Harris Technologies, Inc., certify that:
1.
I have reviewed this Transition Report on Form 10-KT for the fiscal transition period ended January 3, 2020 of L3Harris Technologies, Inc.;
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: March 3, 2020
 
 
 
/s/ William M. Brown
 
 
 
 
Name:
 
William M. Brown
 
 
 
 
Title:
 
Chairman and Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, Jesus Malave Jr., Senior Vice President and Chief Financial Officer of L3Harris Technologies, Inc., certify that:
1.
I have reviewed this Transition Report on Form 10-KT for the fiscal transition period ended January 3, 2020 of L3Harris Technologies, Inc.;
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: March 3, 2020
 
 
 
/s/ Jesus Malave Jr.
 
 
 
 
Name:
 
Jesus Malave Jr.
 
 
 
 
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 Transition Report on Form 10-KT of L3Harris Technologies, Inc. (“L3Harris”) for the fiscal transition period ended January 3, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, William M. Brown, Chairman and Chief Executive Officer of L3Harris, 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 L3Harris as of the dates and for the periods expressed in the Report.
Date: March 3, 2020
 
 
 
/s/ William M. Brown
 
 
 
 
Name:
 
William M. Brown
 
 
 
 
Title:
 
Chairman 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 Transition Report on Form 10-KT of L3Harris Technologies, Inc. (“L3Harris”) for the fiscal transition period ended January 3, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jesus Malave Jr., Senior Vice President and Chief Financial Officer of L3Harris, 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 L3Harris as of the dates and for the periods expressed in the Report.
Date: March 3, 2020
 
 
 
/s/ Jesus Malave Jr.
 
 
 
 
Name:
 
Jesus Malave Jr.
 
 
 
 
Title:
 
Senior Vice President and Chief Financial Officer