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				Two Quarters Ended
(In millions, except per share amounts)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

Revenue from product sales and services	$	4,693	$	4,135	$	9,164	$	8,238
Cost of product sales and services	(3,476)		(2,907)		(6,763)		(5,767)
Engineering, selling and administrative expenses	(783)		(744)		(1,556)		(1,489)
Business divestiture-related gains, net	26		—		26		—
Impairment of other assets	(60)		—		(78)		—
Non-operating income, net	83		108		165		214
Interest expense, net	(111)		(67)		(213)		(135)
Income before income taxes	372		525		745		1,061
Income taxes	(21)		(55)		(55)		(116)


Net income	351		470		690		945
Noncontrolling interests, net of income taxes	(2)		1		(4)		1
Net income attributable to L3Harris Technologies, Inc.	$	349	$	471	$	686	$	946






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



Basic	$	1.84	$	2.45	$	3.61	$	4.91




Diluted	$	1.83	$	2.42	$	3.60	$	4.86

Basic weighted-average common shares outstanding	189.2		192.1		189.7		192.6
Diluted weighted-average common shares outstanding	190.1		194.0		190.7		194.5

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended				Two Quarters Ended
(In millions)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

Net income	$	351	$	470	$	690	$	945
Other comprehensive income (loss):
Foreign currency translation income (loss), net of income taxes	28		(73)		35		(76)
Net unrealized income (loss) on hedging derivatives, net of income taxes	4		(7)		9		(2)

Other comprehensive income (loss), recognized during the period	32		(80)		44		(78)
Reclassification adjustments for gains included in net income	(7)		(2)		(19)		(8)
Other comprehensive income (loss), net of income taxes	25		(82)		25		(86)
Total comprehensive income	376		388		715		859
Comprehensive (income) loss attributable to noncontrolling interest	(2)		1		(4)		1
Total comprehensive income attributable to L3Harris Technologies, Inc.	$	374	$	389	$	711	$	860

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)


(In millions, except shares)	June 30, 2023		December 30, 2022

Assets
Current Assets
Cash and cash equivalents	$	366	$	880
Receivables, net of allowances for collection losses of $35 and $40, respectively	1,383		1,251
Contract assets	3,164		2,987
Inventories	1,555		1,291
Income taxes receivable	48		40
Other current assets	334		258
Assets of business held for sale	—		47
Total current assets	6,850		6,754
Non-current Assets
Property, plant and equipment, net	2,186		2,104
Operating lease right-of-use assets	725		756
Goodwill	18,417		17,283
Other intangible assets, net	6,401		6,001
Deferred income taxes	84		73
Other non-current assets	699		553

Total assets	$	35,362	$	33,524
Liabilities and Equity
Current Liabilities
Short-term debt	$	582	$	2
Accounts payable	2,029		1,945
Contract liabilities	1,648		1,400
Compensation and benefits	389		398
Other accrued items	935		818
Income taxes payable	365		376
Current portion of long-term debt, net	361		818
Liabilities of business held for sale	—		19
Total current liabilities	6,309		5,776
Non-current Liabilities
Defined benefit plans	184		262
Operating lease liabilities	714		741
Long-term debt, net	7,867		6,225
Deferred income taxes	452		719
Other long-term liabilities	1,305		1,177
Total liabilities	16,831		14,900
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 189,085,602 and 190,611,458 shares at June 30, 2023 and December 30, 2022, respectively	189		191
Other capital	15,391		15,677
Retained earnings	3,111		2,943
Accumulated other comprehensive loss	(263)		(288)
Total shareholders’ equity	18,428		18,523
Noncontrolling interests	103		101
Total equity	18,531		18,624
Total liabilities and equity	$	35,362	$	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)


	Two Quarters Ended
(In millions)	June 30, 2023		July 1, 2022

Operating Activities
Net income	$	690	$	945
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles	338		303
Depreciation and other amortization	168		162
Share-based compensation	45		69
Share-based matching contributions under defined contribution plans	121		113
Pension and other postretirement benefit plan income	(141)		(198)
Impairment of other assets	78		—
Business divestiture-related gain, net	(26)		—
Gain on sale of asset group	—		(8)
Deferred income taxes	(243)		(326)
(Increase) decrease in:
Receivables, net	(105)		(146)
Contract assets	(159)		(25)
Inventories	(99)		(259)
Other current assets	(67)		31
Increase (decrease) in:
Accounts payable	23		(44)
Contract liabilities	220		(21)
Compensation and benefits	(10)		(63)
Other accrued items	(3)		(103)
Income taxes	10		376
Other operating activities	(76)		(18)
Net cash provided by operating activities	764		788
Investing Activities
Net cash paid for acquired business	(1,973)		—
Additions to property, plant and equipment	(164)		(117)
Proceeds from sale of property, plant and equipment, net	—		4
Proceeds from sales of businesses, net	71		2
Proceeds from sale of asset group, net	—		18
Cash used for equity investments	(9)		(30)
Other investing activities	1		2
Net cash used in investing activities	(2,074)		(121)
Financing Activities
Proceeds from borrowings, net of issuance cost	2,249		7
Repayments of borrowings	(1,060)		(10)
Change in commercial paper, net	579		—


