SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Jan. 03, 2025

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

Organization — L3Harris Technologies, Inc., together with its subsidiaries, is the Trusted Disruptor in the

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 in the interest of global security. We support government

customers in more than 100 countries, with our largest customers being various departments and agencies of the

U.S. Government, their prime contractors and international allies. Our products and services have defense and civil

government applications, as well as commercial applications. As of January 3, 2025 we had approximately 47,000

employees.

Principles of Consolidation — Our Consolidated Financial Statements include the accounts of L3Harris

Technologies, Inc. and its consolidated subsidiaries. As used in these Notes to the Consolidated Financial

Statements, the terms “L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its

consolidated subsidiaries. Intercompany transactions and accounts have been eliminated.

Fiscal Year — Our fiscal year ends on the Friday nearest December 31. Fiscal 2024 included 53 weeks. Fiscal

2023 and fiscal 2022 each included 52 weeks.

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 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 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 Consolidated

Financial Statements and these Notes to conform to current year classifications.

Cash and Cash Equivalents — Cash and cash equivalents include cash at banks and temporary cash

investments with a maturity of three or fewer months when purchased. These investments include accrued interest

and are carried at the lower of cost or market.

Fair Value Measurements — Fair value is defined as the price that would be received to sell 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 pricing service, 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.

Financial instruments. The carrying amounts of certain of our financial instruments reflected in our Consolidated

Balance Sheet, including cash and cash equivalents, accounts receivable, non-current receivables, notes receivable,

accounts payable and short-term debt, approximate their fair values. Fair values for long-term fixed-rate debt are

primarily based on quoted market prices for those or similar instruments. See Note 8: Debt and Credit Arrangements

in these Notes for additional information regarding fair values for our long-term fixed-rate debt. A discussion of fair

values for our derivative financial instruments is included under the caption “Financial Instruments and Risk

Management” in this Note.

Accounts Receivable — We record receivables derived from contracts with customers at net realizable value

and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to

reflect any losses anticipated on the accounts receivable balances which is charged to the provision for doubtful

accounts. We calculate this allowance at inception based on expected loss over the life of the receivable. We

consider historical write-offs by customer, level of past due accounts and economic status of the customer. A

receivable is considered delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are

recorded at the time a customer receivable is deemed uncollectible. At January 3, 2025 and December 29, 2023,

our allowances for collection losses were $21 million and $15 million, respectively.

Contract Assets and Liabilities — The timing of revenue recognition, customer billings and cash collections

results in accounts receivable, contract assets and contract liabilities at the end of each reporting period. Contract

assets mainly represent unbilled amounts typically resulting from revenue recognized exceeding amounts billed to

customers for contracts utilizing the 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 portion of the contract price until contract completion. Contract liabilities

include advance payments and billings in excess of revenue recognized, including deferred revenue. Contract assets

and liabilities are reported on a contract-by-contract basis at the end of each reporting period.

Contract assets related to amounts withheld by customers until contract completion are not considered a

significant financing component of our contracts because the intent is to protect the customers from our failure to

satisfactorily complete our performance obligations. Payments received from customers in advance of revenue

recognition are not considered a significant financing component of our contracts because they are utilized to pay for

contract costs within a one-year period or are requested by us to ensure the customers meet their payment

obligations.

Inventories — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods)

or net realizable value. We regularly review inventory quantities on hand and record a provision for excess and

obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and

production requirements.

Property, Plant and Equipment — Property, plant and equipment, including software capitalized for internal

use, is recorded at cost and depreciated on a reasonable and systematic basis, typically the straight-line method,

over the estimated useful life of the asset. Estimated useful lives generally range as follows: buildings, including

leasehold improvements, between two and 45 years; machinery and equipment between two and 10 years; and

software capitalized for internal-use between two and 10 years. We review property, plant and equipment for

impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be

recoverable.

