L3HARRIS TECHNOLOGIES, INC. /DE/ (LHX)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our

financial condition and results of operations for fiscal 2024 compared with fiscal 2023. A discussion of fiscal 2023

compared to fiscal 2022 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial

Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended

December 29, 2023 (our “Fiscal 2023 Form 10-K”). This MD&A is provided as a supplement to, should be read in

conjunction with and is qualified in its entirety by reference to, our Consolidated Financial Statements and

accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the

discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results

could differ materially from those discussed herein. Factors that could cause or contribute to such differences

include, but are not limited to, those discussed in Part I. Item 1A. Risk Factors of this Report. For additional

information, see  Part I. Item 1. Business - Cautionary Statement Regarding Forward-Looking Statements of this

Report.

OVERVIEW

We are 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

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services have defense and civil government applications, as well as commercial applications. As of January 3, 2025,

we had approximately 47,000 employees, including approximately 18,000 engineers and scientists.

We structure our operations primarily around the products, systems and services we sell and the markets we

serve, and we report our financial results in four business segments: SAS, IMS, CS and AR. See Note 14: Business

Segments in the Notes for further information regarding our business segments.

U.S. and International Budget Environment

The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign

military sales funded through the U.S. Government, whether directly or through prime contractors, was 76%, 76%

and 74%, in fiscal 2024, 2023 and 2022, respectively.

On March 9, 2024, the President signed the first tranche of GFY 2024 appropriations funding bills into law,

which funded six government agencies, including the National Aeronautics and Space Administration, the National

Oceanic and Atmospheric Administration, and the Federal Aviation Administration, through the remainder of GFY

2024 which ended on September 30, 2024. A second funding bill, signed into law on March 23, 2024, funded all

remaining agencies, including the DoD, through the remainder of GFY 2024. The bill provided approximately

$844 billion in funding for DoD. This was in line with our expectations for 3% growth for defense over GFY 2023

levels and in line with the first year of the Fiscal Responsibility Act of 2023 (“FRA”) caps.

On March 11, 2024, the President’s Budget Request for GFY 2025 was released. The DoD requested

$850 billion, a 1% topline increase consistent with the FRA caps.

On April 24, 2024, the President signed into law a supplemental GFY 2024 appropriations package that included

$67 billion in funding for key DoD programs, bringing the DoD funding for GFY 2024 to $911 billion.

Congress has not yet reached a final agreement on GFY 2025 funding. A short-term CR was enacted on

December 21, 2024 that will fund the U.S. Government until March 14, 2025. While operating under a CR,

government agencies are allocated a portion of GFY 2024 enacted funds, and DoD is prohibited from starting new

programs. If Congress does not enact all 12 GFY 2025 appropriations bills by April 30, 2025, a 1% automatic

sequestration cut will go into effect as mandated by the FRA.

Further complicating the budget outlook is the need to raise the debt ceiling in 2025. Congressional inaction

may lead to a default and potentially create economic instability.

The overall defense spending environment, both in the U.S. and internationally, reflects the continued impacts of

global conflicts and geopolitical tensions, and changes to U.S. Government or international spending priorities have

and could in the future impact our business.

For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business -

International Business,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.

Economic Environment

The macroeconomic environment continues to present challenges, which have impacted our business and may

continue to impact our future results. The ongoing uncertainty relates to the impacts of inflation, interest rates and

ongoing federal deficits, which could raise the cost of borrowing for the federal government impacting U.S.

Government spending priorities and the demand for our products. For a discussion of inflation-related risks, see

“Item 1A. Risk Factors” of this Report.

Operating Environment, Strategic Priorities and Key Performance Measures

As a proven alternative to traditional primes and new entrants, our flexible business model allows us to operate

as either a prime, merchant supplier, or subcontractor, offering both commercial pricing and traditional government

acquisition approaches. Our products are used across many customer platforms and this platform-agnostic

approach gives us a unique advantage in rapidly adapting to the changing threat environment while effectively

partnering with new entrants and non-traditional contractors. Customer demand for our solutions remains robust,

and we ended fiscal 2024 with backlog of $34.2 billion, a 5% increase over the prior year. Also in fiscal 2024, we

invested $515 million (2% of total revenue) in company-funded R&D focused on technologies that expand our

capabilities across our domains.

In fiscal 2024, we made considerable progress with our LHX NeXt initiative, our targeted three-year program

designed to enhance organizational agility and performance by leveraging our scale and relationships across

segments, driving operational efficiency and competitiveness for the enterprise. With this program we are investing

in enterprise tools and optimized, revamped processes to unlock further opportunities for margin expansion and

create additional value for our shareholders.

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Our strategic priorities continue to be performance, growth and innovation. We plan to continue to invest,

consistent with profitable growth opportunities, and sustain our culture of innovation, while delivering on our

commitments to investors, our customers and on every contract we are awarded.  We intend to accomplish this by:

•Building upon our solid foundation and operational rigor to execute for our customers;

•Focusing on profitable growth while securing strategic positions as a prime or subcontractor; and

•Leveraging innovation as a competitive advantage to develop rapid solutions.

We use the following key financial performance measures to manage our business, which are discussed in detail

below in the “Operations Review” and “Liquidity and Capital Resources” sections of this MD&A:

•Revenue;

•Operating income and margin; and

•Net cash provided by operating activities.

We use these measures, along with other performance measures that are not defined by U.S. Generally

Accepted Accounting Principles (“GAAP”), to assess the success of our business and our ability to create

shareholder value. We believe these measures are balanced among long-term and short-term performance, growth

and innovation. We also use some of these and other performance metrics for executive compensation purposes.

OPERATIONS REVIEW

Consolidated Results of Operations

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

(2)“EPS” is defined as Earnings Per Share.

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Revenue. As described in more detail in Note 13: Acquisitions and Divestitures and elsewhere in the Notes,

during fiscal 2024 and 2023, we completed certain business divestitures. There was no significant revenue

attributable to divested businesses.

Products revenue. The following table presents products revenue by segment, net of intersegment:

Products revenue for fiscal 2024 increased $1,440 million, due to the inclusion of a full year of products revenue

from AR, rather than a partial year of revenue in fiscal 2023 (“the AR Partial Year”) following the July 28, 2023

acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”), as well as increased products revenues of $441 million

and $264 million at CS and IMS, respectively, partially offset by decreased products revenue of $91 million at SAS.

Services revenue. The following table presents services revenue by segment, net of intersegment:

Services revenue for fiscal 2024 increased $466 million, from the inclusion of a full year of services revenue

from AR rather than the AR Partial Year, as well as increased services revenue of $101 million at SAS, partially offset

by decreased services revenues of $68 million and $36 million at CS and IMS, respectively.

See the “Business Segment Results of Operations” discussion below in this MD&A for further information.

Cost of Revenue.

Cost of products revenue. The following table presents cost of products revenue by segment, net of

intersegment:

Cost of products revenue increased $1,308 million primarily from the inclusion of a full year of cost of products

revenue from AR rather than the AR Partial Year and increased cost of products revenue of $419 million and $214

million at CS and IMS, respectively.

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Cost of services revenue. The following table presents cost of services revenue by segment, net of intersegment:

Cost of services revenue increased $187 million, primarily from the inclusion of a full year of cost of services

revenue from AR rather than the AR Partial Year and increased cost of services revenue of $61 million at SAS,

partially offset by decreased cost of services revenue of $163 million and $47 million at CS and IMS, respectively.

Gross Margin. Gross margin for fiscal 2024 increased compared to fiscal 2023, largely due to the increases in

revenue noted above and a favorable net change in estimate at completion (“EAC”) adjustments which increased

gross margin by $124 million, partially offset by a higher mix of lower margin revenue, primarily in our CS segment.

Gross margin as a percentage of revenue remained flat compared to fiscal 2023. For discussion of operating income

by segment see “Business Segment Results of Operations” below in this MD&A for further information.

General and Administrative (“G&A”) Expenses. The following table presents the components of G&A expenses:

______________

(1)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party

consulting, workforce optimization and incremental IT expenses for implementation of new systems.

(2)See Note 13: Acquisitions and Divestitures in the Notes for further information.

(3)Includes other segment G&A expenses such as payroll and benefits, outside services, facilities, insurance and other expenses, as well as

unallocated corporate expenses, such as a portion of management and administration, legal, environmental, compensation, retiree benefits

and other corporate G&A expenses and eliminations.

G&A expenses increased $255 million for fiscal 2024 compared with fiscal 2023 primarily due to increases in

LHX NeXt implementation costs, including $42 million related to employee severance charges and $110 million for

third-party consulting expenses, incremental IT expenses for implementation of new systems and other costs. G&A

expenses also increased from higher amortization of acquisition-related intangibles, partially offset by a decrease in

merger, acquisition, and divestiture-related expenses. Additionally, other G&A expenses increased $85 million

primarily due to increases of $97 million in our AR segment from the AR Partial Year and $86 million in corporate,

primarily from increases related to corporate-led initiatives and a $15 million legal reserve, partially offset by

decreases in other G&A costs of $84 million and $15 million in our SAS and CS segments, respectively, primarily

from LHX NeXt driven cost savings.

Impairment of Goodwill and Other Assets. In fiscal 2024, we recognized a $14 million non-cash charge for

impairment of goodwill in connection with the divestiture of our antenna and related businesses (“Antenna disposal

group”) and a $24 million non-cash charge for impairment of other assets at CS associated with the Tactical Data

Links (“TDL”) acquisition. In fiscal 2023, we recognized a $296 million non-cash charge for impairment of goodwill

in connection with the pending divestiture of our CAS disposal group and $78 million of other asset impairments

associated with in-process R&D, customer contracts and a facility closure.

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Non-service FAS Pension Income and Other, Net. The following table presents the components of non-service

FAS pension income and other, net:

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(1)Includes interest cost, expected return on plan assets, amortization of net actuarial gain, and amortization of prior service (credit) cost

components of net periodic benefit income under our defined benefit plans. See Note 9: Retirement Benefits in the Notes for more

information on the composition of non-service FAS pension income.

(2)Other, net primarily includes changes in the market value of our rabbi trust assets, gains and losses on our equity investments in

nonconsolidated affiliates and royalty income.

Interest Expense, Net. Our net interest expense increased $132 million in fiscal 2024 compared with fiscal 2023

primarily due to a full year of interest on the $3.25 billion aggregate principal amount of fixed-rate debt issued in

July 2023 in connection with the AJRD acquisition, the issuance of $2.25 billion aggregate principal amount of long-

term fixed-rate debt in March 2024 and higher average outstanding notes under our commercial paper program (“CP

Program”) during fiscal 2024, partially offset by repayment of the entire outstanding $2.25 billion, three-year senior

unsecured term loan facility (“Term Loan 2025”) in March 2024. See the “Liquidity and Capital Resources”

discussion below in this MD&A and Note 8: Debt and Credit Arrangements in the Notes for further information.

Income Taxes. Our effective tax rate increased to 5.3% in fiscal 2024 compared with 1.9% in fiscal 2023. Our

effective tax rate for both years benefited from R&D credits, tax deductions for foreign derived intangible income

(“FDII”) and favorable resolution of specific audit uncertainties. The year-over-year increase in the rate is the result

of favorable impacts of divestitures and internal restructuring in fiscal 2023, partially offset by favorable

adjustments to our valuation allowance position as a result of our ability to utilize certain state tax credits in fiscal

2024. See Note 7: Income Taxes in the Notes for further information.

Diluted EPS. Diluted EPS increased 22% in fiscal 2024 compared with fiscal 2023 primarily due to higher net

income from the combined effects of reasons noted in the sections above, notably the absence of a prior year CAS

disposal group goodwill impairment and an increase in fiscal 2024 gross margin, partially offset by increases in G&A

expenses and interest expense, net.

Business Segment Results of Operations

SAS. Our SAS segment includes space payloads, sensors and full-mission solutions; classified intelligence and

cyber; airborne combat systems, and mission networks for air traffic management operations. See “Item 1. Business”

of this Report for a description of the sectors in SAS.

SAS segment revenue remained flat in fiscal 2024 compared with fiscal 2023 due to higher revenues of $138

million in Intel & Cyber, primarily from program growth and $82 million in Mission Networks from higher volumes,

offset by lower revenues of $217 million in Airborne Combat Systems, from lower revenue of $115 million

associated with the divestiture of the Antenna disposal group and the remaining decrease primarily from lower F-35

related volume as TR-3 development transitions from development to a more gradual production ramp. At

January 3, 2025 and December 29, 2023, SAS segment ending backlog was $9.4 billion and $9.5 billion,

respectively.

SAS segment operating income increased in fiscal 2024 compared with fiscal 2023, primarily due to LHX NeXt

driven cost savings realized during fiscal 2024, higher volume in Mission Networks and $46 million from the

monetization of legacy end of life assets, aligned with our transformation and value creation priorities, in addition to

the impact of a $27 million non-cash charge for impairment of other assets which occurred during fiscal 2023. Such

increase was partially offset by unfavorable EAC adjustments from program execution on classified fixed-price

development programs in Space Systems that are in the later stages of completion.

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IMS. Our IMS segment includes ISR; passive sensing and targeting; electronic attack; autonomy; power and

communications; networks; sensors; aviation products; and pilot training operations. See “Item 1. Business” of this

Report for a description of the sectors in IMS.

IMS segment revenue increased in fiscal 2024 compared with fiscal 2023 primarily due to higher revenues of

$73 million in Defense Electronics from higher demand for advanced electronics, $56 million in ISR from higher

aircraft missionization volume, $49 million in Commercial Aviation Solutions from higher volume, $31 million in

Global Optical Systems from higher commercial revenue for airborne electro-optical sensors and $27 million in

Maritime from volume on classified programs. At January 3, 2025 and December 29, 2023, IMS segment ending

backlog was $10.5 billion and $9.7 billion, respectively.

IMS segment operating income increased in fiscal 2024 compared with fiscal 2023 primarily due to a

$296 million non-cash charge for impairment of goodwill associated with the CAS disposal group in fiscal 2023, in

addition to improved program performance of $69 million, higher overall revenue volumes and LHX NeXt driven cost

savings realized in fiscal 2024.

CS. Our CS segment includes tactical communications with global communications solutions; broadband

communications; integrated vision solutions; and public safety radios, system applications and equipment. See

“Item 1. Business” of this Report for a description of the sectors in CS.

CS segment revenue increased in fiscal 2024 compared with fiscal 2023 primarily due to higher revenues of

$208 million in Tactical Communications and $95 million in Integrated Vision Solutions associated with increased

domestic and international demand for our resilient communication equipment, related waveforms, and night vision

devices and $86 million in Broadband Communications from higher volumes. At January 3, 2025 and December 29,

2023, CS segment ending backlog was $7.3 billion and $6.3 billion, respectively.

CS segment operating income increased in fiscal 2024 compared with fiscal 2023 primarily due to LHX NeXt

driven cost savings realized during fiscal 2024, partially offset by a higher mix of domestic radios related to

competitive IDIQ contracts and a $24 million non-cash charge for impairment of other assets at Broadband

Communications related to the TDL acquisition.

AR. Our AR segment includes missile solutions with propulsion technologies for strategic defense, missile

defense, and hypersonic and tactical systems; and space propulsion and power systems for national security space

and exploration missions. See “Item 1. Business” of this Report for a description of the sectors in AR.

AR segment revenue and operating income increased in fiscal 2024 compared with fiscal 2023 primarily due to

the AR Partial Year. At January 3, 2025, AR segment ending backlog was $7.0 billion and $7.2 billion, respectively.

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Unallocated Corporate Expenses. Unallocated corporate expenses include the portion of corporate costs not

included in management’s evaluation of segment operating performance.

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(1)The increase in unallocated corporate department expense is primarily from increases related to corporate-led initiatives and a $15 million

legal reserve.

(2)Includes amortization of intangible assets acquired in connection with business combinations. Because our acquisitions benefit the entire

Company, the amortization was not allocated to any segment.

(3)See Note 13: Acquisitions and Divestitures in the Notes for further information.

(4)For fiscal 2024, includes a non-cash charge for impairment of goodwill related to our Antenna disposal group divestiture. For fiscal 2023,

includes a $21 million non-cash charge for impairment of in-process R&D associated with a facility closure and an $18 million non-cash

charge for impairment of a customer contract. See Note 13: Acquisitions and Divestitures and Note 6: Goodwill and Intangible Assets in the

Notes for further information.

(5)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including

third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems. For further information on

our LHX NeXt initiative and implementation costs see Note 14: Business Segments in the Notes and the “General and Administrative

Expenses” discussion above in this MD&A.

(6)Represents the difference between U.S. Government Cost Accounting Standards (“CAS”) pension cost and the service cost component of net

periodic benefit income under our defined benefit plans. See Note 1: Significant Accounting Policies in the Notes for additional information

regarding the FAS/CAS operating adjustment.

LIQUIDITY AND CAPITAL RESOURCES

We prioritize cash flow generation through our commitment to operational excellence, efficient balance sheet

management and continuous cost reduction efforts. We consistently assess various capital deployment options,

considering both our long-term outlook and the evolving market conditions, recognizing the importance of

adaptability as market dynamics change over time.

Our primary capital deployment priorities involve a focus on funding the business, including investing in training,

facilities and digital infrastructure, debt repayment to be achieved through the prioritization of capital allocation and

returning cash to our shareholders through dividends and share repurchases.

Capital Resources

As of January 3, 2025, we had cash and cash equivalents of $615 million, of which $300 million was held by our

foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.

Additionally, we have two credit facilities and a CP Program, supported by amounts available under the credit

facilities.

Credit Facilities. At January 3, 2025, we had no outstanding borrowings under our credit facilities, had available

borrowing capacity of $2,985 million, net of outstanding borrowings under our CP Program, and were in compliance

with all covenants under both of the following:

2024 Credit Facility. 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 with a syndicate of

lenders which matured on January 24, 2025 (“2024 Credit Agreement”). The 2024 Credit Agreement replaced the

prior $2.4 billion 364-Day Credit Agreement (“2023 Credit Agreement”).

2022 Credit Facility. On July 29, 2022, we established a $2.0 billion, 5-year senior unsecured revolving credit

facility (the “2022 Credit Facility”) under a Revolving Credit Agreement (the “2022 Credit Agreement”) entered into

with a syndicate of lenders.

