UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2024

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

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: (321) 727-9100

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	LHX	New York Stock Exchange

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.          þ   Yes   o  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).          þ  Yes   o  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	þ	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No  

The number of shares outstanding of the registrant’s common stock as of July 19, 2024 was 189,705,190.

L3HARRIS TECHNOLOGIES, INC.

FORM 10-Q

For the Quarter Ended June 28, 2024

TABLE OF CONTENTS

	Page No.
Part I. Financial Information:
ITEM 1.     Financial Statements (Unaudited):
Condensed Consolidated Statement of Operations for the Quarter and Two Quarters Ended June 28, 2024 and June 30, 2023	2
Condensed Consolidated Statement of Comprehensive Income for the Quarter and Two Quarters Ended June 28, 2024 and June 30, 2023	3
Condensed Consolidated Statement of Cash Flows for the Two Quarters Ended June 28, 2024 and June 30, 2023	4
Condensed Consolidated Balance Sheet at June 28, 2024 and December 29, 2023	5
Condensed Consolidated Statement of Equity for the Quarter and Two Quarters Ended June 28, 2024 and June 30, 2023	6
Notes to Condensed Consolidated Financial Statements	8
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)	24
ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
ITEM 3.     Quantitative and Qualitative Disclosures About Market Risk	37
ITEM 4.     Controls and Procedures	38
Part II. Other Information:
ITEM 1.      Legal Proceedings	39
ITEM 1A.   Risk Factors	39
ITEM 2.      Unregistered Sales of Equity Securities and Use of Proceeds	40
ITEM 3.      Defaults Upon Senior Securities	40
ITEM 4.      Mine Safety Disclosures	40
ITEM 5.     Other Information	40
ITEM 6.      Exhibits	41
Signatures	42

This Quarterly Report on Form 10-Q (this “Report”) contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.

_____________________________________________________________________

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	Quarter Ended				Two Quarters Ended
(In millions, except per share amounts)	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Revenue	$	5,299	$	4,693	$	10,510	$	9,164
Cost of revenue	(3,939)		(3,506)		(7,802)		(6,811)
General and administrative expenses	(884)		(787)		(1,854)		(1,560)
Operating income	476		400		854		793
Non-service FAS pension income and other, net(1)	86		83		174		165
Interest expense, net	(172)		(111)		(348)		(213)
Income before income taxes	390		372		680		745
Income taxes	(23)		(21)		(28)		(55)
Net income	367		351		652		690
Noncontrolling interests, net of income taxes	(1)		(2)		(3)		(4)
Net income attributable to L3Harris Technologies, Inc.	$	366	$	349	$	649	$	686
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic	$	1.93	$	1.84	$	3.42	$	3.61
Diluted	$	1.92	$	1.83	$	3.40	$	3.60
Basic weighted-average common shares outstanding	189.7		189.2		189.8		189.7
Diluted weighted-average common shares outstanding	190.6		190.1		190.8		190.7

_______________

(1)“FAS” is defined as Financial Accounting Standards.

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

_____________________________________________________________________

2

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

	Quarter Ended				Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Net income	$	367	$	351	$	652	$	690
Other comprehensive income (loss):
Foreign currency translation income (loss), net of income taxes	5		28		(21)		35
Net unrealized income (loss) on hedging derivatives, net of income taxes	—		4		(3)		9
Net unrecognized gains on postretirement obligations, net of income taxes	3		—		3		—
Other comprehensive income (loss) recognized during the period	8		32		(21)		44
Reclassification adjustments for gains included in net income	(8)		(7)		(15)		(19)
Other comprehensive income (loss), net of income taxes	—		25		(36)		25
Total comprehensive income	367		376		616		715
Comprehensive income attributable to noncontrolling interest	(1)		(2)		(3)		(4)
Total comprehensive income attributable to L3Harris Technologies, Inc.	$	366	$	374	$	613	$	711

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

_____________________________________________________________________

3

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023
Operating Activities
Net income	$	652	$	690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	639		506
Share-based compensation	53		45
Share-based matching contributions under defined contribution plans	142		121
Pension and other postretirement benefit plan income	(143)		(141)
Deferred income taxes	(247)		(243)
(Increase) decrease in:
Receivables, net	(25)		(105)
Contract assets	(165)		(159)
Inventories	6		(99)
Other current assets	(26)		(67)
Increase (decrease) in:
Accounts payable	(200)		23
Contract liabilities	(138)		220
Compensation and benefits	(101)		(10)
Other accrued items	85		(3)
Income taxes	211		10
Other operating activities	(93)		(24)
Net cash provided by operating activities	650		764
Investing Activities
Net cash paid for acquired businesses	—		(1,973)
Additions to property, plant and equipment	(212)		(164)
Proceeds from sales of asset groups and businesses, net	158		71
Other investing activities	(4)		(8)
Net cash used in investing activities	(58)		(2,074)
Financing Activities
Proceeds from borrowings, net of issuance cost	2,241		2,249
Repayments of borrowings	(2,607)		(1,060)
Change in commercial paper, maturities under 90 days, net	497		524
Proceeds from commercial paper, maturities over 90 days	688		55
Repayments of commercial paper, maturities over 90 days	(685)		—
Repurchases of common stock	(322)		(518)
Dividends paid	(445)		(436)
Other financing activities	33		(20)
Net cash (used in) provided by financing activities	(600)		794
Effect of exchange rate changes on cash and cash equivalents	(5)		2
Net decrease in cash and cash equivalents	(13)		(514)
Cash and cash equivalents, beginning of period	560		880
Cash and cash equivalents, end of period	$	547	$	366

