Item 1. FINANCIAL STATEMENTS.

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)


	Quarter Ended				Three Quarters Ended
(In millions, except per share amounts)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Revenue from product sales and services	$	4,915	$	4,246	$	14,079	$	12,484
Cost of product sales and services	(3,608)		(3,052)		(10,371)		(8,819)
Engineering, selling and administrative expenses	(828)		(742)		(2,384)		(2,239)
Sale of asset group and business divestiture-related gains, net	—		—		26		8
Impairment of goodwill and other assets	—		(802)		(78)		(802)
Non-operating income, net	80		99		245		313
Interest expense, net	(159)		(70)		(372)		(205)
Income (loss) before income taxes	400		(321)		1,145		740
Income taxes	(18)		20		(73)		(96)


Net income (loss)	382		(301)		1,072		644
Noncontrolling interests, net of income taxes	1		1		(3)		2
Net income (loss) attributable to L3Harris Technologies, Inc.	$	383	$	(300)	$	1,069	$	646






Net income (loss) per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic	$	2.02	$	(1.56)	$	5.64	$	3.36
Diluted	$	2.02	$	(1.56)	$	5.61	$	3.33

Basic weighted-average common shares outstanding	189.3		191.3		189.6		192.2
Diluted weighted-average common shares outstanding	190.1		191.3		190.6		194.0

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Quarter Ended				Three Quarters Ended
(In millions)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Net income (loss)	$	382	$	(301)	$	1,072	$	644
Other comprehensive loss:
Foreign currency translation loss, net of income taxes	(45)		(120)		(10)		(196)
Net unrealized (loss) income on hedging derivatives, net of income taxes	(3)		(12)		6		(14)

Other comprehensive loss, recognized during the period	(48)		(132)		(4)		(210)
Reclassification adjustments for gains included in net income	(10)		(2)		(29)		(10)
Other comprehensive loss, net of income taxes	(58)		(134)		(33)		(220)
Total comprehensive income (loss)	324		(435)		1,039		424
Comprehensive loss (income) attributable to noncontrolling interest	1		1		(3)		2
Total comprehensive income (loss) attributable to L3Harris Technologies, Inc.	$	325	$	(434)	$	1,036	$	426

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)


(In millions, except shares)	September 29, 2023		December 30, 2022

Assets
Current assets
Cash and cash equivalents	$	499	$	880
Receivables, net of allowances for collection losses of $24 and $40, respectively	1,381		1,251
Contract assets	3,477		2,987
Inventories	1,638		1,291
Income taxes receivable	43		40
Other current assets	463		258
Assets of business held for sale	—		47
Total current assets	7,501		6,754
Non-current assets
Property, plant and equipment, net	2,818		2,104
Operating lease right-of-use assets	758		756
Goodwill	20,736		17,283
Other intangible assets, net	9,050		6,001
Deferred income taxes	87		73
Recoverable environmental remediation costs	382		—
Other non-current assets	961		553

Total assets	$	42,293	$	33,524
Liabilities and equity
Current liabilities
Short-term debt	$	2,033	$	2
Accounts payable	2,112		1,945
Contract liabilities	1,940		1,400
Compensation and benefits	461		398
Other accrued items	1,190		818
Income taxes payable	383		376
Current portion of long-term debt, net	363		818
Liabilities of business held for sale	—		19
Total current liabilities	8,482		5,776
Non-current liabilities
Defined benefit plans	404		262
Operating lease liabilities	736		741
Long-term debt, net	11,140		6,225
Deferred income taxes	812		719
Reserves for environmental remediation costs	524		107
Other long-term liabilities	1,479		1,070
Total liabilities	23,577		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 189,439,991 and 190,611,458 shares at September 29, 2023 and December 30, 2022, respectively	189		191
Other capital	15,470		15,677
Retained earnings	3,278		2,943
Accumulated other comprehensive loss	(321)		(288)
Total shareholders’ equity	18,616		18,523
Noncontrolling interests	100		101
Total equity	18,716		18,624
Total liabilities and equity	$	42,293	$	33,524

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


	Three Quarters Ended
(In millions)	September 29, 2023		September 30, 2022

Operating Activities
Net income	$	1,072	$	644
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles	546		454
Depreciation and other amortization	270		243
Share-based compensation	67		92
Share-based matching contributions under defined contribution plans	172		161
Pension and other postretirement benefit plan income	(209)		(297)
Impairment of goodwill and other assets	78		802
Sale of asset group and business divestiture-related gains, net	(26)		(8)
Deferred income taxes	(277)		(454)
(Increase) decrease in:
Receivables, net	53		(93)
Contract assets	(136)		(111)
Inventories	(195)		(357)
Other current assets	(87)		26
Increase (decrease) in:
Accounts payable	(18)		312
Contract liabilities	202		(133)
Compensation and benefits	(55)		(95)
Other accrued items	(27)		2
Income taxes	15		259
Other operating activities	(138)		(71)
Net cash provided by operating activities	1,307		1,376
Investing Activities
Net cash paid for acquired businesses	(6,688)		—
Additions to property, plant and equipment	(312)		(181)
Proceeds from sale of property, plant and equipment, net	—		10
Proceeds from sales of businesses, net	71		5
Proceeds from sale of asset group, net	—		18
Cash used for equity investments	(11)		(47)
Other investing activities	2		7
Net cash used in investing activities	(6,938)		(188)
Financing Activities
Proceeds from borrowings, net of issuance cost	7,568		5
Repayments of borrowings	(3,159)		(12)
Change in commercial paper, net(1)	2,031		—


Proceeds from exercises of employee stock options	18		40
Repurchases of common stock	(518)		(900)
Cash dividends	(652)		(650)
Tax withholding payments associated with vested share-based awards	(28)		(44)
Other financing activities	(6)		(5)
Net cash provided by (used in) financing activities	5,254		(1,566)
Effect of exchange rate changes on cash and cash equivalents	(4)		(34)
Net decrease in cash and cash equivalents	(381)		(412)
Cash and cash equivalents, beginning of period	880		941
Cash and cash equivalents, end of period	$	499	$	529

(1) See Note H: Debt and Credit Arrangements in the Notes to the Condensed Consolidated Financial Statements.