Proceeds from exercises of employee stock options	13		34
Repurchases of common stock	(518)		(729)
Cash dividends	(436)		(435)
Tax withholding payments associated with vested share-based awards	(28)		(38)
Other financing activities	(5)		(3)
Net cash provided by (used in) financing activities	794		(1,174)
Effect of exchange rate changes on cash and cash equivalents	2		(14)
Net decrease in cash and cash equivalents	(514)		(521)
Cash and cash equivalents, beginning of period	880		941
Cash and cash equivalents, end of period	$	366	$	420

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)


(In millions, except per share amounts)	Common Stock		Other Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interests		Total Equity

Balance at March 31, 2023	$	189	$	15,407	$	2,998	$	(288)	$	102	$	18,408
Net income	—		—		349		—		2		351
Other comprehensive income, net of income taxes	—		—		—		25		—		25
Shares issued under stock incentive plans	—		2		—		—		—		2
Shares issued under defined contribution plans	1		63		—		—		—		64
Share-based compensation expense	—		22		—		—		—		22
Tax withholding payments on share-based awards	—		(2)		—		—		—		(2)
Repurchases and retirement of common stock	(1)		(101)		(20)		—		—		(122)
Cash dividends ($1.14 per share)	—		—		(216)		—		—		(216)
Other	—		—		—		—		(1)		(1)
Balance at June 30, 2023	$	189	$	15,391	$	3,111	$	(263)	$	103	$	18,531

Balance as of April 1, 2022	$	193	$	16,089	$	3,128	$	(150)	$	106	$	19,366
Net income (loss)	—		—		471		—		(1)		470
Other comprehensive loss, net of income taxes	—		—		—		(82)		—		(82)
Shares issued under stock incentive plans	—		4		—		—		—		4
Shares issued under defined contribution plans	1		57		—		—		—		58
Share-based compensation expense	—		41		—		—		—		41
Tax withholding payments on share-based awards	—		(26)		—		—		—		(26)
Repurchases and retirement of common stock	(2)		(351)		(68)		—		—		(421)
Cash dividends ($1.12 per share)	—		—		(217)		—		—		(217)
Other	—		—		(2)		—		(1)		(3)
Balance as of July 1, 2022	$	192	$	15,814	$	3,312	$	(232)	$	104	$	19,190

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

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY (continued)

(Unaudited)


(In millions, except per share amounts)	Common Stock		Other Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interests		Total Equity

Balance at December 30, 2022	$	191	$	15,677	$	2,943	$	(288)	$	101	$	18,624
Net income	—		—		686		—		4		690
Other comprehensive income, net of income taxes	—		—		—		25		—		25
Shares issued under stock incentive plans	—		13		—		—		—		13
Shares issued under defined contribution plans	1		120		—		—		—		121
Share-based compensation expense	—		45		—		—		—		45
Tax withholding payments on share-based awards	—		(28)		—		—		—		(28)
Repurchases and retirement of common stock	(3)		(433)		(82)		—		—		(518)
Cash dividends ($2.28 per share)	—		—		(436)		—		—		(436)
Other	—		(3)		—		—		(2)		(5)
Balance at June 30, 2023	$	189	$	15,391	$	3,111	$	(263)	$	103	$	18,531

Balance as of December 31, 2021	$	194	$	16,248	$	2,917	$	(146)	$	106	$	19,319
Net income (loss)	—		—		946		—		(1)		945
Other comprehensive loss, net of income taxes	—		—		—		(86)		—		(86)
Shares issued under stock incentive plans	—		34		—		—		—		34
Shares issued under defined contribution plans	1		112		—		—		—		113
Share-based compensation expense	—		69		—		—		—		69
Tax withholding payments on share-based awards	—		(38)		—		—		—		(38)
Repurchases and retirement of common stock	(3)		(611)		(115)		—		—		(729)
Cash dividends ($2.24 per share)	—		—		(435)		—		—		(435)
Other	—		—		(1)		—		(1)		(2)
Balance as of July 1, 2022	$	192	$	15,814	$	3,312	$	(232)	$	104	$	19,190

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 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 U.S. 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 Links 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, Divestitures and Asset Sales in these Notes for further information.