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

_____________________________________________________________________

4

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In millions, except shares)	June 28, 2024		December 29, 2023
Assets
Current assets
Cash and cash equivalents	$	547	$	560
Receivables, net of allowances for collection losses of $19 and $15, respectively	1,230		1,230
Contract assets	3,209		3,196
Inventories	1,432		1,472
Other current assets	502		491
Assets of business held for sale	1,127		1,106
Total current assets	8,047		8,055
Non-current assets
Property, plant and equipment, net	2,800		2,862
Goodwill	20,367		19,979
Other intangible assets, net	8,080		8,540
Deferred income taxes	134		91
Other non-current assets	2,229		2,160
Total assets	$	41,657	$	41,687
Liabilities and equity
Current liabilities
Short-term debt	$	2,102	$	1,602
Current portion of long-term debt, net	617		363
Accounts payable	1,896		2,106
Contract liabilities	1,889		1,900
Compensation and benefits	445		544
Other accrued items	1,515		1,129
Income taxes payable	274		88
Liabilities of business held for sale	243		272
Total current liabilities	8,981		8,004
Non-current liabilities
Long-term debt, net	10,533		11,160
Deferred income taxes	443		815
Other long-term liabilities	2,796		2,879
Total liabilities	22,753		22,858
Equity
Shareholders’ Equity:
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 189,779,216 and 189,808,581 shares at June 28, 2024 and December 29, 2023, respectively	190		190
Paid-in capital	15,516		15,553
Retained earnings	3,368		3,220
Accumulated other comprehensive loss	(234)		(198)
Total shareholders’ equity	18,840		18,765
Noncontrolling interests	64		64
Total equity	18,904		18,829
Total liabilities and equity	$	41,657	$	41,687

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

_____________________________________________________________________

5

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In millions, except per share amounts)	Common Stock		Other Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interests		Total Equity
Balance at March 29, 2024	$	189	$	15,472	$	3,239	$	(234)	$	64	$	18,730
Net income	—		—		366		—		1		367
Shares issued under stock incentive plans	1		27		—		—		—		28
Shares issued under defined contribution plans	1		71		—		—		—		72
Share-based compensation expense	—		27		—		—		—		27
Tax withholding payments on share-based awards	—		(7)		—		—		—		(7)
Repurchases and retirement of common stock	(1)		(73)		(15)		—		—		(89)
Cash dividends ($1.16 per share)	—		—		(221)		—		—		(221)
Other	—		(1)		(1)		—		(1)		(3)
Balance at June 28, 2024	$	190	$	15,516	$	3,368	$	(234)	$	64	$	18,904
Balance as of March 31, 2023	$	189	$	15,407	$	2,998	$	(288)	$	102	$	18,408
Net income	—		—		349		—		2		351
Other comprehensive income, net of income taxes	—		—		—		25		—		25
Shares issued under stock incentive plans	—		2		—		—		—		2
Shares issued under defined contribution plans	1		63		—		—		—		64
Share-based compensation expense	—		22		—		—		—		22
Tax withholding payments on share-based awards	—		(2)		—		—		—		(2)
Repurchases and retirement of common stock	(1)		(101)		(20)		—		—		(122)
Cash dividends ($1.14 per share)	—		—		(216)		—		—		(216)
Other	—		—		—		—		(1)		(1)
Balance as of June 30, 2023	$	189	$	15,391	$	3,111	$	(263)	$	103	$	18,531

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

_____________________________________________________________________

6

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In millions, except per share amounts)	Common Stock		Other Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interests		Total Equity
Balance at December 29, 2023	$	190	$	15,553	$	3,220	$	(198)	$	64	$	18,829
Net income	—		—		649		—		3		652
Other comprehensive loss, net of income taxes	—		—		—		(36)		—		(36)
Shares issued under stock incentive plans	1		62		—		—		—		63
Shares issued under defined contribution plans	1		141		—		—		—		142
Share-based compensation expense	—		53		—		—		—		53
Tax withholding payments on share-based awards	—		(27)		—		—		—		(27)
Repurchases and retirement of common stock	(2)		(265)		(55)		—		—		(322)
Cash dividends ($2.32 per share)	—		—		(445)		—		—		(445)
Other	—		(1)		(1)		—		(3)		(5)
Balance at June 28, 2024	$	190	$	15,516	$	3,368	$	(234)	$	64	$	18,904
Balance as of December 30, 2022	$	191	$	15,677	$	2,943	$	(288)	$	101	$	18,624
Net income	—		—		686		—		4		690
Other comprehensive income, net of income taxes	—		—		—		25		—		25
Shares issued under stock incentive plans	—		13		—		—		—		13
Shares issued under defined contribution plans	1		120		—		—		—		121
Share-based compensation expense	—		45		—		—		—		45
Tax withholding payments on share-based awards	—		(28)		—		—		—		(28)
Repurchases and retirement of common stock	(3)		(433)		(82)		—		—		(518)
Cash dividends ($2.28 per share)	—		—		(436)		—		—		(436)
Other	—		(3)		—		—		(2)		(5)
Balance as of June 30, 2023	$	189	$	15,391	$	3,111	$	(263)	$	103	$	18,531

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

_____________________________________________________________________

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these notes to Condensed Consolidated Financial Statements (these “Notes”), the terms “L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated.