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 June 30, 2023	$	189	$	15,391	$	3,111	$	(263)	$	103	$	18,531
Net income (loss)	—		—		383		—		(1)		382
Other comprehensive loss, net of income taxes	—		—		—		(58)		—		(58)
Shares issued under stock incentive plans	—		5		—		—		—		5
Shares issued under defined contribution plans	—		51		—		—		—		51
Share-based compensation expense	—		22		—		—		—		22


Cash dividends ($1.14 per share)	—		—		(216)		—		—		(216)
Other	—		1		—		—		(2)		(1)
Balance at September 29, 2023	$	189	$	15,470	$	3,278	$	(321)	$	100	$	18,716

Balance as of July 1, 2022	$	192	$	15,814	$	3,312	$	(232)	$	104	$	19,190
Net loss	—		—		(300)		—		(1)		(301)
Other comprehensive loss, net of income taxes	—		—		—		(134)		—		(134)
Shares issued under stock incentive plans	—		6		—		—		—		6
Shares issued under defined contribution plans	—		48		—		—		—		48
Share-based compensation expense	—		23		—		—		—		23
Tax withholding payments on share-based awards	—		(6)		—		—		—		(6)
Repurchases and retirement of common stock	(1)		(141)		(29)		—		—		(171)
Cash dividends ($1.12 per share)	—		—		(215)		—		—		(215)
Other	—		—		—		—		(1)		(1)
Balance as of September 30, 2022	$	191	$	15,744	$	2,768	$	(366)	$	102	$	18,439

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

_____________________________________________________________________

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	—		—		1,069		—		3		1,072
Other comprehensive loss, net of income taxes	—		—		—		(33)		—		(33)
Shares issued under stock incentive plans	—		18		—		—		—		18
Shares issued under defined contribution plans	1		171		—		—		—		172
Share-based compensation expense	—		67		—		—		—		67
Tax withholding payments on share-based awards	—		(28)		—		—		—		(28)
Repurchases and retirement of common stock	(3)		(433)		(82)		—		—		(518)
Cash dividends ($3.42 per share)	—		—		(652)		—		—		(652)
Other	—		(2)		—		—		(4)		(6)
Balance at September 29, 2023	$	189	$	15,470	$	3,278	$	(321)	$	100	$	18,716

Balance as of December 31, 2021	$	194	$	16,248	$	2,917	$	(146)	$	106	$	19,319
Net income (loss)	—		—		646		—		(2)		644
Other comprehensive loss, net of income taxes	—		—		—		(220)		—		(220)
Shares issued under stock incentive plans	—		40		—		—		—		40
Shares issued under defined contribution plans	1		160		—		—		—		161
Share-based compensation expense	—		92		—		—		—		92
Tax withholding payments on share-based awards	—		(44)		—		—		—		(44)
Repurchases and retirement of common stock	(4)		(752)		(144)		—		—		(900)
Cash dividends ($3.36 per share)	—		—		(650)		—		—		(650)
Other	—		—		(1)		—		(2)		(3)
Balance as of September 30, 2022	$	191	$	15,744	$	2,768	$	(366)	$	102	$	18,439

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

_____________________________________________________________________

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.

Acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”) and New Business Segment. On July 28, 2023 we completed the acquisition of AJRD. Upon completion of the acquisition, we established a new reportable segment, Aerojet Rocketdyne (“AR”). The operations of AJRD are reported in the newly established AR segment and in our corporate segment. The AR segment consists of missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions.

See Note B: Acquisitions, Divestitures and Asset Sales 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.

_____________________________________________________________________

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 generally results 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 and July 28, 2023 we completed the acquisitions of Viasat, Inc.’s Tactical Data Links product line (“TDL”) and AJRD, respectively. We applied the provisions of ASU 2021-08 in our purchase accounting for both acquisitions, and 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 and AJRD acquisitions, see Note B: Acquisitions, Divestitures and Asset Sales in these Notes.

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.

_____________________________________________________________________

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 September 29, 2023:


	January 3, 2023
(In millions)	Preliminary		Measurement Period Adjustments, Net1,2		Preliminary Adjusted

Receivables	$	28	$	—	$	28
Contract assets	18		11		29
Inventories	164		(10)		154
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		(95)		755
Deferred income taxes	33		3		36
Other non-current assets	6		(1)		5
Total assets acquired	$	2,184	$	11	$	2,195

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		10		41
Total liabilities assumed	$	210	$	11	$	221

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

(1)Fair value adjustments primarily related to refined assumptions in the valuation of customer relationship intangible assets.

(2) Assets acquired include $11 million of Contract assets that were reclassified from Inventories to Contract assets to conform TDL’s accounting policies with those of L3Harris, as required under ASC 805. As such, reclassified amounts will not be recognized as revenue in future periods.