NOTE B: ACQUISITIONS, DIVESTITURES AND ASSET SALES

Acquisition of Viasat’s TDL

On January 3, 2023, we completed the acquisition of TDL for a purchase price of $1.958 billion. The acquisition, which qualified as a business acquisition, enhances our networking capability and provides 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”).

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, in part, 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.

We accounted for the acquisition of TDL using the acquisition method of accounting, which required us to measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the acquisition date, with the excess of the consideration transferred over those fair values recorded as goodwill. Our preliminary fair value estimates and assumptions are subject to change as we obtain additional information over the measurement period.

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 adjustments	15
Cash consideration paid	1,973
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 acquisition 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.

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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 and the measurement period adjustments recorded since the acquisition date through June 30, 2023:


	January 3, 2023
(In millions)	Preliminary		Measurement Period Adjustments, Net1		Preliminary Adjusted

Receivables	$	28	$	—	$	28
Contract assets	18		—		18
Inventories	164		1		165
Other current assets	9		—		9
Property, plant and equipment	50		—		50
Operating lease right-of-use assets	12		—		12
Goodwill	1,014		103		1,117
Other intangible assets	850		(98)		752
Deferred income taxes	33		2		35
Other non-current assets	6		(1)		5
Total assets acquired	$	2,184	$	7	$	2,191

Accounts payable	$	20	$	—	$	20
Contract liabilities	28		—		28
Compensation and benefits	2		—		2
Other accrued items	119		1		120
Operating lease liabilities	10		—		10
Other long-term liabilities	31		6		37
Total liabilities assumed	$	210	$	7	$	217

Net assets acquired	$	1,974	$	—	$	1,974

(1)Fair value adjustments during the quarter ended June 30, 2023 primarily related to refined assumptions in the valuation of customer relationship intangible assets.

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 assets acquired 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 is as follows:


	Total		Useful Lives
	(In millions)		(In Years)

Developed technology	$	346	17
Customer relationships:(1)
Backlog	83		2
Government programs	323		16
Total customer relationships	406
Total identifiable intangible assets acquired	$	752

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 is 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.

We have recorded a preliminary forward loss provision of $86 million in connection with certain acquired contracts which 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 $6 million and $14 million for amortization of the forward loss provision during the quarter and two quarters ended June 30, 2023, respectively.

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 $61 million, consisting of $33 million and $28 million included in the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet, respectively, and excludes 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 $6 million and $15 million for amortization of off-market contract liabilities during the quarter and two quarters ended June 30, 2023, respectively. 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 $18 million in the remainder of 2023, $21 million in 2024 and immaterial amounts thereafter.

Goodwill. The $1.117 billion of goodwill recognized is attributable to the assembled workforce, in addition to synergies expected to be realized through integration with existing CS segment 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 of TDL included in our Condensed Consolidated Statement of Operations for the quarter ended June 30, 2023 and for the acquisition date through June 30, 2023 was $83 million and $164 million. During the same periods of calendar year 2022, revenue for Viasat’s TDL was approximately $90 million and $185 million.

Income before income taxes of TDL included in our Condensed Consolidated Statement of Operations for the quarter ended June 30, 2023 and for the acquisition date through June 30, 2023 was $22 million and $48 million. During the same periods of calendar year 2022, income before income taxes of Viasat’s TDL was approximately $20 million and $25 million.

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the TDL acquisition, we recorded transaction and integration costs of $23 million and $54 million for the quarter and two quarters ended June 30, 2023, respectively, which were included in the Engineering, selling and administrative expenses line item in our Condensed Consolidated Statement of Operations.

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. We were advised on July 26, 2023 that the Federal Trade Commission (“FTC”) will not block the acquisition of AJRD. We expect the acquisition to close on or about July 28, 2023. In connection with the pending acquisition, during the two quarters ended June 30, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Divestiture of Visual Information Solutions (“VIS”)

On April 6, 2023, we completed the sale of VIS for a sale price of $70 million and recognized a pre-tax gain of $26 million included in the “Business divestiture-related gains, net” line item in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended June 30, 2023. After selling costs and purchase price adjustments, the net cash proceeds for the sale of VIS were $71 million. The operating results of VIS were reported in the SAS segment through the date of divestiture.

The carrying amounts of the assets and liabilities of VIS were classified as held for sale in our Condensed Consolidated Balance Sheet as of December 30, 2022.