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

In the opinion of management, these interim financial statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations, cash flows and equity for the periods presented therein. The balance sheet at December 29, 2023 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2023 (our “Fiscal 2023 Form 10-K”).

Use of Estimates

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

Reclassifications

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

Recently Issued Accounting Pronouncements

Information on recently issued accounting pronouncements can be found in our Form 10-Q for the quarter ended March 29, 2024.

NOTE B: EARNINGS PER SHARE (“EPS”)

EPS is net income attributable to L3Harris common shareholders divided by either our weighted average number of basic or diluted shares outstanding. Potential dilutive common shares primarily consist of employee stock options and restricted and performance unit awards.

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

	Quarter Ended		Two Quarters Ended
(In millions)	June 28, 2024	June 30, 2023	June 28, 2024	June 30, 2023
Basic weighted-average common shares outstanding	189.7	189.2	189.8	189.7
Impact of dilutive share-based awards	0.9	0.9	1.0	1.0
Diluted weighted-average common shares outstanding	190.6	190.1	190.8	190.7

_____________________________________________________________________

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Diluted EPS excludes the antidilutive impact of 0.9 million and 1.7 million weighted-average share-based awards outstanding for the quarter and two quarters ended June 28, 2024, respectively, and 0.8 million and 2.0 million weighted-average share-based awards outstanding for the quarter and two quarters ended June 30, 2023, respectively.

NOTE C: CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets mainly represent unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage of completion (“POC”) cost-to-cost revenue recognition method. Contract assets become receivables as we bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period.

Contract assets and contract liabilities are summarized below:

(In millions)	June 28, 2024		December 29, 2023
Contract assets	$	3,209	$	3,196
Contract liabilities, current	(1,889)		(1,900)
Contract liabilities, non-current(1)	(83)		(94)
Net contract assets	$	1,237	$	1,202

_______________

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

There were no significant credit or impairment losses related to our contract assets during the quarter and two quarters ended June 28, 2024 or the quarter and two quarters ended June 30, 2023. Revenue recognized related to contract liabilities that were outstanding at the end of the respective prior fiscal year were $353 million and $1,048 million for the quarter and two quarters ended June 28, 2024, respectively, and $295 million and $898 million for the quarter and two quarters ended June 30, 2023, respectively.

NOTE D: INVENTORIES

Inventories are summarized below:

(In millions)	June 28, 2024		December 29, 2023
Finished products	$	288	$	217
Work in process	383		427
Materials and supplies	761		828
Inventories	$	1,432	$	1,472

_____________________________________________________________________

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE E: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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

(In millions)	SAS		IMS		CS		AR		Total
Balance at December 29, 2023	$	6,110	$	6,564	$	4,940	$	2,365	$	19,979
Goodwill from AJRD acquisition(1)	—		—		—		496		496
Impairment of goodwill	(14)		—		—		—		(14)
Goodwill decrease from divestitures	(79)		—		—		—		(79)
Currency translation adjustments	(4)		(10)		(1)		—		(15)
Balance at June 28, 2024	$	6,013	$	6,554	$	4,939	$	2,861	$	20,367

_______________

(1)Represents the effect of measurement period adjustments associated with the acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”) during the two quarters ended June 28, 2024. See Note O: Acquisitions and Divestitures in these Notes for further information.

At June 28, 2024 and December 29, 2023, accumulated goodwill impairment losses totaled $80 million, $1,126 million and $355 million at our Space & Airborne Systems (“SAS”), Integrated Mission Systems (“IMS”) and Communication System (“CS”) segments, respectively. There are no accumulated impairments for our Aerojet Rocketdyne (“AR”) segment.

Reallocation of Goodwill in Business Realignment. Effective in fiscal 2024, to better align our businesses, we adjusted our IMS segment by realigning our Electro Optical (“EO”) and Maritime sectors, which are also reporting units, splitting EO into two sectors, Global Optical Systems (“GOS”) and Defense Electronics (“DE”), and moving one EO business to the Maritime sector. GOS and DE represent one reporting unit. Immediately before and after the realignment, we performed a quantitative impairment assessment under our former and new reporting unit structure. These assessments indicated no impairment existed either before or after the realignment.

Allocation of Goodwill in Divestiture. As described in more detail in Note O: Acquisitions and Divestitures, during the quarter ended June 28, 2024, we completed the divestiture of our antenna and related business (“Antenna Disposal Group”). As the Antenna Disposal Group represents the disposal of a portion of the SAS reporting unit, which is also the SAS segment, we assigned $93 million of goodwill to the Antenna Disposal Group on a relative fair value basis during the quarter ended June 28, 2024. We performed a quantitative impairment assessment on goodwill assigned to the Antenna Disposal Group and a qualitative impairment assessment on the goodwill assigned to the retained businesses of the reporting unit. As a result of these tests, we determined that the fair value of the Antenna Disposal Group was below its carrying value and accordingly recorded a non-cash charge for impairment of $14 million included in the “General and administrative expenses” line item in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended June 28, 2024.

