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

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

OVERVIEW

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes appearing elsewhere in this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Fiscal 2020 Form 10-K. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

COVID

Attempts to contain and reduce the spread of COVID, such as mandatory closures, “shelter-in-place” orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on the U.S. and global economies, including impacts to supply chains, customer demand, workforce, international trade and capital markets. Our response has involved increasing our focus on keeping our employees safe while striving to maintain continuity of operations, meet customer commitments and support suppliers. For example, we instituted numerous types of precautions, protocols and other arrangements designed to protect employees from COVID infections and to comply with applicable regulations, including mandating our U.S.-based employees be fully vaccinated against COVID by December 8, 2021 to comply with President Biden’s executive order, and we have also maintained an active dialog, and in some cases developed plans, with key suppliers in an effort to mitigate supply chain risks or otherwise minimize the potential impact from those risks. The U.S. Government response to COVID has included identifying the Defense Industrial Base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense Industrial Base, such as by increasing progress payments and accelerating contract awards, which enabled us to keep our U.S. production facilities largely operational in support of national security commitments to U.S. Government customers (as part of the Defense Industrial Base) and to accelerate payments to small business suppliers, which we expect to continue while the U.S. Government’s responsive actions remain in effect.

Although we believe that a large percentage of our revenue, earnings and cash flow that is derived from sales to the U.S. Government, whether directly or through prime contractors, will be relatively predictable, in part due to the U.S. Government’s responsive actions described above, our commercial and international businesses are at a higher risk of adverse COVID-related impacts, and we cannot eliminate all potential impacts to our business from supply chain risks, such as longer lead times and shortages of electronics and other components. For example, while we have started to see a recovery in the commercial aviation market, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in our Aviation Systems segment.

The extent of these disruptions and impacts, including on our ability to perform under U.S. Government and other contracts within agreed timeframes and ultimately on our results of operations and cash flows, will depend on future developments, including further COVID-related impacts and associated containment and mitigation actions taken by governmental authorities and consequences thereof, including COVID vaccine mandates, and global air traffic demand and governmental subsidies to airlines, and potential impacts to our business from supply chain risks, all of which are uncertain and unpredictable and could exacerbate other risks discussed in Item 1A. “Risk Factors” of our Fiscal 2020 Form 10-K, any of which could have a material effect on us. For further information regarding the impact, and the risks of the impact, of COVID on the Company, see Part II, Item 1A. “Risk Factors” in this Report and “Item 1A. Risk Factors” of our Fiscal 2020 Form 10-K.

KEY DEVELOPMENTS

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

Results of Operations** — an analysis of our consolidated results of operations and the results in each of our business segments, to the extent the segment results are helpful to an understanding of our business as a whole, for the periods presented in our Condensed Consolidated Statement of Income (Unaudited).
Liquidity, Capital Resources and Financial Strategies** — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations.
Critical Accounting Policies and Estimates** — information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for us, and their potential impact on our financial condition, results of operations, cash flows and equity.
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.

We report the financial results of our continuing operations in the following four 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 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; public safety radios, system applications and equipment; and global communications solutions; and
Aviation Systems, including defense aviation; commercial aviation products; commercial pilot training; and mission networks for air traffic management.

See Note B — Business Divestitures in the Notes for information relating to the following businesses divested or classified as held for sale in fiscal 2020 and 2021:

Airport security and automation business, divested on May 4, 2020, the results of which were reported as part of our Aviation Systems segment through the date of divestiture;
Applied Kilovolts business, divested on May 15, 2020, the results of which were reported as part of our Space and Airborne Systems segment through the date of divestiture;
EOTech business, divested on July 31, 2020, the results of which were reported as part of our Communication Systems segment through the date of divestiture;
Military training business, divested on July 2, 2021, the results of which were reported as part of our Aviation Systems segment through the date of divestiture;
CPS business, divested on July 2, 2021, the results of which were reported as part of our Aviation Systems segment through the date of divestiture;
VSE disposal group, divested partially on July 2, 2021, with the remainder divested on July 30, 2021, the results of which were reported as part of our Aviation Systems segment through the date of divestiture;
Electron Devices business, divested on October 1, 2021, the results of which were reported as part of our Aviation Systems segment through the date of divestiture;

*•*Narda-MITEQ business, definitive agreement entered into on August 31, 2021 and classified as held for sale during the quarter ended July 2, 2021; and

ESSCO business, definitive agreement entered into on September 1, 2021 and classified as held for sale during the quarter ended July 2, 2021.

