Item 1. FINANCIAL STATEMENTS.

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Item 1. FINANCIAL STATEMENTS.

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

Quarter Ended
(In millions, except per share amounts)March 31, 2023April 1, 2022
Revenue from product sales and services$4,471$4,103
Cost of product sales and services(3,305)(2,860)
Engineering, selling and administrative expenses(773)(745)
Non-operating income, net82106
Interest expense, net(102)(68)
Income before income taxes373536
Income taxes(34)(61)
Net income339475
Noncontrolling interests, net of income taxes(2)—
Net income attributable to L3Harris Technologies, Inc.$337$475
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic$1.77$2.46
Diluted$1.76$2.44
Basic weighted average common shares outstanding190.2193.2
Diluted weighted average common shares outstanding191.2195.1

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

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

Quarter Ended
(In millions)March 31, 2023April 1, 2022
Net income$339$475
Other comprehensive income:
Foreign currency translation gain (loss), net of income taxes7(3)
Net unrealized gain on hedging derivatives, net of income taxes55
Other comprehensive income, recognized during the period122
Reclassification adjustments for gains included in net income(12)(6)
Other comprehensive loss, net of income taxes:—(4)
Total comprehensive income339471
Comprehensive income attributable to noncontrolling interests(2)—
Total comprehensive income attributable to L3Harris Technologies, Inc.$337$471

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

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions, except shares)March 31, 2023December 30, 2022
Assets
Current Assets
Cash and cash equivalents$545$880
Receivables, net of allowances for collection losses of $38 and $40, respectively1,2311,251
Contract assets3,2742,987
Inventories1,5411,291
Income taxes receivable4140
Other current assets307258
Assets of business held for sale6147
Total current assets7,0006,754
Non-current Assets
Property, plant and equipment, net2,1332,104
Operating lease right-of-use assets756756
Goodwill18,29117,283
Other intangible assets, net6,6886,001
Deferred income taxes7473
Other non-current assets565553
Total assets$35,507$33,524
Liabilities and Equity
Current Liabilities
Short-term debt$2$2
Accounts payable2,0541,945
Contract liabilities1,5251,400
Compensation and benefits285398
Other accrued items946818
Income taxes payable508376
Current portion of long-term debt, net811818
Liabilities of business held for sale2019
Total current liabilities6,1515,776
Non-current Liabilities
Defined benefit plans208262
Operating lease liabilities735741
Long-term debt, net8,2206,225
Deferred income taxes570719
Other long-term liabilities1,2151,177
Total liabilities17,09914,900
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 189,360,959 and 190,611,458 shares at March 31, 2023 and December 30, 2022, respectively189191
Other capital15,40715,677
Retained earnings2,9982,943
Accumulated other comprehensive loss(288)(288)
Total shareholders’ equity18,30618,523
Noncontrolling interests102101
Total equity18,40818,624
Total liabilities and equity$35,507$33,524

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

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

Quarter Ended
(In millions)March 31, 2023April 1, 2022
Operating Activities
Net income$339$475
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles165152
Depreciation and other amortization8580
Share-based compensation2328
Share-based matching contributions under defined contribution plans5755
Pension and other postretirement benefit plan income(71)(99)
Deferred income taxes(115)(162)
(Increase) decrease in:
Receivables, net48(239)
Contract assets(269)(93)
Inventories(86)(108)
Other current assets(40)(25)
Increase (decrease) in:
Accounts payable90(43)
Contract liabilities97(16)
Compensation and benefits(115)(154)
Other accrued items63(12)
Income taxes130203
Other operating activities(51)(3)
Net cash provided by operating activities35039
Investing Activities
Net cash paid for acquired business(1,973)—
Additions to property, plant and equipment(71)(55)
Cash used for equity investments(5)(9)
Other investing activities1—
Net cash used in investing activities(2,048)(64)
Financing Activities
Proceeds from borrowings, net of issuance cost2,2481
Repayments of borrowings(255)(5)
Proceeds from exercises of employee stock options1130
Repurchases of common stock(396)(308)
Cash dividends(220)(218)
Tax withholding payments associated with vested share-based awards(26)(12)
Other financing activities(1)(1)
Net cash provided by (used in) financing activities1,361(513)
Effect of exchange rate changes on cash and cash equivalents2(1)
Net decrease in cash and cash equivalents(335)(539)
Cash and cash equivalents, beginning of period880941
Cash and cash equivalents, end of period$545$402