Goodwill — We follow the acquisition method of accounting to record the assets and liabilities of acquired

businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount the

consideration transferred exceeds the acquisition-date fair value of net identifiable assets acquired.

We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our

business segment level or one level below the business segment. Goodwill is tested for impairment annually as of

the first business day of our fourth fiscal quarter, or under certain circumstances more frequently, such as when

events or circumstances indicate there may be impairment. Such events or circumstances may include a significant

deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market

capitalization, operating performance indicators, competition, reorganizations of our business or the disposal of all

or a portion of a reporting unit.

To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we elect to

perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the

reporting unit to determine the probability that goodwill is impaired. If we perform a quantitative assessment for a

certain reporting unit, we calculate the fair value of that reporting unit and compare the fair value to the reporting

unit’s net book value. We estimate fair values of our reporting units based on projected cash flows, and sales and/or

earnings multiples applied to the latest twelve months’ sales and earnings of our reporting units. Projected cash

flows are based on our best estimate of future revenues, operating costs and balance sheet metrics reflecting our

view of the financial and market conditions of the underlying business; and the resulting cash flows are discounted

using an appropriate discount rate that reflects the risk in the forecasted cash flows. Revenue and earnings

multiples are based on current multiples of revenues and earnings for similar businesses, and based on revenue and

earnings multiples paid for recent acquisitions of similar businesses made in the marketplace. We then assess

whether any implied control premium, based on a comparison of fair value based purely on our stock price and

outstanding shares with fair value determined by using all of the above-described models, is reasonable.

If we determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount,

we measure any impairment loss by comparing the fair value of each reporting unit to its carrying amount, including

goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and an

impairment loss is recognized in an amount equal to that excess.

Intangible Assets — Our finite-lived intangible assets are amortized to expense over their applicable useful

lives, either according to the underlying economic benefit as reflected by future net cash inflows or on a straight-line

basis depending on the nature of the asset, generally ranging between three to 20 years. We review finite-lived

intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the

asset may not be recoverable. We evaluate the recoverability of such assets based on the expectations of

undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows is less than

the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying

amount.

Our most significant finite-lived intangible asset is customer relationships that are established through written

customer contracts (i.e., revenue arrangements). The fair value for customer relationships is determined, as of the

date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax

earnings and cash flows arising from the follow-on revenues expected from the customer relationships over the

estimated lives, including the probability of expected future contract renewals and revenues, less a contributory

assets charge, all of which is discounted to present value.

Indefinite-lived intangible assets are tested annually for impairment, or under certain circumstances, more

frequently, such as when events or circumstances indicate there may be an impairment. This testing compares the

fair value of the asset to its carrying amount, and, when appropriate, the carrying amount of these assets is reduced

to its fair value.

Leases — We recognize right-of-use (“ROU”) assets and lease liabilities in our Consolidated Balance Sheet for

operating and finance leases under which we are the lessee. As a practical expedient, leases with a term of twelve

months or less (including reasonably certain extension periods) and leases with expected lease payments of less

than $250 thousand are expensed as incurred in the “Cost of revenue” and “General and administrative expenses”

line items in our Consolidated Statement of Operations.

ROU assets and lease liabilities are recognized based on the present value of future lease payments, which are

primarily base rent. We have some lease payments that are based on an index and changes to the index are treated

as variable lease payments and recognized in the “Cost of revenue” and “General and administrative expenses” line

items in our Consolidated Statement of Operations in the period in which the obligation for those payments is

incurred. Our lease payments also include non-lease components such as real estate taxes and common-area

maintenance costs. As a practical expedient, we account for lease and non-lease components as a single

component. For certain leases, the non-lease components are variable and are therefore excluded from lease

payments to determine the ROU asset. The present value of future lease payments is determined using our

incremental borrowing rate at lease commencement over the expected lease term. We use our incremental

borrowing rate because our leases do not provide an implicit lease rate. The expected lease term represents the

number of years we expect to lease the property, including options to extend or terminate the lease when it is

reasonably certain that we will exercise the option.