Other Intangible Assets

Other identifiable intangible assets, net are summarized below:

	June 28, 2024						December 29, 2023
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	8,843	$	(3,095)	$	5,748	$	8,892	$	(2,733)	$	6,159
Developed technologies	851		(450)		401		856		(413)		443
Trade names — divisions	185		(57)		128		185		(50)		135
Other, including contract backlog	2		(2)		—		4		(4)		—
Total finite-lived identifiable intangible assets	9,881		(3,604)		6,277		9,937		(3,200)		6,737
Trade names — corporate	1,803		—		1,803		1,803		—		1,803
Total identifiable intangible assets, net	$	11,684	$	(3,604)	$	8,080	$	11,740	$	(3,200)	$	8,540

For further description of our accounting policies related to intangible assets acquired in the AJRD acquisition, see Note O: Acquisitions and Divestitures in these Notes, and for our accounting policies related to all other intangible assets, see Note 6: Goodwill and Intangible Assets in our Fiscal 2023 Form 10-K.

_____________________________________________________________________

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amortization expense for identifiable finite-lived intangible assets was $215 million and $432 million for the quarter and two quarters ended June 28, 2024, respectively, and $173 million and $338 million for the quarter and two quarters ended June 30, 2023, respectively.

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

	(In millions)
Next 12 months	$	826
Months 13-24	758
Months 25-36	590
Months 37-48	552
Months 49-60	451
Thereafter	3,100
Total	$	6,277

NOTE F: INCOME TAXES

Our effective tax rate (“ETR”) was 5.9% and 4.1% for the quarter and two quarters ended June 28, 2024, respectively, and 5.6% and 7.4% for the quarter and two quarters ended June 30, 2023, respectively. The ETR for all periods benefited from research and development (“R&D”) credits, tax deductions for foreign derived intangible income (“FDII”), the resolution of specific audit uncertainties and excess tax benefits related to share-based compensation.

_____________________________________________________________________

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE G: DEBT AND CREDIT ARRANGEMENTS

Long-Term Debt

Long-term debt, net is summarized below:

(In millions)	June 28, 2024		December 29, 2023
Variable-rate debt:
Term loan, due November 21, 2025 (“Term Loan 2025”)	$	—	$	2,250
Fixed-rate debt:
3.95% notes, due May 28, 2024 (“3.95% 2024 Notes”)	—		350
3.832% notes, due April 27, 2025	600		600
7.00% debentures, due January 15, 2026	100		100
3.85% notes, due December 15, 2026	550		550
5.40% notes, due January 15, 2027 (“5.4% 2027 Notes”)	1,250		1,250
6.35% debentures, due February 1, 2028	26		26
4.40% notes, due June 15, 2028	1,850		1,850
5.05% notes, due June 1, 2029 (“5.05% 2029 Notes”)	750		—
2.90% notes, due December 15, 2029	400		400
1.80% notes, due January 15, 2031	650		650
5.25% notes, due June 1, 2031 (“5.25% 2031 Notes”)	750		—
5.40% notes, due July 31, 2033 (“5.4% 2033 Notes”)	1,500		1,500
5.35% notes, due June 1, 2034 (“5.35% 2034 Notes”)	750		—
4.854% notes, due April 27, 2035	400		400
6.15% notes, due December 15, 2040	300		300
5.054% notes, due April 27, 2045	500		500
5.60% notes, due July 31, 2053 (“5.6% 2053 Notes”)	500		500
Total variable and fixed-rate debt	10,876		11,226
Financing lease obligations and other debt	301		300
Long-term debt, including the current portion of long-term debt	11,177		11,526
Plus: unamortized bond premium	44		51
Less: unamortized discounts and issuance costs	(71)		(54)
Long-term debt, including the current portion of long-term debt, net	11,150		11,523
Less: current portion of long-term debt, net	(617)		(363)
Total long-term debt, net	$	10,533	$	11,160

Long-Term Debt Issued

Fixed-Rate Debt. On March 13, 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of new long-term fixed-rate debt consisting of the 5.05% 2029 Notes, the 5.25% 2031 Notes, and the 5.35% 2034 Notes (collectively, the “2024 Notes”). The 2024 Notes were used to repay Term Loan 2025, including related fees and expenses, which had an outstanding balance of $2.25 billion at December 29, 2023.

Interest on the 2024 Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2024.

_____________________________________________________________________

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We may redeem the 5.05% 2029 Notes, 5.25% 2031 Notes and 5.35% 2034 Notes prior to May 1, 2029, April 1, 2031 and March 1, 2034, respectively, in whole or in part, at our option, at a redemption price equal to the greater of: (i) the sum of the present values of the remaining scheduled payments of the principal and interest thereon discounted to the redemption date on a semi-annual basis at the “Treasury Rate,” as defined in the 2024 Notes, plus 15 basis points for the 5.05% 2029 Notes and 20 basis points for the 5.25% 2031 Notes and 5.35% 2034 Notes, less interest accrued to the date of redemption; or (ii) 100% of the principal amount of the respective notes plus, in either case, accrued interest and unpaid interest thereon to the redemption date. On or after May 1, 2029, April 1, 2031 and March 1, 2034, we may redeem the 5.05% 2029 Notes, 5.25% 2031 Notes, and 5.35% 2034 Notes respectively, at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest thereon to the redemption date.