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

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In millions, except per share amounts)Common StockOther CapitalRetained EarningsAccumulated Other Comprehensive LossNon-controlling InterestsTotal Equity
Balance at December 30, 2022$191$15,677$2,943$(288)$101$18,624
Net income——337—2339
Shares issued under stock incentive plans—11———11
Shares issued under defined contribution plans—57———57
Share-based compensation expense—23———23
Tax withholding payments on share-based awards—(26)———(26)
Repurchases and retirement of common stock(2)(332)(62)——(396)
Cash dividends ($1.14 per share)——(220)——(220)
Other—(3)——(1)(4)
Balance at March 31, 2023$189$15,407$2,998$(288)$102$18,408
Balance at December 31, 2021$194$16,248$2,917$(146)$106$19,319
Net income——475——475
Other comprehensive loss, net of income taxes———(4)—(4)
Shares issued under stock incentive plans—30———30
Shares issued under defined contribution plans—55———55
Share-based compensation expense—28———28
Tax withholding payments on share-based awards—(12)———(12)
Repurchases and retirement of common stock(1)(260)(47)——(308)
Cash dividends ($1.12 per share)——(218)——(218)
Distributions to noncontrolling interests————(1)(1)
Other——1—12
Balance at April 1, 2022$193$16,089$3,128$(150)$106$19,366

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these Notes to the Condensed 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.

The accompanying Condensed Consolidated Financial Statements have been prepared by L3Harris in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements and are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period.

In the opinion of management, such interim financial statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations, cash flows and equity for the periods presented therein. The balance sheet at December 30, 2022 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with Part II: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2022 (our "Fiscal 2022 Form 10-K").

Business Realignment. Effective for fiscal 2023, which began December 31, 2022, we adjusted our reporting to better align our businesses and transferred our Agile Development Group (“ADG”) business from our Integrated Mission Systems ("IMS") segment to our Space & Airborne Systems (“SAS”) segment.

The historical results, discussion and presentation of our business segments as set forth in the accompanying Condensed 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 operations, balance sheets, statements of cash flows or statements of equity resulting from these changes.

See Note G: Goodwill and Other Intangible Assets and Note O: Business Segment Information in these Notes for further information.

Use of Estimates

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

Reclassifications

The classification of certain prior year amounts have been adjusted in our Condensed Consolidated Financial Statements and these Notes to conform to current year classifications.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting Standards Updates

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification ("ASC") 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted the new standard effective December 31, 2022. On January 3, 2023, we completed the acquisition of Viasat, Inc.’s (“Viasat”) Tactical Data Link product line (“TDL”) and applied the provisions of ASU 2021-08 in our purchase accounting for TDL. The adoption of the new standard did not have a material impact on our operating results, financial position, or cash flows. For more information regarding the TDL acquisition see Note B: Acquisitions and Divestitures in these Notes for further information.

NOTE B: ACQUISITIONS AND DIVESTITURES

Acquisition of Viasat, Inc.’s TDL

On January 3, 2023, we completed the acquisition of TDL for a purchase price of $1.958 billion. The acquisition qualified as a business acquisition and enhances our networking capability and provides immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the U.S. Department of Defense (“DoD”) integrated architecture goal in joint all-domain command and control (“JADC2”).

In connection with the acquisition, on November 22, 2022, we established a $2.25 billion, three-year senior unsecured term loan facility by entering into a Loan Agreement (“Term Loan 2025”) with a syndicate of lenders. We used borrowings under Term Loan 2025 to finance the acquisition. See Note H: Debt and Credit Arrangements in these Notes for further information regarding Term Loan 2025.

Net assets and results of operations of TDL are reflected in our financial results commencing on January 3, 2023, the acquisition date, and are reported within our Communication Systems (“CS”) segment.

Consideration Transferred. As of the acquisition date, the fair value of consideration transferred consisted of the following:

(In millions)January 3, 2023
Purchase price$1,958
Estimated net working capital and other adjustments15
Cash consideration paid1,973
Settlement of preexisting relationship(1)1
Fair value of consideration transferred$1,974

(1)Prior to the acquisition, we had a preexisting relationship with Viasat’s TDL business in the normal course of business. As of the closing date, our CS segment had a receivable from Viasat’s TDL business with a fair value of $1 million that was settled in connection with the acquisition.

Purchase Price Allocation. We accounted for the acquisition of TDL using the acquisition method of accounting, with assets acquired and liabilities assumed recorded at a preliminary fair value of consideration transferred of $1.974 billion, based on information currently available, with any excess of the purchase price over the fair value of assets acquired and liabilities assumed recorded as goodwill.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the preliminary allocation of the fair value of consideration transferred to assets acquired and liabilities assumed as of the acquisition date:

(In millions)January 3, 2023
Receivables$28
Contract assets18
Inventories164
Other current assets9
Property, plant and equipment50
Operating lease right-of-use assets12
Goodwill1,014
Other intangible assets850
Deferred income tax33
Other non-current assets6
Total assets acquired$2,184
Accounts payable$20
Contract liabilities28
Compensation and benefits2
Other accrued items119
Operating lease liabilities10
Other long-term liabilities31
Total liabilities assumed$210
Net assets acquired$1,974

Our preliminary estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the acquisition date); therefore, these provisional measurements of the acquired assets and liabilities assumed are subject to change.