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.

Intangible Assets. 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	$	349	17
Customer relationships:(1)
Backlog	83		2
Government programs	323		16
Total customer relationships	406
Total identifiable intangible assets acquired	$	755

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

_____________________________________________________________________

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.

Forward Loss Provision. 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 $15 million and $29 million for amortization of the forward loss provision during the quarter and three quarters ended September 29, 2023, respectively.

Off-market Customer Contracts. 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 $64 million, consisting of $33 million and $31 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 $7 million and $22 million for amortization of off-market contract liabilities during the quarter and three quarters ended September 29, 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 $11 million in the remainder of 2023, $22 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. The following table includes revenue and income before income taxes of TDL included in our Condensed Consolidated Statement of Operations for the quarter ended September 29, 2023 and for the acquisition date through September 29, 2023 and the comparable periods of calendar year 2022. The comparable period results do not include any integration synergies or accounting conformity adjustments and are not necessarily indicative of our results of operations that actually would have been obtained had the acquisition of TDL been completed for the period presented, or which may be realized in the future.


	Quarter Ended				Three Quarters Ended
(In millions)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Revenue	$	97	$	105	$	261	$	290
Income before income taxes	38		30		86		55

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the TDL acquisition, we recorded transaction and integration costs of $10 million and $64 million for the quarter and three quarters ended September 29, 2023, respectively, which were included in the Engineering, selling and administrative expenses line item in our Condensed Consolidated Statement of Operations.

Acquisition of AJRD

On July 28, 2023 we acquired AJRD, a technology-based engineering and manufacturing company that develops and produces missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions. The acquisition provides us access to a new market. We acquired 100 percent of AJRD for a total net purchase price of

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$4.715 billion. The acquisition was financed through the issuance and sale of $3.25 billion aggregate principal amount of new long-term fixed-rate debt and draw down under the 2023 Credit Agreement. See Note H: Debt and Credit Arrangements in these Notes for further information regarding the financing of the AJRD acquisition.

Net assets and results of operations of AJRD are reflected in our financial results commencing on July 28, 2023, the acquisition date, and are reported in our newly created AR segment and corporate headquarters.

We accounted for the acquisition of AJRD 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 and our measurement of certain assets and contingencies, such as intangible assets, property, plant and equipment, real estate held for development and leasing, loss contracts, environmental matters and related deferred tax impacts remain preliminary for completion of the related valuations.

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


(In millions)	July 28, 2023

Cash consideration paid for AJRD outstanding common stock & equity awards	$	4,748
AJRD debt settled by L3Harris	257
Cash consideration paid	5,005
Less cash acquired	(290)
Fair value of consideration transferred	$	4,715

_____________________________________________________________________

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)	July 28, 2023



Receivables	$	156
Contract assets	338
Inventories	14
Income taxes receivable	3
Other current assets	114
Property, plant and equipment	574
Operating lease right-of-use assets	51
Goodwill	2,348
Other intangible assets	2,860
Recoverable environmental remediation costs	383
Other non-current assets	175
Total assets acquired	$	7,016

Accounts payable	145
Contract liabilities	310
Compensation and benefits	116
Income taxes payable	6
Current portion of long-term debt, net	1
Other accrued items	278
Defined benefit plans	223
Operating lease liabilities	40
Long-term debt, net	41
Deferred income taxes	398
Reserves for environmental remediation costs	417
Other long-term liabilities	326
Total liabilities assumed	$	2,301

Fair value of consideration transferred	$	4,715

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 estimates. Due to the timing of the AJRD acquisition, our accounting for the acquisition remains preliminary. Amounts recorded associated with these assets and liabilities are based on preliminary calculations and estimates. 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). Any potential adjustments made could be material in relation to the preliminary values presented above.

Intangible Assets. All intangible assets acquired in the AJRD acquisition are subject to amortization. The preliminary fair value of identifiable intangible assets acquired as of the acquisition date is as follows:

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Total		Useful Lives
	(In millions)		(In Years)


Trade names	$	120	10 - 20
Customer relationships:(1)
Backlog	360		3 - 4
Government programs	2,380		15 - 25
Total customer relationships	2,740
Total identifiable intangible assets acquired	$	2,860

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

The fair value of intangible assets is estimated using the relief from royalty method for the acquired trade names 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 trade names intangible assets, revenue growth attributable to the intangible assets and remaining useful lives.

Reserves for Environmental Remediation Costs and Recoverable Environmental Remediation Costs. See Note P: Legal Proceedings and Contingencies in these Notes for additional information.

Forward Loss Provision. We have recorded a preliminary forward loss provision of $37 million which was included in ”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 $4 million from amortization of the forward loss provision for the acquisition date through September 29, 2023.

Off-market Customer Contracts. 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 $53 million, consisting of $26 million and $27 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 $4 million from amortization of off-market contract liabilities during the period from the acquisition date through September 29, 2023.