RESULTS OF OPERATIONS

Consolidated Results of Operations


	Quarter Ended								Three Quarters Ended
(In millions, except per share amounts)	October 1, 2021			October 2, 2020			% Inc/(Dec)		October 1, 2021			October 2, 2020			% Inc/(Dec)


Revenue:
Integrated Mission Systems	$	1,336		$	1,372		(3)	%	$	4,281		4,073			5	%
Space and Airborne Systems	1,284			1,249			3	%	3,807			3,690			3	%
Communication Systems	1,030			1,094			(6)	%	3,269			3,300			(1)	%
Aviation Systems	625			792			(21)	%	2,248			2,603			(14)	%

Corporate eliminations	(46)			(44)			5	%	(141)			(132)			7	%
Total revenue	4,229			4,463			(5)	%	13,464			13,534			(1)	%
Cost of product sales and services	(2,921)			(3,152)			(7)	%	(9,385)			(9,625)			(2)	%
Gross margin	1,308			1,311			—	%	4,079			3,909			4	%
% of total revenue	31		%	29		%			30		%	29		%
Engineering, selling and administrative expenses	(793)			(817)			(3)	%	(2,485)			(2,484)			—	%
% of total revenue	19		%	18		%			18		%	18		%
Business divestiture-related gains (losses)	27			(10)			*		192			(62)			*
Impairment of goodwill and other assets	—			—			*		(207)			(394)			(47)	%
Non-operating income	111			96			16	%	314			296			6	%
Interest expense, net	(67)			(62)			8	%	(198)			(190)			4	%
Income from continuing operations before income taxes	586			518			13	%	1,695			1,075			58	%
Income taxes	(107)			(87)			23	%	(336)			(171)			96	%
Effective tax rate	18		%	17		%			20		%	16		%
Income from continuing operations	479			431			11	%	1,359			904			50	%
Noncontrolling interests, net of income taxes	2			(4)			*		4			24			*
Income from continuing operations attributable to L3Harris Technologies, Inc. common shareholders	$	481		$	427		13	%	$	1,363		$	928		47	%
% of total revenue	11		%	10		%			10		%	7		%
Diluted EPS	$	2.39		$	1.99		20	%	$	6.64		$	4.27		56	%

*Not meaningful

Revenue

One Quarter Comparison: The decrease in revenue for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to $181 million of lower revenue from the impact of completed business divestitures, as well as lower revenue from supply chain-related constraints within Communication Systems and lower aircraft sales volume in Integrated Mission Systems, partially offset by organic growth in Space and Airborne Systems and Aviation Systems.

Three Quarters Comparison: The decrease in revenue for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to $371 million of lower revenue from the impact of completed business divestitures and lower revenue in the quarter ended April 2, 2021 in our Aviation Systems segment from the COVID-related downturn in the commercial aviation market and its impact on customer operations, partially offset by organic revenue growth in Integrated Mission Systems, Space and Airborne Systems and Communication Systems.

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

Gross Margin Percentage

One Quarter Comparison: The increase in gross margin as a percentage of total revenue (“gross margin percentage”) for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to our e3 (excellence, everywhere, every day) operational excellence program (“e3 performance”) and integration benefits.

Three Quarters Comparison: The increase in gross margin percentage for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to e3 performance, integration benefits and the absence in the three quarters ended October 1, 2021 of a charge comparable to the $31 million charge for additional cost of sales related to the fair value step-up in inventory sold recorded in the three quarters ended October 2, 2020.

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

Engineering, Selling and Administrative (“ESA”) Expenses and Percentage

One Quarter Comparison: The decrease in ESA expenses for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to $19 million of lower amortization of acquisition-related intangible assets. The increase in ESA expenses as a percentage of total revenue (“ESA percentage”) in the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to lower total revenue.

Three Quarters Comparison: ESA expenses and ESA percentage for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 were comparable as $45 million of lower amortization of acquisition-related intangible assets as well as lower integration costs were offset by $48 million of higher divestiture-related expenses and the absence in the three quarters ended October 1, 2021 of COVID-related restructuring charges and exit costs recorded in the three quarters ended October 2, 2020.

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

Business Divestiture-Related Gains and Losses

The “Business divestiture-related gains (losses)” line item is comprised of the following pre-tax gains (losses) associated with businesses divested or held for sale:


	Quarter Ended				Three Quarters Ended
(In millions)	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
VSE disposal group	$	(4)	$	(10)	$	(30)	$	(24)
Electron Devices business	29		—		29		—
CPS business	—		—		(19)		—
Military training business	2		—		214		—

Airport security and automation business	—		(2)		—		(28)
Other	—		2		(2)		(10)
Total Business divestiture-related gain (losses)	$	27	$	(10)	$	192	$	(62)

See Note B — Business Divestitures in the Notes for further information.