All intangible assets acquired in the TDL acquisition are subject to amortization. The preliminary fair value of identifiable intangible assets acquired as of the acquisition date are as following:

TotalUseful Lives
(In millions)(In Years)
Developed technology$35817
Customer relationships:(1)
Backlog252
Government programs46715
Total customer relationships492
Total identifiable intangible assets acquired$850

(1)TDL had backlog and government programs intangible assets that we classified as customer relationships.

We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgment related to estimations. The use of different estimates could produce different results. The fair value of intangible assets are estimated using the relief from royalty method for the acquired developed technology and the multi-period excess earnings method for the acquired customer relationships. Both of these level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, royalty rates related to the developed technology intangible assets, revenue growth attributable to the intangible assets and remaining useful lives. The fair value of inventory was estimated using the replacement cost approach and comparative sales method, which require estimates of replacement cost for raw materials and estimates of expected sales price less costs to complete and dispose of the inventory, plus a profit margin for efforts incurred for the work in progress and finished goods.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2023, we have recorded a preliminary forward loss provision of $83 million in connection with certain acquired contracts of which $83 million was included in the “Other accrued items” line item in our Condensed Consolidated Balance Sheet. The forward loss provisions will be recognized as a reduction to cost of sales as we incur costs to satisfy the associated performance obligations. There will be no net impact on our Condensed Consolidated Statement of Operations. We recognized $8 million in the quarter ended March 31, 2023 for amortization of the loss provision.

We have identified certain contractual obligations with customers with economic returns that are higher or lower than could be realized in market transactions as of the acquisition date and have recorded liabilities for the preliminary acquisition date fair value of the off-market components. The preliminary acquisition date fair value of the off-market components is a net liability of $57 million, consisting of $31 million and $26 million included in the“Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet, respectively, and exclude any amounts already recognized in forward loss provisions (see discussion in the preceding paragraph). We measured the fair value of these components as the amount by which the terms of the contract with the customer deviates from the terms that a market participant could have achieved at the acquisition date. The off-market components of these contracts will be recognized as an increase to revenue as we incur costs to satisfy the associated performance obligations. We recognized $9 million in the quarter ended March 31, 2023 for amortization of off-market contract liabilities. Future estimated revenue from the amortization of off-market contract liabilities (based on the estimated pattern of cash flows to be incurred to satisfy associated performance obligations) is $22 million in the remainder of 2023, $26 million in 2024, and immaterial amounts thereafter.

Goodwill. The $1.014 billion of goodwill recognized is attributable to the assembled workforce, in addition to synergies to be realized through integration with existing CS businesses and growth opportunities in the space domain. The acquired goodwill is tax deductible. See Note G: Goodwill and Other Intangible Assets in these Notes for further information.

Financial Results. Revenue and income before income taxes of TDL included in our Condensed Consolidated Statement of Operations from the acquisition date through March 31, 2023 are $81 million and $26 million, respectively. In the same period of calendar year 2022, revenue and income before income taxes of Viasat’s TDL were $94 million and $8 million, respectively.

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the TDL acquisition, we recorded $31 million of transaction and integration costs, which are included in Engineering, selling and administrative expenses in our Condensed Consolidated Statement of Operations for the quarter ended March 31, 2023.

Pending Acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”)

On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction for a purchase price of approximately $4.7 billion. The transaction is expected to close in fiscal 2023. In connection with the pending acquisition, during the quarter ended March 31, 2023, we entered into a revolving credit facility and a commercial paper program. See Note H: Debt and Credit Arrangements in these Notes and Note 3: Acquisitions in our Fiscal 2022 Form 10-K for further information regarding the pending AJRD acquisition and related funding.

Divestiture of Visual Information Solutions (“VIS”)

On December 21, 2022, we entered into a definitive agreement to sell our VIS business. VIS, which is part of our SAS segment, provides commercial geospatial software, technology and services used to extract and analyze reliable, accurate and actionable information from geospatial to terrestrial imagery. During the quarter ended March 31, 2023, we assigned an additional $9 million of goodwill to our VIS business. The carrying amounts of the assets and liabilities of our VIS business are classified as held for sale in our Condensed Consolidated Balance Sheet as of March 31, 2023 and December 30, 2022.

On April 6, 2023, subsequent to the quarter ended March 31, 2023, we completed the sale of VIS for $70 million in cash, subject to customary adjustments. See Note Q: Subsequent Events in these Notes for further information.

NOTE C: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION

At March 31, 2023, we had stock options or other share-based compensation awards outstanding under several employee stock incentive plans (“L3Harris SIPs”). The compensation cost related to our share-based awards that was charged against income for the quarters ended March 31, 2023 and April 1, 2022 was $23 million and $28 million, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Awards granted to participants under L3Harris SIPs and the weighted-average grant-date fair value per share during the quarters ended March 31, 2023 and April 1, 2022 are as follows:

Quarter Ended March 31, 2023Quarter Ended April 1, 2022
(In millions, except per share amounts)SharesWeighted-Average Grant-Date Fair Value Per ShareSharesWeighted-Average Grant-Date Fair Value Per Share
Stock options granted(1)0.4$54.810.4$53.42
Restricted stock and restricted stock units granted(2)0.1$210.840.2$220.97
Performance share units granted(3)0.2$223.090.2$258.83

(1)Other than certain stock options granted in connection with new hires, our stock options generally step-vest in equal amounts over a three-year period.