Completed Divestiture and Asset Sale for the Two Quarters Ended July 1, 2022

During the two quarters ended July 1, 2022, we completed one business divestiture and one asset sale from our IMS segment for combined net cash proceeds of $20 million and recognized a pre-tax gain of $8 million associated with the asset sale included in the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended July 1, 2022.

Fair Value of Businesses and Goodwill Allocation

For purposes of allocating goodwill to the disposal groups that represent a portion of a reporting unit, we determine the fair value of each disposal group based on the respective negotiated selling price (or estimated net cash proceeds, in the case of no negotiated selling price), and the fair value of the retained businesses of the respective reporting unit based on a combination of market-based valuation techniques, utilizing quoted market prices, 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 G: Goodwill and Other Intangible Assets and Note L: Fair Value Measurements in these Notes for additional information.

NOTE C: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION

At June 30, 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 quarter and two quarters ended June 30, 2023 was $22 million and $45 million, respectively, and $41 million and $69 million for the quarter and two quarters ended July 1, 2022, respectively.

Awards granted to participants under L3Harris SIPs and the weighted-average grant-date fair value per share during the two quarters ended June 30, 2023 and July 1, 2022 are as follows:


	Two Quarters Ended June 30, 2023			Two Quarters Ended July 1, 2022
(In millions, except per share amounts)	Shares	Weighted-Average Grant-Date Fair Value Per Share		Shares	Weighted-Average Grant-Date Fair Value Per Share

Stock options granted(1)	0.4	$	210.37	0.4	$	231.71
Restricted stock and restricted stock units granted(2)	0.2	$	209.13	0.2	$	223.35
Performance share units grants(3)	0.2	$	223.09	0.2	$	258.83

(1)Other than certain stock options granted in connection with new hires, our stock options generally ratably 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.

There were no significant stock options, restricted stock and restricted stock units or performance share units granted to participants under the L3Harris SIPs during the quarters ended June 30, 2023 and July 1, 2022.

The aggregate number of shares of our common stock issued under L3Harris SIPs, net of shares withheld for tax purposes, was 0.1 million and 0.4 million for the quarter and two quarters ended June 30, 2023, respectively, and 0.2 million and 0.6 million for the quarter and two quarters ended July 1, 2022, respectively.

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

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE D: ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCI")

The components of AOCI are summarized below:


(In millions)	Foreign currency translation		Net unrealized losses on hedging derivatives		Unrecognized postretirement obligations		Total AOCI

Balance at December 30, 2022	$	(237)	$	(79)	$	28	$	(288)
Other comprehensive income, before reclassifications to earnings and income taxes	35		12		—		47
Income taxes	—		(3)		—		(3)
Other comprehensive income before reclassifications to earnings, net of income taxes	35		9		—		44
Losses (gains) reclassified to earnings, before income taxes	—		2		(27)		(25)
Income taxes	—		(1)		7		6
Losses (gains) reclassified to earnings, net of income taxes(1)	—		1		(20)		(19)
Other comprehensive income (loss), net of income taxes	35		10		(20)		25
Balance at June 30, 2023	$	(202)	$	(69)	$	8	$	(263)

Balance at December 31, 2021	$	(118)	$	(89)	$	61	$	(146)
Other comprehensive loss, before reclassifications to earnings and income taxes	(76)		(3)		—		(79)
Income taxes	—		1		—		1
Other comprehensive loss before reclassifications to earnings, net of income taxes	(76)		(2)		—		(78)
Losses (gains) reclassified to earnings, before income taxes	—		3		(12)		(9)
Income taxes	—		(1)		2		1
Losses (gains) reclassified to earnings, net of income taxes(1)	—		2		(10)		(8)
Other comprehensive loss, net of income taxes	(76)		—		(10)		(86)
Balance at July 1, 2022	$	(194)	$	(89)	$	51	$	(232)

(1)Losses (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)	June 30, 2023		December 30, 2022

Contract assets	$	3,164	$	2,987
Contract liabilities, current	(1,648)		(1,400)
Contract liabilities, non-current(1)	(111)		(117)
Net contract assets	$	1,405	$	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)	June 30, 2023		December 30, 2022

Unbilled contract receivables, gross	$	5,034	$	4,629
Unliquidated progress payments and advances	(1,870)		(1,642)
Contract assets	$	3,164	$	2,987

Contract assets and liabilities as of June 30, 2023 and December 30, 2022 were impacted primarily by the timing of contractual billing milestones. Revenue recognized related to contract liabilities that were outstanding at the end of the respective prior fiscal year were $295 million and $898 million for the quarter and two quarters ended June 30, 2023, respectively, and $254 million and $771 million for the quarter and two quarters ended July 1, 2022, respectively.

