ACQUISITIONS, DIVESTITURES AND ASSET SALES

12 Months Ended

Dec. 29, 2023

Business Combination and Asset Acquisition [Abstract]

ACQUISITIONS, DIVESTITURES AND ASSET SALES

NOTE 13: 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 million. The acquisition enhances our networking capability and provides access to the ubiquitous Link 16 waveform, better positioning us to enable the DoD integrated architecture goal in JADC2.

On November 22, 2022, we established Term Loan 2025 with a syndicate of lenders, in part, to finance the acquisition. See Note 8: 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 CS segment, with the exception of acquired intangible assets, which are recorded in our corporate headquarters.

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.

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

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(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.

Our preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as we obtained additional information during the measurement period. We completed our accounting for the acquisition during the fiscal year ended December 29, 2023. 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 adjustments recognized during the measurement period:

(In millions)	Preliminary as of January 3, 2023		Measurement Period Adjustments, Net(1),(2)		Adjusted as of December 29, 2023
Receivables	$	28	$	—	$	28
Contract assets	18		11		29
Inventories	164		(18)		146
Other current assets	9		—		9
Property, plant and equipment	50		(1)		49
Goodwill	1,014		129		1,143
Other intangible assets	850		(95)		755
Deferred income taxes	33		2		35
Other non-current assets	18		(1)		17
Total assets acquired	$	2,184	$	27	$	2,211
Accounts payable	$	20	$	—	$	20
Contract liabilities	28		—		28
Compensation and benefits	2		—		2
Other accrued items	119		17		136
Other long-term liabilities	41		10		51
Total liabilities assumed	$	210	$	27	$	237
Net assets acquired	$	1,974	$	—	$	1,974

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(1)Fair value adjustments during the fiscal year ended December 29, 2023 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.

Intangible Assets. All intangible assets acquired in the TDL acquisition are subject to amortization. The fair value and weighted-average amortization period of identifiable intangible assets acquired as of the acquisition date is as follows:

	Total		Useful Lives
	(In millions)		(In Years)
Customer relationships:(1)
Backlog	$	83	2
Government programs	323		16
Total customer relationships	406
Developed technology	349		17
Total identifiable intangible assets acquired	$	755

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

We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgment related to estimations. The use of different estimates could produce different results. The fair value of intangible assets 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 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 revenue 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 $36 million for amortization of the forward loss provision during the fiscal year ended December 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 acquisition date fair value of the off-market components. The acquisition date fair value of the off-market components is a net liability of $64 million, consisting of $28 million and $36 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 $28 million for amortization of off-market contract liabilities during the fiscal year ended December 29, 2023. 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 $21 million in 2024 and immaterial amounts thereafter.

Goodwill. The $1,143 million 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 6: Goodwill and 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 Consolidated Statement of Operations for the acquisition date through December 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.

	Fiscal Year Ended
(In millions)	December 29, 2023		December 30, 2022
Revenue	$	365	$	358
Income before income taxes	131		68

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the TDL acquisition, we recorded transaction and integration costs of $78 million for the fiscal year ended December 29, 2023, which were included in the General and administrative expenses line item in our 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 $4,715 million. The acquisition was financed through the issuance and sale of the AJRD Notes and draw down under

the 2023 Credit Agreement. See Note 8: 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 and are reported in our newly created AR segment and corporate headquarters. Corporate headquarters include net assets and results of operations associated with AJRD’s real estate operations and acquired intangible assets.