Goodwill. The $2,348 million of goodwill recognized is attributable to AJRD’s market presence as the provider of advanced propulsion and power systems for nearly every major U.S. space and missile program, the assembled workforce and established operating infrastructure. The acquired goodwill is not tax deductible. See Note G: Goodwill and Other Intangible Assets in these Notes for further information.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Results. Revenue and income before income taxes of AJRD included in our Condensed Consolidated Statement of Operations for the acquisition date through September 29, 2023 was $455 million and $56 million, respectively. The following table presents unaudited pro forma financial results of the operations acquired with AJRD. The pro forma results for the three quarters ended September 29, 2023 were prepared as if the acquisition was completed on the first day of our fiscal 2023, December 31, 2022, and include adjustments to remove costs directly attributable to the acquisition, such as transaction-related costs and the impact of purchase price adjustments, and corporate expenses such as pension, interest, and amortization. The pro forma results for the three quarters ended September 30, 2022 were prepared as if the acquisition was completed on the first day of our fiscal 2022, January 1, 2022, and include adjustments to remove corporate expenses such as pension, interest, and amortization. The pro forma results do not include any integration synergies and are not necessarily indicative of our results of operations that actually would have been obtained had the acquisition of AJRD been completed for the period presented, or which may be realized in the future.


	Three Quarters Ended
(In millions)		September 29, 2023		September 30, 2022

Revenue		$	1,740	$	1,589
Income before income taxes		156		180

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the AJRD acquisition, we recorded transaction and integration costs of $45 million and $67 million for the quarter and three quarters ended September 29, 2023, respectively, which were included in the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Operations.

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 “Sale of asset group and business divestiture-related gains, net” line item in our Condensed Consolidated Statement of Operations for the quarter and three quarters ended September 29, 2023, respectively. 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 Three Quarters Ended September 30, 2022

During the three quarters ended September 30, 2022, we completed one business divestiture and one asset sale from our IMS segment for combined net cash proceeds of $23 million and recognized a pre-tax gain of $8 million associated with the asset sale included in the “Sale of asset group and business divestiture-related gains, net” line item in our Condensed Consolidated Statement of Operations for the quarter and three quarters ended September 30, 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, and the fair value of the retained businesses of the respective reporting unit based on a combination of market-based and income 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 September 29, 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 three quarters ended September 29, 2023 was $22 million and $67 million, respectively, and $23 million and $92 million for the quarter and three quarters ended September 30, 2022, respectively.

_____________________________________________________________________

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 three quarters ended September 29, 2023 and September 30, 2022 are as follows:


	Three Quarters Ended September 29, 2023			Three Quarters Ended September 30, 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	$	209.88	0.4	$	231.71
Restricted stock and restricted stock units granted(2)	0.3	$	200.61	0.3	$	224.79
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 units generally cliff vest after three-years.

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

There were no significant grants of stock options, restricted stock units or performance share units to participants under the L3Harris SIPs during the quarters ended September 29, 2023 and September 30, 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 0.5 million for the quarter and three quarters ended September 29, 2023, respectively, and 0.1 million and 0.7 million for the quarter and three quarters ended September 30, 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 ("AOCL")

The components of AOCL are summarized below:


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

Balance at December 30, 2022	$	(237)	$	(79)	$	28	$	(288)
Other comprehensive (loss) income, before reclassifications to earnings and income taxes	(10)		8		—		(2)
Income taxes	—		(2)		—		(2)
Other comprehensive (loss) income before reclassifications to earnings, net of income taxes	(10)		6		—		(4)
Losses (gains) reclassified to earnings, before income taxes	—		3		(41)		(38)
Income taxes	—		(1)		10		9
Losses (gains) reclassified to earnings, net of income taxes(1)	—		2		(31)		(29)
Other comprehensive (loss) income, net of income taxes	(10)		8		(31)		(33)
Balance at September 29, 2023	$	(247)	$	(71)	$	(3)	$	(321)

Balance at December 31, 2021	$	(118)	$	(89)	$	61	$	(146)
Other comprehensive loss, before reclassifications to earnings and income taxes	(196)		(18)		—		(214)
Income taxes	—		4		—		4
Other comprehensive loss before reclassifications to earnings, net of income taxes	(196)		(14)		—		(210)
Losses (gains) reclassified to earnings, before income taxes	—		7		(18)		(11)
Income taxes	—		(2)		3		1
Losses (gains) reclassified to earnings, net of income taxes(1)	—		5		(15)		(10)
Other comprehensive loss, net of income taxes	(196)		(9)		(15)		(220)
Balance at September 30, 2022	$	(314)	$	(98)	$	46	$	(366)

(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)	September 29, 2023		December 30, 2022

Contract assets(1)	$	3,477	$	2,987
Contract liabilities, current(2)	(1,940)		(1,400)
Contract liabilities, non-current(3)	(104)		(117)
Net contract assets	$	1,433	$	1,470

(1)Includes approximately $386 million of AR contract assets at September 29, 2023.

(2)Includes approximately $315 million of AR contract liabilities at September 29, 2023.

(3)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)	September 29, 2023		December 30, 2022

Unbilled contract receivables, gross	$	7,126	$	4,629
Unliquidated progress payments and advances	(3,649)		(1,642)
Contract assets	$	3,477	$	2,987

Contract assets and liabilities as of September 29, 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 $223 million and $1.12 billion for the quarter and three quarters ended September 29, 2023, respectively, and $196 million and $967 million for the quarter and three quarters ended September 30, 2022, respectively.