Operating lease cost and finance lease amortization are recognized on a straight-line basis over the expected

lease term in the “Cost of revenue” and “General and administrative expenses” line items in our Consolidated

Statement of Operations. Interest on finance lease liabilities is recognized in the “Interest expense, net” line item in

our Consolidated Statement of Operations.

Income Taxes — We follow the asset and liability method of accounting for income taxes. We record deferred

tax assets and liabilities for differences between the tax basis of assets and liabilities and amounts reported in our

Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. We follow specific and detailed

guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and

provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability

based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing

temporary differences and tax planning strategies.

We have elected to account for tax on Global Intangible Low-Taxed Income as a current-period expense when

incurred.

Foreign Currency Translation — Assets and liabilities of international subsidiaries that use local currency as the

functional currency, are translated at current rates of exchange and income and expense items are translated at the

weighted average exchange rate for the year. The resulting translation adjustments are recorded as a component of

the “Accumulated other comprehensive income (loss)” line item in our Consolidated Balance Sheet.

Share-Based Compensation — We measure compensation cost for all share-based awards (including employee

stock options) at fair value and recognize cost over the vesting period, with forfeitures recognized as they occur. It is

our practice to issue shares when options are exercised.

Share Repurchases — Repurchased common shares are permanently retired. As we repurchase our common

shares, we reduce common stock for the par value and allocate any excess purchase price over par value to paid-in

capital and retained earnings. During fiscal 2024, we repurchased 2.5 million shares of our common stock for $554

million under our repurchase program. At January 3, 2025, we had remaining unused authorization under our

repurchase program of $3,381 million.

Revenue Recognition — We account for a contract when it has approval and commitment from all parties, the

rights and payment terms of the parties can be identified, the contract has commercial substance and the

collectability of the consideration, or transaction price, is probable. Our contracts are often subsequently modified to

include changes in specifications, requirements or price that may create new or change existing enforceable rights

and obligations. We do not account for contract modifications (including unexercised options) or follow-on contracts

until they meet the requirements noted above to account for a contract.

We categorize revenue and costs for performance obligations to provide tangible goods as “product” and

revenue and costs for performance obligations to provide services for which the principal result is not to produce

anything tangible as “service.” In instances where a single performance obligation requires us to deliver products

and perform services, we derive the product and service categories presented in our financial statements based

upon the predominant nature of each performance. In these cases, we classify the revenue and costs from the entire

performance obligation based on the nature of the overall promise made to the customer.

At the inception of each contract, we evaluate the promised products and services to determine whether the

contract should be accounted for as having one or more performance obligations. A performance obligation is a

promise to transfer a distinct product or service to a customer and represents the unit of accounting for revenue

recognition. A substantial majority of our revenue is derived from long-term development and production contracts

involving the design, development, manufacture or modification of defense products and related services according

to the customers’ specifications. Due to the highly interdependent and interrelated nature of the underlying

products and services and the significant service of integration that we provide, which often results in the delivery of

multiple units, we account for these contracts as one performance obligation. For contracts that include both

development/production and follow-on support services (for example, operations and maintenance), we generally

consider the follow-on services distinct in the context of the contract and account for them as separate performance

obligations. Additionally, we recognize revenue from contracts to provide multiple distinct products to a customer

for which the products can readily be sold to other customers based on their commercial nature and, accordingly,

these products are accounted for as separate performance obligations.

Shipping and handling costs incurred after control of a product has transferred to the customer (for example, in

free on board shipping arrangements) are treated as fulfillment costs and, therefore, are not accounted for as

separate performance obligations. Also, we record taxes collected from customers and remitted to governmental

authorities on a net basis such that they are excluded from revenue.

