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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-3863
hrs-20221230_g1.jpg
L3HARRIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-0276860
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1025 West NASA Boulevard
Melbourne,Florida 32919
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (321727-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareLHXNew York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ☑   No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ☐   No  ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☑   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☑   No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☑  Accelerated filer 
Non-accelerated filer          ☐  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
The aggregate market value of the voting common equity held by non-affiliates of the registrant at July 1, 2022 was $46,385,211,550 (based on the quoted closing sale price per share of the stock on the New York Stock Exchange). For purposes of this calculation, the registrant has assumed that its directors and executive officers as of July 1, 2022 are affiliates.
The number of shares outstanding of the registrant’s common stock as of February 17, 2023 was 190,089,405.
Documents Incorporated by Reference:
Portions of the registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Shareholders scheduled to be held on April 21, 2023, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 30, 2022, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein.



L3HARRIS TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 2022
TABLE OF CONTENTS
  Page No.
Part I:
Information about our Executive Officers
Part II:
Part III:
Part IV:
Signatures
Exhibits
This Annual Report on Form 10-K contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.



Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this “Report”), including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that may not materialize or prove correct, which could cause our results to differ materially from those expressed in or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for future operations; new products, systems, technologies, services or developments; future economic conditions, performance or outlook; future political conditions; the outcome of contingencies or litigation; environmental remediation cost estimates; the potential level of share repurchases, dividends or pension contributions; potential acquisitions or divestitures; the integration of our acquisitions; the value of contract awards and programs; expected revenue; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “could,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of filing of this Report and are not guarantees of future performance or actual results. Factors that might cause our results to differ materially from those expressed in or implied by these forward-looking statements, from our current expectations or projections or from our historical results include, but are not limited to, those discussed in “Item 1A. Risk Factors” of this Report. All forward-looking statements are qualified by, and should be read in conjunction with, those risk factors. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made as of the date of filing of this Report, and we disclaim any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events or developments or otherwise, after the date of filing of this Report or, in the case of any document incorporated by reference, the date of that document.
Amounts contained in this Report may not always add to totals due to rounding.
PART I
 
 ITEM 1.BUSINESS.
L3HARRIS
General
L3Harris Technologies, Inc. is a Trusted Disruptor for the aerospace and defense industry. With customers’ mission-critical needs in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products and services have defense and civil government applications, as well as commercial applications.
Our fiscal year ends on the Friday nearest December 31. Each of our fiscal years ended December 30, 2022 (“fiscal 2022”), December 31, 2021 (“fiscal 2021”) and January 1, 2021 (“fiscal 2020”) included 52 weeks. Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and “L3Harris” as used in this Report mean the combined company L3Harris Technologies, Inc. and its subsidiaries.
We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in three operating segments: Integrated Mission Systems (“IMS”); Space & Airborne Systems (“SAS”); and Communication Systems (“CS”). Our operating segments are also our reportable segments and are referred to as our business segments. See Note 24: Business Segments in the Notes to Consolidated Financial Statements in this Report (the “Notes”) for further information regarding our business segments, including how we define segment operating income or loss.
Effective January 1, 2022, we streamlined our business segments from four business segments to three business segments. As a result of the segment reorganization, the Aviation Systems segment was eliminated as a business segment and the ongoing operations that had been part of the Aviation Systems segment were integrated into the remaining segments. Defense aviation, commercial aviation products and commercial pilot training
_____________________________________________________________________
1


operations were moved into the Integrated Mission Systems segment; and mission networks for air traffic management operations were moved into the Space & Airborne Systems segment.
Acquisition of Viasat, Inc’s Tactical Data Links (“TDL”) Product Line
On October 3, 2022, we entered into a definitive agreement to acquire the TDL product line for a purchase price of approximately $1.96 billion, subject to customary adjustments. The acquisition was completed on January 3, 2023. This acquisition will enhance our networking capability and provide immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the integrated architecture goal of the U.S. Department of Defense (“DoD”) in joint all-domain command and control (“JADC2”). The TDL product line will be reported within our CS segment in fiscal 2023. See Note 3: Acquisitions and Note 26: Subsequent Events in the Notes for further information.
Pending Acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”)
On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction of approximately $4.7 billion. AJRD is a provider of propulsion systems and energetics for tactical and strategic missiles, missile defense systems and hypersonic applications. AJRD also provides liquid-fuel engines and the propulsion and power systems for in-space crew and cargo transports. Upon closure of the acquisition, we anticipate creating a new business segment. The acquisition is expected to close in fiscal 2023, pending required regulatory approvals and clearances and other customary closing conditions. See “Item 1A - Risk Factors” in this Report for a discussion of risks related to the acquisition. Also, see Note 3: Acquisitions in the Notes for further information.
Description of Business by Segment
Our business segments provide a wide-range of products, systems and services to various customers and are described below. For financial information with respect to our business segments, including revenue, operating income and total assets, and with respect to our operations outside the United States, see Note 24: Business Segments in the Notes, and for additional information with respect to our business segments, see “Discussion of Business Segment Results of Operations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. For a discussion of certain risks affecting our business segments, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Integrated Mission Systems
IMS is a leading developer and integrator of mission systems in the air, land and sea domains. We provide top tier capabilities in the design, development, integration, production and sustainment of intelligence, surveillance and reconnaissance (“ISR”), integrated maritime communications systems and electro optical sensors for U.S. and allied military, civil government and commercial customers in our five business sectors:
ISR: We develop, integrate and maintain multi-mission ISR, signals intelligence and communication systems, including fleet management support services, sensor development, modifications and periodic depot maintenance for ISR and airborne missions. Significant customers include DoD and classified customers within the U.S. Government, U.K. Ministry of Defence, Royal Australian Air Force and other select foreign military services. For example, we provide premier signals intelligence and electronic warfare capability for the U.S. Air Force (“USAF”) Rivet Joint and Compass Call programs.
Maritime: We develop, integrate, manufacture and sustain mission systems in the maritime domain, specializing in integrated command, control, computers, communications, cyber, intelligence, surveillance and reconnaissance systems (“C5ISR”), bridge control, operational security solutions, signals intelligence and multi-intelligence platforms; ship and submarine-sensors; autonomous, unmanned surface and undersea solutions; power and platform control systems and other electronic and electrical products and systems. Significant customers include the U.S. Navy (“USN”), the U.S. Coast Guard, allied navies and other defense users.
Electro Optical: We design and manufacture advanced electro-optical and infrared (“EO/IR”) sensors and surveillance and targeting systems and provide modernization and life extension maintenance upgrade and support services across all domains; Space communications and launch vehicle avionics; and military Global Positioning System (“GPS”) user equipment and fuzing and ordnance systems. Significant customers include the U.S. Army, the USAF, USN, National Aeronautics and Space Administration, Canadian Department of National Defense, commercial space companies and more than 80 foreign militaries. For example, our Wescam system provides the MX and CMX family of turreted EO/IR solutions to airborne, maritime and ground domains for both commercial and military users around the globe.
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Commercial Aviation Solutions: We design and manufacture advanced avionics for commercial, unmanned and military applications. We develop, install and maintain flight simulators and training systems that are customized to commercial aircraft. We also provide commercial pilot training services, including airline training for licensed pilots, academy programs for new cadets and flight school training for pilots. Significant customers include commercial airlines, aircraft manufacturers and foreign military agencies.
Agile Development Group (“ADG”): ADG is an innovation accelerator and collaboration initiative established to rapidly address near-peer, national security threats. ADG is focused on advanced, front-end and rapid capability development, including advanced sensors, mission systems, unmanned systems and weapons systems, which align with customers’ critical needs and where the Company has existing differentiated technologies.
Additional information regarding the composition of IMS revenue of $6.9 billion for fiscal 2022 is as follows:
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“U.S. Government Revenue” includes foreign military sales funded through the U.S. Government, whether directly or through prime contractors. “International Revenue” refers to product and service revenue for which the end consumer is located outside the U.S.
For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Space & Airborne Systems
SAS is a leading provider of full mission solutions as a prime and subsystem integrator in the space, airborne and cyber domains. We provide top tier capabilities in the design, development, integration, production and sustainment of major weapons systems for national security, civil government, commercial and international customers in our five business sectors:
Space Systems: We provide end-to-end space and ground-based solutions in support of intelligence, GPS, space exploration, weather and missile defense missions. We are a prime contractor on complete satellite systems, providing advanced payloads and integrated ground systems. Our products, systems and services primarily support the U.S. Space Force, the USAF, the U.S. Intelligence Community, U.S. civil agencies and other national security space prime customers. For example, we are the prime contractor on Space Development Agency (“SDA”) Tracking layer Tranche 0 and 1, building a constellation of space vehicles to provide persistent global missile warning and tracking to national defense authorities.
Intel & Cyber: We provide situational awareness, advanced wireless and cyber solutions for classified intelligence and defense customers.
Mission Avionics: We provide military airborne mission system processing computers, avionics systems and displays, hardened electronics, weapons release systems, data links and antennas supporting fixed wing and rotary platforms, including F-35, F/A-18 and C-130.
Electronic Warfare: We provide full suite electronic warfare capabilities including multi-spectral situational awareness, threat warning and countermeasures capabilities for airborne and maritime platforms, including F/A-18, F-16, and B-52.
Mission Networks: We provide mission-critical infrastructure communications and networking solutions for air traffic management for the U.S. Federal Aviation Administration and international airspace national service providers.
Additional information regarding the composition of SAS revenue of $6.1 billion for fiscal 2022 is as follows:
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For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Communication Systems
CS is focused on enabling warfighters in the multi-domain environment with the resources, capabilities and agility to support today’s mission and innovate solutions for the future. We are a leading provider of communications solutions for DoD, international customers, Federal and state agencies and commercial customers in our five business sectors:
Tactical Communications: We provide tactical radios to the U.S. Army, the USAF, the U.S. Marine Corps, the USN, the U.S. Special Operations Command and international defense customers, including developing and manufacturing software-defined radios for key DoD network modernization programs and satellite communication (“SATCOM”) terminals and battlefield management networks for U.S. and international defense customers. For example, we are providing Handheld, Manpack and Small Form-Fit radios to the U.S. Army.
We operate in this market principally on a commercial market-driven business model.
Broadband Communications: We provide resilient and trusted mission critical networks across all domains, providing connectivity and interoperability to support ISR, tactical operations, networking and electronic attack under any operational scenario in the world.
Integrated Visions Solutions: We design, manufacture and sustain a full suite of helmet-mounted integrated night vision goggles and heads up displays along with Clip-on Weapon Sights and weapon-mounted aiming lasers and range finders.
Public Safety: We provide state-of-art Long-Term Evolution solutions and Land Mobile Radios as well as mission critical systems applications and equipment for Federal, state and local government police and fire first responders, as well as providing integrated professional communications and system solutions for utilities, transit agencies and commercial customers.
Additional information regarding the composition of CS revenue of $4.2 billion for fiscal 2022 is as follows:
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For a discussion of certain risks affecting this segment, including risks relating to our supply chain disruptions, see “Item 1. Business - Materials, Suppliers and Seasonality” and “Item 1A. Risk Factors” of this Report.
International Business
Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was $3.9 billion (23% of our revenue), $3.9 billion (22% of our revenue) and $3.7 billion (20% of our revenue), in fiscal 2022, 2021
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and 2020, respectively. Direct export sales are primarily denominated in U.S. Dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. For financial information regarding our domestic and international operations, including long-lived assets, see Note 24: Business Segments in the Notes.
The majority of our international marketing activities are conducted through subsidiaries that operate in the Europe, Middle East and Africa (“EMEA”) and Asia-Pacific (“APAC”) regions and Canada. We also have established international marketing organizations and several regional sales offices. For further information regarding our international subsidiaries, see Exhibit 21 of this Report.
International revenue for fiscal 2022 came from a large number of countries, and no single foreign country accounted for more than 5% of our total revenue. Some of our exports are paid for by letters of credit, with the balance carried on an open account. Advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of the related costs incurred. Significant foreign government contracts generally require us to provide performance guarantees. In order to remain competitive in international markets, we also enter into offset agreements or recourse or vendor financing arrangements to facilitate sales to certain customers.
We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or government customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. Our dealers and distributors generally receive a discount from our list prices and may mark up those prices in setting the final sales prices paid by the customer.
The particular economic, social and political conditions for business conducted outside the U.S. differ from those encountered by U.S. businesses. We believe that the overall business risk for our international business as a whole is somewhat greater than that faced by our domestic businesses as a whole. A description of the types of risks to which we are subject in our international business is contained in “Item 1A. Risk Factors” of this Report. In our opinion, these risks are partially mitigated by the diversification of our international business and the protection provided by letters of credit and advance payments, progress payments and other similar payments.
Competitive Conditions and Trends in Market Demand
We operate in highly competitive markets that are sensitive to technological advances. Some of our competitors in each of our markets are larger than we are and can maintain higher levels of expenditures for research and development (“R&D”). In each of our markets, we concentrate on the opportunities that we believe are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors in these markets are product and systems quality and reliability; technological capabilities, including reliable, resilient and innovative cyber capabilities; service; past performance; ability to develop and implement complex, integrated solutions; ability to meet delivery schedules; the effectiveness of third-party sales channels in international markets; and cost-effectiveness. We frequently “partner” or are involved in subcontracting and teaming relationships with companies that are, from time to time, competitors on other programs. We compete domestically and internationally against large aerospace and defense companies; principally BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon Technologies and Thales; and, increasingly, non-traditional defense contractors.