NOTE F: INVENTORIES

Inventories are summarized below:


(In millions)	September 29, 2023		December 30, 2022

Finished products(1)	$	302	$	181
Work in process	513		396
Materials and supplies	823		714
Inventories(1)	$	1,638	$	1,291

(1)Includes approximately $114 million of TDL inventory of which $70 million is included in finished products at September 29, 2023.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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)	SAS		IMS		CS		AR		Total

Balance at December 30, 2022	$	5,778	$	7,709	$	3,796	$	—	$	17,283
Reallocation of goodwill in business realignment	327		(327)		—		—		—
Goodwill from TDL acquisition	—		—		1,117		—		1,117
Goodwill from AJRD acquisition	—		—		—		2,348		2,348
Goodwill decrease from divestitures(1)	(9)		—		—		—		(9)


Currency translation adjustments	(5)		2				—		(3)
Balance at September 29, 2023	$	6,091	$	7,384	$	4,913	$	2,348	$	20,736

(1)During the three quarters ended September 29, 2023, we assigned an additional $9 million of goodwill to our VIS business and completed the divestiture. We derecognized $39 million of goodwill 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.

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 million 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.

Goodwill from AJRD Acquisition. In connection with the July 28, 2023 acquisition of AJRD, we recorded $2,348 million of goodwill in our AR segment, which is also the AR reporting unit. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for further information.

Fiscal 2022 Impairments. During the quarter ended September 30, 2022, we determined that goodwill related to our Broadband, ADG and Electro Optical reporting units was impaired and we recorded non-cash impairment charges of $355 million, $313 million and $134 million, respectively, in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Operations. See Note 9: Goodwill in our Fiscal 2022 Form 10-K for further information on our fiscal 2022 goodwill impairments.

In conjunction with our 2023 business realignment, certain businesses within our ADG reporting unit were aligned with our Electro Optical and SAS reporting units. As such, fiscal 2022 impairment charges related to ADG and Electro Optical of $367 million and $80 million, are included in our Electro Optical and SAS reporting units, respectively, in our comparative financial results for the quarter and three quarters ended September 30, 2022.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Intangible Assets

Identifiable intangible assets, net are summarized below:


	September 29, 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	$	9,270	$	2,658	$	6,612	$	6,124	$	2,189	$	3,935
Developed technologies	915		435		480		566		366		200
Contract backlog	2		1		1		1		1		—
Trade names — divisions	215		61		154		95		53		42
Other	2		2		—		2		2		—
Total finite-lived identifiable intangible assets	10,404		3,157		7,247		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	$	12,207	$	3,157	$	9,050	$	8,612	$	2,611	$	6,001

(1)During the three quarters ended September 29, 2023, we completed the divestiture of our VIS business. We derecognized $10 million of intangible assets as part of determining the gain on sale that was assigned during fiscal 2022. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for further information.

Intangible assets acquired are as follows:


	TDL Acquisition						AJRD Acquisition
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships	$	406	$	46	$	360	$	2,740	$	37	$	2,703
Developed technologies	349		15		334		—		—		—
Trade names — divisions	—		—		—		120		1		119

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 and AJRD acquisitions, 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 $208 million and $546 million for the quarter and three quarters ended September 29, 2023, respectively, and was $151 million and $454 million, for the quarter and three quarters ended September 30, 2022, respectively, which primarily related to assets acquired in connection with business combinations.

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


	(In millions)

Year 1	$	881
Year 2	805
Year 3	724
Year 4	572
Year 5	519
Thereafter	3,746
Total	$	7,247

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In-process R&D Impairment. During the three quarters ended September 29, 2023, we closed a facility, which triggered an evaluation of the in-process research and development (“R&D”) related to the operations of the closed facility for impairment. 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 goodwill and 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)	September 29, 2023		December 30, 2022

Variable-rate debt:
Floating rate notes, due March 10, 2023 (“Floating 2023 Notes”)	$	—	$	250
Term loan, due November 21, 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
5.40% notes, due January 15, 2027 (“5.4% 2027 Notes”)	1,250		—
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
5.40% notes, due July 31, 2033 (“5.4% 2033 Notes”)	1,500		—
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
5.60% notes, due July 31, 2053 (“5.6% 2053 Notes”)	500		—
Total variable and fixed-rate debt	11,226		6,776
Financing lease obligations and other debt	277		222
Total debt	11,503		6,998
Plus: unamortized bond premium	55		70
Less: unamortized discounts and issuance costs	(55)		(25)
Total debt, net	11,503		7,043
Less: current portion of long-term debt, net	(363)		(818)
Total long-term debt, net	$	11,140	$	6,225

Long Term Debt Issued

Variable Rate Debt. 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, 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 September 29, 2023, we had $2.25 billion outstanding under Term Loan 2025. There were no borrowings outstanding under Term Loan 2025 at December 30, 2022.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 September 29, 2023, the interest rate on Term Loan 2025 was 6.7% (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.

Fixed Rate Debt. On July 31, 2023, we closed the issuance and sale of $3.25 billion aggregate principal amount of new long-term fixed-rate debt consisting of the 5.4% 2027 Notes, the 5.4% 2033 Notes and the 5.6% 2053 Notes (collectively, the “AJRD Notes”). The AJRD Notes were used to fund a portion of the purchase price for the AJRD acquisition, which closed on July 28, 2023, and to pay related fees and expenses.

Interest on the 5.4% 2027 Notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2024. Interest on the 5.4% 2033 Notes and 5.6% 2053 Notes is payable semi-annually in arrears on January 31 and July 31 of each year, commencing on January 31, 2024.