NOTE F: INVENTORIES

Inventories are summarized below:


(In millions)	June 30, 2023		December 30, 2022

Finished products(1)	$	285	$	181
Work in process	486		396
Materials and supplies	784		714
Inventories(1)	$	1,555	$	1,291

(1)Includes approximately $104 million of TDL inventory of which $68 million is included in finished products at June 30, 2023.

NOTE G: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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


(In millions)	IMS		SAS		CS		Total

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	—		—		1,117		1,117
Goodwill decrease from divestitures(1)	—		(9)		—		(9)


Currency translation adjustments	14		11		1		26
Balance at June 30, 2023	$	7,396	$	6,107	$	4,914	$	18,417

(1)During the two quarters ended June 30, 2023, we assigned an additional $9 million of goodwill to our VIS business and completed the divestiture. We derecognized $39 million of intangible assets as part of determining the gain on sale. The assets (including goodwill) of VIS were included in the “Assets of business held for sale” line item in our Condensed Consolidated Balance Sheet at December 30, 2022. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for further information.

_____________________________________________________________________

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 $1.117 billion of goodwill in our Broadband reporting unit within our CS segment. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for further information.

Intangible Assets

Identifiable intangible assets, net are summarized below:


	June 30, 2023						December 30, 2022
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount(1)

Customer relationships(2)	$	6,539	$	2,480	$	4,059	$	6,124	$	2,189	$	3,935
Developed technologies(3)	914		413		501		566		366		200
Contract backlog	2		2		—		1		1		—
Trade names — divisions	95		57		38		95		53		42
Other	2		2		—		2		2		—
Total finite-lived identifiable intangible assets	7,552		2,954		4,598		6,788		2,611		4,177
In-process research and development	—		—		—		21		—		21
Trade names — corporate	1,803		—		1,803		1,803		—		1,803
Total identifiable intangible assets, net	$	9,355	$	2,954	$	6,401	$	8,612	$	2,611	$	6,001

(1)During the two quarters ended June 30, 2023, we completed the divestiture of our VIS business. We derecognized $10 million of intangible assets as part of determining the gain on sale which was assigned during fiscal 2022. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for further information.

(2)Includes $406 million of customer relationship intangible assets acquired from the TDL acquisition and $31 million of accumulated amortization recognized during the two quarters ended June 30, 2023. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for additional information.

(3)Includes $346 million of developed technology intangible assets acquired in the TDL acquisition and $10 million of accumulated amortization recognized during the two quarters ended June 30, 2023. See Note B: Acquisitions, Divestitures and Asset Sales 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, Divestitures and Asset Sales 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.

Amortization expense for identifiable finite-lived intangible assets was $173 million and $338 million for the quarter and two quarters ended June 30, 2023, respectively, and was $151 million and $303 million, for the quarter and two quarters ended July 1, 2022, respectively, which primarily related to assets acquired in connection with business combinations.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	(In millions)

Year 1	$	662
Year 2	598
Year 3	529
Year 4	467
Year 5	437
Thereafter	1,905
Total	$	4,598

In-process R&D Impairment. During the quarter ended June 30, 2023, we closed a facility which resulted in a triggering event to evaluate the in-process research and development (“R&D”) related to the operations of the closed facility. As a result we recorded a $21 million non-cash charge for the impairment of in-process R&D intangible assets which is included in the “Impairment of other assets” line item in our Condensed Consolidated Statement of Operations.

NOTE H: DEBT AND CREDIT ARRANGEMENTS

Long-Term Debt

Long-term debt, net is summarized below:


(In millions)	June 30, 2023		December 30, 2022

Variable-rate debt:
Floating rate notes, due March 10, 2023 (“Floating 2023 Notes”)	$	—	$	250
Term loan, due November 21, 2025 (“Term Loan 2025”)	2,250		—

Fixed-rate debt:
3.85% notes, due June 15, 2023 (“3.85% 2023 Notes”)	—		800
3.95% notes, due May 28, 2024	350		350
3.832% notes, due April 27, 2025	600		600
7.00% debentures, due January 15, 2026	100		100
3.85% notes, due December 15, 2026	550		550
6.35% debentures, due February 1, 2028	26		26
4.40% notes, due June 15, 2028	1,850		1,850
2.90% notes, due December 15, 2029	400		400
1.80% notes, due January 15, 2031	650		650
4.854% notes, due April 27, 2035	400		400
6.15% notes, due December 15, 2040	300		300
5.054% notes, due April 27, 2045	500		500
Total variable and fixed-rate debt	7,976		6,776
Financing lease obligations and other debt	219		222
Total debt	8,195		6,998
Plus: unamortized bond premium	58		70
Less: unamortized discounts and issuance costs	(25)		(25)
Total debt, net	8,228		7,043
Less: current portion of long-term debt, net	(361)		(818)
Total long-term debt, net	$	7,867	$	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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, Divestitures and Asset Sales in these Notes for further information on the TDL acquisition.