Impairment of Goodwill and Other Assets

Three Quarters Comparison: Impairment of goodwill and other assets for the three quarters ended October 1, 2021 included a $62 million non-cash charge for impairment of goodwill associated with the divestiture of the CPS business and $145 million of non-cash charges for impairment of identifiable intangible and other long-lived assets related to our CTS reporting unit. Impairment of goodwill and other assets for the three quarters ended October 2, 2020 included $375 million of non-cash charges for impairment of goodwill and other assets in our Commercial Aviation Solutions sector associated with the COVID-related downturn in the commercial aviation market and its impact on customer operations, a $14 million non-cash charge for impairment of goodwill associated with the then-pending divestiture of the VSE disposal group and a $5 million non-cash charge for impairment of goodwill recorded in connection with the then-pending divestiture of our Applied Kilovolts business.

See Note B — Business Divestitures and Note I — Goodwill and Other Intangible Assets in the Notes for further information.

Non-Operating Income

One Quarter Comparison: The increase in non-operating income for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to an increase in the non-service cost components of net periodic benefit income.

Three Quarters Comparison: The increase in non-operating income for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to an increase in the non-service cost components of net periodic benefit income, partially offset by a $35 million charge for impairment of our equity investment in a nonconsolidated affiliate recorded in the quarter ended July 2, 2021.

See Note M — Non-Operating Income and Note K — Postretirement Benefit Plans in the Notes for further information.

Interest Expense, net

One Quarter Comparison: The increase in interest expense, net for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to lower interest income in the quarter ended October 1, 2021, reflecting lower sales-type lease receivables due to the divestiture of the military training business on July 2, 2021.

Three Quarters Comparison: The increase in interest expense, net for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to the same reason as noted above in the one quarter comparison for interest expense, net.

See Note 14: “Debt” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K for further information.

Income Taxes

One Quarter Comparison: Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 18.3 percent for the quarter ended October 1, 2021 compared with 16.8 percent for the quarter ended October 2, 2020. During the quarter ended October 1, 2021, our effective tax rate was unfavorably impacted by non-deductible goodwill from completed business divestitures and the unfavorable impact of valuation allowances in certain foreign jurisdictions, partially offset by the favorable impact of R&D credits, favorable adjustments upon finalization of our Federal tax return, the favorable impact of excess tax benefits related to equity-based compensation and the favorable resolution of specific audit uncertainties. During the quarter ended October 2, 2020, our effective tax rate benefited from favorable adjustments upon finalization of our Federal tax returns, including the favorable impact of a net reduction in our uncertain tax position balance.

Three Quarters Comparison: Our effective tax rate was 19.8 percent for the three quarters ended October 1, 2021 compared with 15.9 percent for the three quarters ended October 2, 2020. Our effective tax rate for the three quarters ended October 1, 2021 was impacted by the items described above in the one quarter comparison for income taxes for the quarter ended October 1, 2021. In addition to the items noted above in the one quarter comparison for income taxes for the quarter ended October 2, 2020, our effective tax rate for the three quarters ended October 2, 2020 benefited from the favorable impact of R&D credits and excess tax benefits related to equity-based compensation, partially offset by the unfavorable impact of non-deductible goodwill impairment charges.

Income From Continuing Operations

One Quarter Comparison: The increase in income from continuing operations for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to the combined effects of the reasons noted above in the one quarter comparison paragraphs.

Three Quarters Comparison: The increase in income from continuing operations for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to the combined effects of the reasons noted above in the three quarters comparison paragraphs.

Diluted EPS

One Quarter Comparison: The increase in diluted EPS for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to higher income from continuing operations and fewer diluted weighted average common shares outstanding, reflecting the repurchases of shares of our common stock under our repurchase program in the four quarters ended October 1, 2021.

Three Quarters Comparison: The increase in diluted EPS for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to higher income from continuing operations and fewer diluted weighted average common shares outstanding, reflecting the repurchases of shares of our common stock under our repurchase program in the four quarters ended October 1, 2021.

See “Common Stock Repurchases” below in this MD&A for information regarding our share repurchase program.

Discussion of Business Segment Results of Operations

Integrated Mission Systems


	Quarter Ended								Three Quarters Ended
(In millions)	October 1, 2021			October 2, 2020			% Inc/(Dec)		October 1, 2021			October 2, 2020			% Inc/(Dec)


Revenue	$	1,336		$	1,372		(3)	%	$	4,281		$	4,073		5	%





Segment operating income	222			213			4	%	691			638			8	%
% of revenue	17		%	16		%			16		%	16		%

One Quarter Comparison: The decrease in segment revenue for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to $43 million of lower revenue in ISR, reflecting the timing of aircraft sales volume, and lower revenue in Electro Optical due to product delivery timing, partially offset by $18 million of higher revenue in Maritime from a ramp on key platforms.