We may redeem the 5.4% 2027 Notes, 5.4% 2033 Notes and 5.6% 2053 Notes prior to January 15, 2027, April 30, 2033 and January 31, 2053, respectively, in whole or in part, at our option, at a redemption price equal to the greater of: (i) the sum of the present values of the remaining scheduled payments of the principal and interest thereon discounted to the redemption date on a semi-annual basis at the “Treasury Rate,” as defined in the AJRD Notes, plus 15 basis points for the 5.4% 2027 Notes and 25 basis points for the 5.4% 2033 Notes and 5.6% 2053 Notes, less interest accrued to the date of redemption; (ii) or 100% of the principal amount of the respective notes plus, in either case, accrued interest and unpaid interest thereon to the redemption date. After April 30, 2033 and January 31, 2053, we may redeem the 5.4% 2033 Notes and the 5.6% 2053 Notes, respectively, at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest thereon to the redemption date.

Upon a “Change of Control Repurchase Event,” as defined in the AJRD Notes, we may be required to make an offer to repurchase the AJRD Notes at a price equal to 101% of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of repurchase.

We incurred the $9 million, $13 million, and $6 million of debt issuance costs for the 5.4% 2027 Notes, 5.4% 2033 Notes and 5.6% 2053 Notes, respectively, which are being amortized using the effective interest rate method over the life of each respective note. Such amortization is included as a component of the “Interest expense, net” line item in our Condensed Consolidated Statement of Operations.

There were no issuances of variable and fixed-rate long-term debt during the three quarters ended September 30, 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 three quarters ended September 29, 2023.

There were no repayments of variable and fixed-rate long-term debt during the three quarters ended September 30, 2022.

2023 Credit Agreement

On March 10, 2023, we established a $2.4 billion, 364-day senior unsecured revolving 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 were required to be used to finance a portion of the purchase price for the acquisition of AJRD and for the related fees, taxes, costs and expenses, and subsequent borrowings may be used for working capital purposes.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At our election, borrowings under the 2023 Credit Agreement, which are designated in U.S. Dollars, 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 matures on 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.

On July 28, 2023, we borrowed $2.1 billion under the 2023 Credit Agreement and used the proceeds together with proceeds from the AJRD Notes to fund the AJRD acquisition and to pay related fees and expenses. All borrowings under the 2023 Credit Agreement were repaid using proceeds from commercial paper during the quarter ended September 29, 2023. At September 29, 2023 we had no outstanding borrowings and were in compliance with all covenants under the 2023 Credit Agreement. For additional information regarding the 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 September 29, 2023, we had no outstanding borrowings and were in compliance with all covenants under the 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”), which replaced our prior $1.0 billion commercial paper program. Under the CP Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.9 billion, 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 September 29, 2023, we had $2.0 billion in outstanding notes under our CP Program, primarily consisting of amounts used to repay $2.1 billion outstanding under the 2023 Credit Agreement and 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 5.50% and mature at various dates, primarily in October 2023.

Proceeds from issuance of commercial paper with maturities greater than 90 days were $701 million during the quarter and three quarters ended September 29, 2023. There were no repayments of commercial paper with maturities greater than 90 days during the quarter and three quarters ended September 29, 2023. During the quarter and three quarters ended September 30, 2022, we had no commercial paper borrowings with original maturities more than 90 days from the date of issuance.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 September 29, 2023				Three Quarters Ended September 29, 2023
(In millions)	Pension		Other Benefits		Pension		Other Benefits

Net periodic benefit income
Operating
Service cost	$	10	$	—	$	22	$	1
Non-operating
Interest cost	100		3		283		8
Expected return on plan assets	(162)		(5)		(467)		(15)
Amortization of net actuarial gain	(2)		(5)		(7)		(15)
Amortization of prior service (credit) cost	(7)		—		(20)		1

Non-service cost periodic benefit income	(71)		(7)		(211)		(21)
Net periodic benefit income	$	(61)	$	(7)	$	(189)	$	(20)

	Quarter Ended September 30, 2022				Three Quarters Ended September 30, 2022
(In millions)	Pension		Other Benefits		Pension		Other Benefits

Net periodic benefit income
Operating
Service cost	$	10	$	1	$	32	$	2
Non-operating
Interest cost	55		1		165		5
Expected return on plan assets	(156)		(5)		(468)		(16)
Amortization of net actuarial loss (gain)	2		(1)		7		(5)
Amortization of prior service (credit) cost	(7)		—		(21)		1

Non-service cost periodic benefit income	(106)		(5)		(317)		(15)
Net periodic benefit income	$	(96)	$	(4)	$	(285)	$	(13)

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

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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Quarter Ended		Three Quarters Ended
(In millions)	September 29, 2023	September 30, 2022	September 29, 2023	September 30, 2022

Basic weighted-average common shares outstanding	189.3	191.3	189.6	192.2
Impact of dilutive share-based awards	0.8	—	1.0	1.8
Diluted weighted-average common shares outstanding	190.1	191.3	190.6	194.0

The antidilutive impact excluded from diluted EPS for the quarter ended September 29, 2023 was immaterial. Diluted EPS excludes the antidilutive impact of 2.0 million weighted-average share-based awards outstanding for the three quarters ended September 29, 2023 and 1.9 million and 0.3 million weighted-average share-based awards outstanding for the quarter and three quarters ended September 30, 2022, respectively.

NOTE K: INCOME TAXES

Our effective tax rate was 4.5% for the quarter ended September 29, 2023 compared with 6.2% for the quarter ended September 30, 2022. For the quarter ended September 29, 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 September 30, 2022, our effective tax rate benefited from the favorable impact of R&D credits, incremental FDII and the release of a valuation allowance in a foreign jurisdiction resulting from an internal restructuring, partially offset by the unfavorable impact of non-deductible goodwill impairments.