As noted above, our contracts are often subsequently modified to include changes in specifications,

requirements or price. Depending on the nature of the modification, we consider whether to account for the

modification as an adjustment to the existing contract or as a separate contract. Often, the deliverables in our

contract modifications are not distinct from the existing contract due to the significant integration and interrelated

tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they are part of

the existing contract, and we may be required to recognize a cumulative catch-up adjustment to revenue at the date

of the contract modification.

We determine the transaction price for each contract based on our best estimate of the consideration we expect

to receive, which includes assumptions regarding variable consideration such as award and incentive fees. These

variable amounts are generally awarded upon achievement of certain negotiated performance metrics, program

milestones or cost targets and can be based upon customer discretion. We include such estimated amounts in the

transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not

occur when the uncertainty associated with the variable consideration is resolved. We estimate variable

consideration primarily using the most likely amount method.

For contracts with multiple performance obligations, we allocate the transaction price to each performance

obligation based on the relative standalone selling price of the product or service underlying each performance

obligation. The standalone selling price represents the amount for which we would sell the product or service to a

customer on a standalone basis (i.e., not sold as a bundle with any other products or services). Our contracts with

the U.S. Government, including foreign military sales contracts, are subject to the FAR and the prices of our contract

deliverables are typically based on our estimated or actual costs plus margin. As a result, the standalone selling

prices of the products and services in these contracts are typically equal to the selling prices stated in the contract,

thereby eliminating the need to allocate (or reallocate) the transaction price to the multiple performance obligations.

In our non-U.S. Government contracts, we also generally use the expected cost plus margin approach to determine

standalone selling price. In addition, we determine standalone selling price for certain contracts that are commercial

in nature based on observable selling prices.

We recognize revenue for each performance obligation when (or as) the performance obligation is satisfied by

transferring control of the promised products or services underlying the performance obligation to the customer.

The transfer of control can occur over-time or at a point in time. A significant portion of our business is derived from

development and production contracts. Revenue and profit related to development and production contracts are

generally recognized over-time, typically using the POC cost-to-cost method of revenue recognition, whereby we

measure our progress towards completion of the performance obligation based on the ratio of costs incurred to date

to estimated costs at completion under the contract. Because costs incurred represent work performed, we believe

this method best depicts the transfer of control of the asset to the customer. Under 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. To a lesser extent, we also recognize revenue from contracts to provide multiple

distinct products to a customer that are commercial in nature and can readily be sold to other customers. These

performance obligations do not meet the criteria listed below to recognize revenue over-time; therefore, we

recognize revenue at a point in time, generally when the products are received and accepted by the customer.

Point-in-Time Revenue Recognition. Our performance obligations are satisfied at a point in time unless they

meet at least one of the following criteria, in which case they are satisfied over-time:

•The customer simultaneously receives and consumes the benefits provided by our performance as we

perform;

•Our performance creates or enhances an asset (for example, work in process) that the customer controls as

the asset is created or enhanced; or

•Our performance does not create an asset with an alternative use to us and we have an enforceable right to

payment for performance completed to date.

Over-Time Revenue Recognition. For U.S. Government development and production contracts, there is generally

a continuous transfer of control of the asset to the customer as it is being produced based on FAR clauses in the

contract that provide the customer with lien rights to work in process and allow the customer to unilaterally

terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any

work in process. This also typically applies to our contracts with prime contractors for U.S. Government

development and production contracts, when the above-described FAR clauses are flowed down to us by the prime

contractors.

Our non-U.S. Government development and production contracts, including international direct commercial

contracts and U.S. contracts with state and local agencies, utilities, commercial and transportation organizations,

often do not include the FAR clauses described above. However, over-time revenue recognition is typically

supported either through our performance creating or enhancing an asset that the customer controls as it is created

or enhanced or based on other contractual provisions or relevant laws that provide us with an enforceable right to

payment for our work performed to date plus a reasonable profit if our customer were permitted to and did

terminate the contract for reasons other than our failure to perform as promised.