For further discussion of trends in market demand, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
Principal Customers; Government Contracts
The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 74%, 75% and 78% in fiscal 2022, 2021 and 2020, respectively. No other customer accounted for more than 5% of our revenue in fiscal 2022. Additional information regarding customers for each of our segments is provided under “Item 1. Business — Description of Business by Segment” of this Report. Our U.S. Government sales are predominantly derived from contracts with departments and agencies of, and prime contractors to, the U.S. Government. Most of the sales in our SAS and IMS segments are made directly or indirectly to the U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination for the convenience of the U.S. Government or for default based on performance.
Our U.S. Government contracts and subcontracts include both cost-reimbursable and fixed-price contracts. Government-wide Acquisition Contracts (“GWACs”) and multi-vendor indefinite delivery-indefinite quantity (“IDIQ”)
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contracts, which can include task orders for each contract type, require us to compete both for the initial contract and then for individual task or delivery orders under such contracts.
Our U.S. Government cost-reimbursable contracts provide for the reimbursement of allowable costs plus payment of a fee and fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which provide for payment of a fee that may increase or decrease, within specified limits, based on actual results compared with contractual targets relating to factors such as cost, performance and delivery schedule; and (iii) cost-plus award-fee contracts, which provide for payment of an award fee determined at the customer’s discretion based on our performance against pre-established performance criteria. Under our U.S. Government cost-reimbursable contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract progress. Some overhead costs have been made partially or wholly unallowable for reimbursement by statute or regulation. Examples include certain merger and acquisition costs, lobbying costs, charitable contributions, interest expense and certain litigation defense costs.
Our U.S. Government fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. Under our U.S. Government firm fixed-price contracts, we agree to perform a specific scope of work or sell a specific product for a fixed price and, as a result, benefit from cost savings and carry the burden of cost overruns. Under our U.S. Government fixed-price incentive contracts, we share with the U.S. Government both savings accrued for performance at less than target cost as well as costs incurred in excess of target cost up to a negotiated ceiling price, which is higher than the target cost, but carry the entire burden of costs exceeding the negotiated ceiling price. Accordingly, under such incentive contracts, profit may also be adjusted up or down depending on whether specified performance objectives are met. Under our U.S. Government firm fixed-price and fixed-price incentive contracts, we generally receive from the U.S. Government either milestone payments totaling 100% of the contract price or monthly progress payments in amounts equaling 80% of costs incurred under the contract. The remaining amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and deliverables under the contract. Our production contracts are mainly fixed-price contracts and development contracts are generally cost-reimbursable contracts.
As stated above, U.S. Government contracts are terminable for the convenience of the U.S. Government, as well as for default based on performance. Companies supplying goods and services to the U.S. Government are dependent on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies resulting from various military, political, economic and international developments. Long-term U.S. Government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods become unavailable. Under contracts terminable for the convenience of the U.S. Government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts that are terminable for default generally provide that the U.S. Government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of re-procurement and may hold the contractor liable for damages. In many cases, there is also uncertainty relating to the complexity of designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work. Under many U.S. Government contracts, we are required to maintain facility and personnel security clearances complying with DoD and other Federal agency requirements.
From time to time, we may begin performance of a U.S. Government contract under an undefinitized contract action with a not-to-exceed price before the terms, specifications or price are finally agreed to between the parties. In these arrangements, the U.S. Government has the ability to unilaterally definitize the contract if a mutual agreement regarding terms, specifications and price cannot be reached.
The U.S. Government has increased its focus on procurement process improvement initiatives and has implemented certain changes in its procurement practices. These developments may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact to our business, financial condition, results of operations, cash flows and equity.
For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors”, “Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
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Backlog
Company-wide total backlog was $22.3 billion at December 30, 2022, of which $16.2 billion was funded backlog, compared with $21.1 billion at December 31, 2021, of which $15.2 billion was funded backlog. We expect to recognize approximately 55% of the revenue associated with Company-wide total backlog by the end of 2023 and approximately 75% of the revenue associated with Company-wide total backlog by the end of 2024, with the remainder to be recognized thereafter. However, we can give no assurance of such fulfillment or that our backlog will become revenue in any particular period, if at all. Backlog is subject to delivery delays and program cancellations, which are beyond our control.
We define funded backlog as unfilled firm orders for products and services for which funding has been authorized and, in the case of U.S. Government customers, appropriated. The level of order activity related to U.S. Government programs can be affected by the timing of U.S. Government funding authorizations and project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.
We define unfunded backlog as unfilled firm orders for products and services for which funding has not been authorized and, in the case of U.S. Government customers, appropriated. The determination of the unfunded portion of total backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursable or incentive nature. We do not include the value of unexercised contract options or potential orders under IDIQ contracts in our unfunded backlog.
For backlog information for each of our business segments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
See Note 23: Backlog in the Notes for additional information regarding Company-wide total backlog.
Research and Development
Company-sponsored R&D costs, which include R&D for commercial products and services and independent R&D related to government products and services, were $603 million, $692 million and $684 million in fiscal 2022, 2021 and 2020, respectively. A portion of our independent R&D costs are allocated among contracts and programs in process under U.S. Government contractual arrangements. Company-sponsored R&D costs not otherwise allocable are charged to expense when incurred. Company-sponsored research is directed to the development of new products and services and to building technological capability in various markets.
Customer-sponsored R&D costs are incurred pursuant to contractual arrangements, principally U.S. Government-sponsored contracts requiring us to provide a product or service meeting certain defined performance or other specifications (such as designs). This research helps strengthen and broaden our technical capabilities. Customer-sponsored research costs are accounted for principally by the percentage-of-completion cost-to-cost method and included in our revenue and cost of product sales and services. See Note 1: Significant Accounting Policies in the Notes for further information on the cost-to-cost percentage-of-completion method of revenue recognition.
Patents and Other Intellectual Property
We consider our patents and other intellectual property, in the aggregate, to constitute an important asset. We own a large portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property, including reliable, resilient and innovative cyber capabilities, and we routinely apply for new patents, trademarks and copyrights. We also license intellectual property to and from third parties. As of December 30, 2022, we held approximately 2,300 U.S. patents and 1,800 foreign patents, and had approximately 300 U.S. patent applications pending and 300 foreign patent applications pending. Unpatented research, development and engineering skills also make an important contribution to our business. Although our intellectual property rights in the aggregate are important to our business and the operations of our business segments, we do not consider our business or any business segment to be materially dependent on any single patent, license or other intellectual property right, or any group of related patents, licenses or other intellectual property rights. We are engaged in a proactive patent licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty income. Although existing license agreements have generated income in past years and may do so in the future, there can be no assurances we will enter into additional income-producing license agreements. From time to time, we engage in litigation to protect our patents and other intellectual property. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. For further discussion of risks relating to intellectual property, see “Item 1A. Risk Factors” of this Report. With regard to certain patents, the U.S. Government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the U.S. Government may use or authorize others to use the inventions covered by such patents. Pursuant to similar arrangements, the U.S. Government may
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consent to our use of inventions covered by patents owned by other persons. Numerous trademarks used on or in connection with our products are also considered to be a valuable asset.
Government Regulations
Our company is subject to various Federal, state, local and international laws and regulations relating to the development, manufacturing, sale and distribution of our products and services, and it is our policy to comply with the applicable laws in each jurisdiction in which we conduct business. Regulations include, but are not limited to, those related to import and export controls, corruption, bribery, the protection of the environment, government procurement, wireless communications, competition, product safety, workplace health and safety, employment, labor and data privacy. The following describes significant regulations that may impact our businesses. For further discussion of risks relating to government regulations, see “Item 1A. Risk Factors” of this Report.
Import/Export Regulations. We sell products and solutions to customers all over the world and are required to comply with U.S. export control regulations, including the International Traffic in Arms Regulations (“ITAR”) and the U.S. Export Administration Regulations, and economic and trade sanctions programs limiting or banning sales into certain countries. Countries outside of the U.S. have implemented similar controls and sanction regulations. Together, these controls and regulations may impose licensing requirements on exports of certain technology and software from the U.S. and may impact our ability to transact business in certain countries or with certain customers. We have developed compliance programs and training to prevent violations of these programs and regulations, and we regularly monitor changes in the law and regulations and create strategies to deal with changes. Changes in the law may restrict or further restrict our ability to sell products and solutions.
Anti-Corruption Regulations. Because we have significant international operations, we must comply with complex regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act and other local laws prohibiting corrupt payments to governmental officials and anti-competition regulations. We have compliance policies, programs and training to prevent non-compliance with such anti-corruption regulations in the U.S. and outside the U.S. We monitor pending and proposed legislation and regulatory changes that may impact our business and develop strategies to address the changes and incorporate them into existing compliance programs.
Environmental. Our operations are subject to and affected by U.S. Federal, state, local and foreign laws and regulations regarding discharge of materials into the environment or otherwise relating to the protection of the environment. We have previously announced our environmental sustainability goals: to reduce greenhouse gas (“GHG”) emissions by 30% and water usage by 20% from 2019 levels and achieve a 75% solid waste diversion rate (away from landfills) by 2026. We are investing in renewable energy, including entering into a virtual power purchase agreement, and other solutions to achieve our GHG emission reduction target and our other environmental sustainability goals. In 2022, we measured our performance against these goals and exceeded our GHG emissions target, met our water use reduction target and are progressing forward in regards to our solid waste diversion rate from landfill. Additional information is provided in our Sustainability Report which can be found on our Company website, and is not incorporated by reference into this Report.
We have incurred, and based on currently available information, we expect to continue to incur capital and operating costs to comply with existing and pending environmental laws and regulations. See “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report and Note 1: Significant Accounting Policies and Note 25: Legal Proceedings and Contingencies in the Notes.
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Materials, Suppliers and Seasonality
Because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities, we use numerous sources for the wide array of materials, such as electronic components, printed circuit boards, metals and plastics needed for our operations and for our products. We are dependent on suppliers and subcontractors for a large number of components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules. In some instances, we are dependent on one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. In addition, in connection with our U.S. Government contracts, we are required to procure certain materials, components and parts, including microelectronics components, from supply sources approved by the U.S. Government, which may limit the suppliers and subcontractors we may utilize. Although we have been affected by financial and performance issues of some of our suppliers and subcontractors, other than in our CS segment, we have not been materially adversely affected by the inability to obtain materials or products. On occasion, we have experienced component shortages from vendors as a result of pandemics, natural disasters, or the shifting regulatory landscape. These events or regulations may cause a spike in demand for certain electronic components, such as lead-free components, resulting in industry-wide supply chain disruptions.
Revenue and operating income have been, and we expect will continue to be, adversely impacted by supply chain disruptions, primarily in our CS segment. While our product demand remains strong, we can give no assurances and the ultimate extent of the supply chain disruptions to our CS segment remains uncertain. For further discussion of risks relating to subcontractors and suppliers, see “Item 1A. Risk Factors” of this Report.
We do not consider any material portion of our business to be seasonal. Various factors can affect the distribution of our revenue between accounting periods, including the timing of contract awards and the timing and availability of U.S. Government funding, as well as the timing of product deliveries and customer acceptance.
Human Capital
As a global aerospace and defense technology company, our performance is dependent on our highly educated and skilled workforce for our success. Attracting, developing, motivating and retaining highly skilled employees, particularly those with technical, engineering and science backgrounds and experience, is a critical factor in our ability to execute our strategic priorities. We use human capital measures to set goals and monitor performance in several areas, including employee health and safety; talent acquisition, development and retention; and diversity, equity and inclusion.
Workforce Demographics. We had approximately 46,000 employees at December 30, 2022, including approximately 20,000 engineers and scientists. Approximately 88% of our employees are located in the U.S. and a significant number of our employees possess a U.S. Government security clearance. As of December 30, 2022, approximately 2,500, or 6%, of our U.S. employees were covered by various collective bargaining agreements, which we expect will be renegotiated as they expire, as we historically have done without significant disruption to operating activities.
Health and Safety. We strive to maintain a safe work environment for all employees and eliminate workplace incidents, risks and hazards. We review and monitor our performance closely to reduce Occupational Safety and Health Administration reportable incidents. For fiscal 2022, our total recordable injury rate declined by 17% and lost day injury rate declined by 18%, compared with the previous year, while numerous locations across L3Harris reached one year or more without a recordable injury.
Talent Acquisition, Development and Retention. Our talent acquisition, development and retention strategy is focused on attracting the best talent and recognizing and rewarding performance while continually developing, engaging and retaining high-performing employees. We strive to attract employees in all stages of their careers. In addition to hiring approximately 7,500 new employees, L3Harris was recognized with nearly 15 employer awards or recognitions from external organizations in fiscal 2022. Our development philosophy centers around creating broad experiences, setting “SMART” (specific, measurable, achievable, realistic, and timely) performance goals and offering continuous feedback and learning opportunities. We provide formal and informal development aligned with individual learning styles including: self-directed personal and professional development through e-learning, books and videos; professional certification support; leadership development programs developed in partnership with leading universities; rotational development programs; and on-the-job learning. Annually and quarterly, we assign learning content that supports our “e3” operating system (excellence, everywhere, everyday), Code of Conduct, ethical standards, compliance with laws applicable to our business and responsibility for safety and environmental goals. We offer competitive salaries and comprehensive benefit packages, including health care, retirement planning and employer retirement contributions, educational assistance, child and elder back-up care, paid parental leave
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and a discretionary paid time off program. In addition, our Ramp program is designed to support employees in transition, including those returning to work from parental leave or preparing for retirement. Finally, we have established a comprehensive listening strategy to help us better understand the employee experience through the use of multiple surveys over the course of the employee lifecycle. We use this feedback, in conjunction with external benchmarking and research, to identify areas in which we can enhance the employee experience and ensure every person feels engaged and motivated to do their best work.