The increases in segment operating income and operating income as a percentage of revenue (“operating margin percentage”) for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 were primarily due to operational excellence, integration benefits, and higher pension income. The increase in segment operating income was partially offset by lower sales volume.

Three Quarters Comparison: The increase in segment revenue for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to $139 million of higher revenue in ISR, driven by aircraft missionization on a North Atlantic Treaty Organization program, and $77 million of higher revenue in Maritime, reflecting a ramp on key platforms, partially offset by lower revenue in Electro Optical due to product delivery timing.

The increase in segment operating income for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to cost management, operational excellence, integration benefits and higher pension income, partially offset by a mix of program revenue and product sales with relatively lower operating margin percentage for the three quarters ended October 1, 2021. Segment operating margin percentage for the three quarters ended October 1, 2021 was comparable with the three quarters ended October 2, 2020.

Space and Airborne Systems


	Quarter Ended								Three Quarters Ended
(In millions)	October 1, 2021			October 2, 2020			% Inc/(Dec)		October 1, 2021			October 2, 2020			% Inc/(Dec)


Revenue	$	1,284		$	1,249		3	%	$	3,807		$	3,690		3	%





Segment operating income	242			231			5	%	735			687			7	%
% of revenue	19		%	18		%			19		%	19		%

One Quarter Comparison: The increase in segment revenue for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to $56 million of higher revenue in Space, reflecting a ramp in missile defense and other responsive programs, partially offset by $26 million of lower revenue in Mission Avionics, reflecting the transition from development to production on the F-35 Technology Refresh 3 program, and lower revenue in Electronic Warfare and Intel and Cyber, reflecting program timing.

The increases in segment operating income and operating margin percentage for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 were primarily due to e3 performance, including program performance, increased pension income and integration benefits, partially offset by increased investments in R&D and a mix of program revenue and product sales, including a ramp on growth programs, with relatively lower operating margin percentage for the quarter ended October 1, 2021.

Three Quarters Comparison: The increase in segment revenue for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to $136 million of higher revenue in Space, reflecting a ramp in missile defense and other responsive programs, and growth in Intel and Cyber from classified programs, partially offset by $9 million of lower revenue in Mission Avionics, reflecting the transition from development to production for the F-35 Technology Refresh 3 program, and lower revenue in Electronic Warfare.

The increase in segment operating income for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to the same reasons as noted above in the one quarter comparison regarding this

segment. The segment operating margin percentage for the three quarters ended October 1, 2021 was comparable with the three quarters ended October 2, 2020.

Communication Systems


	Quarter Ended								Three Quarters Ended
(In millions)	October 1, 2021			October 2, 2020			% Inc/(Dec)		October 1, 2021			October 2, 2020			% Inc/(Dec)


Revenue	$	1,030		$	1,094		(6)	%	$	3,269		$	3,300		(1)	%





Segment operating income	271			273			(1)	%	839			788			6	%
% of revenue	26		%	25		%			26		%	24		%

One Quarter Comparison: The decrease in segment revenue for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was due to $38 million of lower revenue in Tactical Communications, reflecting product delivery delays from supply chain-related constraints, $22 million of lower revenue in Integrated Vision Systems primarily due to delivery timing and the impact of the divestiture of the EOTech business on July 31, 2020 (which generated $8 million of revenue through the date of divestiture in the quarter ended October 2, 2020), $20 million of lower revenue in Broadband Communications, reflecting lower sales on legacy unmanned platforms, and lower revenue in Global Communications Solutions primarily due to contract roll-offs, partially offset by $17 million of higher revenue in Public Safety, reflecting higher radio sales.

The decrease in segment operating income for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to higher R&D investments and supply chain impacts, partially offset by operational excellence, including program performance, and integration benefits. The increase in segment operating margin percentage for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was due to a mix of program revenue with relatively higher operating margin percentage for the quarter ended October 1, 2021.

Three Quarters Comparison: The decrease in segment revenue for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to $32 million of lower revenue in Integrated Vision Systems from the impact of the divestiture of the EOTech business on July 31, 2020 (which generated $41 million of revenue through the date of divestiture in the quarter ended October 2, 2020), $42 million of lower revenue in Broadband Communications, reflecting lower sales on legacy unmanned platforms, and lower revenue in Public Safety due to residual COVID-related impacts in the first half of 2021, partially offset by $24 million of higher revenue in Tactical Communications, reflecting increased international demand, and higher revenue in Global Communications Solutions.