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In fiscal 2025, we expect to refinance the 2022 Credit Agreement to increase the capacity and extend the

maturity of the existing facility. Additionally, in fiscal 2025, we expect to establish a new 364-day senior unsecured

revolving credit facility by entering into a 364-day credit agreement with a syndicate of lenders.

CP Program. At January 3, 2025, we had $515 million in outstanding notes under our CP Program. Under the CP

Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.0 billion. From

time to time, we use borrowings under the CP Program for general corporate purposes, including the funding of

acquisitions, debt repayment, dividend payments and repurchases of our common stock. See the “Financing

Activities” discussion below in this MD&A for further information about our CP Program.

Cash Flow

The following table provides a summary of our cash flow information:

Operating Activities. The $463 million increase in net cash provided by operating activities in fiscal 2024

compared with fiscal 2023 was primarily due to an increase in net income, excluding the impact of non-cash

adjustments, and tax planning strategies, partially offset by $220 million less cash provided by working capital (i.e.,

receivables, contract assets, inventories, accounts payable and contract liabilities), primarily due to timing.

Cash flow from operations was positive in all of our business segments in fiscal 2024.

Investing Activities. Our primary investing activities include net cash paid for acquired businesses, capital

expenditures and cash proceeds from sales of businesses.

The $6,758 million decrease in net cash used in investing activities in fiscal 2024 compared with fiscal 2023

was primarily due to the $6,688 million cash used for the acquisitions of TDL and AJRD in fiscal 2023 and an

increase of $202 million in net cash proceeds from the sale of businesses in fiscal 2024 (see “Divestitures” section

below), partially offset by $100 million of contributions to our rabbi trust assets in fiscal 2024.

Divestitures. During fiscal 2024, we completed the divestitures of our Antenna disposal group and Aerojet

Ordnance Tennessee, Inc. (“AOT disposal group”) for net cash proceeds of  $170 million and $103 million,

respectively. During fiscal 2023, we completed the divestiture of Visual Information Solutions for net cash proceeds

of $71 million. See Note 13: Acquisitions and Divestitures in the Notes for further information.

Financing Activities. Our primary financing activities include issuances of long-term debt and commercial paper,

exercises of employee stock options, repayments of long-term debt and commercial paper, dividend payments and

repurchases of common stock.

The $6,818 million change in net cash used in financing activities in fiscal 2024 compared with net cash

provided by financing activities in fiscal 2023 was primarily due to a decrease in net proceeds from long-term debt

and an increase in net repayments of commercial paper of $4,741 million and $2,683 million, respectively, partially

offset by a decrease in repayments of long-term debt of $550 million and an increase in proceeds from exercises of

employee stock options of $109 million.

Long-term debt. During fiscal 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount

of the new long-term fixed-rate debt consisting of the 5.05% 2029 Notes, the 5.25% 2031 Notes, and the 5.35%

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2034 Notes (collectively, the “March Issued 2024 Notes”) and closed the issuance and sale of $600 million

aggregate principal amount of the of the 5.50% Notes due 2054 (“5.50% 2054 Notes”).

We used the proceeds from the March Issued 2024 Notes to repay the entire $2.25 billion outstanding balance

of Term Loan 2025 and net proceeds from the 5.50% 2054 Notes to repay borrowings under our CP Program and

intend to use such proceeds to repay the $600 million in aggregate principal amount of 3.832% notes due April

2025 (“3.832% 2025 Notes”) upon maturity. Additionally, in fiscal 2024, we repaid the $350 million aggregate

principal amount of our 3.95% notes, due May 2024 (“3.95% 2024 Notes”).

During fiscal 2023, we drew $2.25 billion in long-term debt on Term Loan 2025 and utilized the proceeds to

fund the TDL acquisition, including a portion of associated transaction and integration costs, and to repay the entire

outstanding $250 million aggregate principal amount of our Floating Rate Notes due March 2023. Additionally, we

closed the issuance and sale of $3.25 billion aggregate principal amount of fixed-rate debt consisting of the 5.4%

2027 Notes, the 5.4% 2033 Notes and the 5.6% 2053 Notes (collectively, the “AJRD Notes”). The AJRD Notes were

used to fund a portion of the purchase price for the AJRD acquisition, and to pay related fees and expenses.

We repaid the entire outstanding $800 million aggregate principal amount of our 3.85% notes, due June 2023

(“3.85% 2023 Notes”) through cash.

CP program. During fiscal 2024, we had a maximum outstanding balance of $2,799 million and a daily average

outstanding balance of $2,100 million under our CP Program. We expect balances under the CP Program to remain

elevated as compared to historical norms through fiscal 2025.

Dividends. Information concerning our dividends is set forth above under “Item 5. Market for Registrant’s

Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.

Common stock repurchases. During fiscal 2024, we repurchased 2.5 million shares of our common stock under

our share repurchase program for $554 million. At January 3, 2025, we had a remaining unused authorization under

our repurchase program of $3,381 million.

During fiscal 2023, we repurchased 2.5 million shares of our common stock under our share repurchase

program for $518 million.

The level and timing of our repurchases depends on a number of factors, including our financial condition,

capital requirements, cash flows, results of operations, future business prospects and other factors our Board and

management may deem relevant. The timing, volume and nature of repurchases are also subject to market

conditions, applicable securities laws and other factors and are at our discretion and may be suspended or

discontinued at any time. Additional information regarding our repurchase program is set forth above under “Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of

this Report.

Cash Requirements

Total Fixed-Rate Debt. At January 3, 2025, we had fixed-rate debt, which reflects our total long-term debt,

including current portion but excluding finance leases, of $11.5 billion, of which $610 million is due within the next

12 months. The majority of our fixed-rate debt has been incurred in connection with merger and acquisition activity.

Additionally, we have outstanding interest on fixed-rate debt of $4.9 billion, of which $534 million is due within the

next 12 months. See Note 8: Debt and Credit Arrangements in the Notes for further information regarding our fixed-

rate debt.

Purchase Obligations. At January 3, 2025, we had purchase obligations of approximately $9.2 billion, of which

approximately 60% are due within the next 12 months. Our purchase obligations mainly consist of outstanding

commitments on open purchase orders made to suppliers, subcontractors and other outsourcing partners under

U.S. Government contracts and managed service agreements. Our risk associated with these purchase obligations is

generally limited to the termination liability provisions within such contracts. As such, we do not believe there to be

a material liquidity risk associated with outstanding purchase obligations.

Operating and finance lease commitments. At January 3, 2025, we had operating and finance lease

commitments of $1.2 billion, of which $199 million is due within the next 12 months. See Note 11: Leases in the

Notes for further information regarding our lease commitments.

Defined Benefit Pension Contributions. With respect to our U.S. qualified defined benefit pension plans, we

intend to contribute annually no less than the required minimum funding thresholds. In fiscal 2024, we made

approximately $30 million of contributions to our U.S. qualified defined benefit pension plans. We expect to make

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approximately $23 million of contributions to these plans in fiscal 2025 and may consider voluntary contributions

thereafter.

Future required contributions primarily will depend on the actual annual return on plan assets and the discount

rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting

funded status of our pension plans, the level of future statutory required minimum contributions could be material.

We had net defined benefit plan assets of $789 million as of January 3, 2025 compared with $66 million as of

December 29, 2023. The improvement in funded status as of January 3, 2025 is primarily due to more favorable

than expected return on plan assets and decreased pension obligations resulting from higher discount rates. See

Note 9: Retirement Benefits in the Notes for further information regarding our pension plans.

Commercial Commitments

We have entered into commercial commitments in the normal course of business including surety bonds,

standby letter of credit agreements and other arrangements with financial institutions and customers primarily

relating to the guarantee of future performance on certain contracts to provide products and services to customers

or to obtain insurance policies with our insurance carriers. See Note 15: Legal Proceedings, Commitments and

Contingencies in the Notes for additional information.

Liquidity Assessment

Given our current cash position, outlook for funds generated from operations, credit ratings, available credit

facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any

material issues with liquidity for the next 12 months and in the longer term, although we can give no assurances

concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties

and the state of global commerce and general political and global financial uncertainty.

Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated

from operations, availability under our senior unsecured credit facilities and our CP Program and access to the public

and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements,

capital expenditures, dividend payments, repurchases under our share repurchase program and repayments of our

debt securities at maturity for the next 12 months and the reasonably foreseeable future thereafter. Our capital

expenditures for fiscal 2025 are expected to be approximately 2% of revenue.

CRITICAL ACCOUNTING ESTIMATES

Preparation of this Report in accordance with GAAP requires us to make estimates and assumptions that affect

the reported amount of assets, liabilities, revenue, expenses and backlog as well as disclosure of contingent assets

and liabilities. While the following is not intended to be a comprehensive list of our accounting estimates, we

consider the estimates discussed below as critical to an understanding of our financial statements because their

application places the most significant demands on our judgment, with financial reporting results dependent on

estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific

risks for these critical accounting estimates are described in the following paragraphs. The impact and any

associated risks described in the following paragraphs related to these estimates on our business operations are

discussed throughout this MD&A where such estimates affect our reported and expected financial results. Senior

management has discussed the development and selection of the critical accounting estimates and the related

disclosure included herein with the Audit Committee of our Board. Actual results may differ from those estimates.

Revenue Recognition

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 percentage

of completion (“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.

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, the cost and availability of purchased materials and services, labor cost and

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

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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. These variable amounts generally are 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.

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. Cumulative EAC adjustments represent the

cumulative effect of the changes on 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. In fiscal 2024 and fiscal 2023,

earnings were impacted by recognition of net favorable EAC adjustments of $39 million and net unfavorable EAC

adjustments of $85 million, respectively.

During fiscal 2024, we recognized approximately $100 million in unfavorable EAC adjustments related to three

classified fixed-price development programs in Space Systems, however, there were no individual EAC adjustments

that were material to our results of operations on a consolidated or segment basis in fiscal 2024 or 2023.

We recognize revenue from numerous contracts with multiple performance obligations. For these contracts, 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 bundled sale with

any other products or services). The allocation of transaction price among separate performance obligations may

impact the timing of revenue recognition but will not change the total revenue recognized on the contract.

A substantial majority of our revenue is derived from contracts with the U.S. Government, including foreign

military sales contracts. These contracts are subject to the Federal Acquisition Regulation (“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, when standalone selling prices are not directly

observable, we also generally use the expected cost plus margin approach to determine standalone selling price. In

determining the appropriate margin under the cost plus margin approach, we consider historical margins on similar

products sold to similar customers or within similar geographies where objective evidence is available. We may also

consider our cost structure and profit objectives, the nature of the proposal, the effects of customization of pricing,

our practices used to establish pricing of bundled products, the expected technological life of the product, margins

earned on similar contracts with different customers and other factors to determine the appropriate margin.

Defined Benefit Plans

Certain of our current and former employees participate in defined benefit plans in the U.S., Canada and United

Kingdom, which are sponsored by L3Harris. See Note 9: Retirement Benefits in the Notes for additional information

related to our defined benefit plans.

Significant Assumptions

The determination of the projected benefit obligation (“PBO”) and recognition of net periodic benefit income

related to defined benefit plans depend on various assumptions, including discount rates, expected return on plan

assets, rate of future compensation increases, mortality, termination and other factors.

We develop assumptions using relevant experience, in conjunction with market-related data for each plan.

Assumptions are reviewed annually with third-party experts and adjusted as appropriate. Actual results that differ

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from our assumptions are accumulated and generally amortized for each plan to the extent required over the

estimated future life expectancy or, if applicable, the average remaining service period of the plan’s active

participants.

The following table presents the significant assumptions used to determine the PBO:

The following table presents the significant assumptions used to determine net periodic benefit income:

Discount Rate. The discount rate is used to calculate the present value of expected future benefit payments at

the measurement date. An increase in the discount rate decreases the PBO and generally decreases our net periodic

benefit income. A decrease in the discount rate increases the PBO and generally increases our net periodic benefit

income. The discount rate assumption is based on current investment yields of high-quality fixed income

investments during the retirement benefits maturity period. The pension discount rate is determined by considering

an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by

the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop

a single discount rate matching the plan’s characteristics.

Sensitivity Analysis. The sensitivity of the PBO to changes in the discount rate varies depending on the

magnitude and direction of the change in the discount rate. We estimate that a 25 basis point change in the discount

rate of our combined U.S. defined benefit pension plans would have the following impact on our PBO at January 3,

2025 and net periodic benefit income for the next twelve months:

Expected Return on Plan Assets. Substantially all of our plan assets are managed on a commingled basis in a

master investment trust. We determine our expected return on plan assets by evaluating both historical returns and

estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets over the

past 15, 20 and 25 years and historical broad market returns over long-term timeframes based on our strategic

allocation, which is detailed in Note 9: Retirement Benefits in the Notes. Future returns are based on independent

estimates of long-term asset class returns. Based on this approach, the weighted average long-term annual rate of

return on assets was estimated to be 7.45% for both fiscal 2024 and 2025.

Sensitivity Analysis. We estimate that a 25 basis point change in the expected return on plan assets of our

combined U.S. defined benefit pension plans would have the following impact on net periodic benefit income for the

next twelve months:

Goodwill

We test our goodwill for impairment annually as of the first business day of our fourth fiscal quarter, which was

September 30 in fiscal 2024, or under certain circumstances more frequently, such as when events or

circumstances indicate there may be impairment or when we reorganize our reporting structure such that the

composition of one or more of our reporting units is affected. 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

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segment. Some of our segments are comprised of several reporting units. Allocation of goodwill to several reporting

units could make it more likely that we will have an impairment charge in the future. An impairment charge to any

one of our reporting units could have a material impact on our financial condition and results of operations.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant

judgment. 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 determine it is more-likely-

than-not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative

assessment.

Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific

events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These

factors include: (i) deterioration in the general economy; (ii) deterioration in the environment in which we operate;

(iii) increase in materials, labor or other costs; (iv) negative or declining cash flows; (v) changes in management,

changes in strategy or significant litigation; (vi) changes in the composition or carrying amount of net assets or an

expectation of disposing all or a portion of the reporting unit; or (vii) a sustained decrease in share price.

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. Values derived from projected cash flows are corroborated through review of

revenue and/or earnings multiples applied to the latest twelve months’ revenue 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. The revenues and

earnings multiples applied to the revenues and earnings of our reporting units are based on current multiples of

revenues and earnings for similar businesses, and based on revenues 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 the fair value of a reporting unit exceeds its

carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit

exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Fiscal 2024 Impairment Tests. We performed our annual impairment test of all of our reporting units’ goodwill

as of September 30, 2024 and concluded that for each of our reporting units no impairment existed.

Business realignment. Effective for fiscal 2024, to better align our businesses, we adjusted our IMS segment by

realigning our Electro Optical and Maritime sectors, which are also reporting units, splitting Electro Optical into two

sectors, Global Optical Systems and Defense Electronics, and moving one Electro Optical business to the Maritime

sector. Global Optical Systems and Defense Electronics 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.

Antenna disposal group divestiture. For information related to the Antenna disposal group divestiture, including

goodwill allocation, impairment testing and resulting impairment see Note 6: Goodwill and Intangible Assets in the

Notes.

Fiscal 2023 Impairment Tests. For information related to fiscal 2023 impairment tests and resulting

impairments see Note 6: Goodwill and Intangible Assets in the Notes.

At-risk goodwill. Based on the fiscal 2024 annual impairment testing, all of our reporting units had clearances

above 25%. Based on the fiscal 2023 annual impairment testing, our Broadband reporting unit had clearance of

approximately 20% and goodwill of $2,656 million and our ISR and Electro Optical reporting units had clearances of

approximately 6% and goodwill of $3,186 million and $2,193 million, respectively.

An impairment of goodwill could result from a number of circumstances, including different assumptions used in

determining the fair value of the reporting units; changes to U.S. Government spending priorities or ability to win

competitively awarded contracts; an inability to meet our forecast; the rescission of significant contract awards as a

result of competitors protesting or challenging contracts awarded to us; or an increase in interest rates without a

corresponding increase in future revenue.

Goodwill-Related Fair Value Estimates. Fair value determinations described above under the heading

“Goodwill” in this Critical Accounting Estimates section of this MD&A were determined based on a combination of

market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions, and

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projected discounted cash flows. The process of evaluating the potential impairment of goodwill is highly subjective

and requires significant judgment. Material changes in these estimates could occur and result in additional

impairments in future periods.

Business Combinations

We account for business combinations using the acquisition method of accounting, whereby identifiable assets

acquired and liabilities assumed are measured at their estimated fair value as of the date of acquisition and any

excess of the fair value of consideration transferred over the fair values of identifiable assets and liabilities is

recorded as goodwill. See Note 13: Acquisitions and Divestitures in the Notes for additional information.

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 very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets

recorded on the Consolidated Balance Sheet and provide necessary valuation allowances as required. Future

realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate

character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under

the tax law. 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 not made any material changes in the methodologies used to determine our tax

valuation allowances during fiscal 2024.

Our Consolidated Balance Sheet as of January 3, 2025 included deferred tax assets of $120 million and

deferred tax liabilities of $942 million. For all jurisdictions in which we have net deferred tax assets, we expect that

our existing levels of pre-tax earnings are sufficient to generate the amount of future taxable income needed to

realize these tax assets. Our valuation allowance related to our deferred tax assets, which is reflected in our

Consolidated Balance Sheet, was $238 million as of January 3, 2025. Although we make reasonable efforts to

ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions, or are

unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or

time period within which the underlying temporary differences become taxable or deductible, or if the potential

impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or a

significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a

material adverse impact on our operating results.

The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim,

involves inherent uncertainty and requires the use of judgment. We evaluate our income tax positions and record tax

benefits for all years subject to examination based on our assessment of the facts and circumstances as of the

reporting date. For tax positions where it is more likely than not that a tax benefit will be realized, we record the

largest amount of tax benefit with a greater than 50% probability of being realized upon ultimate settlement with the

applicable taxing authority, assuming the taxing authority has full knowledge of all relevant information. For income

tax positions where it is not more likely than not that a tax benefit will be realized, we do not recognize a tax benefit

in our Consolidated Balance Sheet.

As of January 3, 2025, we had $758 million of unrecognized tax benefits, of which $666 million would favorably

impact our future tax rates in the event that the tax benefits are eventually recognized.

It is reasonably possible that there could be a significant change to our unrecognized tax benefits during the

course of the next twelve months as ongoing tax examinations continue, other tax examinations commence or

various statutes of limitations expire. However, an estimate of the range of possible changes is not practicable for

the remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business

and the number of open tax periods under various states of examination. See Note 7: Income Taxes in the Notes for

additional information.