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 June 30, 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 June 30, 2023, the interest rate on Term Loan 2025 was 6.5% (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 variable and fixed-rate long-term debt during the two quarters ended July 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.

On June 15, 2023, we repaid the entire outstanding $800 million aggregate principal amount of our 3.85% 2023 Notes through cash on hand and the issuance of commercial paper during the quarter ended June 30, 2023.

There were no repayments of variable and fixed-rate long-term debt during the two quarters ended July 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 June 6, 2023, we are 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 or 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 June 30, 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 $2.0 billion, five-year senior unsecured revolving credit facility (“2022 Credit Facility”) under the 2022 Credit Agreement, with a syndicate of lenders. At June 30, 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Commercial Paper Program

On March 14, 2023, we established a new commercial paper program ("CP Program"), which replaced our prior $1.0 billion commercial paper program. Under the CP Program, we issue unsecured commercial paper notes up to a maximum aggregate amount of $3.4 billion, which was increased to $3.9 billion subsequent to June 30, 2023, supported by amounts available under the 2022 Credit Agreement and the 2023 Credit Agreement.

The commercial paper notes are sold at par less a discount representing an interest factor or, if interest bearing, at par, and the maturities 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.

At June 30, 2023, we had $579 million outstanding notes under our CP Program which primarily consists of amounts used for the June 15, 2023 repayment of the $800 million aggregate principal amount of our 3.85% 2023 Notes, which is included as a component of the “Short-term debt” line item in our Condensed Consolidated Balance Sheet. The outstanding notes have a weighted-average interest rate of 5.47% and mature at various dates, primarily in July 2023.

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 June 30, 2023				Two Quarters Ended June 30, 2023
(In millions)	Pension		Other Benefits		Pension		Other Benefits

Net periodic benefit income
Operating
Service cost	$	6	$	1	$	12	$	1
Non-operating
Interest cost	91		2		183		5
Expected return on plan assets	(152)		(5)		(305)		(10)
Amortization of net actuarial gain	(3)		(5)		(5)		(10)
Amortization of prior service (credit) cost	(6)		1		(13)		1

Non-service cost periodic benefit income	(70)		(7)		(140)		(14)
Net periodic benefit income	$	(64)	$	(6)	$	(128)	$	(13)

	Quarter Ended July 1, 2022				Two Quarters Ended July 1, 2022
(In millions)	Pension		Other Benefits		Pension		Other Benefits

Net periodic benefit income
Operating
Service cost	$	12	$	—	$	22	$	1
Non-operating
Interest cost	55		2		110		4
Expected return on plan assets	(156)		(6)		(312)		(11)
Amortization of net actuarial loss (gain)	3		(2)		5		(4)
Amortization of prior service (credit) cost	(8)		1		(14)		1

Non-service cost periodic benefit income	(106)		(5)		(211)		(10)
Net periodic benefit income	$	(94)	$	(5)	$	(189)	$	(9)

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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE J: EARNINGS PER SHARE

Net 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. Net 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		Two Quarters Ended
(In millions)	June 30, 2023	July 1, 2022	June 30, 2023	July 1, 2022

Basic weighted-average common shares outstanding	189.2	192.1	189.7	192.6
Impact of dilutive share-based awards	0.9	1.9	1.0	1.9
Diluted weighted-average common shares outstanding	190.1	194.0	190.7	194.5

Diluted EPS excludes the antidilutive impact of 0.8 million and 2.0 million weighted-average share-based awards outstanding for the quarter and two quarters ended June 30, 2023, respectively, and 0.4 million and 0.3 million weighted-average share-based awards outstanding for the quarter and two quarters ended July 1, 2022, respectively.

NOTE K: INCOME TAXES

Our effective tax rate was 5.6% for the quarter ended June 30, 2023 compared with 10.5% for the quarter ended July 1, 2022. For the quarter ended June 30, 2023, our effective tax rate benefited from the favorable impacts of R&D credits, foreign-derived intangible income (“FDII”) deductions and the resolution of specific audit uncertainties. For the quarter ended July 1, 2022, our effective tax rate benefited from the favorable impact of R&D credits, an incremental FDII benefit resulting from the requirement to capitalize and amortize R&D expenses beginning in fiscal 2022 and the resolution of specific audit uncertainties.