Our effective tax rate was 6.4% for the three quarters ended September 29, 2023 compared with 13.0% for the three quarters ended September 30, 2022. For the three quarters ended September 29, 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 three quarters ended September 30, 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, the favorable impact of excess tax benefits related to equity-based compensation and the items described above in this Note for the quarter ended September 30, 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.

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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at September 29, 2023 and December 30, 2022:


	September 29, 2023				December 30, 2022
(In millions)	Total		Level 1		Total		Level 1

Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities	$	97	$	97	$	64	$	64
Investments measured at NAV:
Corporate-owned life insurance	36				33
Total fair value of deferred compensation plan assets	$	133			$	97

Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds	$	14	$	14	$	8	$	8
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts	231				192
Total fair value of deferred compensation plan liabilities	$	245			$	200

(1)Represents diversified assets held in “rabbi trusts” 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:


	September 29, 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)	9,253		8,667		7,043		6,569
Total debt, net	$	11,503	$	10,917	$	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				Three Quarters Ended
(In millions, except per share amounts)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Net EAC adjustments, before income taxes(1)	$	(10)	$	—	$	(97)	$	58
Net EAC adjustments, net of income taxes	(8)		—		(73)		44
Net EAC adjustments, net of income taxes, per diluted share	(0.04)		—		(0.38)		0.23

(1)For the three quarters ended September 29, 2023 excludes charges of $48 million related to impairments of customer contracts that are included in the “Revenue from product sales and services” and “Impairment of goodwill and other assets” line items in our Condensed Consolidated Statement of Operations.

Revenue recognized from performance obligations satisfied in prior periods was $28 million and $97 million for the quarter and three quarters ended September 29, 2023, respectively, and $23 million and $113 million for the quarter and three quarters ended September 30, 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 September 29, 2023, our ending backlog was $31.8 billion. We expect to recognize approximately 55% of the revenue associated with this backlog by the end of 2024 and approximately 80% by the end of 2025, 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 four reportable segments:

SAS: including space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare; and mission networks for air traffic management operations;
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;
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; and
AR: including missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems; and space propulsion and power systems for national security space and exploration missions.

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. See Note A: Basis of Presentation and Summary of Significant Accounting Policies in the Notes for further information.

Acquisition of 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.

Acquisition of AJRD and New Business Segment. On July 28, 2023, we completed the acquisition of AJRD. Upon completion of the acquisition, we established a new reportable segment, AR. See Note B: Acquisitions, Divestitures and Asset Sales in these Notes for additional information regarding our acquisition of AJRD.

Business Segment Financial Information

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


	Quarter Ended				Three Quarters Ended
(In millions)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

Revenue from Product Sales and Services
SAS	$	1,686	$	1,593	$	5,056	$	4,682
IMS	1,568		1,630		5,003		4,897
CS	1,255		1,068		3,707		3,024
AR	455		**		455		**

Corporate eliminations	(49)		(45)		(142)		(119)
Total revenue from product sales and services	$	4,915	$	4,246	$	14,079	$	12,484

Income (loss) before Income Taxes
Segment operating income (loss):
SAS(1)	$	210	$	92	$	565	$	472
IMS(1)	187		(143)		534		315
CS	282		(97)		873		370
AR	56		**		56		**

Total segment operating income (loss)	735		(148)		2,028		1,157

Unallocated Items:
Unallocated corporate department (expense) income, net(2)	14		18		(27)		33
Amortization of acquisition-related intangibles(3)	(208)		(151)		(546)		(454)
Additional cost of sales related to the fair value step-up in inventory sold	—		—		(30)		—
Merger, acquisition, and divestiture related expenses	(56)		(31)		(144)		(117)
Sale of asset group and business divestiture-related gains, net	—		—		26		8
Impairment of goodwill and other assets(4)	—		—		(39)		—
LHX NeXt(5)	(33)		—		(68)		—
Charges for severance and other termination costs	—		(29)		—		(29)
Charge related to an additional pre-merger legal contingency	—		(31)		—		(31)
FAS/CAS operating adjustment(6)	27		22		72		65
Total unallocated items	(256)		(202)		(756)		(525)
Non-operating income, net	80		99		245		313
Interest expense, net	(159)		(70)		(372)		(205)
Income (loss) before income taxes	$	400	$	(321)	$	1,145	$	740

** AR is a new reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

(1)For the three quarters ended September 29, 2023, includes non-cash charges for impairment of other assets of $27 million and $12 million for SAS and IMS, respectively, related to restructuring of a customer contract impacting both segments and facility closures in IMS.

(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)For the three quarters ended September 29, 2023, includes a $21 million non-cash charge for impairment of intangible assets related to the closure of a facility and an $18 million charge related to an impairment of a customer contract. See Note G: Goodwill and Other Intangible Assets in these Notes for additional information regarding impairment of intangible assets.