Impact of Recently Adopted and Issued Accounting Pronouncements

See Note 1: Significant Accounting Policies in the Notes for information relating to the impact of recently adopted

and issued accounting pronouncements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations for fiscal 2023 compared with fiscal 2022. A discussion of fiscal 2022 compared to fiscal 2021 can be found in Part II: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2022 (our “Fiscal 2022 Form 10-K”). This MD&A is provided as a supplement to, should be read in conjunction with and is qualified in its entirety by reference to, our Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

OVERVIEW

We are 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. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products and services have defense and civil government

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applications, as well as commercial applications. As of December 29, 2023, we had approximately 50,000 employees, including approximately 20,000 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.

We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the four segments: SAS, IMS, CS and AR. See Note 14: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.

U.S. and International Budget Environment

Our largest customers are various departments and agencies of the U.S. Government — the percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 76%, 74% and 75%, in fiscal 2023, 2022 and 2021, respectively.

On December 29, 2022, the President signed the Consolidated Appropriations Act, 2023 (H.R. 2617 ) into law, which provided $858 billion of national defense funding for the 2023 GFY, of which $816 billion was allotted to the DoD. On March 13, 2023, the President’s Budget Request for GFY 2024 (“2024 PBR”) was released. The 2024 PBR includes $842 billion for the DoD, a proposed increase of approximately 3% over the enacted GFY 2023 DoD budget. Many of our offerings funded in the enacted GFY 2023 DoD budget are also supported by the 2024 PBR, including responsive satellites, ISR aircraft, tactical communications and maritime solutions.

On June 3, 2023, the President signed into law the Fiscal Responsibility Act of 2023 (“FRA”), (P.L., 118-5) which suspended the federal debt limit through January 1, 2025 and established new discretionary funding limits for defense and non-defense accounts. The deal capped GFY 2024 national defense funding at $886 billion, including $842 billion for the DoD specifically, and non-defense funding at $704 billion. The FRA includes a provision that requires if a CR is in effect on January 1, 2024, for any discretionary account, the discretionary spending limits would be revised to reflect GFY23 enacted levels for defense and nondefense, decreased by 1%. If a final GFY2024 appropriations bill is not enacted by April 30, the 1% spending cuts would go into effect.

On September 30, 2023, the President signed a short-term CR, funding the government for 48 days through November 17, 2023. On November 17, 2023, the President signed a second CR into law. The second CR funded some government agencies through January 19, 2024, and other agencies, including the DoD, through February 2, 2024. On January 19, 2024, the President signed a third CR into law extending government funding through March 1 and March 8, respectively. Congress must enact full-year GFY appropriations bills or another CR to fund the government by those respective deadlines. While operating under a CR, government agencies are allocated a portion of GFY 2023 enacted funds, and DoD is prohibited from starting new programs.

The overall defense spending environment, both in the U.S. and internationally, reflects the continued impacts of the conflicts in Ukraine and geopolitical tensions across Asia and the Middle East, and changes to U.S. Government or international spending priorities have and could in the future impact our business.

For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business -Government Contracts,” “Item 1. Business - International Business,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.

Economic Environment

The macroeconomic environment continues to present challenges, which have impacted and may continue to impact our future results. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, which raises the cost of borrowing for the federal government, could in the future impact U.S. Government spending priorities and the demand for our products.

For a discussion of inflation-related risks, see “Item 1A. Risk Factors” of this Report.

Acquisitions and Pending Divestitures

TDL Product Line. On January 3, 2023, we completed the acquisition of TDL for a purchase price of $1,958 million. TDL is reported within our CS segment.

AJRD. On July 28, 2023, we completed the acquisition of AJRD for a total net purchase price of $4,715 million. The operations of AJRD are reported in the newly established AR segment and in our corporate headquarters.

Pending Divestiture of CAS Disposal Group. On November 27, 2023, we announced that we entered into a definitive agreement to sell our CAS disposal group, which is included in our IMS segment.

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See Note 13: Acquisitions, Divestitures and Asset Sales in the Notes for further information.

Operating Environment, Strategic Priorities and Key Performance Measures

The heightened geopolitical tensions worldwide emphasize the need for strengthened deterrence to support the U.S. and its allies. With a national security, technology-focused portfolio, we are uniquely positioned to meet our customers’ evolving needs across all domains and deliver advanced capabilities to support the U.S. and its allies. Many of our offerings are supported in the 2024 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions. In fiscal 2023, we received several key strategic contract awards across each of our domains, and we ended the year with backlog of $32.7 billion, a 47% increase over the prior year. Also in fiscal 2023, we invested $480 million (2% of total revenue) in company-funded R&D focused on technologies that expand our capabilities across our domains.

As noted in the “Acquisitions and Pending Divestitures” section above, during fiscal 2023, we closed on two acquisitions. The TDL acquisition provides us access to the Link 16 network and positions us to make the installed base of terminals more resilient and relevant, consistent with joint all-domain command and control (“JADC2”) modernization efforts. The AJRD acquisition provides access to new markets in missiles and missile defense as well as space exploration.

This year, we embarked on the next phase of the L3Harris evolution, known as LHX NeXt, a targeted three-year program designed to enhance organizational agility and performance by leveraging our scale and relationships across segments, driving operational efficiency and competitiveness for the enterprise. With this program we are investing in enterprise tools and optimized, revamped processes to unlock further opportunities for margin expansion and create additional value for our shareholders.

Our strategic priorities continue to be performance, growth and innovation, with “Performance First” continuing to be our primary focus. We plan to continue to invest, consistent with growth opportunities, and sustain our culture of innovation, while delivering on our commitments to investors, our customers and on every contract we are awarded. We intend to accomplish this by:

•Relentlessly focusing on program execution and continuous improvement;

•Strengthening the risk management culture that has developed over the highly volatile past three years;

•Seamlessly integrating TDL and AJRD; and

•Attracting, developing and retaining the skilled workforce key to our role as a Trusted Disruptor.

We use the following key financial performance measures to manage our business, which are discussed in detail below in the “Operations Review” and “Liquidity and Capital Resources” sections of this MD&A:

•Revenue;

•Operating income and margin; and

•Net cash provided by operating activities.

We also measure the success of our business using certain measures that are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”), such as adjusted segment operating income (defined as operating income excluding certain corporate items and certain significant and/or nonrecurring items), earnings before interest and taxes, non-GAAP earnings per share, free cash flow (defined as net cash provided by operating activities less additions of property, plant and equipment net of proceeds from the sale of property, plant and equipment) and return on invested capital (defined as after-tax operating income from continuing operations divided by the five-point average of invested capital at the beginning and end of the period, where invested capital equals equity plus debt, less cash and cash equivalents), which may be calculated differently by other companies. We use these measures, along with our key financial performance measures above, to assess the success of our business and our ability to create shareholder value. We believe these measures are balanced among long-term and short-term performance, growth and innovation. We also use some of these and other performance metrics for executive compensation purposes.

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OPERATIONS REVIEW

Consolidated Results of Operations

_____

1“FAS” is defined as Financial Accounting Standards.

Revenue

As described in more detail in Note 13: Acquisitions, Divestitures and Asset Sales and elsewhere in the Notes, during fiscal 2023 and 2022, we completed certain asset group sales and business divestitures. There was no significant revenue attributable to divested businesses.

Revenue for fiscal 2023 increased 14% compared with fiscal 2022 from the inclusion of $1,052 million of revenue from the July 28, 2023 acquisition of AJRD, which is reported in our AR segment, and higher revenue in CS of $853 million (including $365 million of revenue from the acquisition of TDL) and SAS of $472 million. See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Gross margin

Gross margin for fiscal 2023 increased compared to fiscal 2022, largely due to the increases in revenue noted above, partially offset by an unfavorable net change in EAC adjustments which decreased gross margin by $121 million and a higher mix of lower margin revenue, primarily in our CS segment. Gross margin as a percentage of revenue decreased compared to fiscal 2022 from EAC adjustments and a higher mix of lower margin revenue, primarily in our CS segment. For discussion of operating income by segment see the “Discussion of Business Segment Results of Operations” below in this MD&A for further information.

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Segment Product and Service Analysis

The following tables present revenue and cost of revenue from products and services by segment.

_________________

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

Products revenue. Products revenue increased $1,598 million, from the inclusion of $752 million of products revenue from AR, as well as increases of $687 million at CS, primarily from the inclusion of TDL, and of $305 million at SAS, respectively. Such increases were partially offset by a decrease of $146 million at IMS.

Cost of product revenue. Cost of product revenue increased $1,356 million, primarily from the inclusion of $558 million of cost of product revenue from AR and an increase of $366 million at CS, in line with the increase in product revenue and primarily from the inclusion of TDL. The increase was also attributable to an increase in cost of product revenue of $380 million at SAS, primarily from an increase in products revenue in Space Systems and $47 million at IMS.

Services revenue. Services revenue increased $759 million, from the inclusion of $300 million of services revenue from AR, as well as increases of $167 million at SAS, $158 million at CS, primarily from the inclusion of TDL, and $134 million at IMS.

Cost of services revenue. Cost of services revenue increased $815 million, primarily from the inclusion of $259 million of cost of services revenue from AR and an increase of $245 million, higher costs of services revenue at CS primarily from the inclusion of TDL, and $190 million and $130 million higher costs of services revenue at SAS and IMS respectively, primarily due to a larger volume of lower margin service sales.

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General and administrative expenses

Major components of General and administrative expenses (“G&A”) were as follows:

______________

(1)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems.

(2)Other G&A expenses primarily includes unallocated corporate expenses and segment G&A expense.

In fiscal 2023, G&A expenses increased due to the inclusion of costs from our LHX NeXt initiative, as discussed in more detail under the “Operating Environment, Strategic Priorities and Key Performance Measures” section above in this MD&A, as well as increases in amortization of acquisition-related intangibles and an increase in Other G&A expenses as described below. Such increases were partially offset by a decrease in R&D costs and decreases from charges for severance and other termination costs and charges related to an additional pre-merger legal contingency that occurred in fiscal 2022.

For fiscal 2023, the increase in other G&A expenses of $190 million is attributable to increases of $39 million at our CS segment, partially from the inclusion of TDL and $16 million at our IMS segment, as well as the inclusion of approximately $75 million of other G&A expenses in our new AR segment, partially offset by a decrease in other G&A expenses in our SAS segment of $8 million. The remaining amount is attributable to an increase in corporate other G&A expenses and eliminations.

Asset group and business divestiture-related (losses) gains, net

During fiscal 2023, pre-tax losses, net, consist of a $77 million loss associated with the pending divestiture of the CAS disposal group within the IMS segment, partially offset by a $26 million pre-tax gain recognized on divestiture of our Visual Information Solutions (“VIS”) business from our SAS segment.

During fiscal 2022, we completed one business divestiture and one asset sale from our IMS segment and recognized a pre-tax gain of $8 million associated with the asset sale. See Note 13: Acquisitions, Divestitures and Asset Sales in the Notes for further information.

Impairment of goodwill and other assets

Impairment of goodwill and other assets consisted of the following non-cash charges:

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______________

(1) See Note 6: Goodwill and Intangible Assets in the Notes for further information.

Non-service FAS pension income and other, net

Included in this caption is non-service FAS pension income and other non-operating income and expenses. Non-service FAS pension income of $310 million in fiscal 2023 decreased $131 million compared with fiscal 2022 primarily due to the $170 million increase in interest cost due to a higher discount rate in fiscal 2023, partially offset by a $31 million increase in amortization of net actuarial gains. Other non-operating income, net of $28 million in fiscal 2023 increased $44 million from non-operating expense, net of $16 million in fiscal 2022 primarily from changes in the market value of our rabbi trust assets, gains and losses on our equity investments in nonconsolidated affiliates and royalty income.

See Note 9: Retirement Benefits in the Notes for more information on the composition of non-service cost components of FAS pension and other postretirement benefits (“OPEB”) income and expense.

Interest expense, net

Our net interest expense increased in fiscal 2023 compared with fiscal 2022 primarily due to interest expense of $207 million on the $5.5 billion of long-term debt issued in fiscal 2023 and $69 million increase in interest expense on outstanding notes under our commercial paper program (“CP Program”) during fiscal 2023, both of which were primarily due to the acquisitions of TDL and AJRD. See Note 8: Debt and Credit Arrangements in the Notes for further information.

Income taxes

Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 1.9% in fiscal 2023 compared with 16.7% in fiscal 2022. The decrease was primarily attributable to favorable impacts of divestitures and internal restructuring and the reduction of unfavorable non-deductible goodwill impairments experienced in fiscal 2022. See Note 7: Income Taxes in the Notes for further information.

Net income per common share attributable to L3Harris Technologies, Inc. common shareholders

The increase in income from continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2023 compared with fiscal 2022 was primarily due to higher net income and fewer diluted weighted average common shares outstanding, primarily reflecting the repurchases of our common stock under our share repurchase program during fiscal 2023. See the “Common Stock Repurchases” discussion below in this MD&A for further information.

Discussion of Business Segment Results of Operations

Effective for fiscal 2023, we adjusted our reporting to better align our businesses and transferred our ADG business from our IMS segment to our SAS segment. Additionally, upon completion of the AJRD acquisition on July 28, 2023, we established a new reportable segment, AR.

The historical results, discussion and presentation of our business segments as set forth in this MD&A reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of operations, balance sheets, statements of cash flows or statements of equity resulting from these changes.

SAS Segment

Our SAS segment includes space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare; and mission networks for air traffic management operations. See “Item 1: Business” of this Report for a description of the sectors in SAS.

The increase in SAS revenue in fiscal 2023 compared with fiscal 2022 was primarily due to higher revenue of $445 million from program growth in Space Systems, Mission Networks and Intel and Cyber.

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The increases in SAS operating income and operating margin in fiscal 2023 compared with fiscal 2022 were primarily due to higher volume, $66 million of lower R&D expenses, $53 million of lower non-cash charges for impairment of goodwill and other assets, lower overhead costs and favorable mix in Space Systems due to a non-recurring license sale during fiscal 2023. Such increases were partially offset by $40 million change in EAC adjustments from program execution during fiscal 2023.

IMS Segment

Our IMS segment includes ISR; passive sensing and targeting; electronic attack; autonomy; power and communications; networks; sensors; aviation products; and pilot training operations. See “Item 1: Business” of this Report for a description of the sectors in IMS.

The flat IMS revenue in fiscal 2023 compared with fiscal 2022 was primarily due to lower revenue of $179 million in ISR largely from lower aircraft missionization volume, offset by higher revenues of $69 million in Electro Optical from higher volume in space and sensors, $63 million in Maritime largely from volume in classified programs, power and energy solutions and international and $61 million in Commercial Aviation Solutions from volume.

The decrease in IMS operating income and operating margin in fiscal 2023 compared with fiscal 2022 were primarily due to a net change in EAC adjustments of $103 million, principally in ISR and in Maritime from net unfavorable EAC adjustments in fiscal 2023 due to program execution, and the sale of $33 million of end-of-life inventory in Commercial Aviation Systems during fiscal 2022. Such decreases were partially offset by $64 million of lower R&D expenses and $59 million of lower non-cash charges for impairment of goodwill and other assets in fiscal 2023.

CS Segment

Our CS segment includes tactical communications with global communications solutions; broadband communications; integrated vision solutions; and public safety radios, system applications and equipment. See “Item 1: Business” of this Report for a description of the sectors in CS.

The increase in CS revenue in fiscal 2023 compared with fiscal 2022 was primarily due to higher revenue of $464 million in Broadband Communications, from the inclusion of $365 million of revenue from the acquisition of TDL and higher volume on legacy Broadband Communications platforms and $318 million in Tactical Communications and $83 million in Public Safety, both from increased demand and improved electronic component availability.

The increases in CS operating income and operating margin in fiscal 2023 compared with fiscal 2022 were primarily due to higher volume during fiscal 2023, including operating income of $131 million from the TDL acquisition and absence of a $355 million non-cash charge for impairment of goodwill recorded in our Broadband reporting unit in fiscal 2022. The increase in CS operating margin was partially offset by a higher mix of lower margin revenue, principally in Public Safety and IVS.

AR Segment

Our AR segment includes missile solutions with propulsion technologies for strategic defense, missile defense, and hypersonic and tactical systems; and space propulsion and power systems for national security space and exploration missions. See “Item 1: Business” of this Report for a description of the sectors in AR. AR is a new reportable segment established in the quarter ended September 29, 2023 and as such, there is no comparable prior

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year information.

Fiscal 2023 results were driven by program performance across Missile Solutions and Space Propulsion and Power Systems portfolios from the July 28, 2023 acquisition date through December 29, 2023. Operating income was impacted by operational inefficiencies, partially offset by integration benefits recognized in fiscal 2023.

Unallocated Corporate Expenses

Total unallocated corporate expense includes the portion of corporate costs not included in management’s evaluation of segment operating performance. Unallocated corporate expenses increased $441 million in fiscal 2023 compared with fiscal 2022, primarily from an increase of $174 million of amortization of acquisition-related intangibles related to the inclusion of TDL and AJRD, the inclusion of $115 million of LHX NeXt related implementation costs (see discussion under “LHX NeXt implementation costs” below), higher asset group and business divestiture-related losses of $59 million and a $42 million expense during fiscal 2023 compared with $29 million of income during fiscal 2022 related to our deferred compensation plans.

LHX NeXt implementation costs. LHX NeXt is our initiative to transform multiple functions, systems and processes to increase agility and competitiveness. Costs related to the LHX NeXt effort are expected to continue through 2025, and are expected to include workforce optimization costs, incremental IT expenses for implementation of new systems, third-party consulting expenses and other related costs.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

We prioritize cash flow generation through our commitment to operational excellence, efficient balance sheet management and continuous cost reduction efforts. We consistently assess various capital deployment options, considering both our long-term outlook and the evolving market conditions, recognizing the importance of adaptability as market dynamics change over time.

Our primary capital deployment priorities involve a focus on funding the business, debt repayment to be achieved through the prioritization of capital allocation, potentially accelerated with proceeds from non-core asset divestitures, and returning cash to our shareholders through dividends and share repurchases.

As of December 29, 2023, we had cash and cash equivalents of $560 million, of which $343 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost. Additionally, we have two credit facilities and a commercial paper program. See the “Capital Structure and Resources” discussion below in this MD&A for further information about our credit facilities and CP Program.