Diversity, Equity and Inclusion. We believe that our future success depends on our ability to continue to innovate and develop new solutions to solve our customers’ most critical challenges, and that diversity of thought, experience, perspective and background drives innovation. We have established two clear goals: half of our workforce will be women and at least a third will be people of color. We are investing in an inclusive, equitable and diverse workforce by supporting a variety of science, technology, engineering and mathematics initiatives. We also have an established diversity council, co-chaired by our CEO and comprised of employee resource group leadership and executives from across the Company, to evaluate and influence the strategies, policies and steps we take to advance diversity, equity and inclusion. We offer nine employee resource groups that bring together employees from diverse backgrounds and foster networking, professional development and community outreach opportunities. We also further build inclusive behaviors and culture through ongoing learning throughout the year, encouraging conversation and action through initiatives like our annual “Day of Understanding” event, “Six Signature Traits for Inclusive Leadership” training and our inaugural virtual “Inclusion Conference.” Finally, we believe that celebrating inclusivity, equity and our unique and diverse backgrounds and experiences makes us stronger, demonstrated by our various listening and communications strategies that celebrate the unique storytelling and voices of employees, such as our “I am L3Harris” series. Through the above and other efforts, we have improved the diversity of our workforce and we continue to work toward our long-term goals.
The table below provides the makeup of our workforce in fiscal 2022:
OverallExecutive
Persons of color(1)
28%20%
Female population(1)
25%36%
Veterans(1)
17%17%
Persons with disabilities(1)
9%8%
Generational breakout(2):
Boomers (1945-1964)23%25%
Generation X (1965-1980)35%58%
Millennials (1981-1996)35%17%
Generation Z (after 1996)7%—%
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(1) Based on employee self-identification
(2) Age ranges align with Pew Research Center definitions.

Additional information regarding our human capital strategy is available in our Diversity, Equity and Inclusion Annual Report that can be found on our company website. Information on our website, including our Diversity, Equity and Inclusion Annual Report, is not incorporated by reference into this Report.
Website Access to L3Harris Reports; Available Information
General. We maintain an Internet website at https://www.l3harris.com. We file annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to such reports, with the U.S. Securities and Exchange Commission (“SEC”). These filings are available, free of charge, on our website as soon as reasonably practicable after these reports are electronically filed with or furnished to the SEC. We also will provide the reports in electronic or paper form, free of charge, upon request to our Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. We also make available on our website, free of charge, our annual report to shareholders and proxy statement. Our website and the information posted thereon are not incorporated into this Report or any current or other periodic report that we file with or furnish to the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at https://www.sec.gov, and reports we file with or furnish to the SEC are available free of charge at this internet site.
Additional information relating to our business, including our business segments, is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
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Corporate Governance Guidelines and Committee Charters. We previously adopted Corporate Governance Guidelines, which are available on the Corporate Governance section of our website at https://www.l3harris.com/company/environmental-social-and-governance. In addition, the charters of each of the standing committees of our Board of Directors, namely, the Audit Committee, Compensation Committee, Finance Committee, Innovation and Cyber Committee and Nominating and Governance Committee, are also available on the Corporate Governance section of our website. A copy of the charters is also available free of charge upon written request to our Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919.
Certifications. We have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Report. In addition, an annual CEO certification was submitted by our Chief Executive Officer to the New York Stock Exchange (“NYSE”) in May 2022 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation by L3Harris of the NYSE’s corporate governance listing standards.
 ITEM 1A.RISK FACTORS.
We have described many of the trends and other factors that we believe could impact our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. In addition, our business, financial condition, results of operations, cash flows and equity are subject to, and could be materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual results to vary materially from recent results or our anticipated future results.
Macroeconomic, Industry and Governmental Risks
We depend on U.S. Government customers for a significant portion of our revenue, and a reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
We are highly dependent on sales to U.S. Government customers, primarily defense-related programs with the DoD and a broad range of programs with the U.S. Intelligence Community and other U.S. Government departments and agencies. The percentage of our revenue derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, both directly and through prime contractors, was 74% in fiscal 2022. Therefore, a reduction in U.S. Government funding or a change in U.S. Government spending priorities (in particular, related to the DoD) would significantly reduce our revenue and have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
We operate in highly competitive markets, and the U.S. Government may choose to use contractors other than us, for example as part of competitive bidding processes (through which we expect that a majority of the business we seek will be awarded), or otherwise due to our competitors’ ongoing efforts to expand their business relationships with the U.S. Government. The U.S. Government has increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor IDIQ, GWAC, General Services Administration Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. Some of our competitors have greater financial resources than we do and may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. We may not be able to continue to win competitively awarded contracts or to obtain task orders under multi-award contracts. Further, competitive bidding processes involve significant cost and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split with competitors and the risk that we may fail to accurately estimate the resources and costs required to fulfill any contract awarded to us. The current competitive bidding environment has resulted in an increase of bid protests from unsuccessful bidders, which typically extends the time until work on a contract can begin and may result in us experiencing significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or challenging contracts awarded to us.
Our U.S. Government programs must compete with programs managed by other government contractors and with other policy imperatives for consideration for limited resources and for uncertain levels of funding during the budget and appropriations process. Budget and appropriations decisions made by the U.S. Government are outside of our control and have long-term consequences for our business. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) and potential alternative funding arrangements. A change in U.S. Government spending priorities or an increase in non-procurement spending at the expense of our programs, or a reduction in total U.S. Government spending on an absolute or inflation-adjusted basis, could have material adverse consequences on our current or future business. For example, in fiscal 2022, there was a decline in
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demand for fuzing and ordnance systems aligned with DoD budget priorities, which was the driver for charges for impairment of goodwill in our IMS segment. Any inability of the U.S. Government to complete its budget process for any U.S. Government fiscal year (“GFY”), and consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution” or shut down, also could have material adverse consequences on our current or future business. For more information see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Developments - U.S. and International Budget Environment” of this Report.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. In particular, our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or sustained period of increased inflation.
We generate revenue through various fixed-price, cost-plus and time-and-material contracts. For a general description of our U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report. For a description of our revenue recognition policies, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates - Revenue Recognition” of this Report.
In fiscal 2022, 73% of our revenue was derived from fixed-price contracts which allow us to benefit from cost savings, but subject us to the risk of potential cost overruns, including due to greater than anticipated or a sustained period of increased inflation or unexpected delays, particularly for firm fixed-price contracts because we assume all of the cost burden. If our initial estimates are incorrect, we can lose money (or make more or less money than estimated) on these contracts. U.S. Government contracts can expose us to potentially large losses because the U.S. Government can hold us responsible for completing a project or, in certain circumstances, paying the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations in the price of materials, a significant increase in or a sustained period of increased inflation, problems with our suppliers, labor market conditions and cost overruns, can result in the contractual price becoming less favorable or even unprofitable to us over time (which, especially in the case of sharp and significant sustained inflation, could happen quickly and have long lasting impact), and increased interest rates resulting from inflationary pressures can also impact the fair value of these contracts. Furthermore, if we do not meet contract deadlines or specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we may not realize their full benefits. Cost overruns would adversely impact our results of operations, which are dependent on our ability to maximize our earnings from our contracts, and the potential risk would be greater if our contracts shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts.
In fiscal 2022, 27% of our revenue was derived from cost-plus and time-and-material contracts, substantially all of which are with U.S. Government customers. For a cost-plus contract, we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels established by our customers. For a time-and-material contract, we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (which include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. Therefore, on cost-plus and time-and-material type contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts.
To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. However, our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or a sustained period of increased inflation.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of operations, cash flows and equity.
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We depend significantly on U.S. Government contracts, which often are only partially funded, subject to immediate termination and heavily regulated and audited. The termination or failure to fund, or negative audit findings for, one or more of these contracts could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
A U.S. Government program may be implemented by the award of many different individual contracts and subcontracts over its lifetime, and its funding is subject to Congressional appropriations, which have been affected by larger U.S. Government budgetary issues and related legislation in recent years. Although multi-year contracts may be authorized and appropriated in connection with major procurements, Congress generally appropriates funds on a GFY basis. Procurement funds are typically made available for obligation over the course of one to three years. Consequently, programs often initially receive only partial funding, and additional funds are obligated only as Congress authorizes further appropriations. We cannot predict the extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual appropriations process ultimately approved by Congress and the President or in separate supplemental appropriations or continuing resolutions, as applicable. The termination of funding for a U.S. Government program would result in a loss of anticipated future revenue attributable to that program, which could have an adverse impact on our operations. In addition, the termination of a program or the failure to commit additional funds to a program that already has been started could result in lost revenue and increase our overall costs of doing business.
U.S. Government contracts also generally are subject to U.S. Government oversight audits, which could result in adjustments to our contract costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs already reimbursed must be refunded. We have recorded contract revenue based on costs we expect to realize upon final audit. However, we do not know the outcome of any future audits and adjustments, and we may be required to materially reduce our revenue or profits upon completion and final negotiation of audits. Negative audit findings could also result in termination of a contract, forfeiture of profits, suspension of payments, fines or suspension or debarment from U.S. Government contracting or subcontracting for a period of time.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part, without prior notice at the U.S. Government’s convenience upon payment only for work done and commitments made at the time of termination. For some contracts, we are a subcontractor and not the prime contractor, and in those arrangements, the U.S. Government could terminate the prime contractor for convenience without regard for our performance as a subcontractor. We may be unable to procure new contracts to offset revenue or backlog lost as a result of any termination of our U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and payment under our U.S. Government contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition, results of operations, cash flows and equity.
Our U.S. Government business also is subject to specific procurement regulations and a variety of socioeconomic and other requirements that, although customary in U.S. Government contracts, increase our performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which could have an adverse effect on our business, financial condition, results of operations, cash flows and equity. In addition, the U.S. Government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth and other changes to its procurement practices. These initiatives and changes to procurement practices may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact on our business, financial condition, results of operations, cash flows and equity. For example, contracts awarded under the DoD’s Other Transaction Authority for research and prototypes generally require cost-sharing and may not follow, or may follow only in part, standard U.S. Government contracting practices and terms, such as the Federal Acquisition Regulation (“FAR”) and U.S. Government Cost Accounting Standards (“CAS”).
Failure to comply with applicable regulations and requirements could lead to fines, penalties, repayments or compensatory or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting for a period of time. Among the causes for debarment are violations of various laws and regulations, including those related to procurement integrity, export control (including ITAR), U.S. Government security, employment practices, protection of the environment, accuracy of records, proper recording of costs and foreign corruption. The termination of a U.S. Government contract or relationship as a result of any of these acts would have an adverse impact on our operations and could have an adverse effect on our standing and eligibility for future U.S. Government contracts.
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The U.S. Government’s budget deficit and the national debt, as well as a breach of the debt ceiling, could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense spending priorities of the U.S. Government. The U.S. Government’s budget deficit and the national debt could have an adverse impact on our business, financial condition, results of operations, cash flows and equity in a number of ways, including the following:
The U.S. Government could reduce or delay its spending on, or reprioritize its spending away from, the government programs in which we participate;
U.S. Government spending could be impacted by alternate arrangements to sequestration, which increases the uncertainty as to, and the difficulty in predicting, U.S. Government spending priorities and levels; and
We may experience declines in revenue, profitability and cash flows as a result of reduced or delayed orders or payments or other factors caused by economic difficulties of our customers and prospective customers, including U.S. Federal, state and local governments.
Furthermore, in 2023, Congress will again have to contend with the legal limit on U.S. debt, commonly known as the debt ceiling. The current statutory limit was reached in January 2023, requiring “extraordinary measures” to continue normally financing U.S. government obligations while avoiding breaching the debt ceiling. However, it is expected the U.S. Government will exhaust these measures by June 2023. If the debt ceiling is not raised, the U.S. Government may not be able to fulfill its funding obligations and there could be significant disruption to all discretionary programs and corresponding impacts on us and the rest of the defense industry.
We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.
We participate in U.S. and international markets that are subject to uncertain economic conditions. In particular, U.S. Federal, state and local government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors. In addition, certain of our non-U.S. customers, including in the Middle East and other oil or natural gas-producing countries, could be adversely affected by weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, which could adversely affect demand for our products, systems, services or technologies. As a result of that uncertainty, it is difficult to develop accurate estimates of the level of growth in the markets we serve. Because those estimates underpin all components of our budgeting and forecasting, our estimates or guidance for future revenue, income and expenditures may be inaccurate, and we may make significant investments and expenditures but never realize the anticipated benefits.
We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability.
Ongoing instability and current conflicts in global markets, including in the Ukraine and Eastern Europe, the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent geo-political events throughout the world, including new or increased tariffs and potential trade wars, have created and may continue to create economic and political uncertainties and impacts that could have a material adverse effect on our business, operations and profitability. These types of matters cause uncertainty in financial and insurance markets and may significantly increase the political, economic and social instability in the geographic areas in which we operate. If credit in financial markets outside of the U.S. remains tight, it could adversely affect the ability of our international customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders for our products and services or impact the ability of our customers to make payments. These matters also may cause us to experience increased costs, such as for insurance coverage and performance bonds (or for them to be unavailable altogether), as well as difficulty with future borrowings under our commercial paper program or credit facilities or in the debt markets or otherwise with financing our operating, investing or financing activities, including financing of acquisitions.