For performance obligations to provide services that are satisfied over-time, we recognize revenue either on a

straight-line basis, the POC cost-to-cost method or based on the right-to-invoice method (i.e., based on our right to

bill the customer), depending on which method best depicts transfer of control to the customer.

Contract Estimates. Under 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. Recognition of profit on a

contract requires estimates of the total cost at completion and transaction price and the measurement of progress

towards completion. Due to the long-term nature of many of our contracts, developing the estimated total cost at

completion and total transaction price often requires judgment. Factors that must be considered in estimating the

cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor

performance and the risk and impact of delayed performance. Factors that must be considered in estimating the

total transaction price include contractual cost or performance incentives (such as incentive fees, award fees and

penalties) and other forms of variable consideration, as well as our historical experience and our expectation for

performance on the contract.

At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost

at completion in line with these expectations. We follow a standard EAC process in which we review the progress

and performance on our ongoing contracts. If we successfully retire risks associated with the technical, schedule

and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the

retirement of these risks. Conversely, there are many reasons estimated contract costs can increase, including: (i)

supply chain disruptions, inflation and labor issues; (ii) design or other development challenges; and (iii) program

execution challenges (including from technical or quality issues and other performance concerns). Additionally, as

the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we

receive incentive or award fees that are higher or lower than expected.

When changes in estimated total costs at completion or in estimated total transaction price are determined, the

related impact on operating income is recognized on a cumulative basis. EAC adjustments represent the cumulative

effect of the changes from current and prior periods; revenue and operating margins in future periods are recognized

as if the revised estimates had been used since contract inception. Any anticipated losses on these contracts are

fully recognized in the period in which the losses become evident.

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

	Fiscal Year Ended
(In millions, except per share amounts)	January 3, 2025	December 29, 2023	December 30, 2022
Net EAC adjustments, before income taxes	$39	$(85)	$36
Net EAC adjustments, net of income taxes	29	(63)	27
Net EAC adjustments, net of income taxes, per diluted share	0.15	(0.33)	0.14

Revenue recognized from performance obligations satisfied (or partially satisfied) in prior periods was $210

million, $118 million and $110 million in fiscal 2024, 2023 and 2022, respectively.

Bill-and-Hold Arrangements. For certain contracts, the finished product may temporarily be stored at our

location under a bill-and-hold arrangement. Revenue is recognized on bill-and-hold arrangements at the point in

time when the customer obtains control of the product and all of the following criteria have been met: the

arrangement is substantive (for example, the customer has requested the arrangement); the product is identified

separately as belonging to the customer; the product is ready for physical transfer to the customer; and we do not

have the ability to use the product or direct it to another customer. In determining when the customer obtains

control of the product, we consider certain indicators, including whether we have a present right to payment from

the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and

whether customer acceptance has been received (in the case of arrangements with customer acceptance

provisions).

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 or appropriated) and unfunded backlog (i.e., orders for which funds

have not been appropriated and/or incrementally funded). Backlog excludes unexercised contract options and

potential orders under ordering-type contracts, such as IDIQ contracts.

At January 3, 2025, our ending backlog was $34.2 billion, of which $23.3 billion was funded backlog. We expect

to recognize approximately 45% of the revenue associated with this backlog by the end of fiscal 2025 and

approximately 75% by the end of fiscal 2026, with the remainder to be recognized thereafter. At December 29,

2023, our ending backlog was $32.7 billion, of which $22.0 billion was funded backlog.

Retirement Benefits — We sponsor various pension and other postretirement defined benefit plans. The funded

or unfunded position of each defined benefit plan is recorded in our Consolidated Balance Sheet. Funded status is

derived by subtracting the respective year-end values of the PBO from the fair value of plan assets. Actuarial gains

and losses and prior service credits and costs are recorded, net of income taxes, in the “Accumulated other

comprehensive income (loss)” line item in our Consolidated Balance Sheet until they are amortized as a component

of net periodic benefit income in the “Non-service FAS pension income and other, net” line item in our Consolidated

Statement of Operations.