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Cash Flows

Net cash provided by operating activities: The $62 million decrease in net cash provided by operating activities in fiscal 2023 compared with fiscal 2022 was primarily due to increases in payments of income taxes of $406 million and interest of $193 million on the $2.25 billion, three-year senior unsecured term loan facility (“Term Loan 2025”), the $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 our CP Program, partially offset by less cash used to fund net working capital (i.e., receivables, contract assets, inventories, accounts payable and contract liabilities).

Cash flow from operations was positive in all of our business segments in fiscal 2023.

Net cash used in investing activities: The $6.8 billion increase in net cash used in investing activities in fiscal 2023 compared with fiscal 2022 was primarily due to the $6.7 billion cash used for the acquisitions of TDL and AJRD during the first quarter and third quarter of fiscal 2023, respectively.

Net cash provided by (used in) financing activities: The $6.5 billion increase in net cash provided by financing activities in fiscal 2023 compared with fiscal 2022 was primarily due to the issuance and sale of $3.25 billion aggregate principal amount of new AJRD Notes, $2.25 billion in proceeds from borrowings on Term Loan 2025, of which $2.0 billion was utilized for the TDL acquisition, $1.6 billion in net proceeds from issuances of commercial paper and the $565 million decrease in cash used to repurchase our common stock under our share repurchase program. Such amounts were partially offset by an increase in repayments of borrowings, including the $800 million aggregate principal amount of our 3.85% 2023 Notes and the $250 million aggregate principal amount of our Floating Rate Notes due March 2023 (“Floating 2023 Notes”).

Capital Structure and Resources

Long-Term Debt, Net

We had $11.5 billion of long-term debt, net, including the current portion of long-term debt, net and financing lease obligations, outstanding at December 29, 2023, the majority of which we incurred in connection with merger and acquisition activity.

Long-Term Variable-Rate Debt. During fiscal 2023, we drew $2.25 billion in long-term debt on Term Loan 2025. The proceeds were utilized to fund the cash consideration paid and a portion of the associated transaction and integration costs related to the TDL acquisition and repay the entire outstanding $250 million aggregate principal amount of our Floating 2023 Notes. See Note 8: Debt and Credit Arrangements in the Notes for further information on our long-term fixed-rate debt.

Long-Term Fixed-Rate Debt. On June 15, 2023, we repaid the entire outstanding $800 million aggregate principal amount of our 3.85% 2023 Notes through cash on hand and the issuance of commercial paper. The commercial paper issued to fund repayment of the 3.85% 2023 Notes was repaid during fiscal 2023.

On July 31, 2023, we closed the issuance and sale of $3.25 billion aggregate principal amount of the AJRD Notes. The AJRD Notes were used to fund a portion of the purchase price for the AJRD acquisition, which closed on

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July 28, 2023, and to pay related fees and expenses. See Note 8: Debt and Credit Arrangements in the Notes for further information on our long-term variable-rate debt.

Short-Term Debt, Credit Arrangements and CP Program

We had $1.6 billion of short-term debt at December 29, 2023, consisting of outstanding notes under the CP Program and local borrowing by international subsidiaries for working capital needs. See Note 8: Debt and Credit Arrangements in the Notes for further information on Credit Arrangements and CP Program.

2023 Credit Agreement. On March 10, 2023, we established a $2.4 billion, 364-day senior unsecured revolving credit facility (“2023 Credit Facility”) by entering into a 364-Day Credit Agreement (“2023 Credit Agreement”) with a syndicate of lenders. Proceeds of the initial funding of loans under the 2023 Credit Agreement were required to be used to finance a portion of the purchase price for the acquisition of AJRD and for the fees, taxes, costs and related expenses related to it, and thereafter may be used for working capital purposes.

On July 28, 2023, we borrowed $2.1 billion under the 2023 Credit Agreement and used the proceeds together with proceeds from the AJRD Notes to fund the acquisition of AJRD and to pay related fees and expenses. All borrowings under the 2023 Credit Agreement were repaid with proceeds of commercial paper issued during fiscal 2023. At December 29, 2023, we had no outstanding borrowings under the 2023 Credit Agreement, had available borrowing capacity of $800 million, net of outstanding CP Program borrowings, and were in compliance with all covenants under the 2023 Credit Agreement.

On January 26, 2024, we replaced the 2023 Credit Agreement with a new $1.5 billion, 364-day senior unsecured revolving credit facility maturing no later than January 24, 2025.

2022 Credit Agreement. We have a $2.0 billion, 5-year senior unsecured revolving credit facility (the “2022 Credit Facility”) under a Revolving Credit Agreement (the “2022 Credit Agreement”) entered into on July 29, 2022 with a syndicate of lenders, which the lenders may agree to increase by up to $1.0 billion upon our request.

At December 29, 2023, we had no outstanding borrowings and were in compliance with all covenants under the 2022 Credit Agreement.

Commercial Paper Programs. On March 14, 2023, we established the CP Program, which is supported by amounts unused and available under the 2022 Credit Agreement and the 2023 Credit Agreement. From time to time, we use borrowings under the CP Program for general corporate purposes, including the funding of acquisitions, debt refinancing, dividend payments and repurchases of our common stock. We terminated our prior existing $1.0 billion commercial paper program during fiscal 2023.

During fiscal 2023, we had a maximum outstanding balance of $3.0 billion under our CP Program, which we primarily used to repay $2.1 billion outstanding under the 2023 Credit Agreement, a portion of which was repaid with cash on hand during the second half of fiscal 2023.

Amounts outstanding under the CP Program at December 29, 2023 and the daily average balance and weighted average yield during fiscal 2023 were as follows:

We expect balances under the CP Program to remain elevated as compared to historical norms through fiscal 2025.

Liquidity Assessment

Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term, although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties and the state of global commerce and general political and global financial uncertainty.

Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, availability under our senior unsecured credit facilities and our CP Program and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures, dividend payments, repurchases under our share repurchase program and repayments of our debt securities at maturity for the next twelve months and the reasonably foreseeable future thereafter. Our total

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additions of property, plant and equipment net of proceeds from the sale of property, plant and equipment for fiscal 2024 are expected to be approximately 2% of revenue. Other than operating expenses, cash uses for fiscal 2024 are expected to consist primarily of additions of property, plant and equipment, dividend payments, debt repayments, costs associated with our LHX NeXt program and repurchases under our share repurchase program.

Purchase of Tax Credits under Inflation Reduction Act of 2022 (“IRA”)

The IRA includes a new transferability provision under Section 6418 of the Internal Revenue Code which permits, in certain circumstances, the sale of federal income tax credits generated from renewable and alternative energy sources. During the year ended December 29, 2023, we entered into a binding agreement to purchase tax credits totaling $51 million for the 2023 tax year for a net purchase price of $0.95 per $1.00 of tax credits, allowing us to reduce our 2023 federal income taxes payable by the amount of credits we expect to claim on our tax returns as a result of our binding agreement. We have recorded a liability to the transferor for the amount owed in the “Other accrued items” line of the Consolidated Balance Sheet. We have recorded an income tax benefit of $2 million for the difference between the amount paid or to be paid to the transferor and the reduction to our taxes payable in the “Income taxes” line of the Consolidated Statement of Operations.

Funding of Pension Plans

With respect to our U.S. qualified defined benefit pension plans, we intend to contribute annually no less than the required minimum funding thresholds. As a result of prior voluntary contributions and plan performance, we made no material contributions to our U.S. qualified defined benefit pension plans in fiscal 2023. We expect to make approximately $35 million of contributions to these plans in fiscal 2024, and may consider voluntary contributions thereafter.

Future required contributions primarily will depend on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory required minimum contributions could be material. We had net defined benefit plan assets of $66 million as of December 29, 2023 compared with net unfunded defined benefit plan obligations of $69 million as of December 30, 2022. The improvement in the funded status as of December 29, 2023 is primarily due to more favorable than expected return on plan assets, partially offset by increased pension obligations resulting from lower discount rates. See Note 9: Retirement Benefits in the Notes for further information regarding our pension plans.

Common Stock Repurchases

During fiscal 2023 and 2022, $30 million and $45 million, respectively, in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares repurchased by us are cancelled and retired.

At December 29, 2023, we had a remaining unused authorization under our repurchase program of $3.9 billion.

Our repurchase program does not have a stated expiration date and authorizes us to repurchase shares of our common stock through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. We have announced that share repurchases will be moderated in the near-term, but the level and timing of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board and management may deem relevant. The timing, volume and nature of repurchases are also subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Additional information regarding our repurchase program is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.

Dividends

Information concerning our dividends is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.

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Material Cash Requirements and Commercial Commitments

Current and long-term material cash requirements at December 29, 2023 are as follows:

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(1)Does not include amounts for finance lease commitments.

(2)As a result of prior voluntary contributions and plan performance, we made no material contributions to our U.S. qualified defined benefit pension plans in fiscal 2023. We expect to make approximately $35 million in contributions to these plans in fiscal 2024, and may consider voluntary contributions thereafter. In addition, we made no material contributions to our non-U.S. pension plans in fiscal 2023 and do not expect to make any material contributions to these plans in fiscal 2024.

(3)The above table does not include unrecognized tax benefits of $652 million.

Purchase obligations mainly consist of outstanding commitments on open purchase orders made to suppliers, subcontractors and other outsourcing partners under U.S. government contracts. Our risk associated with these purchase obligations is generally limited to the termination liability provisions within such contracts. As such, we do not believe there to be a material liquidity risk associated with outstanding purchase obligations.

There can be no assurance that our business will continue to generate cash flows at current levels or that the cost or availability of future borrowings, if any, under our CP Program, credit facilities, term loan or in the debt markets will not be impacted by any potential future credit or capital markets disruptions. If we are unable to maintain cash balances, generate cash flow from operations or borrow under our CP Program, our credit facility or term loan sufficient to service our obligations, we may be required to reduce capital expenditures, reduce or terminate our share repurchases, obtain additional financing or sell assets. Our ability to make principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions affecting the defense, government and other markets we serve and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Commercial Commitments

We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers or to obtain insurance policies with our insurance carriers. See Note 15: Legal Proceedings, Commitments and Contingencies in the Notes for additional information.

Impact of Foreign Exchange

Our international business transacted in local currency environments was 45%, 43% and 40% in fiscal 2023, fiscal 2022 and fiscal 2021, respectively. The impact of translating the assets and liabilities of these operations to U.S. Dollars is included as a component of shareholders’ equity. The cumulative foreign currency translation adjustment included in shareholders’ equity was a $201 million loss and a $237 million loss at December 29, 2023 and December 30, 2022, respectively. We utilize foreign currency hedging instruments to minimize the currency risk of international transactions. Gains and losses resulting from currency rate fluctuations did not have a material effect on our results in fiscal 2023, 2022 or 2021.

Financial Risk Management

In the normal course of business, we are exposed to risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.

Foreign Exchange and Currency. Our U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than the functional currencies of such businesses. We use foreign currency forward contracts and options to hedge both balance sheet and off-balance sheet future foreign currency commitments. Factors that could impact the effectiveness of our hedging programs for foreign currency include accuracy of sales estimates, volatility of currency markets and the cost and availability of

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hedging instruments. A 10% change in currency exchange rates for our foreign currency derivatives held at December 29, 2023 would not have had a material impact on the fair value of such instruments or our results of operations or cash flows. This quantification of exposure to the market risk associated with foreign currency financial instruments does not take into account the offsetting impact of changes in the fair value of our foreign denominated assets, liabilities and firm commitments.

Interest Rates. As of December 29, 2023, we had long-term variable-rate and fixed-rate debt obligations. The fair value of these obligations is impacted by changes in interest rates; however, a 10% change in interest rates for our long-term variable-rate and fixed-rate debt obligations at December 29, 2023 would not have had a material impact on the fair value of these obligations. There is no interest-rate risk associated with long-term fixed-rate debt obligations on our results of operations and cash flows unless existing obligations are refinanced upon maturity at then-current interest rates, because the interest rates are fixed until maturity, and because our long-term fixed-rate debt is not puttable to us (i.e., not required to be redeemed by us prior to maturity). We can give no assurances, however, that interest rates will not change significantly or have a material effect on the fair value of our long-term variable-rate and fixed-rate debt obligations over the next twelve months. See Note 8: Debt and Credit Arrangements in the Notes for information regarding the maturities of our long-term variable-rate and fixed-rate debt obligations.

At December 29, 2023, we had long-term variable-rate debt obligations of $2.25 billion under Term Loan 2025. These debt obligations bear interest that is variable based on certain short-term indices, thus exposing us to interest-rate risk; however, a 10% change in interest rates for these debt obligations at December 29, 2023 would not have had a material impact on our results of operations or cash flows. See Note 8: Debt and Credit Arrangements in the Notes for further information.

We have also used short-term variable-rate debt borrowings, primarily under our commercial paper program, which are subject to interest rate risk. We utilize our commercial paper program to satisfy short-term cash requirements, temporarily funding repurchases under our share repurchase programs and funding redemption of long-term debt and acquisitions. These debt obligations bear interest that is variable based on certain short-term indices, thus exposing us to interest-rate risk; however, a 10% change in interest rates for these debt obligations at December 29, 2023 would not have had a material impact on our results of operations or cash flows.

CRITICAL ACCOUNTING ESTIMATES

Preparation of this Report in accordance with GAAP requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, expenses and backlog as well as disclosure of contingent assets and liabilities. While the following is not intended to be a comprehensive list of our accounting estimates, we consider the estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. The impact and any associated risks described in the following paragraphs related to these estimates on our business operations are discussed throughout this MD&A where such estimates affect our reported and expected financial results. Senior management has discussed the development and selection of the critical accounting estimates and the related disclosure included herein with the Audit Committee of our Board. Actual results may differ from those estimates.

Revenue Recognition

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 percentage of completion (“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.

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, the cost and availability of purchased materials and services, labor cost and availability 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

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performance on the contract. These variable amounts generally are 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.

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 at least quarterly and, in many cases, more frequently. 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, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. 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. Cumulative EAC adjustments represent the cumulative effect of the changes on 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.

EAC adjustments had the following impacts to operating income for the periods presented:

There were no individual EAC adjustments that were material to our results of operations on a consolidated or segment basis in fiscal 2023 or 2022.

We recognize revenue from numerous contracts with multiple performance obligations. For these contracts, 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 bundled sale with any other products or services). The allocation of transaction price among separate performance obligations may impact the timing of revenue recognition but will not change the total revenue recognized on the contract.

A substantial majority of our revenue is derived from contracts with the U.S. Government, including foreign military sales contracts. These contracts are subject to the FAR and the prices of our contract deliverables are typically based on our estimated or actual costs plus a reasonable profit 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, when standalone selling prices are not directly observable, we also generally use the expected cost plus margin approach to determine standalone selling price. In determining the appropriate margin under the cost plus margin approach, we consider historical margins on similar products sold to similar customers or within similar geographies where objective evidence is available. We may also consider our cost structure and profit objectives, the nature of the proposal, the effects of customization of pricing, our practices used to establish pricing of bundled products, the expected technological life of the product, margins earned on similar contracts with different customers and other factors to determine the appropriate margin.

Pension and Other Postretirement Benefit Plans

Certain of our current and former employees participate in defined benefit plans in the United States, Canada, United Kingdom and Germany, which are sponsored by L3Harris. The determination of projected benefit obligations (“PBO”) and the recognition of expenses related to defined benefit plans are dependent on various assumptions. These major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination and other factors (some of which are disclosed in Note 9: Retirement Benefits in the Notes). Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants.

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Significant Assumptions. We develop assumptions using relevant experience, in conjunction with market-related data for each plan. Assumptions are reviewed annually with third-party experts and adjusted as appropriate. The table included below provides the weighted average assumptions used to estimate the PBOs and net periodic benefit cost as they pertain to our defined benefit pension plans.

Key assumptions for the Consolidated Pension Plan (our largest defined benefit plan), with 88% of the total PBO as of December 29, 2023 included a discount rate for obligation assumptions of 4.92%, a cash balance interest crediting rate of 4.50% and expected return on plan assets of 7.50% for fiscal 2023, which is being maintained at 7.50% for fiscal 2024. There is also a frozen pension equity benefit that assumes a 4.25% interest crediting rate.

Expected Return on Plan Assets. Substantially all of our plan assets are managed on a commingled basis in a master investment trust. We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets over the past 15, 20 and 25 years and historical broad market returns over long-term time frames based on our strategic allocation, which is detailed in Note 9: Retirement Benefits in the Notes. Future returns are based on independent estimates of long-term asset class returns. Based on this approach, the weighted average long-term annual rate of return on assets was estimated to be 7.46% for both fiscal 2023 and 2024.

Discount Rate. The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. An increase in the discount rate decreases the present value of PBO and generally increases pension expense. A decrease in the discount rate increases the present value of the PBO and generally decreases pension expense. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan’s characteristics.

Sensitivity Analysis

Pension Expense. A 25 basis point change in the long-term expected rate of return on plan assets and discount rate would have the following effect on the combined U.S. defined benefit pension plans’ pension expense for the next twelve months:

PBO. Funded status is derived by subtracting the respective year-end values of the PBO from the fair value of plan assets. The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate. We estimate that a decrease of 25 basis points in the discount rate of the combined U.S. defined benefit pension plans would increase the PBO by approximately $190 million and an increase of 25 basis points would decrease the PBO by approximately $182 million.

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Fair Value of Plan Assets. The plan assets of our defined benefit plans comprise a broad range of investments, including domestic and international equity securities, fixed income investments, interests in private equity and hedge funds and cash and cash equivalents.

A portion of our defined benefit plans’ asset portfolio is comprised of investments in private equity and hedge funds. The private equity and hedge fund investments are generally measured using the valuation of the underlying investments or at net asset value (“NAV”). However, in certain instances, the values reported by the asset managers were not current at the measurement date. Consequently, we have estimated adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date. These adjustments consider information received from the asset managers, as well as general market information. Asset values for other positions were generally measured using market observable prices. See Note 9: Retirement Benefits in the Notes for further information.

Goodwill

We test our goodwill for impairment annually as of the first business day of our fourth fiscal quarter, which was October 2, 2023 for fiscal 2023, or under certain circumstances more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected. 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. Some of our segments are comprised of several reporting units. Allocation of goodwill to several reporting units could make it more likely that we will have an impairment charge in the future. An impairment charge to any one of our reporting units could have a material impact on our financial condition and results of operations.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. 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 determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment.

Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) deterioration in the general economy; (ii) deterioration in the environment in which the Company operates; (iii) increase in materials, labor or other costs; (iv) negative or declining cash flows; (v) changes in management, changes in strategy or significant litigation; (vi) changes in the composition or carrying amount of net assets or an expectation of disposing all or a portion of the reporting unit; or (vii) a sustained decrease in share price.

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. Values derived from projected cash flows are corroborated through review of revenue and/or earnings multiples applied to the latest twelve months’ revenue 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. The revenues and earnings multiples applied to the revenues and earnings of our reporting units are based on current multiples of revenues and earnings for similar businesses, and based on revenues 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 the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Fiscal 2023 Impairment Tests. We performed our annual impairment test of all of our reporting units’ goodwill as of September 30, 2023 and concluded that for each of our reporting units no impairment existed.

Segment reorganization. Effective in fiscal 2023, we adjusted our reporting to better align our businesses and transferred our ADG business (a reporting unit) from our IMS segment to our SAS segment (also a reporting unit). In connection with the realignment, we reduced our reporting units from nine to eight as the ADG reporting unit and all $327 million of associated goodwill was absorbed by our existing SAS reporting unit given the economic similarities of the two reporting units. Immediately before the realignment, we performed a qualitative impairment assessment over our SAS reporting unit and a quantitative impairment assessment over our ADG reporting unit. Immediately after the realignment, we performed a quantitative impairment assessment over the SAS reporting unit. We

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prepared estimates of the fair value of our pre-realignment ADG reporting unit and post-realignment SAS reporting unit based on a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions and an income-based valuation technique using projected discounted cash flows. These assessments indicated no impairment existed either before or after the realignment.

CAS Disposal Group Pending Divestiture. As described in more detail in Note 13: Acquisitions, Divestitures and Asset Sales, on November 27, 2023, we announced that we entered into a definitive agreement to sell our CAS disposal group, which includes both the CTS and Commercial Aviation reporting units. As of November 27, 2023, the fair value less costs to sell the CAS disposal group is $834 million, inclusive of considerations related to noncontrolling interest and accumulated other comprehensive income.

The CAS disposal group includes both the Commercial Training Solutions (“CTS”) and Commercial Aviation reporting units. In connection with the preparation of our financial statements for the fiscal year ended December 29, 2023, we evaluated the facts and circumstances which impacted the agreed upon selling price of the CAS disposal group and identified interim indicators of impairment within both reporting units subsequent to our annual impairment testing date of October 2, 2023. Specifically, supply chain-related operational challenges which negatively impact cash flows over the short-term forecast period were assessed in combination with our long-term portfolio shaping strategy to dispose of non-core businesses. As a result, we performed quantitative impairment tests for both reporting units as of November 27, 2023, utilizing an income approach aligned to market prices for the two reporting units, as specified in the definitive agreement. As a result of these tests, we determined that the fair value of the CTS reporting unit was above carrying value, while the fair value of the Commercial Avionics reporting unit was below its carrying value, and concluded goodwill related to the Commercial Aviation reporting unit was impaired. Therefore we recorded a non-cash charge for impairment of $296 million associated with the Commercial Aviation reporting unit in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Operations.

At-risk goodwill. Based on the annual impairment testing, our Broadband reporting unit had clearance of approximately 20% and goodwill of $2,656 million and our ISR and Electro Optical reporting units had clearances of approximately 6% and goodwill of $3,186 million and $2,193 million, respectively. An impairment of goodwill could result from a number of circumstances, including different assumptions used in determining the fair value of the reporting units; changes to U.S. Government spending priorities or ability to win competitively awarded contracts; an inability to meet our forecast; the rescission of significant contract awards as a result of competitors protesting or challenging contracts awarded to us; or an increase in interest rates without a corresponding increase in future revenue.

Fiscal 2022 Impairment Tests. For information related to fiscal 2022 impairment tests and resulting impairments see Note 6: Goodwill and Intangible Assets in the Notes.

Goodwill-Related Fair Value Estimates. Fair value determinations described above under the heading “Goodwill” in this Critical Accounting Estimates section of this MD&A were determined based on a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions, and projected discounted cash flows. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. Material changes in these estimates could occur and result in additional impairments in future periods.

Business Combinations

We follow the acquisition method of accounting to record identifiable assets acquired and liabilities assumed recognized in connection with acquired businesses at their estimated fair value as of the date of acquisition.

Identifiable intangible assets from business combinations are recognized at their estimated fair values as of the date of acquisition and consist of customer relationships, developed technology and trade names. Determination of the estimated fair value of identifiable intangible assets requires judgment. The fair value of intangible assets is estimated using the relief from royalty method for the acquired developed technology and trade names and the multi-period excess earnings method for the acquired customer relationships. Both of these fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, royalty rates related to the developed technology and trade name intangible assets, revenue growth attributable to the intangible assets and remaining useful lives. Finite-lived identifiable intangible assets are amortized to expense over their useful lives, generally ranging from two to twenty seven years. The fair value of identifiable intangible assets acquired in connection with the TDL and AJRD acquisitions was $755 million and $2,840 million, respectively. See Note 13: Acquisitions, Divestitures and Asset Sales and Note 6: Goodwill and Intangible Assets in the Notes for additional information.

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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 very 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. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. 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 not made any material changes in the methodologies used to determine our tax valuation allowances during fiscal 2023.

Our Consolidated Balance Sheet as of December 29, 2023 included deferred tax assets of $91 million and deferred tax liabilities of $815 million. For all jurisdictions in which we have net deferred tax assets, we expect that our existing levels of pre-tax earnings are sufficient to generate the amount of future taxable income needed to realize these tax assets. Our valuation allowance related to deferred income taxes, which is reflected in our Consolidated Balance Sheet, was $240 million as of December 29, 2023. Although we make reasonable efforts to ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions, or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, or if the potential impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.

The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, involves inherent uncertainty and requires the use of judgment. We evaluate our income tax positions and record tax benefits for all years subject to examination based on our assessment of the facts and circumstances as of the reporting date. For tax positions where it is more likely than not that a tax benefit will be realized, we record the largest amount of tax benefit with a greater than 50% probability of being realized upon ultimate settlement with the applicable taxing authority, assuming the taxing authority has full knowledge of all relevant information. For income tax positions where it is not more likely than not that a tax benefit will be realized, we do not recognize a tax benefit in our Consolidated Financial Statements.

As of December 29, 2023, we had $652 million of unrecognized tax benefits, of which $509 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized.

It is reasonably possible that there could be a significant change to our unrecognized tax benefits during the course of the next twelve months as ongoing tax examinations continue, other tax examinations commence or various statutes of limitations expire. However, an estimate of the range of possible changes is not practicable for the remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business and the number of open tax periods under various states of examination. See Note 7: Income Taxes in the Notes for additional information.

Impact of Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements which became effective during fiscal 2023 that have had a material impact on our Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

The following are some of the factors we believe could cause our actual results to differ materially from our historical results or our current expectations or projections. Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” of this Report for more information regarding factors that might cause our results to differ materially from those expressed in or implied by the forward-looking statements contained in this Report.

•We depend on winning business in competitive markets from U.S. Government customers for a significant portion of our revenue.

•A reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.

•Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. Our fixed-price contracts, particularly those for development programs,

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could subject us to losses in the event of cost overruns or a significant increase in or sustained period of increased inflation.

•We depend significantly on U.S. Government contracts, which generally are subject to immediate termination and heavily regulated and audited. The application or impact of regulations, unilateral government action, termination or negative audit findings for one or more of these contracts could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.

•We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.

•We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability.

•We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

•We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally.

•We depend on our subcontractors and suppliers to provide materials, components, subsystems and services for many of our products and services, and failures in or disruptions to our supply chain could cause our products and or services to be produced or delivered in an untimely or unsatisfactory manner.

•We must attract and retain key employees, and any failure to do so could seriously harm us.

•We could be negatively impacted by a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers.

•Our future success will depend on our ability to develop new products and services and technologies that achieve market acceptance in our current and future markets.

•We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption.

•With our acquisition of AJRD, there is increased risk of the release, unplanned ignition, explosion, or improper handling of dangerous materials used in our business, which could disrupt our operations and adversely affect our financial results.

•Failure to achieve the expected results of LHX NeXt could adversely affect our future financial condition and results of operations.

•Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans liability may materially adversely affect our financial and operating activities or our ability to incur additional debt.

•The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect our financial condition, results of operations, cash flows and equity.

•Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of operations and cash flows.

•We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.

•Unforeseen environmental issues, including regulations related to GHG emissions or change in customer sentiment related to environmental sustainability, could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

•Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.

•The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity.

•Third parties have claimed in the past, and may claim in the future, that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.

•We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.

•Challenges arising from the expanded operations related to the acquisition of AJRD may affect our future results.

•Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity.

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•Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other intangible assets to become impaired, resulting in substantial losses and write-downs that would materially adversely affect our results of operations and financial condition.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations for fiscal 2022 compared with fiscal 2021 and fiscal 2021 compared with fiscal 2020. This MD&A is provided as a supplement to, should be read in conjunction with and is qualified in its entirety by reference to, our Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

We are a Trusted Disruptor for the global aerospace and defense industry. With customers’ mission-critical needs in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains. We support government and commercial customers in more than 100 countries, with our largest customers being

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various departments and agencies of the U.S. Government and their prime contractors. Our products and services have defense and civil government applications, as well as commercial applications. As of December 30, 2022, we had approximately 46,000 employees, including approximately 20,000 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.

We structure our operations primarily around the products and services we sell and the markets we serve, and we report the financial results of our continuing operations in the three operating segments: Integrated Mission Systems, Space & Airborne Systems and Communication Systems. Our operating segments are also our reportable segments and are referred to as our business segments. See Note 24: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.

U.S. and International Budget Environment

Our largest customers are various departments and agencies of the U.S. Government — the percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 74%, 75% and 78%, in fiscal 2022, 2021 and 2020, respectively.

For the 2023 GFY, which began on October 1, 2022, the President’s budget request (“PBR”) proposed $773 billion of DoD funding, a 4% increase above the amount enacted for the 2022 GFY, and the Senate Appropriations Subcommittee on Defense has supported a $37 billion increase to the PBR, representing a 9% increase year over year. On December 29, 2022, a 2023 GFY DoD budget of $817 billion was enacted. Many of L3Harris’ offerings are supported in the 2023 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions, however, we continue to monitor the political and budget environments and we can give no assurances on the extent of future orders.

In international markets, the North Atlantic Treaty Organization (“NATO”) continues to evolve its strategy on multiple levels. Several countries, including Finland and Sweden, are pursuing NATO membership, while existing NATO members such as the U.K. and France have in recent months committed to increased spending beyond the 2% of gross domestic product target. Recently, additional countries, such as Japan, have followed similar paths with expanded defense budgets. The expectation of increased spending in international markets provides us with the opportunity to offer a range of solutions to international customers, but international sales remain dependent on economic, social and political conditions that may differ from those in the United States as well as changes in export controls and other trade regulations in the United States.

Even with the increases in expected DoD budget proposals and with the overall demand environment both in the U.S. and internationally reflecting the conflict in Ukraine and geopolitical tensions, changes to U.S. Government spending priorities have and could in the future impact our business. A decline in demand for fuzing and ordnance systems due to reduced U.S. Government spending for precision weapons was largely responsible for charges for impairment of goodwill in our IMS segment. See Note 9: Goodwill in the Notes for further information. Other changes in spending priorities in the future could adversely affect our existing programs and future contracts and impact our financial condition and results of operations.

For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business - Principal Customers: Government Contracts,” “Item 1. Business - International Business,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.

Economic Environment

The macroeconomic environment continues to present challenges, which have impacted and may continue to impact our future results. Rising inflation in the U.S. has led to higher costs. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, which raises the cost of borrowing for the Federal government, could in the future impact U.S. Government spending priorities and the demand for our products. Higher interest rates have also had an impact on the fair value of our reporting units and contributed to charges for impairment of goodwill at our IMS and CS segments. See Note 9: Goodwill in the Notes for further information.

To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services; our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or a sustained period of increased inflation. Management has worked to mitigate supply chain disruptions and labor mobility challenges, with modest improvements in the supply chain during the second half of fiscal 2022 for Tactical Communications, our largest product-based business, and increasing stability in labor mobility and employee

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attrition. However due to uncertainty in the current environment, there can be no assurances that we will not see further impacts in our financial condition and results of operations.

Acquisition of TDL Product Line

On October 3, 2022, we entered into a definitive agreement to acquire the TDL product line for a purchase price of approximately $1.96 billion, subject to customary adjustments. The acquisition was completed subsequent to fiscal 2022 year-end on January 3, 2023. We used third-party debt borrowings under a new $2.25 billion three-year senior unsecured term loan facility, the Term Loan 2025, to finance the acquisition. The purchase of the TDL product line will enhance our networking capability and provide immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the DoD’s integrated architecture goal in JADC2. The TDL product line will be reported within our CS segment.

Pending Acquisition of AJRD

On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction of approximately $4.7 billion. AJRD is a provider of propulsion systems and energetics for tactical and strategic missiles, missile defense systems and hypersonic applications. AJRD also provides liquid-fuel engines and propulsion and power systems for in-space crew and cargo transports. Upon closure of the acquisition, we anticipate creating a new business segment. The acquisition is expected to close in fiscal 2023, pending required regulatory approvals and clearances and other customary closing conditions.

Divestiture of Visual Information Solutions (“VIS”) Business

On December 21, 2022, we entered into a definitive agreement to sell our VIS business for $70 million, subject to customary purchase price adjustments and closing conditions as set forth in the definitive agreement. VIS, which is part of our SAS segment, provides commercial geospatial software, technology and services used to extract and analyze reliable, accurate and actionable information from geospatial to terrestrial imagery. The transaction is expected to close mid-fiscal 2023, subject to regulatory approvals and other customary closing conditions.

Operating Performance Assessment and Key Performance Measures

During fiscal 2022, we were impacted by the macroeconomic environment, including supply chain, labor mobility and inflation, which continued to cause significant disruptions and adverse effects on the U.S. and global economies. We continue to implement mitigation strategies to minimize the future impacts of these challenges, including working closely with our second and third-tier suppliers to improve demand management and resilience in our supply chain, efforts to improve retention of our skilled workforce and accounting for inflation uncertainty within the terms of future contracts.

Despite the dynamic operating environment, we believe demand for our products remains strong. Many of our offerings are supported in the 2023 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions. In fiscal 2022, we received several key strategic contract awards across each of our domains, and we ended the year with backlog of $22.3 billion, a 5% increase over the prior year. Also in fiscal 2022, we invested $603 million (4% of total revenue) in company-sponsored R&D focused on technologies that expand our capabilities across our domains.

Executing on our capital allocation strategy, on January 3, 2023 we closed the acquisition of the TDL product line for approximately $1.96 billion, subject to customary adjustments, which will provide access to the Link 16 network and position us to make the installed base of terminals more resilient and relevant, consistent with JADC2 modernization efforts. Additionally, on December 17, 2022, we entered into a definitive agreement to acquire AJRD for approximately $4.7 billion, gaining access to new markets in missiles and missile defense as well as space exploration. These unique assets are intended to strengthen our trusted position as an industry leading merchant supplier, providing rapid and innovative solutions to customers, and create long term value for our shareholders.

We reported full year operating cash flow of $2.2 billion in fiscal 2022, and consistent with our shareholder-friendly capital deployment priority, we paid $864 million in dividends and made share repurchases totaling $1.1 billion.

Our strategic priorities continue to be growth, innovation and performance. For fiscal 2023, “Performance First” is our primary focus. We plan to continue to invest, consistent with growth opportunities, and sustain our culture of innovation, but delivering on our commitments to investors, our customers and on every contract we are awarded is paramount. We intend to accomplish this by:

•Relentlessly focusing on program execution and continuous improvement;

•Strengthening the risk management culture that has developed over the highly volatile past three years;

•Seamlessly integrating TDL and closing the AJRD acquisition; and

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•Attracting, developing and retaining the skilled workforce key to our role as a Trusted Disruptor.

We use the following key financial performance measures to manage our business, which are discussed in detail below in the “Operations Review” and “Liquidity and Capital Resources” sections of this MD&A:

•Revenue;

•Income from continuing operations; and

•Net cash provided by operating activities.

We also measure the success of our business using certain measures that are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”), such as adjusted EBIT, or earnings before interest and taxes, non-GAAP earnings per share, adjusted free cash flow and return on invested capital (defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the period, where invested capital equals equity plus debt, less cash and cash equivalents), which may be calculated differently by other companies. We use these measures, along with our key financial performance measures above, to assess the success of our business and our ability to create shareholder value. We believe these measures are balanced among long-term and short-term performance, efficiency and growth. We also use some of these and other performance metrics for executive compensation purposes.

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OPERATIONS REVIEW

Consolidated Results of Operations

_________________

*Not meaningful

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Revenue

As described in more detail in Note 4: Business Divestitures and Asset Sales and elsewhere in the Notes, during fiscal 2022, 2021 and 2020, we completed the following business divestitures, which had revenue attributable to them as set forth below:

_________________

(1)Net of intracompany sales.

Fiscal 2022 Compared With Fiscal 2021: The decrease in revenue in fiscal 2022 compared with fiscal 2021 was primarily due to the impact of $655 million of lower revenue from completed business divestitures during fiscal 2021 and supply chain disruptions.

Fiscal 2021 Compared With Fiscal 2020:  The decrease in revenue in fiscal 2021 compared with fiscal 2020 was primarily due to divestitures within other non-reportable businesses and supply chain disruptions within CS.

See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

Gross Margin

Fiscal 2022 Compared With Fiscal 2021: Gross margin and gross margin as a percentage of revenue (“gross margin percentage”) for fiscal 2022 decreased compared to fiscal 2021, largely due to higher input costs (labor, material and overhead) and supply chain disruptions that adversely impacted program performance, Estimate At Completion (“EAC”) adjustments and a mix of program revenue and product sales with relatively lower gross margin percentage.