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

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 December 29, 2023:

(In millions)	Preliminary as of July 28, 2023		Measurement Period Adjustments, Net(1)		Preliminary Adjusted as of December 29, 2023
Receivables	$	156	$	—	$	156
Contract assets	338		(40)		298
Inventories	14		—		14
Other current assets	117		29		146
Property, plant and equipment	574		28		602
Goodwill	2,348		17		2,365
Other intangible assets	2,860		(20)		2,840
Other non-current assets	609		89		698
Total assets acquired	$	7,016	$	103	$	7,119
Current portion of long-term debt, net	1		—		1
Accounts payable	$	145	$	—	$	145
Contract liabilities	310		15		325
Compensation and benefits	116		1		117
Income taxes payable	6		(1)		5
Other accrued items	278		22		300
Long-term debt, net	41		—		41
Deferred income taxes	398		120		518
Other long-term liabilities	1,006		(54)		952
Total liabilities assumed	$	2,301	$	103	$	2,404
Fair value of consideration transferred	$	4,715	$	—	$	4,715

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(1)Fair value adjustments during the fiscal year ended December 29, 2023 primarily related to EAC updates, refinements to the environmental liability and associated recoverable, as well as an update to the deferred tax liability which was offset by the release of a portion of the uncertain tax position previously booked by AJRD.

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. 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 and weighted-average amortization period of identifiable intangible assets acquired as of the acquisition date is as follows:

	Total		Useful Lives
	(In millions)		(In Years)
Customer relationships:(1)
Backlog	$	350	3
Government programs	2,370		15 - 20
Total customer relationships	2,720
Trade names	120		15
Total identifiable intangible assets acquired	$	2,840

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(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.

Forward Loss Provision. We have recorded a preliminary forward loss provision of $62 million which was included in ”Other accrued items” line item in our Consolidated Balance Sheet. The forward loss provisions will be recognized as a reduction to cost of revenue as we incur costs to satisfy the associated performance obligations. There will be no net impact on our Consolidated Statement of Operations. We recognized $8 million from amortization of the forward loss provision for the acquisition date through December 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 $95 million, consisting of $37 million and $58 million included in the “Other accrued items” and “Other long-term liabilities” line items in our 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 $14 million from amortization of off-market contract liabilities during the period from the acquisition date through December 29, 2023.

Goodwill. The $2,365 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 6: Goodwill and Intangible Assets in these Notes for further information.

Financial Results. Revenue and income before income taxes of AJRD included in our Consolidated Statement of Operations for the acquisition date through December 29, 2023 was $1,052 million and $122 million, respectively. The following table presents unaudited pro forma financial results of the operations acquired with AJRD. The pro forma results for fiscal year ended December 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 fiscal year ended December 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.

	Fiscal Year Ended
(In millions)	December 29, 2023		December 30, 2022
Revenue	$	2,337	$	2,238
Income before income taxes	266		234

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the AJRD acquisition, we recorded transaction and integration costs of $83 million for the fiscal year ended December 29, 2023, which were included in the “General and administrative expenses” line item in our Consolidated Statement of Operations.

Completed Divestiture of VIS — Fiscal 2023

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 “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations for the fiscal year ended December 29, 2023. After selling costs and purchase price adjustments, the net cash proceeds for the sale of VIS were $71 million. The operating results of VIS were reported in the SAS segment through the date of divestiture.

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

Pending Divestiture of CAS Disposal Group — Fiscal 2023

On November 27, 2023, we announced that we entered into a definitive agreement to sell our CAS disposal group for a cash purchase price of $700 million, with additional contingent consideration of up to $100 million, subject to customary purchase price adjustments and closing conditions as set forth in the agreement. As of November 27, 2023, the fair value less costs to sell of the CAS disposal group is $834 million, inclusive of consideration related to noncontrolling interest and accumulated other comprehensive income. We recognized a pre-tax loss of $77 million included in the “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations for the fiscal year ended December 29, 2023. CAS, which is part of our IMS segment, provides integrated aircraft avionics, pilot training and data analytics services for the commercial aviation industry. The transaction is expected to close in 2024.

In connection with the preparation of our financial statements for the fiscal year ended December 29, 2023, we concluded that goodwill related to the CAS disposal group was impaired and we recorded a non-cash impairment charge of $296 million, which is included in the Impairment of goodwill and other assets. See Note 6: Goodwill and Intangible Assets in these Notes for additional information.