We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
U.S. Government contractors are subject to extensive legal and regulatory requirements, including ITAR and FCPA, and from time to time agencies of the U.S. Government investigate whether we have been and are operating in accordance with these requirements. We may cooperate with the U.S. Government in those investigations. Under U.S. Government regulations, an indictment of L3Harris by a Federal grand jury, or an administrative finding against us as to our present responsibility to be a U.S. Government contractor or subcontractor, could result in us being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity. A conviction, or an administrative finding against us that satisfies the requisite
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level of seriousness, could result in debarment from contracting with the U.S. Government for a specific term, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally.
We are dependent on sales to customers outside the U.S. The percentage of our total revenue represented by revenue from products and services where the end consumer is located outside the U.S., including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 23%, 22% and 20% in fiscal 2022, 2021 and 2020, respectively. In fiscal 2022, 43% of our international business was transacted in local currency. We expect that international revenue will continue to account for a significant portion of our total revenue. Also, a significant portion of our international revenue is from, and a significant portion of our business activity is being conducted with or in, less-developed countries and sometimes countries with unstable governments, or in areas of military conflict or at military installations. Other risks of doing business internationally include:
Laws, regulations and policies of foreign governments relating to investments and operations;
Unforeseen changes in export controls and other trade regulations;
Changes in regulatory requirements, including business or operating license requirements, currency exchange controls or embargoes;
Uncertainties and restrictions concerning the availability of funding, credit or guarantees;
Risk of non-payment or delayed payment by non-U.S. customers;
Contractual obligations to non-U.S. customers that may include specific in-country purchases, investments, manufacturing agreements or financial or other support arrangements or obligations, known as offset obligations, that may extend for many years, require teaming with local companies and result in significant penalties if not satisfied;
Complexities and necessities of using, and disruptions involving, international dealers, distributors, sales representatives and consultants;
Difficulties of managing a geographically dispersed organization and culturally diverse workforces, including compliance with local laws and practices;
Fluctuations of currency, currency revaluations, difficulties with repatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws;
Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional requirements for onerous contract terms;
Rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism or threats of international boycotts or U.S. anti-boycott legislation; and
Increased risk of an incident resulting in damage or destruction to our facilities or products or resulting in injury or loss of life to our employees, subcontractors or other third parties.
Business and Operational Risks
Disputes with our subcontractors or key suppliers, or their inability to perform or timely deliver our components, parts or services, could cause our products and or services to be produced or delivered in an untimely or unsatisfactory manner.
We engage subcontractors on many of our contracts and from time to time may have disputes with them, including regarding the quality and timeliness of work performed by them, customer concerns about the subcontract or subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, our hiring of the personnel of a subcontractor or vice versa or the subcontractor’s failure to comply with applicable law. In addition, there are certain parts, components and services for many of our products and services that we source from other manufacturers or vendors. Some of our suppliers, from time to time, experience financial and operational difficulties, which may impact their ability to supply the materials, components, subsystems and services that we require, and an increased number of contracts where we act as a prime contractor increase our exposure to supplier difficulties. Tariffs imposed on certain materials and other trade issues may create or exacerbate existing materials shortages and may result in further supplier business closures. Our supply chain could also be disrupted by external events, such as natural disasters (including those as a result of climate change) or other significant disruptions (including extreme weather conditions, epidemics, pandemics, acts of terrorism, cyber-attacks and labor disputes), governmental actions and legislative or regulatory changes, including product certification or stewardship requirements, sourcing restrictions, product authenticity and climate change or GHG emission standards, or availability constraints from increased demand from customers. For example, in fiscal 2022, revenue, operating
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income and orders in our CS segment have been, and we expect will continue to be, adversely impacted by supply chain disruptions. These or any further political or governmental developments or health concerns in countries in which we operate could result in social, economic and labor instability. Any inability to develop alternative sources of supply on a cost-effective and timely basis could materially impair our ability to manufacture and deliver products and services to our customers. Complying with U.S. Government contracting regulations that limit the source or manufacture of suppliers and impose stringent cybersecurity regulations also may create challenges for our supply chain and increase costs. We may experience disputes with our subcontractors; material supply disruptions or problems, including shortages of components, commodities or other materials; or component, subsystems or services problems in the future. Also, our subcontractors and other suppliers may not be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result in greater product returns, service problems and warranty claims and could harm our business, financial condition, results of operations, cash flows and equity. In addition, in connection with our government contracts, we are required to procure certain materials, components and parts, including certain microelectronics components, from supply sources approved by the U.S. Government and we rely on our subcontractors and suppliers to comply with applicable laws, regulations and other requirements regarding procurement of counterfeit, unauthorized or otherwise non-compliant parts or materials, including parts or materials they supply to us, and in some circumstances, we rely on their certifications as to their compliance. From time to time, there are components for which there may be only one supplier, which may be unable to meet our needs. Each of these subcontractor and supplier risks could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
We must attract and retain key employees, and any failure to do so could seriously harm us.
Our future success depends to a significant degree upon the continued contributions of our management and our ability to attract and retain highly qualified management and technical personnel, including engineers and employees who have U.S. Government security clearances, particularly clearances of top-secret and above. To the extent that the demand for qualified personnel exceeds supply, as has been the case from time to time in recent years and has recently intensified further due to industry trends, we could experience higher labor, recruiting or training costs in order to attract and retain such employees, or we could experience difficulties in performing under our contracts if our needs for such employees were unmet. Failure to attract and retain such personnel would damage our future prospects and could adversely affect our ability to succeed in our human capital goals and priorities, as well as negatively impact our business and operating results.
We could be negatively impacted by a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our Information Technology (“IT”) networks and related systems or of those we operate for certain of our customers.
We face the risk of a security breach, whether through cyber-attack, cyber intrusion or insider threat via the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or with access to systems inside our organization, subcontractors or suppliers, threats to the physical security of our facilities and employees or other significant disruption of our IT networks and related systems or those of our suppliers or subcontractors. We face an added risk of a security breach or other significant disruption of the IT networks and related systems that we develop, install, operate and maintain for certain customers, which may involve managing and protecting information relating to national security and other sensitive government functions or personally identifiable or protected health information. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, is persistent and substantial as the volume, intensity and sophistication of attempted attacks, intrusions and threats from around the world remain elevated and unlikely to diminish. As an advanced technology-based solutions provider, and particularly as a government contractor with access to national security or other sensitive government information, we face a heightened risk of a security breach or disruption from threats to gain unauthorized access to our and our customers’ proprietary information on our IT networks and related systems, our classified networks, and to the IT networks and related systems that we operate and maintain for certain of our customers. These types of information and IT networks and related systems are critical to the operation of our business and essential to our ability to perform day-to-day operations, and, in some cases, are critical to the operations of certain of our customers. We make significant efforts to maintain the security and integrity of these types of information and IT networks and related systems and have implemented various measures to manage the risk of a security breach or disruption. Our efforts and measures have not been entirely effective in the case of every cyber security incident, but no incident has had a material negative impact on us to date. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and cyber intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly
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evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. In some cases, the resources of foreign governments may be behind such attacks due to the nature of our business and the industries in which we operate. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures. Thus, it is impossible for us to entirely mitigate this risk, and future cyber security incidents could have a material negative impact on us. A security breach or other significant disruption involving these types of information and IT networks and related systems could:
Disrupt proper functioning of these networks and systems and, therefore, our operations and/or those of certain of our customers;
Result in unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
Compromise national security and other sensitive government functions;
Require significant management attention and resources to remedy damages that result;
Result in costs which exceed our insurance coverage and/or indemnification arrangements;
Subject us to claims for contract breach, damages, credits, penalties or termination; and
Damage our reputation with our customers and the general public.    
We must also rely on the safeguards put in place by customers, suppliers, vendors, subcontractors or other third parties to minimize the impact of cyber threats, other security threats or business disruptions. These third parties may have varying levels of cybersecurity expertise and safeguards, and their relationships with government contractors, such as us, may increase their likelihood of being targeted by the same cyber threats we face. Our commercial arrangements with these third parties include processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection processes, which may not be as sophisticated as ours, or a cyber-attack on a third party’s information network and systems.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of operations, cash flows and equity.
Our future success will depend on our ability to develop new products and services and technologies that achieve market acceptance in our current and future markets.
Our businesses are characterized by rapidly changing technologies and evolving industry standards. To remain competitive, we need to continue to design, develop, manufacture, assemble, test, market and support new products and services and technologies, which will require the investment of significant financial resources. In the past, we have allocated substantial funds for such investments through customer funded and internal R&D, acquisitions or other teaming arrangements. This practice will continue to be required, but we may not be able to successfully identify new opportunities and may not have the necessary financial resources to develop new products and services and technologies in a timely or cost-effective manner. Furthermore, the need to make these expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures ultimately will lead to the timely development of new products and services or technologies. Due to the design complexity of some of our products and services and technologies, we may experience delays in completing development and introducing new products and services or technologies in the future. Any delays could result in increased costs of development or divert resources from other projects. In addition, the markets for our products and services or technologies may not develop as we currently anticipate, we may not be as successful in newly identified markets as we currently anticipate, and acquisitions, joint ventures or other teaming arrangements we may enter into to pursue developing new products and services or technologies may not be successful. For instance, our acquisition of the TDL product line from Viasat, Inc. in January 2023 and our pending acquisition of AJRD, if completed, will result in us servicing our customers in markets in which we do not currently operate. Failure of our products and services or technologies to gain market acceptance could significantly reduce our revenue and harm our business. Furthermore, competitors may develop competing products and services or technologies that gain market acceptance in advance of our products and services or technologies, or competitors may develop new products and services or technologies that cause our existing products and services or technologies to become non-competitive or obsolete, which could adversely affect our results of operations. The future direction of the domestic and global economies, including its impact on customer demand, also will have a significant impact on our overall performance.
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We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption.
Our corporate headquarters and significant business operations are located in Florida, which is subject to the risk of major hurricanes. Our worldwide operations and operations of our suppliers and customers could be subject to natural disasters (including those as a result of climate change) or other significant disruptions, including hurricanes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other extreme weather conditions, epidemics, pandemics, acts of terrorism, power shortages and blackouts, telecommunications failures, cyber-attacks and other natural and man-made disasters or disruptions. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of our suppliers, subcontractors, distributors, resellers or customers, including inability of employees to work; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses, delay or decrease orders and revenue from our customers and have a material adverse effect on the continuity of our business and our business, financial condition, results of operations, cash flows and equity. Additionally, we could incur significant costs to improve the climate-related resiliency of our infrastructure and supply chain and otherwise prepare for, respond to and mitigate the effects of climate change.
Financial Risks
Changes in estimates we use in accounting for many of our programs could adversely affect our future financial condition and results of operations.
Accounting for our contracts requires judgment relative to assessing risks, including risks associated with customer-directed delays and reductions in scheduled deliveries, unfavorable resolutions of claims and contractual matters and judgment associated with estimating contract revenue and costs and assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. For example, we must make assumptions regarding: (i) the length of time to complete the contract because costs also include expected increases in wages and prices for materials; (ii) whether contracts should be accounted for as having one or more performance obligations based on the goods and services promised to the customer; (iii) incentives or penalties related to performance on contracts in estimating revenue and profit rates, and recording them when there is sufficient information for us to assess anticipated performance; and (iv) estimates of award fees in estimating revenue and profit rates based on actual and anticipated awards. Because of the significance of the judgments and estimation processes involved in accounting for our contracts, materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future financial condition and results of operations. For additional information regarding our critical accounting estimates applicable to our accounting for our contracts, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates” of this Report.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans liability may materially adversely affect our financial and operating activities or our ability to incur additional debt.
At December 30, 2022, we had $7.0 billion in aggregate principal amount of outstanding debt and $262 million of unfunded defined benefit plans liability. On November 22, 2022, we established a new $2.25 billion, three-year senior unsecured term loan facility by entering into a Loan Agreement (the “Term Loan 2025”) with a syndicate of lenders. Subsequent to the end of fiscal 2022, on January 3, 2023, we borrowed $2.0 billion on the Term Loan 2025 to complete the acquisition of the TDL product line. In addition, we expect to fund the approximately $4.7 billion purchase price of the acquisition of AJRD primarily through debt financing. Our ability to increase our borrowings to fund the acquisition of AJRD or otherwise is subject to limitations imposed on us by our debt agreements. Our ability to make payments on and to refinance our current or future indebtedness, and our ability to make contributions to our unfunded defined benefit plans liability, will depend on our ability to generate cash from operations, financings and investments, which may be subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our debt as it becomes due or make contributions to our unfunded defined benefit plans liability, we may be forced to divest businesses, sell assets or take other disadvantageous actions, including reducing financing for working capital, capital expenditures and general corporate purposes; reducing our cash dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the defense technology industry could be impaired. The lenders who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of any of our other debt.
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A downgrade in our credit ratings could materially adversely affect our business.