The determination of the PBO and the recognition of net periodic benefit income related to defined benefit plans

depend on various assumptions, including discount rates, expected return on plan assets, the rate of future

compensation increases, mortality, termination and health care cost trend rates. We develop each assumption using

relevant Company experience in conjunction with market-related data. Actuarial assumptions are reviewed annually

with third-party consultants and adjusted as appropriate. For the recognition of net periodic benefit income, we use

a market-related value of plan assets to calculate the expected return on plan assets. The market-related value of

plan assets is based on yearly average asset values at the measurement date over the last five years, with

investment gains or losses to be phased in over five years. Net actuarial gains and losses are amortized to the net

periodic benefit income using the corridor approach, where the net gains and losses in excess of 10% of the greater

of the PBO or the market-related value of plan assets are amortized for each plan over the estimated future life

expectancy or, if applicable, the average remaining service period of the plan’s active participants. The fair value of

plan assets is determined based on market prices or estimated fair value at the measurement date. The

measurement date for valuing defined benefit plan assets and obligations is the end of the month closest to our

fiscal year end.

Environmental Expenditures — We generally capitalize environmental expenditures that increase the life or

efficiency of property or that reduce or prevent environmental contamination. We accrue environmental expenses

resulting from existing conditions that relate to past or current operations. Our accruals for environmental expenses

are recorded on a site-by-site basis when it is probable a liability has been incurred and the amount of the liability

can be reasonably estimated, based on current law and existing technologies available to us. Our accruals for

environmental expenses represent the best estimates related to the investigation and remediation of environmental

media such as water, soil, soil vapor, air and structures, as well as related legal fees and regulatory agency oversight

fees, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress

of investigation and remediation efforts and changes in facts and legal circumstances. If the timing and amount of

future cash payments for environmental liabilities are fixed or reliably determinable, we generally discount such

cash flows in estimating our accrual.

The relevant factors we considered in estimating our potential liabilities under applicable environmental

statutes and regulations included some or all of the following as to each site: incomplete information regarding

particular sites and other potentially responsible parties; uncertainty regarding the extent of investigation or

remediation; our share, if any, of liability for such conditions; the selection of alternative remedial approaches;

changes in environmental standards and regulatory requirements; probable insurance proceeds; cost-sharing

agreements with other parties; and potential indemnification from successor and predecessor owners of these sites.

Derivative Financial Instruments and Hedging Activities — We recognize all derivatives in our Consolidated

Balance Sheet at fair value. These financial instruments are marked-to-market using forward prices and fair value

quotes and are categorized in Level 2 of the fair value hierarchy. Derivatives that are not hedges are adjusted to fair

value through income. If the derivative qualifies and is designated as a hedge, it must be documented as such at the

inception of the hedge. Depending on the nature of the hedge, changes in the fair value of the derivative are either

offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in

other comprehensive income (loss) until the hedged item is recognized in earnings. Gains and losses in accumulated

other comprehensive income (loss) are reclassified to earnings when the related hedged item is recognized in

earnings. The cash flow impact of our derivatives is included in the same category in our Consolidated Statement of

Cash Flows as the cash flows of the related hedged items. We do not hold or issue derivatives for speculative trading

purposes.

EPS — EPS is calculated as net income per common share attributable to L3Harris Technologies, Inc. common

shareholders divided by 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.

Business Segments — We evaluate each of our business segments based on its operating income or loss.

Intersegment revenues are generally transferred at cost to the buying segment, and the sourcing segment

recognizes a profit that is eliminated. The elimination of intersegment revenues is included in the “other” line item in

Note 14: Business Segments in these Notes. Corporate expenses are primarily allocated to our business segments

using an allocation methodology prescribed by U.S. Government regulations for government contractors. The

“Unallocated corporate department expense” line item in Note 14: Business Segments in these Notes represents the

portion of corporate expenses that are not included in management’s evaluation of segment operating performance

or elimination of intersegment profits.