The increases in segment operating income and operating margin percentage for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 were primarily due to a mix of program revenue with relatively higher operating margin percentage for the three quarters ended October 1, 2021, operational excellence and integration benefits, partially offset by supply chain impacts.

Aviation Systems


	Quarter Ended								Three Quarters Ended
(In millions)	October 1, 2021			October 2, 2020			% Inc/(Dec)		October 1, 2021			October 2, 2020			% Inc/(Dec)


Revenue	$	625		$	792		(21)	%	$	2,248		$	2,603		(14)	%





Segment operating income (loss)	90			100			(10)	%	253			(46)			*
% of revenue	14		%	13		%			11		%	(2)		%

*Not meaningful

One Quarter Comparison: The decreases in segment revenue and operating income for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 were primarily due to the impact of the divestitures of the military training and CPS businesses during the quarter ended July 2, 2021 (which generated $107 million and $59 million, respectively, of revenue in the quarter ended October 2, 2020). The increase in segment operating margin percentage for the quarter ended October 1, 2021 compared with the quarter ended October 2, 2020 was primarily due to cost management and integration benefits.

Three Quarters Comparison: The decrease in segment revenue for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to the reasons noted above in the one quarter comparison for this segment, as well as lower commercial aerospace revenue, which included a $147 million revenue impact from the airport

security and automation business divestiture on May 4, 2020 and lower revenue from the COVID-related downturn in the commercial aviation market and its impact on customer operations.

The increases in segment operating income and operating margin percentage for the three quarters ended October 1, 2021 compared with the segment operating loss and operating margin percentage for the three quarters ended October 2, 2020 were primarily due to the same reasons as noted above in the one quarter comparison for this segment, as well as the absence of $375 million of non-cash charges for impairment of goodwill and other assets recorded in the three quarters ended October 2, 2020 due to the COVID-related downturn in the commercial aviation market and its impact on customer operations.

Unallocated Items


	Quarter Ended						Three Quarters Ended
(In millions)	October 1, 2021		October 2, 2020		% Inc/(Dec)		October 1, 2021		October 2, 2020		% Inc/(Dec)

L3Harris Merger-related integration expenses	$	34	$	27	26	%	$	75	$	95	(21)	%
Amortization of acquisition-related intangibles	155		176		(12)	%	475		529		(10)	%
Additional cost of sales related to fair value step-up in inventory sold	—		—		*		—		31		*
Business divestiture-related (gains) losses	(27)		10		*		(192)		62		*
Other items	8		2		300	%	61		19		221	%

Impairment of goodwill and other assets	—		—		*		125		19		*
Unallocated corporate department expense	2		21		(90)	%	59		51		16	%
	$	172	$	236			$	603	$	806

*Not meaningful

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

Cash Flows


	Three Quarters Ended
(In millions)	October 1, 2021		October 2, 2020

Net cash provided by operating activities	$	1,865	$	2,092
Net cash provided by investing activities	1,400		798
Net cash used in financing activities	(3,413)		(2,373)
Effect of exchange rate changes on cash and cash equivalents	(2)		—
Net (decrease) increase in cash and cash equivalents	(150)		517
Cash and cash equivalents, beginning of year	1,276		824
Cash and cash equivalents, end of quarter	$	1,126	$	1,341

Cash and cash equivalents

The $150 million net decrease in cash and cash equivalents in the three quarters ended October 1, 2021 was primarily due to:

$1,865 million of net cash provided by operating activities;
$1,598 million of net proceeds from sales of businesses; and
$94 million of proceeds from exercises of employee stock options; more than offset by
$2,875 million used to repurchase shares of our common stock;
$618 million used to pay cash dividends; and
$200 million used for net additions of property, plant and equipment.

The $517 million net increase in cash and cash equivalents in the three quarters ended October 2, 2020 was primarily due to:

$2,092 million of net cash provided by operating activities;
$1,002 million of net proceeds from sales of businesses;
$249 million of net proceeds from borrowings from issuance of Floating Rate Notes due March 10, 2023; and
$39 million of proceeds from exercises of employee stock options; partially offset by
$1,850 million used to repurchase shares of our common stock;
$546 million used to pay cash dividends;
$257 million of repayments of borrowings, including $250 million used for repayment at maturity of the entire principal amount of our Floating Rate Notes due April 30, 2020; and
$194 million used for net additions of property, plant and equipment.