We incurred a combined total of $20 million of debt issuance costs for the 2024 Notes, which are being amortized over the life of each respective note. Such amortization is included as a component of the “Interest expense, net” line item in our Condensed Consolidated Statement of Operations.

Long-Term Debt Repayments

On March 14, 2024, we repaid the entire outstanding $2.25 billion drawn on Term Loan 2025, which at time of repayment had a variable interest rate of 6.7%, with proceeds from the issuance of the 2024 Notes, which bear fixed interest rates between 5.05% and 5.35%. Additionally, during the quarter ended June 28, 2024, we repaid the $350 million aggregate principal amount of our 3.95% 2024 Notes.

Credit Agreements

On January 26, 2024, we established a new $1.5 billion, 364-day senior unsecured revolving credit facility (“2024 Credit Facility”) by entering into a 364-day credit agreement maturing no later than January 24, 2025 (“2024 Credit Agreement”) with a syndicate of lenders. We may extend the maturity of any loans outstanding under the 2024 Credit Agreement by one year, subject to the satisfaction of certain conditions. The 2024 Credit Agreement replaces the prior $2.4 billion 364-Day Credit Agreement (“2023 Credit Agreement”).

At our election, borrowings under the 2024 Credit Agreement, which are designated in U.S. Dollars, bear interest at the sum of the term secured overnight financing rate or the Base Rate (as defined in the 2024 Credit Agreement), plus an applicable margin that varies based on the ratings of our senior unsecured long-term debt securities (“Senior Debt Ratings”). In addition to interest payable on the principal amount of indebtedness outstanding, we are required to pay a quarterly unused commitment fee that varies based on our Senior Debt Ratings.

The 2024 Credit Agreement also contains representations, warranties, covenants and events of default that are substantially similar to the existing Revolving Credit Agreement, dated as of July 29, 2022 (“2022 Credit Agreement”) which established a $2.0 billion, five-year senior unsecured revolving credit facility. For a description of the 2022 Credit Agreement and related covenants, see Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K.

At June 28, 2024, we had no outstanding borrowings under either our 2024 Credit Agreement or our 2022 Credit Agreement, had available borrowing capacity of $1.4 billion, net of outstanding commercial paper program (“CP Program”) borrowings and were in compliance with all covenants under both aforementioned credit agreements.

See Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K for additional information regarding our 2022 Credit Agreement and our 2023 Credit Agreement.

Commercial Paper Program

On January 26, 2024, we lowered the maximum amount available under our CP Program to $3.0 billion from $3.9 billion in accordance with the terms of the CP Program. The CP Program is supported by amounts available under the 2022 Credit Agreement and the 2024 Credit Agreement.

The commercial paper notes are sold at par less a discount representing an interest factor or, if interest bearing, at par, and the maturities vary but may not exceed 397 days from the date of issue. The commercial paper notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness.

At June 28, 2024 and December 29, 2023, we had $2.1 billion and $1.6 billion in outstanding notes under our CP Program, respectively, which is included as a component of the “Short-term debt” line item in our Condensed Consolidated Balance Sheet. The outstanding notes under our CP Program had a weighted-average interest rate of 5.79% and 5.95% at June 28, 2024 and December 29, 2023, respectively.

_____________________________________________________________________

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE H: RETIREMENT BENEFITS

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

	Quarter Ended June 28, 2024				Quarter Ended June 30, 2023
(In millions)	Pension		Other Benefits		Pension		Other Benefits
Net periodic benefit income
Operating
Service cost	$	9	$	1	$	6	$	1
Non-operating
Interest cost	98		2		91		2
Expected return on plan assets	(165)		(5)		(152)		(5)
Amortization of net actuarial gain	(1)		(5)		(3)		(5)
Amortization of prior service (credit) cost	(6)		1		(6)		1
Non-service cost periodic benefit income	(74)		(7)		(70)		(7)
Net periodic benefit income	$	(65)	$	(6)	$	(64)	$	(6)
	Two Quarters Ended June 28, 2024				Two Quarters Ended June 30, 2023
(In millions)	Pension		Other Benefits		Pension		Other Benefits
Net periodic benefit income
Operating
Service cost	$	17	$	1	$	12	$	1
Non-operating
Interest cost	197		5		183		5
Expected return on plan assets	(330)		(10)		(305)		(10)
Amortization of net actuarial gain	(2)		(9)		(5)		(10)
Amortization of prior service (credit) cost	(13)		1		(13)		1
Non-service cost periodic benefit income	(148)		(13)		(140)		(14)
Net periodic benefit income	$	(131)	$	(12)	$	(128)	$	(13)

The service cost component of net periodic benefit income is included in the “Cost of revenue” and “General and administrative expenses” line items in our Condensed Consolidated Statement of Operations. The non-service cost components of net periodic benefit income are included in the “Non-service FAS pension income and other, net” line item in our Condensed Consolidated Statement of Operations.

NOTE I: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION

At June 28, 2024, we had stock options and other share-based compensation awards outstanding under three shareholder-approved employee stock incentive plans, including our 2024 Equity Incentive Plan, which was approved by our shareholders during the quarter ended June 28, 2024, as well as under employee stock incentive plans assumed by L3Harris (collectively, the “L3Harris SIPs”). Total share-based compensation expense was $27 million and $53 million for the quarter and two quarters ended June 28, 2024, respectively, and $22 million and $45 million for the quarter and two quarters ended June 30, 2023, respectively.