Fiscal 2021 Compared With Fiscal 2020:  Gross margin and gross margin percentage for fiscal 2021 increased compared to fiscal 2020, primarily due to integration benefits and operational excellence, $31 million of lower cost of sales related to the fair value step-up in inventory sold and $12 million of lower amortization of identifiable intangible assets acquired as a result of the L3Harris Merger, partially offset by a mix of program revenue and product sales with relatively lower gross margin percentage.

See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

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Engineering, Selling and Administrative Expenses

Major components of Engineering, selling and administrative (“ESA”) expenses were as follows:

Business Divestiture-Related Gains (Losses), net

During fiscal 2022, there were no significant business divestiture-related gains or losses. We completed one business divestiture and one asset sale from our IMS segment and recognized a pre-tax gain of $8 million associated with the CyTerra asset sale, which is recorded in the “Engineering, selling and administrative expenses“ line item in our Consolidated Statement of Operations for fiscal 2022.

In fiscal 2021 and fiscal 2020, we had the following pre-tax gains (losses) associated with businesses divested, which are included in the “Business divestiture-related gains (losses), net” line item in our Consolidated Statement of Operations:

_________________

(1)Reflects adjustments to the gains (losses) on completed divestitures not shown above, including for fiscal 2020, $12 million for finalization of purchase price adjustments and recognition of a non-cash adjustment related to working capital, which decreased the $229 million gain initially recognized on the sale of the Harris Night Vision business divested on September 13, 2019.

See Note 4: Business Divestitures and Asset Sales in the Notes for further information.

Impairment of Goodwill and Other Assets

Fiscal 2022 Compared With Fiscal 2021: Impairment of goodwill and other assets for fiscal 2022 reflected non-cash impairment charges of $355 million, $313 million and $134 million associated with our Broadband, ADG and Electro Optical reporting units, respectively. Impairment of goodwill and other assets for fiscal 2021 reflects $62 million of non-cash charges for the impairment of goodwill and other assets associated with the divestiture of the CPS business and $145 million of non-cash charges for impairment of identifiable intangible and other long-lived assets related to the Commercial Training Solutions (“CTS”) business.

Fiscal 2021 Compared With Fiscal 2020:  Impairment of goodwill and other assets for fiscal 2021 reflects $62 million of non-cash charges for the impairment of goodwill and other assets associated with the divestiture of the

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CPS business and $145 million of non-cash charges for impairment of identifiable intangible and other long-lived assets related to our CTS business. Impairment of goodwill and other assets for fiscal 2020 included $748 million of non-cash charges for the impairment of goodwill and other assets associated with the COVID-related downturn in the commercial aviation market and its impact on customer operations, a $14 million non-cash charge for impairment of goodwill recorded in connection with the then-potential divestiture of the VSE disposal group and a $5 million non-cash charge for impairment of goodwill recorded in connection with the divestiture of our Applied Kilovolts business.

See Note 4: Business Divestitures and Asset Sales and Note 9: Goodwill and Note 10: Intangible Assets in the Notes for further information.

Non-Operating Income, net

The components of Non-operating income, net were as follows:

_______________

(1)Non-service cost components of net periodic benefit income recorded in the “Non-operating income, net” line item in our Consolidated Statement of Operations include interest cost, expected return on plan assets, amortization of net actuarial gain and effect of curtailments or settlements under our pension and postretirement benefit plans.

Net Interest Expense

Fiscal 2022 Compared With Fiscal 2021:  Our net interest expense increased in fiscal 2022 compared with fiscal 2021 primarily due to lower interest income in fiscal 2022.

Fiscal 2021 Compared With Fiscal 2020:  Our net interest expense increased in fiscal 2021 compared with fiscal 2020 primarily due to lower interest income in fiscal 2021, reflecting lower sales-type lease income due to the divestiture of the military training business on July 2, 2021.

See Note 18: Lease Commitments and Note 13: Debt in the Notes for further information.

Income Taxes

Fiscal 2022 Compared With Fiscal 2021:  Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 17% in fiscal 2022 compared with 19% in fiscal 2021. The decrease was primarily attributable to incremental R&D credits and incremental foreign derived intangible income (“FDII”) benefits claimed in fiscal 2022 as a result of legislative changes in the Tax Cuts and Jobs Act of 2017 (“TCJA”) that became effective in fiscal 2022 and the absence of unfavorable divestiture impacts in fiscal 2022, partially offset by the unfavorable impact of non-deductible goodwill impairments.

Fiscal 2021 Compared With Fiscal 2020:  Our effective tax rate was 19% in fiscal 2021 compared with 18% in fiscal 2020. The increase in 2021 was primarily attributable to the unfavorable impact of divestitures and a reduction in the benefit of R&D credits, partially offset by the benefit of reduced goodwill impairments in fiscal 2021 when compared to fiscal 2020.

See Note 22: Income Taxes in the Notes for further information.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”) which includes implementation of a new 15% corporate alternative minimum tax (“CAMT”), a 1% excise tax on stock buybacks and tax incentives for energy and climate initiatives. These provisions are effective beginning January 1, 2023 and we expect them to be immaterial to our financial results, financial position and cash flows.

Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders

Fiscal 2022 Compared With Fiscal 2021:  The decrease in income from continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2022 compared with fiscal 2021 was primarily due to lower income from continuing operations in fiscal 2022 resulting from the incremental goodwill impairments in fiscal 2022, as further described in the “Impairment of Goodwill and Other Assets” discussion above.

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Fiscal 2021 Compared With Fiscal 2020:  The increase in income from continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2021 compared with fiscal 2020 was primarily due to higher income from continuing operations and fewer diluted weighted average common shares outstanding, reflecting the repurchases of shares of our common stock under our repurchase program in fiscal 2021.

See the “Common Stock Repurchases” discussion below in this MD&A for further information.

Discussion of Business Segment Results of Operations

Effective January 1, 2022, we streamlined our business segments from four business segments to three business segments. As a result of the segment reorganization, the Aviation Systems segment was eliminated as a business segment and the ongoing operations that had been part of the Aviation Systems segment were integrated into the remaining segments. Defense aviation, commercial aviation products and commercial pilot training operations were moved into the IMS segment; and mission networks for air traffic management operations were moved into the SAS segment.

The historical results, discussion and presentation of our business segments as set forth in this MD&A reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of operations, balance sheets, statements of cash flows or statements of equity resulting from these changes.

Integrated Mission Systems Segment

Our IMS segment includes multi-mission ISR systems; integrated electrical and electronic systems for maritime platforms; advanced EO/IR solutions; fuzing and ordnance systems; commercial aviation products; and commercial pilot training operations. See “Item 1: Business” of this Report for a description of the sectors in IMS.

Fiscal 2022 Compared With Fiscal 2021:  The decrease in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to $105 million of lower revenue in Electro Optical from lower volume on fuzing and ordnance systems and other related programs and $53 million in ISR primarily from $262 million of lower revenue on a NATO aircraft missionization program which was mostly offset by newly-awarded program ramps. These decreases were partially offset by an increase of $55 million in Commercial Aviation Solutions, largely due to $33 million of higher revenue related to the sale of end-of-life inventory, as well as an increase in pilot training center volume. The funded backlog for this segment was $6.9 billion at each of December 30, 2022 and December 31, 2021.

The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to non-cash charges for goodwill impairment totaling $447 million during the quarter ended September 30, 2022 compared with $82 million of non-cash charges for impairment of long-term assets related to our CTS business recorded during fiscal 2021. In addition, IMS segment operating income and operating income margin declined from lower product volumes and an increase in unfavorable EAC adjustments due to labor inefficiencies and program performance, partially offset by the sale of end-of-life inventory and higher volumes in Commercial Aviation Solutions during fiscal 2022.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 68% in fiscal 2022.

Fiscal 2021 Compared With Fiscal 2020:  The increase in segment revenue in fiscal 2021 compared with the fiscal 2020 was primarily due to $223 million of higher revenue in ISR, driven by aircraft missionization on a NATO program, $53 million of higher revenue in Maritime, reflecting a ramp on key platforms and $29 million higher revenue in Electro Optical reflecting higher product deliveries, partially offset by $16 million of lower revenue from fuzing and ordnance systems and other related programs and $20 million of lower revenue in Commercial Aviation reflecting COVID-related impacts. The funded backlog for this segment was $6.9 billion at December 31, 2021 compared with $7.1 billion at January 1, 2021.

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The increases in segment operating income and operating income margin in fiscal 2021 compared with fiscal 2020 were primarily due to $527 million of lower non-cash charges for impairments of goodwill and other assets in fiscal 2021 compared with fiscal 2020 and the absence of $18 million of restructuring charges and other exit costs recorded in fiscal 2020 in our Commercial Aviation Solutions reporting unit due to the downturn in the commercial aviation market, as well as e3 and program performance, expense management and integration benefits.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 69% in fiscal 2021.

Space & Airborne Systems Segment

Our SAS segment includes space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare; and mission networks for air traffic management operations. See “Item 1: Business” of this Report for a description of the sectors in SAS.

Fiscal 2022 Compared With Fiscal 2021:  The increase in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to an increase of $261 million in Space, reflecting growth in responsive satellite programs and a ramp on SDA tracking, partially offset by a $139 million decline in our airborne businesses, reflecting transition from development to production on the F-35 and F-18 programs and a $17 million decline in Intel & Cyber primarily due to award timing. The funded backlog for this segment was $4.9 billion at December 30, 2022 compared with $4.7 billion at December 31, 2021.

The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to a $67 million decrease in net favorable EAC adjustments due to higher input costs and program performance, mainly in Electronic Warfare and Space businesses, and new program ramps, partially offset by a decrease in R&D expenses.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 87% in fiscal 2022.

Fiscal 2021 Compared With Fiscal 2020: The increase in segment revenue in fiscal 2021 compared with fiscal 2020 was primarily due to $176 million of higher revenue in Space, reflecting a ramp in missile defense and other responsive programs and $8 million of higher revenue in Intel and Cyber from classified programs, partially offset by $93 million of lower revenue from airborne businesses, reflecting the transition towards modernization programs. The funded backlog for this segment was $4.7 billion at December 31, 2021 compared with $4.6 billion at January 1, 2021.

Segment operating income and operating income margin in fiscal 2021 were comparable with fiscal 2020.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 87% in fiscal 2021.

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Communication Systems Segment

Our CS segment includes tactical communications with global communications solutions; broadband communications; integrated vision solutions; and public safety radios, system applications and equipment. See “Item 1: Business” of this Report for a description of the sectors in CS.

Fiscal 2022 Compared With Fiscal 2021:  The decrease in segment revenue in fiscal 2022 compared with fiscal 2021 was primarily due to a $176 million decrease in Broadband Communications due to lower volume on legacy platforms and a $62 million decrease in Integrated Vision Solutions primarily from program timing and lower sales volumes. Such decreases were partially offset by a $139 million increase in Tactical Communications due to higher demand more than offsetting supply chain disruptions experienced during the first half of 2022 and a $34 million increase in Public Safety resulting from a continued market recovery. The funded backlog for this segment was $4.5 billion at December 30, 2022 compared with $3.7 billion at December 31, 2021.

The decreases in segment operating income and operating income margin in fiscal 2022 compared with fiscal 2021 were primarily due to a non-cash charge for impairment of goodwill of $355 million recorded in our Broadband reporting unit during fiscal 2022.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 63% in fiscal 2022.

Fiscal 2021 Compared With Fiscal 2020:  The decrease in segment revenue in fiscal 2021 compared with fiscal 2020 was primarily due to $29 million of lower revenue in Tactical Communications, reflecting product delivery delays from supply chain disruptions which were partially offset by the DoD modernization program, $82 million of lower revenue in Broadband Communications, reflecting lower sales on legacy unmanned platforms and modestly lower revenue in Public Safety, partially offset by modestly higher revenue in Integrated Vision Solutions. The funded backlog for this segment was $3.7 billion at December 31, 2021 compared with $3.3 billion at January 1, 2021.

The increase in segment operating income in fiscal 2021 compared with fiscal 2020 was primarily due to e3 performance and integration benefits, partially offset by supply chain disruptions and higher R&D investments. Operating income margin in fiscal 2021 was comparable with fiscal 2020.

The percentage of this segment’s revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 68% in fiscal 2021.

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Unallocated Corporate Expenses

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*Not meaningful

(1)Includes certain corporate-level expenses that are not included in management’s evaluation of segment operating performance. For fiscal 2022, also includes $29 million of income from our deferred compensation plans and $13 million of income from GHG emission reduction projects.

(2)Includes amortization of identifiable intangible assets acquired in connection with business combinations. Because our acquisitions benefit the entire Company as opposed to any individual segment, the amortization of identifiable intangible assets acquired was not allocated to any segment.

(3)For fiscal 2021, includes: (i) a $62 million non-cash goodwill impairment charge related to our CPS business and (ii) a $63 million non-cash intangible asset impairment charge related to our CTS reporting unit. For fiscal 2020, includes: (i) a $113 million non-cash intangible asset impairment charge related to our Commercial Aviation Solutions reporting unit and (ii) a $14 million non-cash goodwill impairment charge related to the then-potential divestiture of VSE disposal group, as well as a $5 million non-cash goodwill impairment charge related to the divestiture of the Applied Kilovolts business. See Note 9: Goodwill and Note 10: Intangible Assets in the Notes to the Consolidated Financial Statements for additional information.

(4)Represents the difference between the service cost component of FAS pension and other postretirement benefits (“OPEB”) income and total CAS pension and OPEB cost and replaces the “Pension adjustment” line item previously presented, which included the non-service components of FAS pension and OPEB income. See FAS/CAS operating adjustment table in Note 24: Business Segments in the Notes for additional information regarding FAS/CAS pension adjustments.

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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

Cash Flows

Net cash provided by operating activities: The $529 million decrease in net cash provided by operating activities in fiscal 2022 compared with fiscal 2021 was primarily due to a decrease in net income, excluding the impact of non-cash items, a $133 million increase in cash used to fund working capital, which primarily related to the change in accounts receivable, contract assets and liabilities, inventories and accounts payable from the timing of contractual billing milestones and delivery of products and a $123 million increase in cash payments for sundry taxes including sales and use, property and payroll related tax obligations.

Cash flow from operations was positive in all of our business segments in fiscal 2022.

Net cash (used in) provided by investing activities: The $1,644 million increase in net cash used in investing activities in fiscal 2022 compared with fiscal 2021 was primarily due to a $1,724 million decrease in net proceeds from the sales of businesses and a $33 million increase in cash used for equity investments, partially offset by a $90 million decrease in net cash used for additions of property, plant and equipment in fiscal 2022.

Net cash used in financing activities: The $2,462 million decrease in net cash used in financing activities in fiscal 2022 compared with fiscal 2021 was primarily due to a $2,592 million decrease in cash used to repurchase our common stock, partially offset by a $47 million increase in cash used to pay dividends, a $40 million increase in cash used to pay tax withholding associated with vested share-based awards and a $40 million decrease in proceeds from exercises of employee stock options.

Cash and cash equivalents

We ended fiscal 2022 with cash and cash equivalents of $880 million and have a senior unsecured $2.0 billion revolving credit facility that expires in July 2027 (all of which was available to us as of December 30, 2022). As of December 30, 2022, $309 million of cash and cash equivalents were held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.

Capital Structure and Resources

We had $7.0 billion of long-term debt, net, including the current portion of long-term debt, net and financing lease obligations, outstanding at December 30, 2022, the majority of which we incurred in connection with merger and acquisition activity. For further information regarding our long-term debt, see Note 13: Debt in the Notes.

2022 Credit Agreement. We have a $2.0 billion, 5-year senior unsecured revolving credit facility (the “2022 Credit Facility”) under a Revolving Credit Agreement (the “2022 Credit Agreement”) entered into on July 29, 2022 with a syndicate of lenders, which the lenders may agree to increase by up to $1.0 billion upon our request. The description of the 2022 Credit Facility and the 2022 Credit Agreement set forth in Note 12: Credit Arrangements in the Notes is incorporated herein by reference.

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We were in compliance with the covenants in the 2022 Credit Agreement at December 30, 2022, including the covenant requiring that we not permit our ratio of consolidated total indebtedness to total capital to be greater than 0.65 to 1.00, as defined in the 2022 Credit Agreement. At December 30, 2022, we had no borrowings outstanding under the 2022 Credit Agreement.

AJRD Acquisition. As disclosed in “Item 1. Business - General,” on December 17, 2022, we entered into a definitive agreement to acquire AJRD, as described in “Pending Acquisition of AJRD” above. If the transaction is completed, we expect to fund the approximately $4.7 billion purchase price primarily through debt financing.

Short-Term Debt. Our short-term debt was $2 million at December 30, 2022, consisting of local borrowing by international subsidiaries for working capital needs. Our commercial paper program was supported by the 2022 Credit Facility and our prior $2.0 billion, 5-year senior unsecured revolving credit facility established in June 2019 (the “2019 Credit Facility”) during fiscal 2022. See Note 12: Credit Arrangements in the Notes for additional information regarding credit arrangements.

Long-Term Variable-Rate Debt. The description of our long-term variable-rate debt set forth in Note 13: Debt in the Notes is incorporated herein by reference. On November 22, 2022, we established a new $2.25 billion, three-year senior unsecured term loan facility by entering into a Loan Agreement with a syndicate of lenders. The purpose of the loan is to finance the $1.96 billion acquisition of the TDL product line and the repayment of the $250 million Floating Rate Notes due March 2023 (“Floating Rate Notes 2023”). During the first quarter of 2023, the Floating Rate Notes due March 2023 will be repaid and refinanced as long-term debt through the Term Loan 2025; therefore, the Floating Rate Notes due March 2023 have been classified as long-term debt in our Consolidated Balance Sheet as of December 30, 2022.

Long-Term Fixed-Rate Debt. The description of our long-term fixed-rate debt set forth in Note 13: Debt in the Notes is incorporated herein by reference. We anticipate either repaying using cash from operating activities or refinancing our $800 million, 3.85% fixed-rate debt note, which will mature on June 15, 2023.

Receivable Sales Agreements. We have two receivable sales agreements (“RSAs”) with two separate third-party financial institutions that permit us to sell, on a non-recourse basis, up to an aggregate of $100 million of outstanding receivables at any given time. From time to time, we have sold certain customer receivables under the RSAs, which we continue to service and collect on behalf of the third-party financial institution and we account for as sales of receivables with sale proceeds included in net cash from operating activities. We did not have outstanding receivables sold pursuant to RSAs at December 30, 2022.

Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues for the next 12 months and in the longer term with liquidity, although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties and the state of global commerce and general political and financial uncertainty. Additionally, provisions in the TCJA require that, beginning in 2022, research and experimental expenditures be capitalized and amortized over five years. In the future, Congress may consider legislation that would defer the amortization requirement to later years, possibly with retroactive effect. In the meantime, we will continue to make additional Federal tax payments based on the current tax law. The impact of this tax law on our cash from operations depends on the amount of research and experimental expenditures incurred and whether the Internal Revenue Service (“IRS”) issues guidance on the provision which differs from our current interpretation, among other things.

Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, our senior unsecured credit facility, our senior unsecured term loan and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures, dividend payments, repurchases under our share repurchase program, the purchase of the TDL product line, pending acquisition of AJRD and repayments of our debt securities at maturity for the next twelve months and the reasonably foreseeable future thereafter. Our total capital expenditures for fiscal 2023 are expected to be approximately $275 million. We anticipate tax payments for fiscal 2023 to be approximately equal to or marginally less than our tax expense for the same period, excluding the impact of R&D capitalization and subject to adjustment for timing differences. For additional information regarding our income taxes, see Note 22: Income Taxes in the Notes. Other than operating expenses, cash requirements for fiscal 2023 are expected to consist primarily of capital expenditures, R&D payments, dividend payments, repurchases under our share repurchase program and expenditures for the purchase of the TDL product line and the pending acquisition of AJRD.

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Current and long-term material cash requirements at December 30, 2022 are as follows:

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(1)During the first quarter of 2023, the Floating Rate Notes due March 2023 will be repaid and refinanced as long-term debt through the Term Loan 2025; therefore, the Floating Rate Notes due March 2023 have been classified as long-term debt in our Consolidated Balance Sheet as of December 30, 2022 and accordingly are not included in the Payment Due Within 1 Year.

(2)Does not include interest on Term Loan 2025.

(3)The purchase obligations of $5.4 billion included $629 million of purchase obligations related to cost-plus type contracts where our costs are fully reimbursable.

(4)Amount includes fiscal 2022 minimum contributions to non-U.S. pension plans. Contributions beyond fiscal 2022 have not been determined. As a result of voluntary contributions made to our U.S. qualified defined benefit pension plans during the two quarters ended January 3, 2020, fiscal 2018 and 2017, we made no material contributions to our U.S. qualified defined benefit pension plans in fiscal 2022, 2021 or 2020 and are not required to make any contributions to these plans during fiscal 2023.

(5)The above table does not include unrecognized tax benefits of $613 million.

There can be no assurance that our business will continue to generate cash flows at current levels or that the cost or availability of future borrowings, if any, under our commercial paper program, or our credit facility or term loan or in the debt markets will not be impacted by any potential future credit or capital markets disruptions. If we are unable to maintain cash balances, generate cash flow from operations or borrow under our commercial paper program, our credit facility or term loan sufficient to service our obligations, we may be required to reduce capital expenditures, reduce or eliminate strategic acquisitions, reduce or terminate our share repurchases, reduce or eliminate dividends, refinance all or a portion of our existing debt, obtain additional financing or sell assets. Our ability to make principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions affecting the defense, government and other markets we serve and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Funding of Pension Plans

Funding requirements under applicable laws and regulations are a major consideration in making contributions to our U.S. pension plans. Although we have significant discretion in making voluntary contributions, the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree and Employer Recovery Act of 2008, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), and applicable Internal Revenue Code regulations, mandate minimum funding thresholds. The Highway and Transportation Funding Act of 2014, the Bipartisan Budget Act of 2015, the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act further extended the interest rate stabilization provision of MAP-21. Failure to satisfy the minimum funding thresholds could result in restrictions on our ability to amend the plans or make benefit payments. With respect to our U.S. qualified defined benefit pension plans, we intend to contribute annually no less than the required minimum funding thresholds. As a result of prior voluntary contributions and plan performance, we were not required to make any contributions to our U.S. qualified defined benefit pension plans in fiscal 2022 and are not required to make any contributions in fiscal 2023 or for several years thereafter.

Future required contributions primarily will depend on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory required minimum contributions could be material. We had net unfunded defined benefit plan obligations of $69 million as of December 30, 2022 compared with $431 million as of December 31, 2021. The decrease in the unfunded status as of December 30, 2022 is primarily due to decreased pension obligations from higher discount rates, partially offset by decreased plan assets from lower market returns. See Note 14: Pension and Other Postretirement Benefits in the Notes for further information regarding our pension plans.

Common Stock Repurchases

During fiscal 2022, we used $1.1 billion to repurchase 4.7 million shares of our common stock under our share repurchase program at an average price per share of $231.46, including commissions of $0.02 per share. During

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fiscal 2021, we repurchased 17.1 million shares of our common stock under our share repurchase program for $3.7 billion at an average price per share of $215.30, including commissions of $0.02 per share. During fiscal 2022 and 2021, $45 million and $5 million, respectively, in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares repurchased by us are cancelled and retired.

On January 28, 2021, we announced that our Board of Directors approved a new $6.0 billion share repurchase authorization under our repurchase program that was in addition to the remaining unused authorization of $210 million at January 1, 2021, under our prior share repurchase programs, for a total unused authorization of $6.2 billion. On October 21, 2022, we announced that our Board of Directors approved an additional $3.0 billion share repurchase authorization. Our repurchase program does not have a stated expiration date and authorizes us to repurchase shares of our common stock through open market purchases, private transactions, transactions structured through investment banking institutions or any combination thereof. At December 30, 2022, we had a remaining unused authorization under our repurchase program of $4.5 billion. We have announced that share repurchases will be moderated in the near-term, but the level and timing of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board of Directors or management may deem relevant. The level and timing of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our Board and management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Additional information regarding our repurchase program is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.

Dividends

On February 24, 2023, we announced that our Board of Directors increased the quarterly per share cash dividend rate on our common stock from $1.12 to $1.14, commencing with the dividend declared by our Board of Directors for the first quarter of fiscal 2023, for an annualized per share cash dividend rate of $4.56, which was our twenty-second consecutive annual increase in our quarterly cash dividend rate. Our annualized per share cash dividend rate was $4.48 in fiscal 2022, $4.08 in fiscal 2021 and $3.40 in fiscal 2020. Quarterly cash dividends are typically paid in March, June, September and December. Additional information concerning our dividends is set forth above under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.

Commercial Commitments

We have entered into commercial commitments in the normal course of business including surety bonds, standby letter of credit agreements and other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers or to obtain insurance policies with our insurance carriers. At December 30, 2022, we had commercial commitments on outstanding surety bonds, standby letters of credit and other arrangements, as follows:

The surety bonds and standby letters of credit used for performance are primarily related to our Public Safety business sector. As is customary in bidding for and completing network infrastructure projects for public safety systems, contractors are required to procure surety bonds and/or standby letters of credit for bids, performance, warranty and other purposes (collectively, “Performance Bonds”). Such Performance Bonds normally have

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maturities of up to three years and are standard in the industry as a way to provide customers a mechanism to seek redress if a contractor does not satisfy performance requirements under a contract. Typically, a customer is permitted to draw on a Performance Bond if we do not fulfill all terms of a project contract. In such an event, we would be obligated to reimburse the financial institution that issued the Performance Bond for the amounts paid. It has been rare for our Public Safety business sector to have a Performance Bond drawn upon. In addition, pursuant to the terms under which we procure Performance Bonds, if our credit ratings are lowered to below “investment grade,” we may be required to provide collateral to support a portion of the outstanding amount of Performance Bonds. Such a downgrade could increase the cost of the issuance of Performance Bonds and could make it more difficult to procure Performance Bonds, which would adversely impact our ability to compete for contract awards. Such collateral requirements could also result in less liquidity for other operational needs or corporate purposes. In addition, any future disruptions, uncertainty or volatility in financial and insurance markets could also adversely affect our ability to obtain Performance Bonds and may result in higher funding costs.

Financial Risk Management

In the normal course of business, we are exposed to risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.

Foreign Exchange and Currency. Our U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than the functional currencies of such businesses. We use foreign currency forward contracts and options to hedge both balance sheet and off-balance sheet future foreign currency commitments. Factors that could impact the effectiveness of our hedging programs for foreign currency include accuracy of sales estimates, volatility of currency markets and the cost and availability of hedging instruments. A 10% change in currency exchange rates for our foreign currency derivatives held at December 30, 2022 would not have had a material impact on the fair value of such instruments or our results of operations or cash flows. This quantification of exposure to the market risk associated with foreign currency financial instruments does not take into account the offsetting impact of changes in the fair value of our foreign denominated assets, liabilities and firm commitments. See Note 19: Derivative Instruments and Hedging Activities in the Notes for additional information.

Interest Rates. As of December 30, 2022, we had long-term variable-rate and fixed-rate debt obligations. The fair value of these obligations is impacted by changes in interest rates; however, a 10% change in interest rates for our long-term variable-rate and fixed-rate debt obligations at December 30, 2022 would not have had a material impact on the fair value of these obligations. There is no interest-rate risk associated with long-term fixed-rate debt obligations on our results of operations and cash flows unless existing obligations are refinanced upon maturity at then-current interest rates, because the interest rates are fixed until maturity, and because our long-term fixed-rate debt is not puttable to us (i.e., not required to be redeemed by us prior to maturity). We anticipate mitigating interest rate risk associated with variable-rate debt under the Term Loan 2025 through hedging activities (see Note 19: Derivative Instruments and Hedging Activities in the Notes for additional information). We can give no assurances, however, that interest rates will not change significantly or have a material effect on the fair value of our long-term variable-rate and fixed-rate debt obligations over the next twelve months. See Note 13: Debt in the Notes for information regarding the maturities of our long-term variable-rate and fixed-rate debt obligations.

We use derivative instruments from time to time to manage our exposure to interest rate risk. If the derivative instrument is designated as a cash flow hedge, gains and losses from changes in the fair value of such instrument are deferred and included as a component of accumulated other comprehensive loss (“AOCI”) and reclassified to interest expense in the period in which the hedged transaction affects earnings. See Note 19: Derivative Instruments and Hedging Activities in the Notes for additional information.

At December 30, 2022, we had no outstanding treasury lock agreements (“treasury locks”). In connection with the L3Harris Merger, we assumed two treasury locks that had been initiated in January 2019 to hedge against fluctuations in interest payments due to changes in the benchmark interest rate (10-year U.S. Treasury rate) associated with the anticipated issuance of debt to redeem or repay $650 million aggregate principal amount of our 4.95% notes due February 15, 2021 (“4.95% 2021 Notes”). These treasury locks were terminated as planned in connection with the issuance of $650 million in aggregate principal amount of 1.80% notes due January 15, 2031 (the “1.80% 2031 Notes”) during the fourth quarter of 2020, and because interest rates decreased during the period of the treasury locks, we made a $113 million cash payment to our counterparty and recorded an after-tax loss of $58 million in the “Accumulated other comprehensive loss” line item of our Consolidated Balance Sheet. The AOCI balance will be amortized to interest expense over the life of the 1.80% 2031 Notes. We classified the cash outflow from the termination of these treasury locks as cash used in financing activities in our Consolidated

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Statement of Cash Flows. See Note 19: Derivative Instruments and Hedging Activities in the Notes for additional information.

At December 30, 2022, we had long-term variable-rate debt obligations of $250 million due March 10, 2023, which we intend to refinance under the Term Loan 2025, which was established during 2022. These debt obligations bear interest that is variable based on certain short-term indices, thus exposing us to interest-rate risk; however, a 10% change in interest rates for these debt obligations at December 30, 2022 would not have had a material impact on our results of operations or cash flows. See Note 13: Debt in the Notes for further information.

We have also used short-term variable-rate debt borrowings, primarily under our commercial paper program, which are subject to interest rate risk. We utilize our commercial paper program to satisfy short-term cash requirements, including bridge financing for strategic acquisitions until longer-term financing arrangements are put in place, temporarily funding repurchases under our share repurchase programs and temporarily funding redemption of long-term debt. The interest rate risk associated with such debt on our results of operations and cash flows is not material due to its temporary nature.

Impact of Foreign Exchange

In fiscal 2022, 43% of our international business was transacted in local currency environments compared with 40% in fiscal 2021 and 32% in fiscal 2020. The impact of translating the assets and liabilities of these operations to U.S. Dollars is included as a component of shareholders’ equity. As of December 30, 2022, the cumulative foreign currency translation adjustment included in shareholders’ equity was a $237 million loss compared with a $118 million loss at December 31, 2021. We utilize foreign currency hedging instruments to minimize the currency risk of international transactions. Gains and losses resulting from currency rate fluctuations did not have a material effect on our results in fiscal 2022, 2021 or 2020.

Impact of Inflation

The macroeconomic environment continues to experience challenges, including historically high rates of inflation. These macroeconomic factors have contributed, and we expect will continue to contribute, to increased material and labor input costs, among other impacts. To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. However, our fixed-price contracts could subject us to losses in the event of persistent elevated levels of inflation. See “Item 1A. Risk Factors” of this Report for more information regarding the risk of inflation to our business. We believe current inflation levels will be persistent in 2023.

CRITICAL ACCOUNTING ESTIMATES

Preparation of this Report in accordance with GAAP requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, expenses and backlog as well as disclosure of contingent assets and liabilities. While the following is not intended to be a comprehensive list of our accounting estimates, we consider the estimates discussed below as critical to an understanding of our financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. The impact and any associated risks related to these estimates on our business operations are discussed throughout this MD&A where such estimates affect our reported and expected financial results. Senior management has discussed the development and selection of the critical accounting estimates and the related disclosure included herein with the Audit Committee of our Board of Directors. Actual results may differ from those estimates.

Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed “critical,” affect reported amounts of assets, liabilities, revenue and expenses, as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”

Revenue Recognition

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 percentage of completion (“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

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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, the cost and availability of purchased materials and services, labor cost and availability 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. These variable amounts generally are 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.

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. After establishing the estimated total cost at completion, we follow a standard EAC process in which we review the progress and performance on our ongoing contracts at least quarterly and, in many cases, more frequently. 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, if we are not successful in retiring these risks, we may increase our estimated total cost at completion. Additionally, as the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we receive award fees that are higher or lower than expected. When adjustments in estimated total costs at completion or in estimated total transaction price are determined, the related impact on operating income is recognized using the cumulative catch-up method, which recognizes in the current period the cumulative effect of such adjustments for all prior periods. Any anticipated losses on these contracts are fully recognized in the period in which the losses become evident.

EAC adjustments had the following impacts to operating income for the periods presented:

There were no individual impacts to operating income due to EAC adjustments in fiscal 2022, 2021 or 2020 that were material to our results of operations on a consolidated or segment basis for such periods.

We recognize revenue from numerous contracts with multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on the relative standalone selling price of the good or service underlying each performance obligation. The standalone selling price represents the amount for which we would sell the good or service to a customer on a standalone basis (i.e., not sold as a bundled sale with any other products or services). The allocation of transaction price among separate performance obligations may impact the timing of revenue recognition but will not change the total revenue recognized on the contract.

A substantial majority of our revenue is derived from contracts with the U.S. Government, including foreign military sales contracts. These contracts are subject to the FAR and the prices of our contract deliverables are typically based on our estimated or actual costs plus a reasonable profit margin. As a result, the standalone selling prices of the goods 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, when standalone selling prices are not directly observable, we also generally use the expected cost plus margin approach to determine standalone selling price. In determining the appropriate margin under the cost plus margin approach, we consider historical margins on similar products sold to similar customers or within similar geographies where objective evidence is available. We may also consider our cost structure and profit objectives, the nature of the proposal, the effects of customization of pricing, our practices used to establish pricing of bundled products, the expected technological life of the product, margins earned on similar contracts with different customers and other factors to determine the appropriate margin.

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Pension and Other Postretirement Benefit Plans

Certain of our current and former employees participate in defined benefit plans in the United States, Canada, United Kingdom and Germany, which are sponsored by L3Harris. The determination of projected benefit obligations (“PBO”) and the recognition of expenses related to defined benefit plans are dependent on various assumptions. These major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, rate of future compensation increases, mortality, termination and other factors (some of which are disclosed in Note 14: Pension and Other Postretirement Benefits in the Notes). Actual results that differ from our assumptions are accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants.

Significant Assumptions. We develop assumptions using relevant experience, in conjunction with market-related data for each plan. Assumptions are reviewed annually with third party consultants and adjusted as appropriate. The table included below provides the weighted average assumptions used to estimate the PBOs and net periodic benefit cost as they pertain to our defined benefit pension plans.

Key assumptions for the Aviation Products Pension Plan (our largest defined benefit plan, with 87% of the total PBO as of December 30, 2022) included a discount rate for obligation assumptions of 5.19%, a cash balance interest crediting rate of 4.00% and expected return on plan assets of 7.50% for fiscal 2022, which is being maintained at 7.50% for fiscal 2023. There is also a frozen pension equity benefit that assumes a 3.75% interest crediting rate.

Expected Return on Plan Assets. Substantially all of our plan assets are managed on a commingled basis in a master investment trust. We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets over the past 15, 20 and 25 years and historical broad market returns over long-term time frames based on our strategic allocation, which is detailed in Note 14: Pension and Other Postretirement Benefits in the Notes. Future returns are based on independent estimates of long-term asset class returns. Based on this approach, the weighted average long-term annual rate of return on assets was estimated to be 7.44% for both fiscal 2022 and 2023.

Discount Rate. The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. An increase in the discount rate decreases the present value of benefit obligations and generally increases pension expense. A decrease in the discount rate increases the present value of the PBO and generally decreases pension expense. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan’s characteristics.

Sensitivity Analysis

Pension Expense. A 25 basis point change in the long-term expected rate of return on plan assets and discount rate would have the following effect on the combined U.S. defined benefit pension plans’ pension expense for the next twelve months:

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PBO. Funded status is derived by subtracting the respective year-end values of the PBO from the fair value of plan assets. The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate. We estimate that a decrease of 25 basis points in the discount rate of the combined U.S. defined benefit pension plans would increase the PBO by approximately $171 million and an increase of 25 basis points would decrease the PBO by approximately $164 million.

Fair Value of Plan Assets. The plan assets of our defined benefit plans comprise a broad range of investments, including domestic and international equity securities, fixed income investments, interests in private equity and hedge funds and cash and cash equivalents.