The credit ratings assigned to our debt securities could change based on, among other things, our results of operations, financial condition, mergers, acquisitions or dispositions. These ratings are subject to ongoing evaluation by credit rating agencies and may be changed or withdrawn by rating agencies in the future. Moreover, these credit ratings are not recommendations to buy, sell or hold any of our debt securities. Following the announcement of the definitive agreement to acquire AJRD, none of the credit rating agencies changed our rating, however, all three agencies have changed our outlook from stable to negative. Any downgrade in our credit ratings, including due to the acquisition of AJRD, may increase our borrowing costs, affect our ability to incur new indebtedness or refinance our existing indebtedness and could in turn have a material adverse effect on our financial condition, results of operations, cash flows, equity and the market value of our common stock and outstanding debt securities.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect our financial condition, results of operations, cash flows and equity in future periods.
A substantial portion of our current and retired employee population is covered by defined benefit pension and other postretirement defined benefit plans (collectively, “defined benefit plans”). We may experience significant fluctuations in costs related to defined benefit plans as a result of macro-economic factors, such as interest rates, that are beyond our control. The cost of our defined benefit plans is incurred over long periods of time and involves various factors and uncertainties during those periods that can be volatile and unpredictable, including the rates of return on defined benefit plan assets, discount rates used to calculate liabilities and expenses, mortality of plan participants and trends for future medical costs. We develop our assumptions using relevant plan experience and expectations in conjunction with market-related data. These assumptions and other actuarial assumptions may change significantly due to changes in economic, legislative and/or demographic experience or circumstances. Significant changes in key economic indicators, financial market volatility, future legislation and other governmental regulatory actions could materially affect our financial condition, results of operations, cash flows and equity.
We will make contributions to fund our defined benefit plans when considered necessary or advantageous to do so. The macro-economic factors discussed above, including the rates of return on defined benefit plan assets and the minimum funding requirements established by government funding or taxing authorities, or established by other agreement, may influence future funding requirements. A significant decline in the fair value of our plan assets, or other adverse changes to our overall defined benefit plans, could require us to make significant funding contributions and affect cash flows in future periods.
CAS governs the extent to which postretirement costs and plan contributions are allocable to and recoverable under contracts with the U.S. Government. We expect to continue to seek reimbursement from the U.S. Government for a portion of our postretirement costs and plan contributions; however, pension plan cost recoveries under our U.S. Government contracts may occur in different periods from when those pension costs are recognized for financial statement purposes or when pension funding is made. CAS rules have been revised to partially harmonize the measurement and period of assignment of pension plan costs allocable to U.S. Government contracts and minimum required contributions under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”). However, there is still a lag between the time when we contribute cash to our plans under pension funding rules and when we recover pension costs under CAS rules. These timing differences could have a material adverse effect on our cash flows.
Legal, Tax and Regulatory Risks
Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of operations and cash flows.
We are subject to income taxes in the U.S. and numerous international jurisdictions. There are transactions and calculations in the ordinary course of business where the application of tax law may be uncertain, require significant judgment or be subject to differing interpretations.
Our worldwide income tax provision may be adversely affected by a number of factors, which include:
Changes in domestic or international tax laws or the interpretation of such tax laws;
The jurisdictions in which profits are determined to be earned and taxed;
Adjustments to estimated taxes upon finalization of various tax returns;
Increases in expenses not fully deductible for tax purposes, including write-offs of acquired in-process R&D and impairment of goodwill or other long-term assets in connection with mergers or acquisitions;
Changes in available tax credits;
Changes in share-based compensation expense;
Changes in the valuation of our deferred tax assets and liabilities; and
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The resolution of issues arising from tax audits with various tax authorities.
Any significant increase in our future effective tax rates could adversely impact our results of operations for future periods.
We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.
We must first obtain export and other licenses and authorizations from various U.S. Government agencies before we are permitted to sell certain products and technologies outside of the U.S. For example, the U.S. Department of State must notify Congress at least 15 to 60 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of defense equipment and services to foreign governments. During that time, Congress may take action to block the proposed sale. We may be unsuccessful in obtaining necessary licenses or authorizations or Congress may prevent or delay certain sales. Our ability to obtain necessary licenses and authorizations timely or at all is subject to risks and uncertainties, including changing U.S. Government policies or laws or delays in Congressional action due to geopolitical and other factors. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be reversed, prevented or delayed, and any significant impairment of our ability to sell products or technologies outside of the U.S. could negatively impact our business, financial condition, results of operations, cash flows and equity.
Unforeseen environmental issues, including regulations related to GHG emissions or change in customer sentiment related to environmental sustainability, could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Our operations are subject to various U.S. Federal, state and local, as well as certain foreign, environmental laws and regulations within the countries in which we operate relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations. In addition, we could be affected by future environmental laws or regulations, including, for example, new restrictions on materials used in our operations or claims asserted in response to concerns over climate change, such as regulations related to GHG emissions, other aspects of the environment or natural resources. Changes in government procurement laws that mandate or include climate change considerations, such as the contractor’s GHG emissions, lower emission products or other climate risks, in evaluating bids could result in costly changes to our operations or affect our competitiveness on future bids. Compliance with current and future environmental laws and regulations may require significant operating and capital costs. Environmental laws and regulations may institute substantial fines and criminal sanctions as well as facility shutdowns to address violations and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. Our suppliers may face similar business interruptions and incur additional costs that may increase the price of materials needed for manufacturing. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations related to remediation of conditions in the environment. In addition, if violations of environmental laws result in us, or in one or more of our operations, being identified as an excluded party in the U.S. Government’s System for Award Management, then we or one or more of our operations would become ineligible to receive certain contracts, subcontracts and other benefits from the Federal government or to perform work under a government contract or subcontract. Generally, such ineligibility would continue until the basis for the listing has been appropriately addressed. If our responses to new or evolving legal and regulatory requirements or other sustainability concerns are unsuccessful or perceived as inadequate for the U.S. or our international markets, we also may suffer damage to our reputation, which could adversely affect our business. Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments under previously priced contracts or financial insolvency of other responsible parties could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.
We have implemented compliance controls, training, policies and procedures designed to prevent and detect reckless or criminal acts from being committed by our employees, agents or business partners that would violate the laws of the jurisdictions in which we operate, including laws governing payments to government officials, such as the FCPA, the protection of export controlled or classified information, such as ITAR, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy and the terms of our contracts. We cannot ensure, however, that our controls, training, policies and procedures will prevent or detect all such reckless or criminal acts, and we have been adversely impacted by such acts in the past. This risk of improper
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conduct will increase as we continue to grow and expand our operations, including through acquisitions. If not prevented, such acts could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and debarment by the U.S. Government and could have a material adverse effect on our business, results of operations and reputation. In addition, misconduct involving data security lapses resulting in the compromise of personal information or the improper use of our customer’s sensitive or classified information could result in remediation costs, regulatory sanctions against us and serious harm to our reputation and could adversely impact our ability to continue to contract with the U.S. Government.
The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity.
The size, nature and complexity of our business make us susceptible to investigations, claims, disputes, enforcement actions, litigation and other legal proceedings, particularly those involving governments. From time to time, we are defendants in a number of litigation matters and are involved in a number of arbitration matters. These actions may divert financial and management resources that would otherwise be used to benefit our operations. The results of these or new matters may be unfavorable to us. Although we maintain insurance policies, they may not be adequate to protect us from all material judgments and expenses related to current or future claims and may not cover the conduct that is the subject of the litigation or arbitration. Desired levels of insurance may not be available in the future at economical prices or at all. In addition, the results of litigation or arbitration can be difficult to predict, including litigation involving jury trials. Accordingly, our current judgment as to the likelihood of our loss (or our current estimate as to the potential range of loss, if applicable) with respect to any particular litigation or arbitration matter may be wrong. A significant judgment or arbitration award against us arising out of any of our current or future litigation or arbitration matters could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Third parties have claimed in the past, and may claim in the future, that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.
Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which often has resulted in protracted and expensive litigation. Our efforts to gain awards of contracts and ensure a competitive position in the market depends in part on our ability to ensure that our intellectual property is protected, that our intellectual property rights are not diluted or subject to misuse, and that we are able to license certain third-party intellectual property on reasonable terms. Third parties have claimed in the past, and may claim in the future, that we are infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have infringed directly or indirectly upon those intellectual property rights. Claims of infringement might also require us to enter into costly royalty or license agreements. Our patents and other intellectual property may be challenged, invalidated, misappropriated or circumvented by third parties. Moreover, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing arrangements to establish and protect our intellectual property rights. In addition, the laws concerning intellectual property vary among nations and the protection provided to our intellectual property by the laws and courts of foreign nations may differ from those of the U.S. If we fail to successfully protect and enforce these rights, our competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of our patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. We may be required to spend significant resources to monitor and enforce our intellectual property rights. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and could divert management’s attention away from other aspects of our business. We may not be able to detect infringement, and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.
We are exposed to liabilities that are unique to the products and services we provide. A significant portion of our business relates to designing, developing and manufacturing advanced defense, technology and communications systems and products. New technologies associated with these systems and products may be untested or unproven. Components of certain defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air traffic control systems, electronic warfare systems, space superiority systems, C5ISR, homeland security applications and aircraft have the potential to cause loss of life and extensive property damage.
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Other examples of unforeseen problems that could result, either directly or indirectly, in the loss of life or property or otherwise negatively affect revenue and profitability include loss on launch of spacecraft, premature failure of products that cannot be accessed for repair or replacement, problems with quality and workmanship, country of origin, delivery of subcontractor components or services and unplanned degradation of product performance. In addition, problems and delays in development or delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving contractual requirements. In many circumstances, we may receive indemnification from the U.S. Government. We generally do not receive indemnification from foreign governments. Although we maintain insurance for certain risks, including certain cybersecurity exposures, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and our insurance coverage would harm our financial condition, results of operations, cash flows and equity. Other factors that may affect revenue and profits include loss of follow-on work, and, in the case of certain contracts, liquidated damages, penalties and repayment to the customer of contract cost and fee payments we previously received. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.
Strategic Transactions and Investments Risks
We are subject to risks relating to the pending acquisition of AJRD, and acquisition of AJRD cannot be guaranteed to close in the expected time frame or at all.
On December 17, 2022, we entered into a definitive agreement to acquire AJRD. AJRD is a manufacturer of rocket, hypersonic and electric propulsive systems for space, defense, civil and commercial applications. There are numerous risks and uncertainties associated with the pending acquisition, which include:
Completion of the acquisition is subject to a number of conditions, some of which are outside of our control, such as the receipt of certain regulatory approvals, including the expiration or termination of any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the “HSR Act”), and we will be required to pay AJRD a termination fee of $406.3 million upon a failure to obtain the required clearance under the HSR Act;
Our and AJRD’s existing business relationships with third parties, including customers and service providers, may be disrupted due to uncertainty associated with the acquisition;
Failure to complete the acquisition could negatively affect our stock price and our future business and financial results;
We and AJRD will incur significant costs in connection with the acquisition, which may exceed those currently anticipated;
We expect to significantly increase our indebtedness to pay for the acquisition and other related fees and expenses, which will increase our interest expense and financial leverage; and
AJRD may have difficulty attracting, developing, motivating and retaining executives and other employees in light of the pending acquisition, and failure to do so could harm the Company.
Any of the foregoing risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Challenges arising from the expanded operations from the acquisition of the TDL product line and the pending acquisition of AJRD may affect our future results.
Our recent and pending acquisitions have expanded, and will greatly expand, the size and complexity of our business. Our future success depends, in part, on the ability to integrate the TDL product line, and potentially AJRD, and to anticipate and overcome challenges arising from the expansion of our operations, including challenges related to expanded global operations and new manufacturing processes and products or services, and the associated costs and complexity. There can be no assurance that we will be able to anticipate or overcome all of the challenges resulting from our expanding operations or that we will realize the expected benefits of the acquisitions in the intended timeframe or at all, which may cause our future results to be adversely affected.
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity.
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Strategic mergers, acquisitions and divestitures we have made in the past and may make in the future present significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity, which include:
Difficulty in identifying and evaluating potential mergers and acquisitions, including the risk that our due diligence does not identify or fully assess valuation issues, potential liabilities or other merger or acquisition risks;
Difficulty, delays and expense in integrating newly merged or acquired businesses and operations, including combining product and service offerings, and in entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures, and the risk that we encounter significant unanticipated costs or other problems associated with integration;
Differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;
Difficulty, delays and expense in consolidating and rationalizing IT infrastructure, which may include multiple legacy systems from various mergers and acquisitions and integrating software code;
Challenges in achieving strategic objectives, cost savings and other expected benefits;
Risk that our markets do not evolve as anticipated and that the strategic mergers, acquisitions and divestitures do not prove to be those needed to be successful in those markets;
Risk that we assume or retain, or that companies we have merged with or acquired have assumed or retained or otherwise become subject to, significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying parties;
Risk that indemnification related to businesses divested or spun off that we may be required to provide or otherwise bear may be significant and could negatively impact our business;
Risk that mergers, acquisitions, divestitures, spin offs and other strategic transactions fail to qualify for the intended tax treatment for U.S. Federal income tax purposes and the possibility that the full tax benefits anticipated to result from such transactions may not be realized;
Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including non-competition arrangements applicable to certain of our business lines, or within expected timeframes; 
Potential loss of key employees or customers of the businesses merged with or acquired or to be divested; and
Risk of diverting the attention of senior management from our existing operations.
Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long-term assets to become impaired, resulting in substantial losses and write-downs that would materially adversely affect our results of operations and financial condition.