(2)Other than certain restricted stock units granted in connection with new hires, our restricted stock and restricted stock units generally vest on a three-year cliff.

(3)Our performance share units are subject to performance criteria and generally vest after the three-year performance period.

See Note 15: Stock Options and Other Share-Based Compensation in our Fiscal 2022 Form 10-K for additional information regarding the L3Harris SIPs.

NOTE D: ACCUMULATED OTHER COMPREHENSIVE LOSS (“AOCI”)

The components of AOCI are summarized below:

(In millions)Foreign currency translationNet unrealized losses on hedging derivativesUnrecognized postretirement obligationsTotal AOCI
Balance at December 30, 2022$(237)$(79)$28$(288)
Other comprehensive income before reclassifications to earnings, net of income taxes75—12
Gains reclassified to earnings, net of income taxes(1)—(1)(11)(12)
Other comprehensive income (loss), net of income taxes74(11)—
Balance at March 31, 2023$(230)$(75)$17$(288)
Balance at December 31, 2021$(118)$(89)$61$(146)
Other comprehensive (loss) income before reclassifications to earnings, net of income taxes(3)5—2
Gains reclassified to earnings, net of income taxes(1)—(1)(5)(6)
Other comprehensive (loss) income, net of income taxes(3)4(5)(4)
Balance at April 1, 2022$(121)$(85)$56$(150)

(1)Gains reclassified to earnings are included in the “Revenue from product sales and services,” “Interest expense, net” and “Non-operating income, net” line items in our Condensed Consolidated Statement of Operations.

NOTE E: CONTRACT ASSETS AND CONTRACT LIABILITIES

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 associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period.

Contract assets and contract liabilities are summarized below:

(In millions)March 31, 2023December 30, 2022
Contract assets$3,274$2,987
Contract liabilities, current(1,525)(1,400)
Contract liabilities, non-current(1)(115)(117)
Net contract assets$1,634$1,470

(1)The non-current portion of contract liabilities is included as a component of the “Other long-term liabilities” line item in our Condensed Consolidated Balance Sheet.

The components of contract assets are summarized below:

(In millions)March 31, 2023December 30, 2022
Unbilled contract receivables, gross$5,066$4,629
Unliquidated progress payments and advances(1,792)(1,642)
Contract assets$3,274$2,987

Contract assets and liabilities as of March 31, 2023 and December 30, 2022 were impacted primarily by the timing of contractual billing milestones. During the quarters ended March 31, 2023 and April 1, 2022, we recognized $603 million and $517 million, respectively, of revenue related to contract liabilities that were outstanding at the end of the respective prior fiscal year.

NOTE F: INVENTORIES

Inventories are summarized below:

(In millions)March 31, 2023December 30, 2022
Finished products(1)$315$181
Work in process463396
Materials and supplies763714
Inventories(1)$1,541$1,291

(1)Includes approximately $132 million of TDL inventory of which $111 million is included in finished goods at March 31, 2023.

NOTE G: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The assignment of goodwill and changes in the carrying amount of goodwill, by business segment, were as follows:

(In millions)IMSSASCSTotal
Balance at December 30, 2022$7,709$5,778$3,796$17,283
Reallocation of goodwill in business realignment(327)327——
Goodwill from TDL acquisition——1,0141,014
Assets of business held for sale(1)—(9)—(9)
Currency translation adjustments—3—3
Balance at March 31, 2023$7,382$6,099$4,810$18,291

(1)During the quarter ended March 31, 2023, we assigned an additional $9 million of goodwill to our VIS business which is included in “Assets of business held for sale” in our Condensed Consolidated Balance Sheet at March 31, 2023.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reallocation of Goodwill in Business Realignment. Effective December 31, 2022, we adjusted our reporting to better align our businesses and transferred our ADG business (a reporting unit) from our IMS segment to our SAS segment (also a reporting unit). In connection with the realignment, we reduced our reporting units from nine to eight as the ADG reporting unit and all $327 million of associated goodwill was absorbed by our existing SAS reporting unit given the economic similarities of the two reporting units. Immediately before the realignment, we performed a qualitative impairment assessment over our SAS reporting unit, and a quantitative impairment assessment over our ADG reporting unit. Immediately after the realignment, we performed a quantitative impairment assessment over the SAS reporting unit. We prepared estimates of the fair value of our pre-realignment ADG reporting unit and post-realignment SAS reporting unit based on a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions, and an income-based valuation technique using projected discounted cash flows. These assessments indicated no impairment existed either before or after the realignment.

Goodwill from TDL Acquisition. In connection with the January 3, 2023 acquisition of TDL, we recorded $1.014 billion of goodwill in our Broadband reporting unit within our CS segment. See Note B: Acquisitions and Divestitures in these Notes for further information.