The carrying amounts of the assets and liabilities of the CAS business classified as held for sale in our Consolidated Balance Sheet as of December 29, 2023 were as follows:

(In millions)	December 29, 2023
Receivables, net	$	80
Contract assets	43
Inventories	145
Other current assets	33
Property, plant and equipment, net	41
Goodwill	534
Other intangible assets, net	263
Other non-current assets	44
Valuation allowance	(77)
Total assets held for sale	$	1,106
Accounts payable	$	111
Contract liabilities	48
Compensation and benefits	11
Other accrued items	38
Other long-term liabilities	64
Total liabilities held for sale	$	272

Completed Divestitures and Asset Sales — Fiscal 2022

During the fiscal 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 “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations for fiscal 2022.

Completed Divestitures and Asset Sales — Fiscal 2021

The following table presents information regarding business divestitures completed during fiscal 2021, all of which were reported under our “Other non-reportable businesses” segment through the date of divestiture, which was formerly our Aviation Systems segment:

(In millions)	Date of Divestiture	Sale Price		Net Cash Proceeds(1)
Narda-MITEQ business(2)	December 6, 2021	$	75	$	76
ESSCO business(3)	November 26, 2021	55		53
Electron Devices business(4)	October 1, 2021	185		173
Voice Switch Enterprise disposal group (“VSE disposal group”)(5)	July 30, 2021	20		19
Combat Propulsion Systems and related businesses (“CPS business”)(6)	July 2, 2021	398		347
Military training business(7)	July 2, 2021	1,050		1,059
		$	1,783	$	1,727

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(1) Net cash proceeds after selling costs and purchase price adjustments.

(2) The Narda-MITEQ business manufactured component, Satellite Communication (“SATCOM”) and radio frequency safety products for both military and commercial markets.

(3) The ESSCO business manufactured metal space frame ground radomes and composite structures.

(4) The Electron Devices and Narda Microwave-West divisions (“Electron Devices business”) manufactured microwave devices for ground-based, airborne and SATCOM and radar.

(5) The VSE disposal group provided voice over internet protocol systems for air traffic management communications.

(6) The CPS business engineered, designed and manufactured engines, transmissions, suspensions and turret drive systems for tracked and wheeled combat vehicle systems.

(7) The military training business provided flight simulation solutions and training services to the DoD and foreign military agencies.

Income Before Income Taxes Attributable to Businesses Divested

Income before income taxes attributable to the CAS disposal group was $53 million, $63 million and $18 million in fiscal 2023, 2022 and 2021, respectively. There was no significant income before income taxes attributable to businesses divested or held for sale during fiscal 2022.

In fiscal 2021, we had the following significant income before income taxes attributable to businesses divested in our Consolidated Statement of Operations:

	Fiscal Year Ended
(In millions)	December 31, 2021
Electron Devices business	$	44
CPS business	53
Military training business	35

Asset Sales and Business Divestiture-Related Gains (Losses), net

In fiscal 2023 we recognized a pre-tax loss of $77 million in connection with the pending sale of our CAS disposal group and a pre-tax gain of $26 million in connection with the sale of VIS. In fiscal 2022, there were no significant asset group sales or business divestiture-related gains or losses. In fiscal 2021, we had the following pre-tax gains (losses) associated with businesses divested, which are included in the “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations:

	Fiscal Year Ended
(In millions)	December 31, 2021
Narda-MITEQ business	$	(9)
ESSCO business	31
Electron Devices business	31
VSE disposal group	(29)
CPS business(1)	(19)
Military training business	217
Other(2)	(2)
Total Business divestiture-related gains (losses), net	$	220

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(1)During the quarter ended April 2, 2021, upon classifying the CPS business as held for sale, we recorded a non-cash impairment charge of $62 million, which is included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Operations for fiscal 2021. See Note 6: Goodwill and Intangible Assets in these Notes for additional information.

(2)Reflects adjustments to the gains and losses on completed divestitures not shown within the table.

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 1: Significant Accounting Policies in these Notes for additional information regarding the fair value hierarchy and see Note 6: Goodwill and Intangible Assets in these Notes for additional information regarding the impairment of goodwill related to our business divestitures.