(5)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental information technology (“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				Three Quarters Ended
(In millions)	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022

FAS pension service cost	$	(10)	$	(11)	$	(23)	$	(34)
Less: CAS pension cost	(37)		(33)		(95)		(99)
FAS/CAS operating adjustment	27		22		72		65
Non-service FAS pension income	78		111		232		332
FAS/CAS pension adjustment, net	$	105	$	133	$	304	$	397

Disaggregation of Revenue

We disaggregate revenue for all four 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
	September 29, 2023								September 30, 2022
(In millions)	SAS		IMS		CS		AR		SAS		IMS		CS		AR

Revenue By Customer Relationship
Prime contractor	$	1,082	$	962	$	866	$	113	$	1,013	$	1,089	$	690	**
Subcontractor	592		585		374		342		565		525		364		**
Intersegment	12		21		15		—		15		16		14		**
Total revenue	$	1,686	$	1,568	$	1,255	$	455	$	1,593	$	1,630	$	1,068	**

Revenue By Contract Type
Fixed-price(1)	$	1,040	$	1,164	$	1,047	$	272	$	939	$	1,246	$	899	**
Cost-reimbursable	634		383		193		183		639		368		155		**
Intersegment	12		21		15		—		15		16		14		**
Total revenue	$	1,686	$	1,568	$	1,255	$	455	$	1,593	$	1,630	$	1,068	**

Revenue By Geographical Region
United States	$	1,478	$	1,141	$	874	$	443	$	1,414	$	1,213	$	706	**
International	196		406		366		12		164		401		348		**
Intersegment	12		21		15		—		15		16		14		**
Total revenue	$	1,686	$	1,568	$	1,255	$	455	$	1,593	$	1,630	$	1,068	**


	Three Quarters Ended
	September 29, 2023								September 30, 2022
(In millions)	SAS		IMS		CS		AR		SAS		IMS		CS		AR

Revenue By Customer Relationship
Prime contractor	$	3,176	$	3,243	$	2,471	$	113	$	2,977	$	3,210	$	2,037	**
Subcontractor	1,845		1,694		1,196		342		1,669		1,636		954		**
Intersegment	35		66		40		—		36		51		33		**
Total revenue	$	5,056	$	5,003	$	3,707	$	455	$	4,682	$	4,897	$	3,024	**

Revenue By Contract Type
Fixed-price(1)	$	3,161	$	3,767	$	3,127	$	272	$	2,737	$	3,716	$	2,530	**
Cost-reimbursable	1,860		1,170		540		183		1,909		1,130		461		**
Intersegment	35		66		40		—		36		51		33		**
Total revenue	$	5,056	$	5,003	$	3,707	$	455	$	4,682	$	4,897	$	3,024	**

Revenue By Geographical Region
United States	$	4,407	$	3,679	$	2,499	$	443	$	4,136	$	3,549	$	1,962	**
International	614		1,258		1,168		12		510		1,297		1,029		**
Intersegment	35		66		40		—		36		51		33		**
Total revenue	$	5,056	$	5,003	$	3,707	$	455	$	4,682	$	4,897	$	3,024	**

** AR is a new reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

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

Assets by Business Segment

Total assets by business segment are as follows:


(In millions)	September 29, 2023		December 30, 2022

Total Assets
SAS	$	9,099	$	8,838
IMS	10,869		10,925
CS	7,184		5,800
AR	4,078		**
Corporate(1)	11,063		7,961
Total Assets	$	42,293	$	33,524

** AR is a new reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

(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 $9.1 billion and $6.0 billion at September 29, 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, real estate held for development and leasing, as well as any assets of businesses held for sale.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE P: LEGAL PROCEEDINGS AND CONTINGENCIES

In the 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; and 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 arbitration 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 September 29, 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 September 29, 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, including AJRD, are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites, including sites owned by us and third party 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 (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”), the Resource Conservation Recovery Act and/or equivalent state and international laws, and in some instances, our liability and proportionate share of costs that may be shared among other PRPs have not been determined largely due to uncertainties as to the nature and extent of site conditions and our involvement.

In conjunction with the acquisition of AJRD in the quarter ended September 29, 2023 we recognized $469 million of reserves for environmental remediation costs related to approximately 40 environmental matters associated with AJRD’s current and former facilities. The current and non-current portion of the reserves are included as a component of the “Other accrued items” and “Reserves for environmental remediation costs” line items, respectively, in our Condensed Consolidated Balance Sheet. Some of these environmental costs are eligible for future recovery in the pricing of our products and services to the U.S. government and under existing third party agreements. We consider the recovery probable based on U.S. government contracting regulations and existing third party agreements. We recognized $433 million for the recoverable portion of these reserves. The current and non-current portion of the recoverable costs are included as a component of the “Other current assets” and “Recoverable environmental remediation costs” line items, respectively, in in our Condensed Consolidated Balance Sheet. 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The largest acquired environmental matter is the Sacramento, California site. AJRD is subject to a Partial Consent Decree (“PCD”) related to this site which requires us, among other things, to conduct a Remedial Investigation and Feasibility Study to determine the nature and extent of impacts due to the release of chemicals from the Sacramento, California site, monitor the American River and offsite public water supply wells, operate Groundwater Extraction and Treatment facilities that collect groundwater at the site perimeter, and pay certain government oversight costs. The PCD required a guarantee up to $75 million (in addition to a prior $20 million guarantee) to assure that the Sacramento remediation activities are fully funded. Obligations under the $75 million aggregate guarantee are limited to $10 million in any year. Both the $75 million aggregate guarantee and the $10 million annual limitation are subject to adjustment annually for inflation. As of September 29, 2023, the estimated range of anticipated costs for the Sacramento, California site related to the PCD and other federal and state orders was $239 million to $372 million and the accrued amount was $239 million included as a component of the “Other accrued items” and “Reserves for environmental remediation costs” line item in in our Condensed Consolidated Balance Sheet.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and 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 September 29, 2023, the related condensed consolidated statements of operations, comprehensive income and equity for the quarter and three quarters ended September 29, 2023 and September 30, 2022, the condensed consolidated statements of cash flows for the three quarters ended September 29, 2023 and September 30, 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

October 27, 2023

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