Intangible Assets

Identifiable intangible assets, net are summarized below:

March 31, 2023December 30, 2022
(In millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount**(1)**
Customer relationships(2)$6,616$2,328$4,288$6,124$2,189$3,935
Developed technologies(3)924388536566366200
Contract backlog11—11—
Trade names — divisions955540955342
Other22—22—
Total finite-lived identifiable intangible assets7,6382,7744,8646,7882,6114,177
In-process research and development21—2121—21
Trade names — corporate1,803—1,8031,803—1,803
Total identifiable intangible assets, net$9,462$2,774$6,688$8,612$2,611$6,001

(1)During fiscal 2022, we assigned $10 million of intangible assets associated with the pending VIS business divestiture to “Assets of business held for sale” in our Condensed Consolidated Balance Sheet.

(2)Includes $492 million of customer relationship intangible assets acquired from the TDL acquisition and $11 million of accumulated amortization recognized during the quarter ended March 31, 2023. See Note B: Acquisitions and Divestitures in these Notes for additional information.

(3)Includes $358 million of developed technology intangible assets acquired in the TDL acquisition and $5 million of accumulated amortization recognized during the quarter ended March 31, 2023. See Note B: Acquisitions and Divestitures in these Notes for additional information.

The most significant identifiable intangible asset that is separately recognized for our business combinations is customer relationships. For further description of our accounting policies related to intangible assets acquired in the TDL acquisition, see Note B: Acquisitions and Divestitures in these Notes, and for our accounting policies related to all other intangible assets, see Note 10: Intangible Assets, Net in our Fiscal 2022 Form 10-K.

For the quarters ended March 31, 2023 and April 1, 2022, amortization expense for identifiable finite-lived intangible assets was $165 million and $152 million, respectively, and primarily related to assets acquired in connection with business combinations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Future estimated amortization expense for identifiable intangible assets is as follows:

(In millions)
Remainder of 2023$652
2024608
2025552
2026493
2027459
Thereafter2,100
Total$4,864

NOTE H: DEBT AND CREDIT ARRANGEMENTS

Long-Term Debt

Long-term debt, net is summarized below:

(In millions)March 31, 2023December 30, 2022
Variable-rate debt:
Floating rate notes, due March 10, 2023 ("Floating 2023 Notes")$—$250
Term loan, due November 21, 20252,250—
Fixed-rate debt:
3.85% notes, due June 15, 2023 ("3.85% 2023 Notes")800800
3.95% notes, due May 28, 2024350350
3.832% notes, due April 27, 2025600600
7.00% debentures, due January 15, 2026100100
3.85% notes, due December 15, 2026550550
6.35% debentures, due February 1, 20282626
4.40% notes, due June 15, 20281,8501,850
2.90% notes, due December 15, 2029400400
1.80% 2031 Notes, due January 15, 2031650650
4.854% notes, due April 27, 2035400400
6.15% notes, due December 15, 2040300300
5.054% notes, due April 27, 2045500500
Total variable and fixed-rate debt8,7766,776
Financing lease obligations and other debt218222
Total debt8,9946,998
Plus: unamortized bond premium6470
Less: unamortized discounts and issuance costs(27)(25)
Total debt, net9,0317,043
Less: current portion of long-term debt, net(811)(818)
Total long-term debt, net$8,220$6,225

Long-Term Debt Issued

On November 22, 2022, we established a $2.25 billion, three-year senior unsecured term loan facility by entering into Term Loan 2025 with a syndicate of lenders that matures on November 21, 2025.

On January 3, 2023, we drew $2.0 billion on Term Loan 2025 and utilized the proceeds to fund the cash consideration paid and a portion of the associated transaction and integration costs related to the TDL acquisition. See Note B: Acquisitions and Divestitures in these Notes for further information on the TDL acquisition.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 14, 2023, we drew an additional $250 million on Term Loan 2025 and utilized the proceeds to repay our Floating 2023 Notes. At March 31, 2023, we had $2.25 billion outstanding under Term Loan 2025. There were no borrowings outstanding under Term Loan 2025 at December 30, 2022.

Borrowings under Term Loan 2025 bear interest at: (i) the sum of the term secured overnight financing rate (“SOFR”) for any tenor comparable to the applicable interest period, plus 0.10%, plus an applicable margin between 1.125% and 1.875% that varies based on ratings of our senior unsecured long-term debt securities (“Senior Debt Ratings”). At March 31, 2023, the interest rate on Term Loan 2025 was 6.2% (6.1% net of the impact of our interest rate cap derivative). See Note 19: Derivative Instruments and Hedging Activities in our Fiscal 2022 Form 10-K for further information on our interest rate cap derivative.

There were no issuances of long-term debt during the quarter ended April 1, 2022.

Long-Term Debt Repayments

On March 14, 2023, we repaid the entire outstanding $250 million aggregate principal amount of our Floating 2023 Notes through a $250 million draw on Term Loan 2025 as described above under “Long-Term Debt Issued.” The Floating 2023 Notes were classified as “Long-term debt, net” in our Condensed Consolidated Balance Sheet as of December 30, 2022.