At October 1, 2021, we had cash and cash equivalents of $1,126 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 October 1, 2021). Additionally, we had $7.1 billion of long-term debt outstanding at October 1, 2021. Our $1,126 million of cash and cash equivalents at October 1, 2021 included $228 million held by our foreign subsidiaries, a significant portion of which we believe 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 overall level of debt, U.S. Government budget uncertainties and the state of global commerce and general political and financial uncertainty. We cannot predict the on-going impact that COVID, among other potential risks and uncertainties, will have on our cash from operations. For further information regarding COVID-related risks and uncertainties, see Item 1A. “Risk Factors” of our Fiscal 2020 Form 10-K and Part II, Item 1A. “Risk Factors” in this Report.

Based on our current business plan and revenue prospects, we believe that our 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 the reasonably foreseeable future thereafter. Our total capital expenditures for fiscal 2021 are expected to be approximately $350 million. We anticipate tax payments in fiscal 2021 to be approximately equal to our tax expense for the same period, subject to adjustment for certain timing differences and divestitures. Other than those cash outlays noted in “Contractual Obligations” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2020 Form 10-K and in the “Commercial Commitments and Contractual Obligations” section below in this MD&A, capital expenditures, dividend payments, repurchases under our share repurchase program and L3Harris Merger-related integration costs, we do not anticipate any significant cash outlays during the remainder of fiscal 2021.

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 or capital markets disruptions. If we are unable to maintain cash balances, generate cash flow from operations or borrow under our commercial paper program or our credit facility sufficient to service our obligations, we may be required to 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, obtain additional financing or sell assets. 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 $227 million decrease in net cash provided by operating activities for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to a $111 million increase in cash income tax payments and a $74 million increase in cash used to fund working capital (i.e., accounts receivable, contract assets, inventories, accounts payable and contract liabilities), partially offset by the impact of higher income (excluding the impact of non-cash items such as depreciation and amortization, impairment of goodwill and other assets and gains related to business divestitures) for the three quarters ended October 1, 2021.

Net cash provided by investing activities: The $602 million increase in net cash provided by investing activities for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to an increase of $596 million in net proceeds from sales of businesses.

Net cash used in financing activities: The $1,040 million increase in net cash used in financing activities for the three quarters ended October 1, 2021 compared with the three quarters ended October 2, 2020 was primarily due to an $1,025 million increase in cash used to repurchase common stock in the three quarters ended October 1, 2021.

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. The Highway and Transportation Funding Act of 2014, the Bipartisan Budget Act of 2015, and the American Rescue Plan Act of 2021 further extended the interest rate stabilization provision of MAP-21. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend the plans or make benefit payments. With respect to our U.S. qualified defined benefit pension plans, we intend to contribute annually not less than the required minimum funding thresholds. As a result of prior voluntary contributions, we are not required to make any contributions to our U.S. qualified defined benefit pension plans in fiscal 2021 and for several years thereafter.

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 required minimum contributions could be material. We had net unfunded defined benefit plan obligations of $857 million at October 1, 2021. See Note 15: “Pension and Other Postretirement Benefits” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K and Note K — Postretirement Benefit Plans in the Notes for further information regarding our pension plans.

Common Stock Repurchases

On January 28, 2021, we announced that our Board of Directors approved a $6 billion share repurchase authorization under our share repurchase program that was in addition to the remaining unused authorization of $210 million as of January 1, 2021. During the three quarters ended October 1, 2021, we used $2.88 billion to repurchase 13.5 million shares of our common stock under our share repurchase program at an average price per share of $213.45. During the three quarters ended October 2, 2020, we used $1,850 million to repurchase 9.7 million shares of our common stock under our share repurchase program at an average price per share of $191.33. During the three quarters ended October 1, 2021 and October 2, 2020, $4 million and $2 million, respectively, in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares purchased by us are cancelled and retired.

At October 1, 2021, we had a remaining, unused authorization of approximately $3.3 billion under our share repurchase program, which does not have an expiration date. Repurchases under our share 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 current repurchase program is set forth in this Report under Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds.”

Dividends

On January 28, 2021, our Board of Directors increased the quarterly per share cash dividend rate on our common stock from $.85 to $1.02, for an annualized per share cash dividend rate of $4.08, which was our twentieth consecutive annual increase in our quarterly cash dividend rate. During the three quarters ended October 1, 2021 and October 2, 2020, we paid cash dividends of $618 million and $546 million, respectively. 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.

Capital Structure and Resources

2019 Credit Agreement: We have a $2 billion, 5-year senior unsecured revolving credit facility (the “2019 Credit Facility”) under a Revolving Credit Agreement (the “2019 Credit Agreement”) entered into on June 28, 2019 with a syndicate of lenders. For a description of the 2019 Credit Facility and the 2019 Credit Agreement, see Note 13: “Credit Arrangements” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K.