Our effective tax rate was 7.4% for the two quarters ended June 30, 2023 compared with 10.9% for the two quarters ended July 1, 2022. For the two quarters ended June 30, 2023, our effective tax rate benefited from the favorable impacts of R&D credits, FDII deductions and the resolution of specific audit uncertainties. For the two quarters ended July 1, 2022, our effective tax rate was favorably impacted by a reduction in the deferred tax liabilities on the outside basis of certain foreign subsidiaries due to an internal restructuring and the items described above in this Note impacting the quarter ended July 1, 2022.

NOTE L: FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received from the sale of 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 June 30, 2023 and December 30, 2022:


	June 30, 2023				December 30, 2022
(In millions)	Total		Level 1		Total		Level 1

Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities	$	71	$	71	$	64	$	64
Investments measured at NAV:
Corporate-owned life insurance	35				33
Total fair value of deferred compensation plan assets	$	106			$	97

Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds	$	8	$	8	$	8	$	8
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts	217				192
Total fair value of deferred compensation plan liabilities	$	225			$	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.

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:


	June 30, 2023				December 30, 2022
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Term Loan 2025(1)	$	2,250	$	2,250	$	—	$	—
All other long-term debt, net (including current portion)(2)	5,978		5,598		7,043		6,569
Total debt, net	$	8,228	$	7,848	$	7,043	$	6,569

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

(2)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.

The fair value of our Short-term debt approximates the carrying value due to its short-term nature, with commercial paper classified as level 2 and other short-term debt classified as level 3 within the fair value hierarchy.

See Note G: Goodwill and Other Intangible Assets and Note B: Acquisitions, Divestitures and Asset Sales 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 in our Fiscal 2022 Form 10K.

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


	Quarter Ended				Two Quarters Ended
(In millions, except per share amounts)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

Net EAC adjustments, before income taxes(1)	$	(31)	$	12	$	(87)	$	58
Net EAC adjustments, net of income taxes	(23)		9		(65)		44
Net EAC adjustments, net of income taxes, per diluted share	(0.12)		0.05		(0.34)		0.23

(1)For the quarter and two quarters ended June 30, 2023 excludes charges of $30 million and $48 million, respectively, related to impairments of customer contracts which are included in the “Revenue from product sales and services” and “Impairment of other assets” line items in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended June 30, 2023, respectively.

Revenue recognized from performance obligations satisfied in prior periods was $33 million and $69 million for the quarter and two quarters ended June 30, 2023, respectively, and $32 million and $90 million for the quarter and two quarters ended July 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 June 30, 2023, our ending backlog was $24.9 billion. We expect to recognize approximately 35% 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.

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; and 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’s TDL. On January 3, 2023, we completed the acquisition of TDL, which is reported within our CS segment. See Note B: Acquisitions, Divestitures and Asset Sales 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				Two Quarters Ended
(In millions)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

Revenue from Product Sales and Services
IMS	$	1,735	$	1,608	$	3,435	$	3,267
SAS	1,715		1,572		3,370		3,089
CS	1,289		993		2,452		1,956

Corporate eliminations	(46)		(38)		(93)		(74)
Total revenue from product sales and services	$	4,693	$	4,135	9,164		$	8,238

Income before Income Taxes
Segment operating income:
IMS(1)	$	162	$	207	$	347	$	458
SAS(1)	168		203		355		380
CS	325		238		591		467

Total segment operating income	655		648		1,293		1,305

Unallocated Items:
Unallocated corporate department (expense) income, net(2)	(35)		19		(41)		15
Amortization of acquisition-related intangibles(3)	(173)		(151)		(338)		(303)
Additional cost of sales related to the fair value step-up in inventory sold	(15)		—		(30)		—
L3Harris merger-related integration expenses	—		(26)		—		(50)
Acquisition-related transaction and integration expenses	(36)		—		(76)		—
Pre-acquisition and other divestiture-related expenses	(2)		(35)		(12)		(36)
Business divestiture-related gains, net	26		—		26		—
Gain on sale of asset group	—		8		—		8
Impairment of other assets(4)	(21)		—		(39)		—
LHX NeXt(5)	(22)		—		(35)		—


FAS/CAS operating adjustment(6)	23		21		45		43
Total unallocated items	(255)		(164)		(500)		(323)
Non-operating income, net	83		108		165		214
Interest expense, net	(111)		(67)		(213)		(135)
Income before income taxes	$	372	$	525	$	745	$	1,061

(1)For the quarter ended June 30, 2023, includes non-cash charges for impairment of other assets of $12 million and $27 million for IMS and SAS, respectively, related to facility closures and restructuring of a customer contract impacting both segments.