From time to time, we acquire a minority or majority interest in a business, following careful analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining acquisition price. After acquisition, such assumptions and judgment may prove to have been inaccurate and unforeseen issues could arise, which could adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. As of December 30, 2022, we had goodwill of $17.3 billion recorded in our Consolidated Balance Sheet, the large majority of which was recorded in connection with the 2019 all-stock merger (the “L3Harris Merger”) between Harris Corporation (“Harris”) and L3 Technologies, Inc. (“L3”). We evaluate the recoverability of recorded goodwill annually, as well as when we change reporting units and when events or circumstances indicate there may be an impairment. We test goodwill for impairment at an organizational level referred to as the reporting unit, which is our business segment level or one level below the business segment. The impairment test is based on several factors requiring judgment. Principally, a decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. In addition, our reporting units are generally one level below the segment level and two of our segments are comprised of several reporting units. Allocation of goodwill to several reporting units could make it more likely that we will have additional impairment charges in the future. Because of the significance of our goodwill and other intangible assets, any future impairment of these assets could have a material adverse effect on our results of operations and financial condition. For additional information on our accounting policies related to impairment of goodwill, see our discussion under “Critical Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report and Note 1: Significant Accounting Policies and Note 9: Goodwill in the Notes.
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 ITEM 1B.UNRESOLVED STAFF COMMENTS.
Not applicable. 
 ITEM 2.PROPERTIES.
Our principal executive offices are located at owned facilities in Melbourne, Florida. As of December 30, 2022, we operated approximately 300 locations in the U.S., Canada, Europe, Oceania, Asia, the Middle East and South America, consisting of approximately 22 million square feet of manufacturing, administrative, R&D, warehousing, engineering and office space, of which we owned approximately 9 million square feet and leased approximately 13 million square feet. There are no material encumbrances on any of our owned facilities. As of December 30, 2022, we had major operations at the following locations:
Integrated Mission Systems — Greenville, Waco, Rockwall and Plano, Texas; Camden, New Jersey; Mirabel and Waterdown, Canada; Anaheim, California; Mason and Cincinnati, Ohio; Tulsa, Oklahoma; Salt Lake City, Utah; Philadelphia, Pennsylvania; Crawley, United Kingdom; and Grand Rapids, Michigan.
Space & Airborne Systems — Palm Bay, Melbourne and Malabar, Florida; Clifton, New Jersey; Rochester and Amityville, New York; Van Nuys, San Diego, San Leandro and Menlo Park, California; Colorado Springs, Colorado; Herndon, Virginia; Fort Wayne, Indiana; Wilmington, Massachusetts; and Alpharetta, Georgia.
Communication Systems — Salt Lake City, Utah; Rochester, New York; Londonderry, New Hampshire; Lynchburg, Virginia; Tempe, Arizona; Farnborough, United Kingdom; Brisbane, Australia; Sunrise, Florida; and Abu Dhabi, United Arab Emirates.
Corporate — Melbourne, Florida; and Washington, D.C.
The following is a summary of the approximate floor space of our offices and facilities in productive use, by segment, at December 30, 2022:
(In millions)Approximate
Total Square Feet
Owned
Approximate
Total Square Feet
Leased
Approximate
Total
Square Feet
Integrated Mission Systems2.5 8.0 10.5 
Space & Airborne Systems4.8 2.9 7.7 
Communication Systems1.7 1.7 3.4 
Corporate0.3 0.1 0.4 
Total9.3 12.7 22.0 
In our opinion, our facilities, whether owned or leased, are suitable and adequate for their intended purposes, are well-maintained, are generally in regular use and have capacities adequate for current and projected needs. We frequently review our anticipated requirements for facilities and will, from time to time, acquire additional facilities, expand existing facilities and dispose of existing facilities or parts thereof, as management deems necessary. See Note 8: Property, Plant and Equipment, Net and Note 18: Lease Commitments in the Notes for more information on our owned properties and our lease obligations, respectively. Our facilities and other properties are maintained in good operating condition.
 ITEM 3.LEGAL PROCEEDINGS.
From time to time, as a normal incident of the nature of businesses in which we are or were engaged, various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters, including, but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; environmental matters; or compliance with government procurement or related legal or regulatory requirements. Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. Although it is not always 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.
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
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issues. Due in part to the complexity and pervasiveness of these requirements, we are a party to or have property subject to various litigation, proceedings and remediation obligations. The extent of our financial exposure cannot be reasonably estimated in all cases.
For information regarding the matters discussed above, including material legal proceedings and contingencies, see “Item 1. Business — Governmental Regulations — Environmental Regulations” of this Report and Note 1: Significant Accounting Policies regarding our environmental expenditures and Note 25: Legal Proceedings and Contingencies included in our Notes to Consolidated Financial Statements.
 ITEM 4.MINE SAFETY DISCLOSURES.
Not applicable.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
The name, age, position held with us and principal occupation and employment during at least the past five years for each of our executive officers as of February 24, 2023 were as follows:
Name and AgePosition Currently Held and Past Business Experience
James P. Girard, 46Vice President and Chief Human Resources Officer since June 29, 2019. Vice President, Human Resources from July 2015 to June 2019.
Christopher E. Kubasik, 61Chair and Chief Executive Officer since June 29, 2022. Vice Chair and Chief Executive Officer from June 29, 2021. Vice Chair, President and Chief Operating Officer from June 29, 2019 to June 29, 2021 to June 29, 2022. Served with L3, as Chairman, Chief Executive Officer and President from May 2018 to June 2019; as Chief Executive Officer and President from January 2018 to May 2018.
Samir B. Mehta, 50President, Communication Systems since January 2023. Before joining L3Harris in January 2023, Mr. Mehta worked at Collins Aerospace, a subsidiary of Raytheon Technologies Corporation (“Raytheon”), formerly United Technologies Corporation, as President of Advanced Structures from 2018 to 2022 and President, Aftermarket from 2017 to 2018. Prior to Raytheon, Mr. Mehta spent over 17 years with Sikorsky Aircraft, notably serving as President, Defense Systems and Services.
Scott T. Mikuen, 61Senior Vice President, General Counsel and Secretary since February 2013. General Counsel since 2010 and Secretary since 2004.
Corliss J. Montesi, 58Vice President and Principal Accounting Officer since August 2021. Vice President, Internal Audit from June 2020 to August 2021. Before joining L3Harris in June 2020, Ms. Montesi worked at Stanley Black and Decker as Vice President, Functional Transformation – Shared Services from 2018 to 2019; and as Vice President, Corporate Controller from 2014 to 2018.
Jonathan P. Rambeau, 50President, Integrated Mission Systems since October 2022. Before joining L3Harris, Mr. Rambeau worked at Lockheed Martin Corporation (“Lockheed Martin”) for 26 years, notably serving as Vice President and General Manager, Integrated Warfare Systems and Sensors of the Rotary and Mission Systems business from 2020 to 2022 and Vice President and General Manager, C6ISR, Rotary and Mission Systems from 2016 to 2020.
Sean J. Stackley, 65Senior Vice President, Strategy & Growth since October 2022. President, Integrated Mission Systems since June 29, 2019. Served with L3 as Senior Vice President and President of Communications & Networked Systems Segment from September 2018 to June 2019; and as Corporate Vice President, Strategic Advance Programs and Technologies from January 2018 to September 2018. Before joining L3 in January 2018, (Hon.) Mr. Stackley spent four decades in public service, including a 27-year career with the U.S. Navy, where he most recently was Acting Secretary of the Navy from January 2017 to July 2017 and Secretary of the Navy for Research, Development and Acquisition from 2008 to 2017.
Michelle L. Turner, 49Senior Vice President and Chief Financial Officer since January 2022. Before joining L3Harris, Ms. Turner worked at Johnson & Johnson as Vice President and Chief Financial Officer of Enterprise Supply Chain from October 2017 to January 2022; at BHP Billiton Petroleum from April 2016 to September 2017 as Vice President and Chief Financial Officer; and at Raytheon as Vice President and Chief Financial Officer of Space & Airborne Systems from June 2012 to March 2016.
Edward J. Zoiss, 58President, Space & Airborne Systems since June 29, 2019. President, Electronic Systems from July 2015 to June 2019. Vice President and General Manager, Defense Programs, Government Communications Systems from June 2013 to July 2015.
There is no family relationship between any of our executive officers or directors. There are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such. All of our executive officers are elected annually and serve at the pleasure of our Board of Directors.

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PART II 
 ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock, par value $1.00 per share, is listed and traded on the NYSE, under the ticker symbol “LHX.” According to the records of our transfer agent, as of February 17, 2023, there were 10,087 holders of record of our common stock.
Dividends
We paid per share cash dividends on our common stock of $1.12 each quarterly period of fiscal 2022, $1.02 each quarterly period of fiscal 2021 and $.85 each quarterly period of fiscal 2020. On February 24, 2023, we announced that our Board of Directors increased the quarterly per share cash dividend rate on our common stock from $1.12 to $1.14, commencing with the dividend declared by our Board of Directors for the first quarter of fiscal 2023, for an annualized per share cash dividend rate of $4.56, which was our twenty-second consecutive annual increase in our quarterly cash dividend rate. Our annualized per share cash dividend rate was $4.48 in fiscal 2022, $4.08 in fiscal 2021 and $3.40 in fiscal 2020. Quarterly cash dividends are typically paid in March, June, September and December. We currently expect to continue paying and increasing the rates of cash dividends in the near future, but we can give no assurances concerning payment of future dividends or future dividend increases. The annual declaration of dividends by our Board of Directors and the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors may deem relevant.
L3Harris Stock Performance Graph
The following performance graph and table do not constitute soliciting material and the performance graph and table should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the performance graph and table by reference therein.
The performance graph and table below compare each of the 2 fiscal years in the period ended June 28, 2019, the fiscal transition period for the two quarters ended January 3, 2020, fiscal 2020, fiscal 2021 and fiscal 2022 cumulative total shareholder return, or TSR, of our common stock (the common stock of Harris Corporation prior to the L3Harris Merger on June 29, 2019, and the common stock of L3Harris Technologies, Inc. after the L3Harris Merger) with the comparable cumulative total returns of the Standard & Poor’s 500 Composite Stock Index (“S&P 500”) and the Standard & Poor’s 500 Aerospace & Defense Index (“S&P 500 Aerospace & Defense”). The figures in the performance graph and table below assume an initial investment of $100 at the close of business on June 30, 2017 in L3Harris common stock, the S&P 500 and the S&P 500 Aerospace & Defense and the reinvestment of all dividends.
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COMPARISON OF EACH OF THE TWO FISCAL YEARS IN THE PERIOD ENDED JUNE 28, 2019 (PRIOR TO THE L3HARRIS MERGER), THE FISCAL TRANSITION PERIOD FOR THE TWO QUARTERS ENDED JANUARY 3, 2020, FISCAL 2020, FISCAL 2021 AND FISCAL 2022 CUMULATIVE TOTAL RETURN AMONG L3HARRIS, S&P 500 AND S&P 500 AEROSPACE & DEFENSE

hrs-20221230_g5.jpg
L3HARRIS PERIOD ENDJune 30,
2017
June 29,
2018
June 28,
2019
January 3,
2020
January 1,
2021
December 31,
2021
December 30,
2022
L3Harris Technologies, Inc.$100 $135 $179 $201 $184 $211 $210 
S&P 500$100 $114 $126 $140 $166 $213 $175 
S&P 500 Aerospace & Defense$100 $125 $139 $152 $123 $139 $163 
Recent Sales of Unregistered Securities
During fiscal 2022, we did not issue or sell any unregistered securities.
Issuer Purchases of Equity Securities
On January 28, 2021, we announced that our Board of Directors approved a $6.0 billion share repurchase authorization under our repurchase program that was in addition to the remaining unused authorization of $210 million as of January 1, 2021. On October 21, 2022, we announced that our Board of Directors approved an additional $3.0 billion share repurchase authorization.
During fiscal 2022, we repurchased 4.7 million shares of our common stock under our share repurchase program for $1.1 billion at an average share price of $231.44, excluding commissions of $0.02 per share. During fiscal 2021, we repurchased 17.1 million shares of our common stock under our share repurchase program for $3.7 billion at an average share price of $215.28, excluding commissions of $0.02 per share. The level and timing of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows,
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results of operations, future business prospects and other factors our Board of Directors and management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Shares repurchased by us are cancelled and retired. The following table sets forth information with respect to repurchases by us of our common stock during the fiscal quarter ended December 30, 2022:
Period*Total number of
shares purchased
Average price
paid per share
Total number of
shares purchased as part of publicly
announced plans or programs(1)
Maximum
approximate
dollar value
of shares that may
yet be purchased
under the plans
or programs(1)
($ in millions)
Month No. 1    
(October 1, 2022 - October 28, 2022)
Repurchase program(1)
829,862 $220.71 829,862 $4,452 
Employee transactions(2)
4,760 $220.47 — — 
Month No. 2
(October 29, 2022 - November 25, 2022)
Repurchase program(1)
— $— — $4,452 
Employee transactions(2)
6,380 $227.36 — — 
Month No. 3
(November 26, 2022 - December 30, 2022)
Repurchase program(1)
— $— — $4,452 
Employee transactions(2)
2,240 $223.41 — — 
Total843,242 829,862 $4,452 
_______________
*Periods represent our fiscal months.
(1)On October 21, 2022, we announced that our Board of Directors approved a $3.0 billion share repurchase authorization under our share repurchase program that was in addition to the remaining unused authorization of $1.6 billion as of September 30, 2022. Our repurchase program does not have an expiration date and authorizes us to repurchase shares of our common stock through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. As of December 30, 2022, the remaining unused authorization under our repurchase programs was $4.5 billion (as reflected in the table above).