There were no repayments of long-term debt during the quarter ended April 1, 2022.

2023 Credit Agreement

On March 10, 2023, we established a $2.4 billion, 364-day senior unsecured revolving credit facility ("2023 Credit Facility") by entering into a 364-Day Credit Agreement (“2023 Credit Agreement”) with a syndicate of lenders.

Proceeds of the initial funding of loans under the 2023 Credit Agreement are required to be used to finance a portion of the purchase price for the acquisition of AJRD and for the fees, taxes, costs and related expenses related to it, and thereafter may be used for working capital purposes.

At our election, borrowings under the 2023 Credit Agreement, which will be designated in U.S. Dollars, will bear interest at the sum of the term SOFR rate or the Base Rate (as defined in the 2023 Credit Agreement), plus an applicable margin. In addition to interest payable on the principal amount of indebtedness outstanding, beginning on June 6, 2023 (or earlier upon an initial funding), we will be required to pay a quarterly unused commitment fee that varies based on our Senior Debt Ratings.

The 2023 Credit Agreement also contains representations, warranties, covenants and events of default that are substantially similar to the existing Revolving Credit Agreement, dated as of July 29, 2022 (“2022 Credit Agreement”). The 2023 Credit Agreement generally matures on the earlier of 364 days from the initial funding and December 8, 2023, provided that we may extend the maturity of any loans outstanding under the 2023 Credit Agreement by one year, subject to the satisfaction of certain conditions. At March 31, 2023, we had no outstanding borrowings and were in compliance with all covenants under our 2023 Credit Agreement. For additional information regarding our 2023 Credit Agreement, see our Current Report on Form 8-K filed on March 16, 2023.

2022 Credit Agreement

On July 29, 2022, we established a $2 billion, five-year senior unsecured revolving credit facility (“2022 Credit Facility”) under the 2022 Credit Agreement, with a syndicate of lenders. At March 31, 2023, we had no outstanding borrowings and were in compliance with all covenants under our 2022 Credit Agreement.

For a description of the 2022 Credit Agreement and related covenants, see Note 12: Credit Arrangements in our Fiscal 2022 Form 10-K.

Commercial Paper Program

On March 14, 2023, we established a new commercial paper program ("CP Program"). Under the CP Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.4 billion, supported by amounts available under the 2022 Credit Agreement and the 2023 Credit Agreement.

The commercial paper notes will be sold at par less a discount representing an interest factor or, if interest bearing, at par. The maturities of the commercial paper notes will vary, but may not exceed 397 days from the date of issue. The commercial paper notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness. For additional information regarding our CP Program, see our Current Report on Form 8-K filed on March 16, 2023.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At March 31, 2023, we had no outstanding notes under our CP Program.

NOTE I: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following tables provide the components of our net periodic benefit income for our defined benefit plans, including defined benefit pension plans and other postretirement defined benefit plans:

Quarter Ended March 31, 2023Quarter Ended April 1, 2022
(In millions)PensionOther BenefitsPensionOther Benefits
Net periodic benefit income
Operating
Service cost$6$—$10$1
Non-operating
Interest cost923552
Expected return on plan assets(153)(5)(156)(5)
Amortization of net actuarial (gain) loss(2)(5)2(2)
Amortization of prior service credit(7)—(6)—
Non-service cost periodic benefit income(70)(7)(105)(5)
Net periodic benefit income$(64)$(7)$(95)$(4)

The service cost component of net periodic benefit income is included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Operations. The non-service cost components of net periodic benefit income are included in the “Non-operating income, net” line item in our Condensed Consolidated Statement of Operations.

NOTE J: EARNINGS PER SHARE

Income per common share attributable to L3Harris common shareholders (“EPS”) is computed by dividing earnings to L3Harris common shareholders less earnings allocated to participating securities, if applicable, by the weighted-average number of common shares outstanding for the period. Income per diluted common share attributable to L3Harris common shareholders ("diluted EPS") incorporates potential dilutive common shares, primarily consisting of employee stock options and restricted and performance share unit awards, into the weighted-average number of common shares outstanding.

The weighted average number of common shares outstanding used to compute basic and diluted EPS are as follows:

Quarter Ended
(In millions)March 31, 2023April 1, 2022
Basic weighted average common shares outstanding190.2193.2
Impact of dilutive share-based awards1.01.9
Diluted weighted average common shares outstanding191.2195.1

Diluted EPS excludes the antidilutive impact of 1.2 million and 0.2 million weighted average share-based awards outstanding for the quarters ended March 31, 2023 and April 1, 2022, respectively.