_____________________________________________________________________

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Awards granted to participants under L3Harris SIPs and the weighted-average grant-date fair value per share or unit during the two quarters ended June 28, 2024 and June 30, 2023 were as follows:

	Two Quarters Ended June 28, 2024			Two Quarters Ended June 30, 2023
(In millions, except per share/units amounts)	Shares or Units	Weighted-Average Grant-Date Fair Value Per Share or Unit		Shares or Units	Weighted-Average Grant-Date Fair Value Per Share or Unit
Stock option shares granted(1)	0.4	$	50.99	0.4	$	54.81
Restricted stock units granted(2)	0.1	$	212.80	0.2	$	209.13
Performance share units granted(3)	0.2	$	230.09	0.2	$	223.09

_______________

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

(2)Other than certain restricted stock units granted in connection with new hires, our restricted stock units generally cliff vest after three-years.

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

The aggregate number of shares of our common stock issued under L3Harris SIPs, net of shares withheld for tax purposes, was 0.3 million and 0.8 million for the quarter and two quarters ended June 28, 2024, respectively, and was 0.1 million and 0.4 million for the quarter and two quarters ended June 30, 2023, respectively.

See Note 10: Stock Options and Other Share-Based Compensation in our Fiscal 2023 Form 10-K for additional information regarding the L3Harris SIPs.

NOTE J: ACCUMULATED OTHER COMPREHENSIVE LOSS (“AOCL”)

At June 28, 2024 and December 29, 2023, AOCL was $234 million and $198 million, respectively. Changes in AOCL, net of tax, consisted of $21 million of other comprehensive loss before reclassifications, primarily from currency translation losses, and $15 million of net gains reclassified to earnings, primarily associated with amortization of unrecognized postretirement benefit plan obligations.

At June 30, 2023 and December 30, 2022, AOCL was $263 million and $288 million, respectively. Changes in AOCL, net of tax, consisted of $44 million of other comprehensive income before reclassifications, primarily from currency translation gains, net of $19 million of net gains reclassified to earnings, primarily associated with amortization of unrecognized postretirement benefit plan obligations.

See Note H: Retirement Benefits in these Notes and Note 9: Retirement Benefits in our Fiscal 2023 Form 10-K for additional information regarding our postretirement benefit plans.

NOTE K: FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants at the measurement date. Entities are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and to utilize a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation or other means.

•Level 3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities and reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed using the best information available in the circumstances.

In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In obtaining such data from the external pricing services, we have evaluated the methodologies used to develop the estimate of fair value in order to assess whether such valuations are representative of fair value, including net asset value (“NAV”). Additionally, in certain circumstances, the NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not representative of fair value.

_____________________________________________________________________

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at June 28, 2024 and December 29, 2023:

	June 28, 2024				December 29, 2023
(In millions)	Total		Level 1		Total		Level 1
Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities	$	114	$	114	$	106	$	106
Investments measured at NAV:
Corporate-owned life insurance	39				37
Total fair value of deferred compensation plan assets	$	153			$	143
Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds	$	10	$	10	$	18	$	18
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts	306				274
Total fair value of deferred compensation plan liabilities	$	316			$	292

_______________

(1)Represents diversified assets held in “rabbi trusts” primarily associated with our non-qualified deferred compensation plans, which we include in the “Other current assets” and “Other non-current assets” line items in our Condensed Consolidated Balance Sheet.

(2)Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and benefits” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet. Under these plans, participants designate investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

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

	June 28, 2024				December 29, 2023
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term Loan 2025(1)	$	—	$	—	$	2,250	$	2,250
All other long-term debt, net (including current portion)(2)	11,150		10,853		9,273		9,199
Long-term debt, including the current portion of long-term debt, net	$	11,150	$	10,853	$	11,523	$	11,449

_______________

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

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

The fair value of our short-term debt approximates the carrying value due to its short-term nature. If measured at fair value, the commercial paper would be classified as level 2 and other short-term debt would be classified as level 3 within the fair value hierarchy. See Note G: Debt and Credit Arrangements in these Notes and Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K for further information regarding our long-term debt and CP Program.

See Note E: Goodwill and Other Intangible Assets and Note O: Acquisitions and Divestitures in these Notes and Note 13: Acquisitions, Divestitures and Asset Sales in our Fiscal 2023 Form 10-K for additional information regarding fair value measurements associated with acquisitions, divestitures and goodwill.

_____________________________________________________________________

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE L: CHANGES IN ESTIMATES

Many of our contracts utilize the POC cost-to-cost method of revenue recognition. A single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. At the outset of each contract, we gauge its complexity and associated risks and establish an estimated total cost at completion. Due to the long-term nature of many of these contracts, developing these estimates often requires judgment. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which we review the progress and performance on our ongoing contracts. As the contracts progress, we may successfully retire risks or complexities and may add additional risks, and we adjust our estimated total cost at completion. For additional discussion of our revenue recognition policies and our EAC process, see “Critical Accounting Estimates” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K.