(2)Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance units, restricted units or restricted shares that vested during the quarter and (b) performance units, restricted units or restricted shares returned to us upon retirement or employment termination of employees. Our equity incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs.
ITEM 6.[RESERVED.]
 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations for fiscal 2022 compared with fiscal 2021 and fiscal 2021 compared with fiscal 2020. This MD&A is provided as a supplement to, should be read in conjunction with and is qualified in its entirety by reference to, our Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”
We are a Trusted Disruptor for the global aerospace and defense industry. With customers’ mission-critical needs in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains. We support government and commercial customers in more than 100 countries, with our largest customers being
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various departments and agencies of the U.S. Government and their prime contractors. Our products and services have defense and civil government applications, as well as commercial applications. As of December 30, 2022, we had approximately 46,000 employees, including approximately 20,000 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.
We structure our operations primarily around the products and services we sell and the markets we serve, and we report the financial results of our continuing operations in the three operating segments: Integrated Mission Systems, Space & Airborne Systems and Communication Systems. Our operating segments are also our reportable segments and are referred to as our business segments. See Note 24: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.
U.S. and International Budget Environment
Our largest customers are various departments and agencies of the U.S. Government — the percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 74%, 75% and 78%, in fiscal 2022, 2021 and 2020, respectively.
For the 2023 GFY, which began on October 1, 2022, the President’s budget request (“PBR”) proposed $773 billion of DoD funding, a 4% increase above the amount enacted for the 2022 GFY, and the Senate Appropriations Subcommittee on Defense has supported a $37 billion increase to the PBR, representing a 9% increase year over year. On December 29, 2022, a 2023 GFY DoD budget of $817 billion was enacted. Many of L3Harris’ offerings are supported in the 2023 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions, however, we continue to monitor the political and budget environments and we can give no assurances on the extent of future orders.
In international markets, the North Atlantic Treaty Organization (“NATO”) continues to evolve its strategy on multiple levels. Several countries, including Finland and Sweden, are pursuing NATO membership, while existing NATO members such as the U.K. and France have in recent months committed to increased spending beyond the 2% of gross domestic product target. Recently, additional countries, such as Japan, have followed similar paths with expanded defense budgets. The expectation of increased spending in international markets provides us with the opportunity to offer a range of solutions to international customers, but international sales remain dependent on economic, social and political conditions that may differ from those in the United States as well as changes in export controls and other trade regulations in the United States.
Even with the increases in expected DoD budget proposals and with the overall demand environment both in the U.S. and internationally reflecting the conflict in Ukraine and geopolitical tensions, changes to U.S. Government spending priorities have and could in the future impact our business. A decline in demand for fuzing and ordnance systems due to reduced U.S. Government spending for precision weapons was largely responsible for charges for impairment of goodwill in our IMS segment. See Note 9: Goodwill in the Notes for further information. Other changes in spending priorities in the future could adversely affect our existing programs and future contracts and impact our financial condition and results of operations.
For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business - Principal Customers: Government Contracts,” “Item 1. Business - International Business,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Economic Environment
The macroeconomic environment continues to present challenges, which have impacted and may continue to impact our future results. Rising inflation in the U.S. has led to higher costs. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, which raises the cost of borrowing for the Federal government, could in the future impact U.S. Government spending priorities and the demand for our products. Higher interest rates have also had an impact on the fair value of our reporting units and contributed to charges for impairment of goodwill at our IMS and CS segments. See Note 9: Goodwill in the Notes for further information.
To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services; our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or a sustained period of increased inflation. Management has worked to mitigate supply chain disruptions and labor mobility challenges, with modest improvements in the supply chain during the second half of fiscal 2022 for Tactical Communications, our largest product-based business, and increasing stability in labor mobility and employee
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attrition. However due to uncertainty in the current environment, there can be no assurances that we will not see further impacts in our financial condition and results of operations.
Acquisition of TDL Product Line
On October 3, 2022, we entered into a definitive agreement to acquire the TDL product line for a purchase price of approximately $1.96 billion, subject to customary adjustments. The acquisition was completed subsequent to fiscal 2022 year-end on January 3, 2023. We used third-party debt borrowings under a new $2.25 billion three-year senior unsecured term loan facility, the Term Loan 2025, to finance the acquisition. The purchase of the TDL product line will enhance our networking capability and provide immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the DoD’s integrated architecture goal in JADC2. The TDL product line will be reported within our CS segment.
Pending Acquisition of AJRD
On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction of approximately $4.7 billion. AJRD is a provider of propulsion systems and energetics for tactical and strategic missiles, missile defense systems and hypersonic applications. AJRD also provides liquid-fuel engines and propulsion and power systems for in-space crew and cargo transports. Upon closure of the acquisition, we anticipate creating a new business segment. The acquisition is expected to close in fiscal 2023, pending required regulatory approvals and clearances and other customary closing conditions.
Divestiture of Visual Information Solutions (“VIS”) Business
On December 21, 2022, we entered into a definitive agreement to sell our VIS business for $70 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. VIS, which is part of our SAS segment, provides commercial geospatial software, technology and services used to extract and analyze reliable, accurate and actionable information from geospatial to terrestrial imagery. The transaction is expected to close mid-fiscal 2023, subject to regulatory approvals and other customary closing conditions.
Operating Performance Assessment and Key Performance Measures
During fiscal 2022, we were impacted by the macroeconomic environment, including supply chain, labor mobility and inflation, which continued to cause significant disruptions and adverse effects on the U.S. and global economies. We continue to implement mitigation strategies to minimize the future impacts of these challenges, including working closely with our second and third-tier suppliers to improve demand management and resilience in our supply chain, efforts to improve retention of our skilled workforce and accounting for inflation uncertainty within the terms of future contracts.
Despite the dynamic operating environment, we believe demand for our products remains strong. Many of our offerings are supported in the 2023 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions. In fiscal 2022, we received several key strategic contract awards across each of our domains, and we ended the year with backlog of $22.3 billion, a 5% increase over the prior year. Also in fiscal 2022, we invested $603 million (4% of total revenue) in company-sponsored R&D focused on technologies that expand our capabilities across our domains.
Executing on our capital allocation strategy, on January 3, 2023 we closed the acquisition of the TDL product line for approximately $1.96 billion, subject to customary adjustments, which will provide access to the Link 16 network and position us to make the installed base of terminals more resilient and relevant, consistent with JADC2 modernization efforts. Additionally, on December 17, 2022, we entered into a definitive agreement to acquire AJRD for approximately $4.7 billion, gaining access to new markets in missiles and missile defense as well as space exploration. These unique assets are intended to strengthen our trusted position as an industry leading merchant supplier, providing rapid and innovative solutions to customers, and create long term value for our shareholders.
We reported full year operating cash flow of $2.2 billion in fiscal 2022, and consistent with our shareholder-friendly capital deployment priority, we paid $864 million in dividends and made share repurchases totaling $1.1 billion.
Our strategic priorities continue to be growth, innovation and performance. For fiscal 2023, “Performance First” is our primary focus. We plan to continue to invest, consistent with growth opportunities, and sustain our culture of innovation, but delivering on our commitments to investors, our customers and on every contract we are awarded is paramount. We intend to accomplish this by:
Relentlessly focusing on program execution and continuous improvement;
Strengthening the risk management culture that has developed over the highly volatile past three years;
Seamlessly integrating TDL and closing the AJRD acquisition; and
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Attracting, developing and retaining the skilled workforce key to our role as a Trusted Disruptor.
We use the following key financial performance measures to manage our business, which are discussed in detail below in the “Operations Review” and “Liquidity and Capital Resources” sections of this MD&A:
Revenue;
Income from continuing operations; and
Net cash provided by operating activities.
We also measure the success of our business using certain measures that are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”), such as adjusted EBIT, or earnings before interest and taxes, non-GAAP earnings per share, adjusted free cash flow and return on invested capital (defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the period, where invested capital equals equity plus debt, less cash and cash equivalents), which may be calculated differently by other companies. We use these measures, along with our key financial performance measures above, to assess the success of our business and our ability to create shareholder value. We believe these measures are balanced among long-term and short-term performance, efficiency and growth. We also use some of these and other performance metrics for executive compensation purposes.
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OPERATIONS REVIEW
Consolidated Results of Operations
 Fiscal Year Ended
(Dollars in millions, except per share amounts)December 30, 2022December 31, 2021% Inc/(Dec)January 1, 2021% Inc/(Dec)
 
Revenue:
Integrated Mission Systems$6,916 $7,042 (2)%$6,793 %
Space & Airborne Systems6,060 5,965 %5,823 %
Communication Systems4,217 4,287 (2)%4,402 (3)%
Other non-reportable businesses— 683 *1,347 (49)%
Corporate eliminations(131)(163)(20)%(171)*
Total revenue17,062 17,814 (4)%18,194 (2)%
Total cost of product sales and services(12,135)(12,438)(2)%(12,886)(3)%
% of total revenue71 %70 %71 %
Gross margin4,927 5,376 (8)%5,308 %
% of total revenue29 %30 %29 %
Engineering, selling and administrative expenses(2,998)(3,280)(9)%(3,315)(1)%
% of total revenue18 %18 %18 %
Business divestiture-related gains (losses), net— 220 *(51)*
Impairment of goodwill and other assets(802)(207)*(767)*
Non-operating income, net
425 439 (3)%401 %
Net interest expense(279)(265)%(254)%
Income from continuing operations before income taxes1,273 2,283 (44)%1,322 73 %
Income taxes(212)(440)(52)%(234)88 %
Effective tax rate17 %19 %18 %
Income from continuing operations1,061 1,843 (42)%1,088 69 %
Discontinued operations, net of income taxes— (1)*(2)*
Net income1,061 1,842 (42)%1,086 70 %
Noncontrolling interests, net of income taxes*33 *
Income from continuing operations attributable to L3Harris common shareholders$1,062 $1,846 (42)%$1,119 65 %
% of total revenue%10 %%
Income from continuing operations per diluted common share attributable to L3Harris common shareholders$5.49 $9.09 (40)%$5.19 75 %
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*Not meaningful
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Revenue
As described in more detail in Note 4: Business Divestitures and Asset Sales and elsewhere in the Notes, during fiscal 2022, 2021 and 2020, we completed the following business divestitures, which had revenue attributable to them as set forth below:
Fiscal Year Ended
(In millions)December 30, 2022December 31, 2021January 1, 2021
Revenue attributable to divested businesses(1):
Space & Navigation business$$24 $21 
Narda-MITEQ business— 84 111 
ESSCO business— 23 26 
Electron Devices business— 167 265 
Voice Switch Enterprise disposal group (“VSE disposal group”)— 19 30 
Combat Propulsion Systems and related businesses (“CPS business”)
— 142 233 
Military training business— 205 458 
EOTech business— — 48 
Applied Kilovolts business— — 
Airport security and automation business— — 147 
Total $$664 $1,346 
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(1)Net of intracompany sales.
Fiscal 2022 Compared With Fiscal 2021: The decrease in revenue in fiscal 2022 compared with fiscal 2021 was primarily due to the impact of $655 million of lower revenue from completed business divestitures during fiscal 2021 and supply chain disruptions.
Fiscal 2021 Compared With Fiscal 2020:  The decrease in revenue in fiscal 2021 compared with fiscal 2020 was primarily due to divestitures within other non-reportable businesses and supply chain disruptions within CS.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Gross Margin
Fiscal 2022 Compared With Fiscal 2021: Gross margin and gross margin as a percentage of revenue (“gross margin percentage”) for fiscal 2022 decreased compared to fiscal 2021, largely due to higher input costs (labor, material and overhead) and supply chain disruptions that adversely impacted program performance, Estimate At Completion (“EAC”) adjustments and a mix of program revenue and product sales with relatively lower gross margin percentage.
Fiscal 2021 Compared With Fiscal 2020:  Gross margin and gross margin percentage for fiscal 2021 increased compared to fiscal 2020, primarily due to integration benefits and operational excellence, $31 million of lower cost of sales related to the fair value step-up in inventory sold and $12 million of lower amortization of identifiable intangible assets acquired as a result of the L3Harris Merger, partially offset by a mix of program revenue and product sales with relatively lower gross margin percentage.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
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Engineering, Selling and Administrative Expenses
Major components of Engineering, selling and administrative (“ESA”) expenses were as follows:
Fiscal Year Ended
(In millions)December 30, 2022December 31, 2021January 1, 2021
Company-sponsored R&D costs$(603)$(692)$(684)
Amortization of acquisition-related intangibles(532)(550)(620)
L3Harris Merger-related transaction, integration and other expenses and losses(90)(134)(155)
Acquisition-related transaction and integration expenses(9)— — 
Pre-acquisition and other divestiture-related expenses(63)(66)(13)
Charges for severance and other termination costs(29)— — 
Charges related to an additional pre-merger legal contingency(31)— — 
Gain on sale of property, plant and equipment— — 22 
Gain on sale of asset group— — 
Major components of ESA$(1,349)$(1,442)$(1,450)
Business Divestiture-Related Gains (Losses), net
During fiscal 2022, there were no significant business divestiture-related gains or losses. We completed one business divestiture and one asset sale from our IMS segment and recognized a pre-tax gain of $8 million associated with the CyTerra asset sale, which is recorded in the “Engineering, selling and administrative expenses“ line item in our Consolidated Statement of Operations for fiscal 2022.