NOTE K: INCOME TAXES

Our effective tax rate was 9.1% for the quarter ended March 31, 2023 compared with 11.3% for the quarter ended April 1, 2022. For the quarter ended March 31, 2023, our effective tax rate benefited from the favorable impacts of research and development (“R&D”) credits, foreign-derived intangible income (“FDII”) deductions and the resolution of specific audit uncertainties. For the quarter ended April 1, 2022, our effective tax rate benefited from the favorable impact of R&D credits, the reduction in deferred tax liabilities on the outside basis of certain foreign subsidiaries due to an internal restructuring, incremental FDII benefit resulting from the requirement to capitalize and amortize R&D expenses beginning in fiscal 2022, the resolution of specific audit uncertainties, and excess tax benefits related to equity-based compensation.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE L: 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 external pricing services, 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.

The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at March 31, 2023 and December 30, 2022:

March 31, 2023December 30, 2022
(In millions)TotalLevel 1TotalLevel 1
Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities$67$67$64$64
Investments measured at NAV:
Corporate-owned life insurance3433
Total fair value of deferred compensation plan assets$101$97
Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds$7$7$8$8
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts193192
Total fair value of deferred compensation plan liabilities$200$200

(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 Condensed Consolidated Balance Sheet, and which are measured at fair value.

(2)Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and benefits” and “Other long-term liabilities” line items in our Condensed 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the carrying amounts and estimated fair values of long-term debt that is not carried at fair value in our Condensed Consolidated Balance Sheet:

March 31, 2023December 30, 2022
(In millions)Carrying AmountFair ValueCarrying AmountFair Value
All other long-term debt, net (including current portion)(1)$6,781$6,489$7,043$6,569
Term Loan 2025(2)2,2502,250——
Total debt, net$9,031$8,739$7,043$6,569

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

(2)The carrying value of Term Loan 2025 approximates fair value due to its variable interest rate.

See Note G: Goodwill and Other Intangible Assets and Note B: Acquisitions and Divestitures in these Notes and Note 4: Business Divestitures and Asset Sales in our Fiscal 2022 Form 10-K for additional information regarding fair value measurements associated with goodwill.

NOTE M: CHANGES IN ESTIMATES

Many of our contracts utilize 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. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion. Due to the long-term nature of many of these contracts, developing these estimates often requires judgment. 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. As the contracts progress, we may successfully retire risks or complexities and may add additional risks, and we adjust our estimated total cost at completion. For additional discussion of our revenue recognition policies and our EAC process, see “Critical Accounting Estimates” in Part II: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Fiscal 2022 Form 10K.

Net EAC adjustments had the following impact to earnings for the periods presented:

Quarter Ended
(In millions, except per share amounts)March 31, 2023April 1, 2022
Net EAC adjustments, before income taxes(1)$(56)$46
Net EAC adjustments, net of income taxes(42)35
Net EAC adjustments, net of income taxes, per diluted share(0.22)0.18

(1)Excludes charges related to an impairment of a customer contract of $18 million which is included in the “Revenue from product sales and services” and “Cost of product sales and services” line items in our Condensed Consolidated Statement of Operations for the quarter ended March 31, 2023.

Revenue recognized from performance obligations satisfied in prior periods was $36 million and $58 million for the quarters ended March 31, 2023 and April 1, 2022, respectively.

NOTE N: 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 contracts.

At March 31, 2023, our ending backlog was $24.5 billion. We expect to recognize approximately 45% of the revenue associated with this backlog by the end of 2023 and approximately 70% by the end of 2024, with the remainder to be recognized thereafter. At December 30, 2022, our ending backlog was $22.3 billion.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE O: BUSINESS SEGMENT INFORMATION

We structure our operations primarily around the products, systems and services we sell and the markets we serve and report our financial results in the following three reportable segments:

  • IMS: including multi-mission intelligence, surveillance and reconnaissance (“ISR”) systems; integrated electrical and electronic systems for maritime platforms; advanced electro-optical and infrared solutions; fuzing and ordnance systems; commercial aviation products; and commercial pilot training operations;

  • SAS: including space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare; and mission networks for air traffic management operations; and

  • CS: including tactical communications with global communications solutions; broadband communications; tactical data links; integrated vision solutions; public safety radios, and system applications and equipment.

Business Realignment. Effective December 31, 2022, we adjusted our reporting to better align our businesses and transferred our ADG business from our IMS segment to our SAS segment.

Acquisition of Viasat, Inc.’s TDL. On January 3, 2023, we completed the acquisition of TDL, which is reported within our CS segment. See Note B: Acquisitions and Divestitures in these Notes for additional information regarding our acquisition of TDL.

Business Segment Financial Information

Segment revenue, segment operating income and a reconciliation of segment operating income to total income before income taxes are as follows:

Quarter Ended
(In millions)March 31, 2023April 1, 2022
Revenue from Product Sales and Services
IMS$1,700$1,659
SAS1,6551,517
CS1,163963
Corporate eliminations(47)(36)
Total revenue from product sales and services$4,471$4,103
Income before Income Taxes
Segment Operating Income:
IMS$185$251
SAS187177
CS266229
Total segment operating income638657
Unallocated Items:
Unallocated corporate department expense, net(1)(6)(4)
Amortization of acquisition-related intangibles(2)(165)(152)
Acquisition-related transaction and integration expenses(40)—
L3Harris merger-related integration expenses—(24)
Impairment of other assets(18)—
Additional cost of sales related to the fair value step-up in inventory sold(15)—
Enterprise transformation program(13)—
Pre-acquisition and other divestiture-related expenses(10)(1)
FAS/CAS operating adjustment(3)2222
Total unallocated items(245)(159)
Non-operating income, net82106
Interest expense, net(102)(68)
Income before income taxes$373$536

(1)Includes certain corporate-level expenses that are not included in management’s evaluation of segment operating performance.