We were in compliance with the covenants in the 2019 Credit Agreement at October 1, 2021, 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 October 1, 2021, we had no borrowings outstanding under the 2019 Credit Agreement.

Long-Term Debt: For a description of our long-term variable-rate and fixed-rate debt, see Note 14: “Debt” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K.

Short-Term Debt: Our short-term debt was $2 million at October 1, 2021 and $2 million at January 1, 2021, in each case consisting of local borrowing by international subsidiaries for working capital needs.

Other Agreements: We have two RSAs with third-party financial institutions that permit us to sell, on a non-recourse basis, up to $100 million each of outstanding receivables at any given time. From time to time, we have sold certain customer receivables under the RSAs, which we continue to service and collect on behalf of the third-party financial institutions 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 three quarters ended October 1, 2021 or October 2, 2020.

Off-Balance Sheet Arrangements

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

Any obligation under certain guarantee contracts;
A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
Any obligation, including a contingent obligation, under certain derivative instruments; and
Any obligation, including a contingent obligation, under a material variable interest in an unconsolidated entity that is held by, and material to, the registrant, where such entity provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or R&D services with the registrant.

As of October 1, 2021, 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 October 1, 2021, we did not have material financial guarantees or other contractual commitments that we believe are reasonably likely to adversely affect our financial condition, results of operations, cash flows or equity, and we were not a party to any related party transactions that materially affect our financial condition, results of operations, cash flows or equity.

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, cash flows or equity.

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 sub-lessees is individually and in the aggregate not material to our financial condition, results of operations, cash flows or equity.

Commercial Commitments and Contractual Obligations

The amounts disclosed in our Fiscal 2020 Form 10-K include our commercial commitments and contractual obligations. There were no material changes during the three quarters ended October 1, 2021 in our contractual cash obligations to repay debt, to purchase goods and services, to make payments under operating leases or our commercial commitments, or in our contingent liabilities on outstanding surety bonds, standby letters of credit or other arrangements as disclosed in our Fiscal 2020 Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes are prepared in accordance with GAAP. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and backlog as well as disclosures of contingent assets and liabilities. Actual results may differ from our estimates. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies and estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies and estimates for us include: (i) revenue recognition on contracts and contract estimates; (ii) postretirement benefit

plans; (iii) impairment testing of goodwill; (iv) accounting for business combinations; and (v) income taxes and tax valuation allowances. For additional discussion of our critical accounting policies and estimates, see “Critical Accounting Policies and Estimates” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2020 Form 10-K.

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 POC cost-to-cost method of revenue recognition, 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 the transfer of control of the asset 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 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. 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 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 resulted in the following impacts to operating income for the periods presented:


	Quarter Ended				Three Quarters Ended
(In millions)	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020

Favorable adjustments	$	158	$	180	$	485	$	523
Unfavorable adjustments	(73)		(81)		(238)		(223)
Net operating income adjustments	$	85	$	99	$	247	$	300

The net favorable impact to operating income from EAC adjustments in the quarter and three quarters ended October 1, 2021 reflected benefits of operational performance on programs, including additional retirement of risks and schedule improvements, achievement of incentive payments and realization of synergy savings. There were no EAC adjustments on any individual program with impacts to operating income in the quarters and three quarters ended October 1, 2021 or October 2, 2020 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 a 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 Federal Acquisition Regulations 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, 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.

Goodwill

Goodwill in our Condensed Consolidated Balance Sheet (Unaudited) as of October 1, 2021 and January 1, 2021 was $18.2 billion and $18.9 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.

Commercial Aviation Solutions goodwill allocation: As described in more detail in Note I — Goodwill and Other Intangible Assets and elsewhere in the Notes, during the quarter ended July 2, 2021, we adjusted our Aviation Systems segment reporting to better align our businesses and separated the CTS business from our Commercial Aviation Solutions reporting unit, creating a new CTS reporting unit within the Commercial Aviation Solutions sector of our Aviation Systems segment. We assigned $68 million of goodwill to the CTS reporting unit and $779 million of goodwill to the Commercial Aviation Solutions reporting unit on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to each new reporting unit and concluded that no goodwill impairment existed as of July 2, 2021.

CPS business goodwill allocation: As described in more detail in Note B — Business Divestitures in the Notes, we entered into a definitive agreement to sell our CPS business on March 1, 2021. Because the then-pending divestiture of the CPS business represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $174 million of goodwill to the CPS business disposal group on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to the CPS business disposal group and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that goodwill related to the CPS business disposal group was impaired. In connection with the preparation of our financial statements for the quarter ended April 2, 2021, we recorded a non-cash impairment charge of $62 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 1, 2021.