In fiscal 2021 and fiscal 2020, we had the following pre-tax gains (losses) associated with businesses divested, which are included in the “Business divestiture-related gains (losses), net” line item in our Consolidated Statement of Operations:
Fiscal Year Ended
(In millions)December 31, 2021January 1, 2021
Narda-MITEQ business$(9)$— 
ESSCO business31 — 
Electron Devices business31 — 
VSE disposal group(29)(18)
CPS business
(19)— 
Military training business217 — 
EOTech— 
Airport security and automation business— (23)
Other(1)
(2)(12)
Total Business divestiture-related gain (loss), net$220 $(51)
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(1)Reflects adjustments to the gains (losses) on completed divestitures not shown above, including for fiscal 2020, $12 million for finalization of purchase price adjustments and recognition of a non-cash adjustment related to working capital, which decreased the $229 million gain initially recognized on the sale of the Harris Night Vision business divested on September 13, 2019.
See Note 4: Business Divestitures and Asset Sales in the Notes for further information.
Impairment of Goodwill and Other Assets
Fiscal 2022 Compared With Fiscal 2021: Impairment of goodwill and other assets for fiscal 2022 reflected non-cash impairment charges of $355 million, $313 million and $134 million associated with our Broadband, ADG and Electro Optical reporting units, respectively. Impairment of goodwill and other assets for fiscal 2021 reflects $62 million of non-cash charges for the impairment of goodwill and other assets associated with the divestiture of the CPS business and $145 million of non-cash charges for impairment of identifiable intangible and other long-lived assets related to the Commercial Training Solutions (“CTS”) business.
Fiscal 2021 Compared With Fiscal 2020:  Impairment of goodwill and other assets for fiscal 2021 reflects $62 million of non-cash charges for the impairment of goodwill and other assets associated with the divestiture of the
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CPS business and $145 million of non-cash charges for impairment of identifiable intangible and other long-lived assets related to our CTS business. Impairment of goodwill and other assets for fiscal 2020 included $748 million of non-cash charges for the impairment of goodwill and other assets associated with the COVID-related downturn in the commercial aviation market and its impact on customer operations, a $14 million non-cash charge for impairment of goodwill recorded in connection with the then-potential divestiture of the VSE disposal group and a $5 million non-cash charge for impairment of goodwill recorded in connection with the divestiture of our Applied Kilovolts business.
See Note 4: Business Divestitures and Asset Sales and Note 9: Goodwill and Note 10: Intangible Assets in the Notes for further information.
Non-Operating Income, net
The components of Non-operating income, net were as follows:
 Fiscal Year Ended
(In millions)December 30, 2022 December 31, 2021January 1, 2021
Non-service Financial Accounting Standards ("FAS") pension income(1)
$441 $445 $389 
Equity investment (losses) gains, net(18)— 
Impairment of equity method investment— (35)— 
Other, net24 12 
Total Non-operating income, net$425 $439 $401 
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(1)Non-service cost components of net periodic benefit income recorded in the “Non-operating income, net” line item in our Consolidated Statement of Operations include interest cost, expected return on plan assets, amortization of net actuarial gain and effect of curtailments or settlements under our pension and postretirement benefit plans.
Net Interest Expense
Fiscal 2022 Compared With Fiscal 2021:  Our net interest expense increased in fiscal 2022 compared with fiscal 2021 primarily due to lower interest income in fiscal 2022.
Fiscal 2021 Compared With Fiscal 2020:  Our net interest expense increased in fiscal 2021 compared with fiscal 2020 primarily due to lower interest income in fiscal 2021, reflecting lower sales-type lease income due to the divestiture of the military training business on July 2, 2021.
See Note 18: Lease Commitments and Note 13: Debt in the Notes for further information.
Income Taxes
Fiscal 2022 Compared With Fiscal 2021:  Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 17% in fiscal 2022 compared with 19% in fiscal 2021. The decrease was primarily attributable to incremental R&D credits and incremental foreign derived intangible income (“FDII”) benefits claimed in fiscal 2022 as a result of legislative changes in the Tax Cuts and Jobs Act of 2017 (“TCJA”) that became effective in fiscal 2022 and the absence of unfavorable divestiture impacts in fiscal 2022, partially offset by the unfavorable impact of non-deductible goodwill impairments.
Fiscal 2021 Compared With Fiscal 2020:  Our effective tax rate was 19% in fiscal 2021 compared with 18% in fiscal 2020. The increase in 2021 was primarily attributable to the unfavorable impact of divestitures and a reduction in the benefit of R&D credits, partially offset by the benefit of reduced goodwill impairments in fiscal 2021 when compared to fiscal 2020.
See Note 22: Income Taxes in the Notes for further information.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”) which includes implementation of a new 15% corporate alternative minimum tax (“CAMT”), a 1% excise tax on stock buybacks and tax incentives for energy and climate initiatives. These provisions are effective beginning January 1, 2023 and we expect them to be immaterial to our financial results, financial position and cash flows.
Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders
Fiscal 2022 Compared With Fiscal 2021:  The decrease in income from continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2022 compared with fiscal 2021 was primarily due to lower income from continuing operations in fiscal 2022 resulting from the incremental goodwill impairments in fiscal 2022, as further described in the “Impairment of Goodwill and Other Assets” discussion above.
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Fiscal 2021 Compared With Fiscal 2020:  The increase in income from continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2021 compared with fiscal 2020 was primarily due to higher income from continuing operations and fewer diluted weighted average common shares outstanding, reflecting the repurchases of shares of our common stock under our repurchase program in fiscal 2021.
See the “Common Stock Repurchases” discussion below in this MD&A for further information.
Discussion of Business Segment Results of Operations
Effective January 1, 2022, we streamlined our business segments from four business segments to three business segments. As a result of the segment reorganization, the Aviation Systems segment was eliminated as a business segment and the ongoing operations that had been part of the Aviation Systems segment were integrated into the remaining segments. Defense aviation, commercial aviation products and commercial pilot training operations were moved into the IMS segment; and mission networks for air traffic management operations were moved into the SAS segment.
The historical results, discussion and presentation of our business segments as set forth in this MD&A 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.
Integrated Mission Systems Segment
Our IMS segment includes multi-mission ISR systems; integrated electrical and electronic systems for maritime platforms; advanced EO/IR solutions; fuzing and ordnance systems; commercial aviation products; and commercial pilot training operations. See “Item 1: Business” of this Report for a description of the sectors in IMS.
 Fiscal Year Ended
(Dollars in millions)December 30, 2022December 31, 2021% Inc/(Dec)January 1, 2021% Inc/(Dec)
Revenue$6,916 $7,042 (2 %)$6,793 %
Operating income424 866 (51 %)205 322 %
Operating income margin%12 %%
Fiscal 2022 Compared With Fiscal 2021:  The decrease in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to $105 million of lower revenue in Electro Optical from lower volume on fuzing and ordnance systems and other related programs and $53 million in ISR primarily from $262 million of lower revenue on a NATO aircraft missionization program which was mostly offset by newly-awarded program ramps. These decreases were partially offset by an increase of $55 million in Commercial Aviation Solutions, largely due to $33 million of higher revenue related to the sale of end-of-life inventory, as well as an increase in pilot training center volume. The funded backlog for this segment was $6.9 billion at each of December 30, 2022 and December 31, 2021.
The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to non-cash charges for goodwill impairment totaling $447 million during the quarter ended September 30, 2022 compared with $82 million of non-cash charges for impairment of long-term assets related to our CTS business recorded during fiscal 2021. In addition, IMS segment operating income and operating income margin declined from lower product volumes and an increase in unfavorable EAC adjustments due to labor inefficiencies and program performance, partially offset by the sale of end-of-life inventory and higher volumes in Commercial Aviation Solutions during fiscal 2022.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 68% in fiscal 2022.
Fiscal 2021 Compared With Fiscal 2020:  The increase in segment revenue in fiscal 2021 compared with the fiscal 2020 was primarily due to $223 million of higher revenue in ISR, driven by aircraft missionization on a NATO program, $53 million of higher revenue in Maritime, reflecting a ramp on key platforms and $29 million higher revenue in Electro Optical reflecting higher product deliveries, partially offset by $16 million of lower revenue from fuzing and ordnance systems and other related programs and $20 million of lower revenue in Commercial Aviation reflecting COVID-related impacts. The funded backlog for this segment was $6.9 billion at December 31, 2021 compared with $7.1 billion at January 1, 2021.
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The increases in segment operating income and operating income margin in fiscal 2021 compared with fiscal 2020 were primarily due to $527 million of lower non-cash charges for impairments of goodwill and other assets in fiscal 2021 compared with fiscal 2020 and the absence of $18 million of restructuring charges and other exit costs recorded in fiscal 2020 in our Commercial Aviation Solutions reporting unit due to the downturn in the commercial aviation market, as well as e3 and program performance, expense management and integration benefits.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 69% in fiscal 2021.
Space & Airborne Systems Segment
Our SAS segment includes space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare; and mission networks for air traffic management operations. See “Item 1: Business” of this Report for a description of the sectors in SAS.
 Fiscal Year Ended
(Dollars in millions)December 30, 2022December 31, 2021% Inc/(Dec)January 1, 2021% Inc/(Dec)
Revenue$6,060 $5,965 %$5,823 %
Operating income735 761 (3 %)762 — %
Operating income margin12 %13 %13 %
Fiscal 2022 Compared With Fiscal 2021:  The increase in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to an increase of $261 million in Space, reflecting growth in responsive satellite programs and a ramp on SDA tracking, partially offset by a $139 million decline in our airborne businesses, reflecting transition from development to production on the F-35 and F-18 programs and a $17 million decline in Intel & Cyber primarily due to award timing. The funded backlog for this segment was $4.9 billion at December 30, 2022 compared with $4.7 billion at December 31, 2021.
The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to a $67 million decrease in net favorable EAC adjustments due to higher input costs and program performance, mainly in Electronic Warfare and Space businesses, and new program ramps, partially offset by a decrease in R&D expenses.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 87% in fiscal 2022.
Fiscal 2021 Compared With Fiscal 2020: The increase in segment revenue in fiscal 2021 compared with fiscal 2020 was primarily due to $176 million of higher revenue in Space, reflecting a ramp in missile defense and other responsive programs and $8 million of higher revenue in Intel and Cyber from classified programs, partially offset by $93 million of lower revenue from airborne businesses, reflecting the transition towards modernization programs. The funded backlog for this segment was $4.7 billion at December 31, 2021 compared with $4.6 billion at January 1, 2021.
Segment operating income and operating income margin in fiscal 2021 were comparable with fiscal 2020.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 87% in fiscal 2021.
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38


Communication Systems Segment
Our CS segment includes tactical communications with global communications solutions; broadband communications; integrated vision solutions; and public safety radios, system applications and equipment. See “Item 1: Business” of this Report for a description of the sectors in CS.
 Fiscal Year Ended
(Dollars in millions)December 30, 2022December 31, 2021% Inc/(Dec)January 1, 2021% Inc/(Dec)
Revenue$4,217 $4,287 (2 %)$4,402 (3 %)
Operating income667 1,043 (36 %)1,035 %
Operating income margin16 %24 %24 %
Fiscal 2022 Compared With Fiscal 2021:  The decrease in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to a $176 million decrease in Broadband Communications due to lower volume on legacy platforms and a $62 million decrease in Integrated Vision Solutions primarily from program timing and lower sales volumes. Such decreases were partially offset by a $139 million increase in Tactical Communications due to higher demand more than offsetting supply chain disruptions experienced during the first half of 2022 and a $34 million increase in Public Safety resulting from a continued market recovery. The funded backlog for this segment was $4.5 billion at December 30, 2022 compared with $3.7 billion at December 31, 2021.
The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to a non-cash charge for impairment of goodwill of $355 million recorded in our Broadband reporting unit during fiscal 2022.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 63% in fiscal 2022.
Fiscal 2021 Compared With Fiscal 2020:  The decrease in segment revenue in fiscal 2021 compared with fiscal 2020 was primarily due to $29 million of lower revenue in Tactical Communications, reflecting product delivery delays from supply chain disruptions which were partially offset by the DoD modernization program, $82 million of lower revenue in Broadband Communications, reflecting lower sales on legacy unmanned platforms and modestly lower revenue in Public Safety, partially offset by modestly higher revenue in Integrated Vision Solutions. The funded backlog for this segment was $3.7 billion at December 31, 2021 compared with $3.3 billion at January 1, 2021.
The increase in segment operating income in fiscal 2021 compared with fiscal 2020 was primarily due to e3 performance and integration benefits, partially offset by supply chain disruptions and higher R&D investments. Operating income margin in fiscal 2021 was comparable with fiscal 2020.
The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 68% in fiscal 2021.
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39


Unallocated Corporate Expenses
Fiscal Year Ended
(Dollars in millions)December 30, 2022December 31, 2021% Inc/(Dec)January 1, 2021% Inc/(Dec)
Unallocated corporate department expense, net(1)
25 (51)*(69)(26 %)
Amortization of acquisition-related intangibles(2)
(605)(627)(4 %)(709)(12 %)
L3Harris Merger-related integration expenses(90)(134)(33 %)(140)(4 %)
Acquisition-related transaction and integration expenses(9)— *— *
Pre-acquisition and other divestiture-related expenses(63)(71)(11 %)10 *
Additional cost of sales related to fair value step-up in inventory sold— — *(31)*
Business divestiture-related gains (losses), net— 220 *(51)*
Gain on sale of asset group— *— *
Impairment of goodwill and other assets(3)
— (125)*