FAS/CAS Operating Adjustment. We calculate and allocate a portion of our defined benefit plan costs to our U.S.

Government contracts in accordance with CAS. However, our Consolidated Financial Statements require we

calculate our defined benefit plan costs (net periodic benefit income) in accordance with FAS requirements. The

difference between CAS pension cost and the service cost component of net periodic benefit income (“FAS pension

service cost”) is reflected in the “FAS/CAS operating adjustment,” which is included as a component of Unallocated

corporate department expense line item in Note 14: Business Segments in these Notes.

	Fiscal Year Ended
(In millions)	January 3, 2025	December 29, 2023	December 30, 2022
FAS pension service cost	$(36)	$(35)	$(46)
Less: CAS pension cost	(64)	(145)	(141)
FAS/CAS operating adjustment	28	110	95

The non-service cost component of net periodic benefit income is included in the “Non-service FAS pension

income and other, net” line item in our Consolidated Statement of Operations. See Note 9: Retirement Benefits in

these Notes for additional information regarding our defined benefit plans and composition of net periodic benefit

income.

R&D — Company-funded R&D costs are expensed as incurred and are included in the “General and

administrative expenses” line item in our Consolidated Statement of Operations. These costs were $515 million,

$480 million and $603 million in fiscal 2024, 2023, and 2022, respectively.

Customer-funded 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), and such contractual arrangements are accounted for principally by the POC cost-

to-cost revenue recognition method. Customer-funded R&D is included in the “Revenue” and “Cost of revenue” line

items in our Consolidated Statement of Operations.

Recent Accounting Pronouncements — In November 2023, the Financial Accounting Standards Board

(“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to

Reportable Segment Disclosures (“ASU 2023-07”) which requires additional segment disclosures on an annual and

interim basis, including significant segment expenses that are regularly provided to the chief operating decision

maker. The standard does not change how operating segments and reportable segments are determined. ASU

2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim reporting periods

beginning after December 15, 2024 and is required to be applied retrospectively to all periods presented in the

consolidated financial statements. We adopted this standard in fiscal 2024 and applied the provisions to our

business segment disclosure. See Note 14: Business Segments in these Notes for further information. The adoption

of 2023-07 did not have any impact on our operating results, financial position, or cash flows.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax

Disclosures (“ASU 2023-09”) which requires disaggregated income tax disclosures on an annual basis, including

information on our effective income tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for

annual reporting periods beginning after December 15, 2024, and may be applied prospectively or retrospectively.

We are evaluating the impact of ASU 2023-09 and expect the standard will only impact our income taxes

disclosures with no material impact on our operating results, financial position, or cash flows.

In March 2024, the SEC issued SEC Release Nos. 33-11275 and 34-99678, The Enhancement and

Standardization of Climate-Related Disclosures for Investors, which requires climate-related disclosures in annual

reports and registration statements. In April 2024, the SEC released an order staying this final rule pending judicial

review of all the petitions challenging the rule. If enacted, the rule would require disclosure of material climate-

related risks, our governance and risk management of climate-related risks and any material climate-related targets

or goals, greenhouse gas emissions as well as disclosure of the financial statement effects, such as costs and losses

resulting from severe weather events and other natural conditions. We are evaluating the impact of the rule and

related litigation on our disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—

Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU

2024-03”) which requires disclosure, in the notes to financial statements, of specified information about certain

costs and expenses included in each expense caption on the face of the income statement at interim and annual

reporting periods. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and

interim reporting periods beginning after December 15, 2027, and should be applied either prospectively to financial

statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior

periods presented in the financial statements. We are evaluating the impact of ASU 2024-03 and expect the

standard will only impact our disclosures with no material impact on our operating results, financial position, or cash

flows.