Electron Devices business goodwill allocation: As described in more detail in Note B — Business Divestitures in the Notes, we entered into a definitive agreement to sell our Electron Devices business on July 2, 2021. Because the then-pending divestiture of the Electron Devices business represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $15 million of goodwill to the Electron Devices disposal group on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to the Electron Devices business disposal group and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment existed.

Narda-MITEQ business: As described in more detail in Note B — Business Divestitures in the Notes, we classified the Narda-MITEQ business as held for sale during the quarter ended July 2, 2021. Because the potential divestiture of the Narda-MITEQ business represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $7 million of goodwill to the Narda-MITEQ business on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to the Narda-MITEQ business and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met. We subsequently entered into a definitive agreement on August 31, 2021 to sell the Narda-MITEQ business.

ESSCO business: As described in more detail in Note B — Business Divestitures in the Notes, we classified the ESSCO business as held for sale during the quarter ended July 2, 2021. Because the potential divestiture of the ESSCO business represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $4 million of goodwill to the ESSCO business on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to the ESSCO business and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met. We subsequently entered into a definitive agreement to sell our ESSCO business on September 1, 2021.

For purposes of allocating goodwill to each disposal group above, we determined the fair value of the disposal group based on the negotiated or expected selling price and the fair value of the retained businesses of the reporting unit 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” in the Notes to Consolidated Financial Statements in our Fiscal 2020 Form 10-K for additional information regarding the fair value hierarchy.

Impairment of long-lived assets

During the quarter ended July 2, 2021, we adjusted our Aviation Systems segment reporting to better align our businesses and separated the CTS business from our Commercial Aviation Solutions reporting unit, creating a new CTS reporting unit within the Commercial Aviation Solutions sector of our Aviation Systems segment. To test for potential impairment of the long-lived assets, including identifiable intangible assets and property, plant and equipment, related to CTS, we compared the estimated future cash flows (on an undiscounted basis) to be generated from the use and hypothetical eventual disposition of the asset group to its carrying value and, as a result, we determined the carrying value of the CTS asset group was not recoverable. Next, we prepared an estimate of the fair value of CTS based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions and projected discounted cash flows. We compared the fair value of CTS to our carrying value and recorded a $145 million non-cash charge for the impairment of CTS long-lived assets, including $63 million for impairment of identifiable intangible assets, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 1, 2021. See Note H — Property, Plant and Equipment, net and Note I — Goodwill and Other Intangible Assets in the Notes for additional information.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that may not materialize or prove to be correct, which could cause our results to differ materially from those expressed in or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future operations; new products, systems, technologies, services or developments; future economic conditions, performance or outlook; future political conditions; the outcome of contingencies; the potential level of share repurchases, dividends or pension contributions; potential acquisitions or divestitures; the value of contract awards and programs; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future, including expected COVID-related impacts to our businesses; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of filing of this Report and are not guarantees of future performance or actual results. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The following are some of the factors we believe could cause our actual results to differ materially from our historical results or our current expectations or projections:

COVID and ongoing attempts to contain and reduce its spread could have a material adverse effect on our business operations, financial condition, results of operations, cash flows and equity.
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, cash flows and equity.
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, cash flows and equity.
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, cash flows and equity.
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.
Our commercial aviation products, systems and services businesses are affected by global demand and economic factors that could negatively impact our financial results.
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 geopolitical events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability.
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 subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
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 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 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 a prolonged work stoppage could harm our business.
Disputes with our subcontractors or key suppliers, or their inability to perform or 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 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 estimates we use in accounting for many of our programs could adversely affect our future financial results.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans liability may materially 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.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect our financial condition, results of operations, cash flows and equity in future periods.
Changes in our effective tax rate may have an adverse effect on our results of operations.
We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.
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, cash flows and equity.
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.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.
Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity.
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 materially adversely affect our results of operations and financial condition.

Additional details and discussions concerning some of the factors that could affect our forward-looking statements or future results are set forth in our Fiscal 2020 Form 10-K under Item 1A. “Risk Factors” and in Part II, Item 1A. “Risk Factors” in this Report. The foregoing list of factors and the factors set forth in Item 1A. “Risk Factors” included in our Fiscal 2020 Form 10-K and in Part II, Item 1A. “Risk Factors” in this Report are not exhaustive. Additional risks and uncertainties not known to us or that we currently believe not to be material also may adversely impact our business, financial condition, results of operations, cash flows and equity. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity. The forward-looking statements contained in this Report 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 or to update the reasons actual results could differ materially from those projected in the forward-looking statements, whether as a result of new information, future events or developments or otherwise.

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