(2)Includes amortization of identifiable intangible assets acquired in connection with business combinations. Because our acquisitions benefited the entire Company, the amortization of identifiable intangible assets acquired was not allocated to any segment.

(3)Represents the difference between the service cost component of Financial Accounting Standards ("FAS") pension and other postretirement benefits (“OPEB”) cost and total U.S. Government Cost Accounting Standards (“CAS”) pension and OPEB cost and replaces the “Pension adjustment” line item previously presented, which included the non-service components of FAS pension and OPEB income. See Net FAS/CAS operating adjustment table below.

FAS/CAS Pension Operating Adjustment

In accordance with CAS, we allocate a portion of pension and OPEB plan costs to our U.S. Government contracts. However, our Condensed Consolidated Financial Statements require pension and OPEB plan income or expense be calculated in accordance with FAS requirements under GAAP. The “FAS/CAS operating adjustment” line item in the table below represents the difference between the service cost component of FAS pension and OPEB cost and total CAS pension and OPEB cost. The non-service cost components of FAS pension and OPEB income or expense are included as component of the “Non-operating income, net” line item in our Condensed Consolidated Statement of Operations. See Note I: Pension and Other Postretirement Benefit Plans in these Notes for more information on the composition of non-service cost components of FAS pension and OPEB income and expense.

The table below is a reconciliation of the FAS/CAS operating adjustment:

Quarter Ended
(In millions)March 31, 2023April 1, 2022
FAS pension service cost$(6)$(11)
Less: CAS pension cost(28)(33)
FAS/CAS operating adjustment2222
Non-service FAS pension income77110
FAS/CAS pension adjustment, net$99$132

Disaggregation of Revenue

We disaggregate revenue for all three business segments by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Quarter Ended
March 31, 2023April 1, 2022
(In millions)IMSSASCSIMSSASCS
Revenue By Customer Relationship
Prime contractor$1,154$1,010$807$1,086$977$656
Subcontractor525632343557530296
Intersegment211313161011
Total revenue$1,700$1,655$1,163$1,659$1,517$963
Revenue By Contract Type
Fixed-price(1)$1,286$1,022$978$1,261$880$797
Cost-reimbursable393620172382627155
Intersegment211313161011
Total revenue$1,700$1,655$1,163$1,659$1,517$963
Revenue By Geographical Region
United States$1,257$1,454$791$1,182$1,342$625
International422188359461165327
Intersegment211313161011
Total revenue$1,700$1,655$1,163$1,659$1,517$963

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

Assets by Business Segment

Total assets by business segment are as follows:

(In millions)March 31, 2023December 30, 2022
Total Assets
IMS$10,914$11,283
SAS9,1698,475
CS7,1195,800
Corporate(1)8,3057,966
Total Assets$35,507$33,524

(1)Identifiable intangible assets acquired in connection with business combinations were recorded as corporate assets because they benefited the entire Company. Identifiable intangible asset balances recorded as corporate assets were $6.7 billion and $6.0 billion at March 31, 2023 and December 30, 2022, 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 business held for sale.

NOTE P: 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 March 31, 2023, 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, that are considered probable of being rendered against us in litigation or arbitration in existence at March 31, 2023 are reserved against or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 several 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 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. (“Exelis”), which we acquired in 2015, 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 in New Jersey, estimated by the EPA to be $1.38 billion. During the fourth quarter of fiscal 2021, the EPA further announced an interim plan to remediate sediment in the upper nine miles of the of the Lower Passaic River with an estimated cost of $441 million. The potential responsible parties’ respective allocations for the Lower Passaic River remediation have not been determined. Although it is not feasible to predict the outcome of these environmental claims made against us, based on available information, in the opinion of our management, any payments we may be required to make as a result of environmental claims made against us in existence at March 31, 2023 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.

NOTE Q: SUBSEQUENT EVENTS

On April 6, 2023, we completed the sale of our VIS business for $70 million, subject to customary adjustments.

_____________________________________________________________________

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of L3Harris Technologies, Inc. and subsidiaries (“the Company”) as of March 31, 2023, the related condensed consolidated statements of operations, comprehensive income, cash flows and equity for the quarters ended March 31, 2023 and April 1, 2022, and the related notes (collectively referred to as the "condensed consolidated interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheet of the Company as of December 30, 2022, the related consolidated statements of operations, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February 24, 2023, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 30, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. 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 SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Orlando, Florida

April 28, 2023

_____________________________________________________________________

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