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

(3)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.

(4)Includes a $21 million non-cash charge for impairment of intangible assets related to the closure of a facility during the quarter and two quarters ended June 30, 2023. See Note G: Goodwill and Other Intangible Assets in these Notes for additional information. Additionally, includes $18 million charge related to an impairment of a customer contract during the two quarters ended June 30, 2023.

(5)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems.

(6)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 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 to 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				Two Quarters Ended
(In millions)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

FAS pension service cost	$	(7)	$	(12)	$	(13)	$	(23)
Less: CAS pension cost	(30)		(33)		(58)		(66)
FAS/CAS operating adjustment	23		21		45		43
Non-service FAS pension income	77		111		154		221
FAS/CAS pension adjustment, net	$	100	$	132	$	199	$	264

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
	June 30, 2023						July 1, 2022
(In millions)	IMS		SAS		CS		IMS		SAS		CS

Revenue By Customer Relationship
Prime contractor	$	1,127	$	1,084	$	798	$	1,035	$	987	$	691
Subcontractor	584		621		479		554		574		294
Intersegment	24		10		12		19		11		8
Total revenue	$	1,735	$	1,715	$	1,289	$	1,608	$	1,572	$	993

Revenue By Contract Type
Fixed-price(1)	$	1,317	$	1,099	$	1,102	$	1,209	$	918	$	834
Cost-reimbursable	394		606		175		380		643		151
Intersegment	24		10		12		19		11		8
Total revenue	$	1,735	$	1,715	$	1,289	$	1,608	$	1,572	$	993

Revenue By Geographical Region
United States	$	1,281	$	1,475	$	834	$	1,154	$	1,380	$	631
International	430		230		443		435		181		354
Intersegment	24		10		12		19		11		8
Total revenue	$	1,735	$	1,715	$	1,289	$	1,608	$	1,572	$	993


	Two Quarters Ended
	June 30, 2023						July 1, 2022
(In millions)	IMS		SAS		CS		IMS		SAS		CS

Revenue By Customer Relationship
Prime contractor	$	2,281	$	2,094	$	1,605	$	2,121	$	1,964	$	1,347
Subcontractor	1,109		1,253		822		1,111		1,104		590
Intersegment	45		23		25		35		21		19
Total revenue	$	3,435	$	3,370	$	2,452	$	3,267	$	3,089	$	1,956

Revenue By Contract Type
Fixed-price(1)	$	2,603	$	2,121	$	2,080	$	2,470	$	1,798	$	1,631
Cost-reimbursable	787		1,226		347		762		1,270		306
Intersegment	45		23		25		35		21		19
Total revenue	$	3,435	$	3,370	$	2,452	$	3,267	$	3,089	$	1,956

Revenue By Geographical Region
United States	$	2,538	$	2,929	$	1,625	$	2,336	$	2,722	$	1,256
International	852		418		802		896		346		681
Intersegment	45		23		25		35		21		19
Total revenue	$	3,435	$	3,370	$	2,452	$	3,267	$	3,089	$	1,956

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

Assets by Business Segment

Total assets by business segment are as follows:


(In millions)	June 30, 2023		December 30, 2022

Total Assets
IMS	$	11,030	$	10,925
SAS	9,181		8,838
CS	7,129		5,800
Corporate(1)	8,022		7,961
Total Assets	$	35,362	$	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 $6.4 billion and $6.0 billion at June 30, 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 businesses held for sale.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE P: LEGAL PROCEEDINGS AND CONTINGENCIES

In ordinary course of business, we are routinely defendants in, parties to or otherwise subject to many pending and threatened legal actions, claims, disputes, arbitration and other legal proceedings incident to our business, arising from or related matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employment 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 accrue contingencies based on a range of possible outcomes. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. At June 30, 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 June 30, 2023 are reserved against or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.

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 June 30, 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

We were advised on July 26, 2023 that the FTC will not block the acquisition of AJRD. We expect the acquisition to close on or about July 28, 2023.

_____________________________________________________________________

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 June 30, 2023, the related condensed consolidated statements of operations, comprehensive income and equity for the quarter and two quarters ended June 30, 2023 and July 1, 2022, the condensed consolidated statements of cash flows for the two quarters ended June 30, 2023 and July 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

July 26, 2023

_____________________________________________________________________

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