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

	Quarter Ended				Two Quarters Ended
(In millions, except per share amounts)	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023
Net EAC adjustments, before income taxes	$	—	$	(31)	$	19	$	(87)
Net EAC adjustments, net of income taxes	—		(23)		15		(65)
Net EAC adjustments, net of income taxes, per diluted share	—		(0.12)		0.08		(0.34)

Revenue recognized from performance obligations satisfied in prior periods was $34 million and $87 million for the quarter and two quarters ended June 28, 2024, respectively, and $33 million and $69 million for the quarter and two quarters ended June 30, 2023, respectively.

NOTE M: BACKLOG

Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite-delivery, indefinite-quantity contracts.

At June 28, 2024, our ending backlog was $31.7 billion. We expect to recognize approximately 45% of the revenue associated with this backlog over the next twelve months and an additional 30% over the following twelve months, with the remainder to be recognized thereafter.

NOTE N: RESTRUCTURING AND OTHER EXIT COSTS

From time to time, we record charges for restructuring and other exit activities related to changes in management structure and fundamental reorganizations that affect the nature and focus of operations, such as our LHX NeXt initiative, described below. Such charges may include severance benefits and costs to consolidate facilities or relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention period, we record the expense ratably over the future service period.

LHX NeXt Initiative. LHX NeXt is our initiative to reduce cost and transform our systems and processes to increase agility and competitiveness, as discussed in more detail under the “Operating Environment, Strategic Priorities and Key Performance Measures” section in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K.

_____________________________________________________________________

17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Changes to our liabilities for restructuring and other exit costs during the two quarters ended June 28, 2024 were as follows:

(In millions)	Employee Severance Related Costs
Balance at December 29, 2023(1)	$	4
Additional provisions(2)	65
Payments	(60)
Total changes	5
Balance at June 28, 2024(1)	$	9

_______________

(1)Our liabilities, which we expect will be paid in the next twelve months, are included in the “Compensation and benefits” line item in our Condensed Consolidated Balance Sheet.

(2)Included as a component of the “General and administrative expenses” line item in our Condensed Consolidated Statement of Operations.

NOTE O: ACQUISITIONS AND DIVESTITURES

Acquisition of AJRD

On July 28, 2023, we acquired AJRD, a technology-based engineering and manufacturing company that develops and produces missile solutions and technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions. The acquisition provides us access to a new market. We acquired 100% of AJRD for a total net purchase price of $4,715 million. The acquisition was financed through the issuance and sale of $3.25 billion aggregate principal amount of new long-term fixed-rate debt consisting of the 5.4% 2027 Notes, the 5.4% 2033 Notes and the 5.6% 2053 Notes (collectively, the “AJRD Notes”) and a draw down under the 2023 Credit Agreement. See Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K for further information regarding the financing of the AJRD acquisition.

Net assets and results of operations of AJRD are reflected in our financial results commencing on July 28, 2023, the acquisition date, and are reported in our AR segment, which is also the AR reporting unit, except for certain assets and liabilities recorded at corporate headquarters.

We accounted for the acquisition of AJRD using the acquisition method of accounting, which required us to measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the acquisition date, with the excess of the consideration transferred over those fair values recorded as goodwill. Our preliminary fair value estimates and assumptions are subject to change as we obtain additional information over the measurement period and our measurement of certain assets and contingencies, such as intangible assets, property, plant and equipment, real estate held for development and leasing, loss contracts, environmental matters and related deferred tax impacts remain preliminary for completion of the related valuations.

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

(In millions)	July 28, 2023
Cash consideration paid for AJRD outstanding common stock & equity awards	$	4,748
AJRD debt settled by L3Harris	257
Cash consideration paid	5,005
Less cash acquired	(290)
Fair value of consideration transferred	$	4,715

_____________________________________________________________________

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	July 28, 2023
(In millions)	Preliminary		Measurement Period Adjustments, Net(1)		Preliminary Adjusted
Receivables	$	156	$	—	$	156
Contract assets	338		(141)		197
Inventories	14		—		14
Other current assets	117		22		139
Property, plant and equipment	574		10		584
Goodwill	2,348		513		2,861
Other intangible assets	2,860		—		2,860
Other non-current assets	609		66		675
Total assets acquired	$	7,016	$	470	$	7,486
Current portion of long-term debt, net	$	1	$	—	$	1
Accounts payable	145		—		145
Contract liabilities	310		152		462
Compensation and benefits	116		1		117
Income taxes payable	6		(3)		3
Other accrued items	278		335		613
Long-term debt, net	41		—		41
Deferred income taxes	398		(41)		357
Other long-term liabilities	1,006		26		1,032
Total liabilities assumed	$	2,301	$	470	$	2,771
Fair value of consideration transferred	$	4,715	$	—	$	4,715

_______________

(1)Fair value adjustments during the measurement period primarily related to EAC updates for circumstances existing at the acquisition date, including updates to the forward loss provision and off-market customer contract reserve described below, refinements to the fair value of fixed assets, as well as corresponding adjustments to the deferred tax liability account which was partially offset by the release of a portion of the uncertain tax position previously recorded by AJRD.

We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgment related to estimates. Our accounting for the acquisition of AJRD remains preliminary. Amounts recorded associated with these assets and liabilities are based on calculations and estimates. Our estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the acquisition date). Any potential adjustments made could be material in relation to the values presented above.

_____________________________________________________________________

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Total		Useful Lives
	(In millions)		(In Years)
Customer relationships:
Backlog	$	355	3
Government programs	2,385		15 - 20
Total customer relationships	2,740
Trade names	120		15
Total identifiable intangible assets acquired	$	2,860

The fair value of intangible assets is estimated using the relief from royalty method for the acquired trade names and the multi-period excess earnings method for the acquired customer relationships. Both of these level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, royalty rates related to the trade names intangible assets, revenue growth attributable to the intangible assets and remaining useful lives.

Forward Loss Provision. We have recorded a preliminary forward loss provision of $357 million which was included in the “Other accrued items” line item in our Condensed Consolidated Balance Sheet. Since the completion of the acquisition of AJRD, we have undertaken significant operational efforts to further understand the root cause of identified preexisting manufacturing and supply chain challenges resulting in delivery delays, primarily related to certain Missile Solutions programs. We have identified operational activities necessary to remedy these challenges and inefficiencies and the incremental costs required as compared to its initial estimates and actual costs incurred. The incremental forward loss provisions relate to the increased cost estimates of labor and material to remedy the underlying preexisting technical and supply chain challenges. These cost increases impacted both cost-plus and fixed-price contracts in proportions that are consistent with the ratio of the overall AJRD revenue by contract type. The forward loss provisions will be recognized as a reduction to cost of sales as we incur actual costs associated with these estimates in to satisfying the associated performance obligations. There will be no net impact on our Condensed Consolidated Statement of Operations. We recognized $47 million and $61 million of amortization related to the forward loss provision in the quarter and two quarters ended June 28, 2024, respectively.

Off-market Customer Contracts. We have identified certain customer contractual obligations as of the acquisition date with economic returns that are higher or lower than could be realized in market transactions and have recorded assets or liabilities for the preliminary acquisition date fair value of the off-market components. The preliminary acquisition date fair value of the off-market components is a net liability of $194 million, consisting of $49 million and $145 million included in the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet, respectively, and excludes any amounts already recognized in forward loss provisions (see discussion in the preceding paragraph). Additional provisions to off-market customer contracts relate to labor and material cost increases primarily associated with supply chain and manufacturing challenges and inefficiencies. These cost increases impacted both cost-plus and fixed-price contracts in proportions that are consistent with the ratio of the overall AJRD revenue by contract type. We measured the fair value of these components as the amount by which the terms of the contract with the customer deviates from the terms that a market participant could have achieved at the acquisition date. The off-market components of these contracts will be recognized as an increase to revenue as we incur costs to satisfy the associated performance obligations. We recognized $22 million and $30 million of amortization related to off-market contract liabilities in the quarter and two quarters ended June 28, 2024, respectively.

Goodwill. The $2,861 million of goodwill recognized is attributable to AJRD’s market presence as one of the two primary providers of advanced propulsion and power systems for nearly every major U.S. government space and missile program, the assembled workforce and established operating infrastructure. The acquired goodwill is not tax deductible. See Note E: Goodwill and Other Intangible Assets in these Notes for further information.

Financial Results. See Note P: Business Segment Information in these Notes for the AR segment financial results for the quarter and two quarters ended June 28, 2024.

_____________________________________________________________________

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred and are included in the “General and administrative expenses” line item in our Condensed Consolidated Statement of Operations. In connection with the AJRD acquisition, we recorded transaction and integration costs of $16 million and $44 million for the quarter and two quarters ended June 28, 2024, respectively, and $13 million and $22 million for the quarter and two quarters ended June 30, 2023, respectively.

Pending Divestiture of Commercial Aviation Solutions (“CAS Disposal Group”)

During the quarter ended December 29, 2023, we entered into a definitive agreement to sell our CAS Disposal Group for a cash purchase price of $700 million, with additional contingent consideration of up to $100 million, subject to customary purchase price adjustments and closing conditions as set forth in the agreement. As of June 28, 2024, the fair value less estimated costs to sell of the CAS Disposal Group was $875 million, inclusive of consideration related to noncontrolling interest and accumulated other comprehensive income. Income before income taxes for the quarter and two quarters ended June 28, 2024 was $23 million and $44 million, respectively, and for the quarter and two quarters ended June 30, 2023 was $15 million and $32 million, respectively. The CAS Disposal Group, which is part of our IMS segment, provides integrated aircraft avionics, pilot training and data analytics services for the commercial aviation industry. The transaction is expected to close in fiscal 2024.

In connection with the preparation of our financial statements for fiscal 2023, we concluded that goodwill related to the CAS Disposal Group was impaired and we recorded a non-cash impairment charge of $296 million, which is included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Operations in our Fiscal 2023 Form 10-K. See Note 6: Goodwill and Intangible Assets in our Fiscal 2023 Form 10-K. Additionally, we recognized a pre-tax loss of $77 million included in the “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations in our Fiscal 2023 Form 10-K. During the quarter ended June 28, 2024, we recognized an additional pre-tax loss of $15 million, due to increases in the net assets of the disposal group and costs to sell, partially offset by an increase in the fair value of the disposal group. The loss is included in the General and administrative expenses” line item in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended June 28, 2024.

The carrying amounts of assets and liabilities of the CAS Disposal Group classified as held for sale in our Condensed Consolidated Balance Sheet were as follows:

(In millions) June 28, 2024 December 29, 2023