A portion of our defined benefit plans’ asset portfolio is comprised of investments in private equity and hedge funds. The private equity and hedge fund investments are generally measured using the valuation of the underlying investments or at net asset value (“NAV”). However, in certain instances, the values reported by the asset managers were not current at the measurement date. Consequently, we have estimated adjustments to the last reported value where necessary to measure the assets at fair value at the measurement date. These adjustments consider information received from the asset managers, as well as general market information. Asset values for other positions were generally measured using market observable prices. See Note 14: Pension and Other Postretirement Benefits in the Notes for further information.

Goodwill

We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, which was October 1, 2022 for fiscal 2022, or under certain circumstances more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected. 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. Some of our segments are comprised of several reporting units. Allocation of goodwill to several reporting units could make it more likely that we will have an impairment charge in the future. An impairment charge to any one of our reporting units could have a material impact on our financial condition and results of operations.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. 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 determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative assessment.

Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These factors include: (i) deterioration in the general economy; (ii) deterioration in the environment in which the Company operates; (iii) increase in materials, labor or other costs; (iv) negative or declining cash flows; (v) changes in management, changes in strategy or significant litigation; (vi) change in the composition or carrying amount of net assets or an expectation of disposing all or a portion of the reporting unit; or (vii) a sustained decrease in share price.

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 sales, 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. The sales and earnings multiples applied to the sales and earnings of our reporting units are based on current multiples of sales and earnings for similar businesses, and based on sales 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

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determined by using all of the above-described models, is reasonable. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Fiscal 2022 Impairment Tests. We performed our annual impairment test of all of our reporting units’ goodwill as of October 1, 2022 and concluded that for each of our reporting units no impairment existed.

Segment reorganization. We implemented a new organizational structure effective January 1, 2022, resulting in changes to our operating segments, which are also our reportable segments and are referred to as our business segments. As a result of the segment reorganization, we realigned our reporting units, and immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new reporting unit structure and determined that no impairment existed.

Precision engagement business allocation and impairment. During the quarter ended September 30, 2022, we realigned our precision engagement business from our ADG reporting unit to our Electro Optical reporting unit. In connection with the realignment, we transferred $325 million of goodwill associated with the precision engagement business to our Electro Optical reporting unit on a relative fair value basis. Immediately before and after the reassignment, we tested goodwill assigned to each reporting unit. As a result of these tests, concurrently with the preparation of our financial statements for the quarter ended September 30, 2022, we concluded that goodwill related to our ADG reporting unit was impaired immediately before the reassignment and recorded a non-cash charge of $313 million for the impairment in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Operations. The impairment of goodwill was due to lower sales volume in our precision engagement business, reflecting U.S. Government spending priorities with respect to precision weapons, and higher interest rates. We prepared an estimate of the fair value of our precision engagement business utilizing a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions and projected discounted cash flows.

Broadband, Electro Optical and ADG interim tests. Indications of potential impairment of goodwill related to our Broadband, Electro Optical and ADG reporting units were present as of September 30, 2022. Consequently, in connection with the preparation of our financial statements for the quarter ended September 30, 2022, we performed interim tests of each of these reporting units utilizing a combination of market-based valuation techniques, including quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. We determined that goodwill related our Broadband and Electro Optical reporting units was impaired and goodwill related to our ADG reporting unit was not impaired. As a result, we recorded $489 million of non-cash charges for the impairment of goodwill ($355 million and $134 million for Broadband and Electro Optical, respectively) in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Operations. The impairment of goodwill related to our Electro Optical reporting unit was due to persistently lower demand and associated decrease in our outlook for the precision engagement business, and an increase in interest rates. The impairment of goodwill related to our Broadband reporting unit was due to lower volume on legacy platforms, which also resulted in a decrease in our outlook for the reporting unit, and an increase in interest rates.

At-risk goodwill. Because the carrying values of our Electro Optical, Broadband and ADG reporting units equaled their fair values immediately after the non-cash impairment charges recorded during the quarter ended September 30, 2022, goodwill associated with these reporting units remains at increased risk of impairment. The carrying value of goodwill associated with our Electro Optical, Broadband and ADG reporting units was $2,192 million, $1,539 million and $327 million, respectively. Additionally, our ISR and Commercial Avionics reporting units had clearances of approximately 15% based on the annual impairment testing and had goodwill of $3,186 million and $776 million, respectively. An impairment of goodwill could result from a number of circumstances, including different assumptions used in determining the fair value of the reporting units; changes to U.S. Government spending priorities or ability to win competitively awarded contracts; the rescission of significant contract awards as a result of competitors protesting or challenging contracts awarded to us; or an increase in interest rates without a corresponding increase in future revenue.

Goodwill-Related Fair Value Estimates. Fair value determinations described above under the heading “Goodwill” in this Critical Accounting Estimates section of this MD&A were determined based on a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions, and projected discounted cash flows. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. Material changes in these estimates could occur and result in additional impairments in future periods. For example, if the discount rate used for our impairment analysis’ performed in the quarter ended September 30, 2022 was increased by 25 basis points, the total impairment would have increased by approximately $200 million.

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Business Disposal Group Goodwill Allocation. As described in more detail in Note 4: Business Divestitures and Asset Sales in the Notes, during fiscal 2022, we determined the criteria to be classified as held for sale were met for the Space & Navigation business and the VIS business. Because the divestiture of these businesses represented the disposal of a portion of a reporting unit we assigned goodwill to the businesses on a relative fair value basis. For purposes of allocating goodwill to the businesses, we determined the fair value of each disposal group based on the respective negotiated selling price (or estimated net cash proceeds, in the case of no negotiated selling price), and the fair value of the retained businesses of the respective reporting unit based on a combination of market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note 1: Significant Accounting Policies in the Notes for additional information regarding the fair value hierarchy.

In conjunction with the relative fair value allocation, we tested goodwill assigned to each of the disposal group businesses below and goodwill assigned to the retained businesses of their reporting units for impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met.

See Note 4: Business Divestitures and Asset Sales and Note 9: Goodwill in the Notes for additional information.

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 very 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. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. 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 not made any material changes in the methodologies used to determine our tax valuation allowances during fiscal 2022, 2021 or 2020.

Our Consolidated Balance Sheet as of December 30, 2022 included deferred tax assets of $73 million and deferred tax liabilities of $719 million. This compares with deferred tax assets of $85 million and deferred tax liabilities of $1.3 billion as of December 31, 2021. For all jurisdictions in which we have net deferred tax assets, we expect that our existing levels of pre-tax earnings are sufficient to generate the amount of future taxable income needed to realize these tax assets. Our valuation allowance related to deferred income taxes, which is reflected in our Consolidated Balance Sheet, was $243 million as of December 30, 2022 compared with $257 million as of December 31, 2021. Although we make reasonable efforts to ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions, or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, or if the potential impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.

The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim, involves inherent uncertainty and requires the use of judgment. We evaluate our income tax positions and record tax benefits for all years subject to examination based on our assessment of the facts and circumstances as of the reporting date. For tax positions where it is more likely than not that a tax benefit will be realized, we record the largest amount of tax benefit with a greater than 50% probability of being realized upon ultimate settlement with the applicable taxing authority, assuming the taxing authority has full knowledge of all relevant information. For income tax positions where it is not more likely than not that a tax benefit will be realized, we do not recognize a tax benefit in our Consolidated Financial Statements.

As of December 30, 2022, we had $613 million of unrecognized tax benefits, of which $486 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized. As of December 31, 2021, we had $587 million of unrecognized tax benefits, of which $488 million would favorably impact our future tax rates in the event that the tax benefits are eventually recognized.

It is reasonably possible that there could be a significant decrease or increase to our unrecognized tax benefits during the course of the next twelve months as ongoing tax examinations continue, other tax examinations commence or various statutes of limitations expire. However, an estimate of the range of possible changes is not practicable for the remaining unrecognized tax benefits because of the significant number of jurisdictions in which

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we do business and the number of open tax periods under various states of examination. See Note 22: Income Taxes in the Notes for additional information.

Impact of Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements which became effective during fiscal 2022 that have had a material impact on our Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

The following are some of the factors we believe could cause our actual results to differ materially from our historical results or our current expectations or projections. Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” of this Report for more information regarding factors that might cause our results to differ materially from those expressed in or implied by the forward-looking statements contained in this Report.

•We depend on U.S. Government customers for a significant portion of our revenue, and the loss of these relationships, a reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.

•Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. In particular, our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or sustained period of increased inflation.

•We depend significantly on U.S. Government contracts, which often are only partially funded, subject to immediate termination and heavily regulated and audited. The termination or failure to fund, or negative audit findings for, one or more of these contracts could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.

•The U.S. Government’s budget deficit and the national debt, as well as a breach of the debt ceiling, could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.

•We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.

•We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability.

•We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

•We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally, including fluctuations in currency exchange rates.

•Disputes with our subcontractors or key suppliers, or their inability to perform or timely deliver our components, parts or services, could cause our products and/or services to be produced or delivered in an untimely or unsatisfactory manner.

•We must attract and retain key employees, and any failure to do so could seriously harm us.

•We could be negatively impacted by a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers.

•Our future success will depend on our ability to develop new products and services and technologies that achieve market acceptance in our current and future markets.

•We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption.

•Changes in estimates we use in accounting for many of our programs could adversely affect our future financial results and condition.

•Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans liability may materially adversely affect our financial and operating activities or our ability to incur additional debt.

•A downgrade in our credit ratings could materially adversely affect our business.

•The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect our financial condition, results of operations, cash flows and equity in future periods.

•Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of operations.

•We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.

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•Unforeseen environmental issues, including regulations related to GHG emissions or change in customer sentiment related to environmental sustainability, could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

•Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.

•The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity.

•Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.

•We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.

•We are subject to risks relating to the pending acquisition of AJRD, and acquisition of AJRD cannot be guaranteed to close in the expected time frame or at all.

•Challenges arising from the expanded operations from the acquisition of the TDL product line and the pending acquisition of AJRD may affect our future results.

•Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity.

•Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long-term assets to become impaired, resulting in substantial losses and write-downs that would materially adversely affect our results of operations and financial condition.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations for the fiscal year ended December 31, 2021 (“fiscal 2021”) compared with the fiscal year ended January 1, 2021 (“fiscal 2020”) and fiscal 2020 compared with the four quarters ended January 3, 2020. For a discussion of our results for the two quarters ended January 3, 2020 (“Fiscal Transition Period”) compared with two quarters ended December 28, 2018, see “Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for fiscal 2020. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”

The following is a list of the sections of this MD&A, together with our perspective on their contents, which we hope will assist in reading these pages:

•Business Considerations — a general description of our business; the value drivers of our business; fiscal 2021 results of operations and liquidity and capital resources key indicators; and industry-wide opportunities, challenges and risks that are relevant to us in defense, government and commercial markets.

•Operations Review — an analysis of our consolidated results of operations and of the results in each of our business segments, to the extent the segment operating results are helpful to an understanding of our business as a whole, for the periods presented in our financial statements.

•Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, material cash requirements, commercial commitments, financial risk management, impact of foreign exchange and impact of inflation.

•Critical Accounting Policies and Estimates — a discussion of accounting policies and estimates that require the most judgment and a discussion of accounting pronouncements that have been issued but not yet implemented by us and their potential impact on our financial condition, results of operations, cash flows and equity.

•Forward-Looking Statements and Factors that May Affect Future Results — cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results, or our current expectations or projections.

BUSINESS CONSIDERATIONS

General

We generate revenue, income and cash flows by developing, manufacturing or providing and selling advanced, technology-based solutions that meet government and commercial customers’ mission-critical needs. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial applications. As of December 31, 2021, we had approximately 47,000 employees, including approximately 19,000 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.

We structure our operations primarily around the products, systems and services we sell and the markets we serve, and for fiscal 2021 we reported the financial results of our continuing operations in the following four operating segments, which were also our reportable segments and are referred to as our business segments:

•Integrated Mission Systems, including multi-mission ISR and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced EO/IR solutions;

•Space & Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare;

•Communication Systems, including tactical communications; broadband communications; integrated vision solutions; and public safety radios; global communications solutions and

•Aviation Systems, including defense aviation; commercial aviation products; commercial pilot training; and mission networks for air traffic management.

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During the first quarter of fiscal 2020, we adjusted our segment reporting to better align our businesses and transferred two businesses between our Integrated Mission Systems and Space & Airborne Systems segments. The historical results, discussion and presentation of our business segments as set forth in this MD&A reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these changes.

As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, during fiscal 2021, fiscal 2020 and the two quarters ended January 3, 2020, we completed the following business divestitures (which had revenue attributable to them as set forth below):

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(1)Net of intracompany sales. See “Item 1. Business” of this Report for more information regarding businesses divested during fiscal 2021 and 2020.

See Note 24: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.

As discussed in further detail in Note 4: Business Combination in the Notes, we recorded the following charges at our corporate headquarters in connection with the L3Harris Merger.

Because the L3Harris Merger benefited the entire Company as opposed to any individual business segment, the above costs were not allocated to any business segment. Most of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for additional cost of sales related to the fair value step-up in inventory sold and facility consolidation costs. These costs are included in the “Cost of product sales and services” and “Impairment of goodwill and other assets” line items in our Consolidated Statement of Income, respectively.

As described in more detail in Note 1: Significant Accounting Policies in the Notes, effective June 29, 2019, we changed our fiscal year end to the Friday nearest December 31, and the period that commenced on June 29, 2019 was a fiscal transition period that ended on January 3, 2020. References herein to the four quarters ended January 3, 2020 and two quarters ended December 28, 2018 represent the unaudited prior year results for the comparative periods ended January 3, 2020 and December 28, 2018.

Amounts in this Report may not always add to totals due to rounding.

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Value Drivers of Our Business

During fiscal 2021, we made progress executing our strategy of building a technology-focused operating company and becoming a full end-to-end mission solutions prime contractor to drive shareholder value. Despite impacts from COVID, global supply chain delays and award timing, we met customer commitments, delivered organic revenue growth during fiscal 2021, exceeded our target of $320 million to $350 million in net cost synergies from the L3Harris Merger by the end of 2021 and completed portfolio shaping, while continuing to focus on keeping our employees safe.

We received several key strategic contract awards in fiscal 2021, establishing us as a mission solutions prime contractor with our responsive satellites within missile defense and international aircraft missionization within ISR, as well as highlighting our technology and solutions for the contested environments our customers will need to compete and operate within in the future. We also invested $692 million (4 percent of total revenue) in company-sponsored R&D focused on technologies that expand our capabilities in the following areas:

•Spectrum superiority;

•Actionable intelligence; and

•Warfighter effectiveness.

We also completed reshaping our portfolio to focus on technology-differentiated businesses and expanded our future financial flexibility by completing six divestitures and used the proceeds, along with our net cash provided by operating activities, to repurchase shares of our common stock.

Effective January 1, 2022, we have streamlined our business segments from four to three business segments. As a result of the segment reorganization, the Aviation Systems segment was eliminated as a business segment. Effective for fiscal 2022, which began January 1, 2022, we will report our financial results in three reportable segments. As part of this process, we formed an internal entity that will be focused on pulling together innovative solutions and technologies from across L3Harris.

We plan to build on our fiscal 2021 momentum, and together with broad support for our programs across key areas in the DoD budget, expected international growth, L3Harris Merger synergies and a continued focus on operational excellence and innovation, we believe we are well positioned to achieve our strategic priorities for fiscal 2022 and thereafter, which include the following:

•Investing in innovation internally and externally to support sustainable growth and to bring unique technologies to global defense customers;

•Driving flawless execution through our e3 (excellence, everywhere, every day) operational excellence program; and

•Maximizing cash flows with shareholder friendly capital deployment.

During fiscal 2021, we returned to our shareholders $817 million through dividends and $3.7 billion through share repurchases. On February 25, 2022, we announced that our Board of Directors approved a 10 percent increase in the quarterly per share cash dividend rate on our common stock to $1.12, commencing with the dividend to be declared for the first quarter of 2022, for an annualized per share rate of $4.48. In fiscal 2022, we believe revenue growth across our business segments will improve our operating cash flow, which we expect to use to strengthen our portfolio while sustaining a shareholder-friendly capital approach.

Beyond fiscal 2021, we expect three main building blocks will support growth over the next three to five years, although we can give no assurances on this growth. First, we have a portfolio that is well aligned with national security priorities for threats identified in the National Defense Strategy. We have aligned our R&D efforts to extend our position through investments in open architecture, multi-function software-defined technologies, and we anticipate future defense budgets will continue to prioritize spending in the areas in which we are currently well-positioned and investing in new technologies. Second, we are well-positioned to advance our strategy of being a leading non-traditional prime. Third, we expect to leverage our sales channels and capitalize on our strengths domestically to support global modernization efforts and drive growth in international revenue.

Key Indicators

We believe our value drivers, when implemented, will improve our financial results, including: revenue; income from continuing operations and income from continuing operations per diluted common share; income from continuing operations as a percentage of revenue; total backlog; net cash provided by operating activities; return on invested capital (defined as after-tax operating income from continuing operations divided by the two-point average of invested capital at the beginning and end of the period, where invested capital equals equity plus debt, less cash and cash equivalents); return on average equity (defined as income from continuing operations divided by the two-point average of equity at the beginning and end of the fiscal period); and consolidated total indebtedness to total capital ratio. The measure of our success is reflected in our results of operations and liquidity and capital resources key indicators as discussed below.

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Fiscal 2021 Results of Operations Key Indicators: Revenue, income from continuing operations, income from continuing operations as a percentage of revenue, income from continuing operations per diluted common share and total backlog represent key measurements of our value drivers:

•Revenue decreased 2 percent to $17.8 billion in fiscal 2021 from $18.2 billion in fiscal 2020 primarily due to the impact of divestitures within Aviation Systems and supply chain-related constraints within Communication Systems;

•Income from continuing operations attributable to L3Harris common shareholders increased 65 percent to $1,847 million in fiscal 2021 from $1,121 million in fiscal 2020, primarily due to the combined effects of the reasons discussed below under the caption “Operations Review” in this MD&A; particularly, the reduction of non-cash charges for impairments of goodwill and other assets associated with the COVID-related downturn in the commercial aviation market and its impact on customer operations in fiscal 2020;

•Income from continuing operations attributable to L3Harris common shareholders as a percentage of revenue increased to 10 percent in fiscal 2021 from 6 percent in fiscal 2020;

•Income from continuing operations per diluted common share attributable to L3Harris common shareholders increased 75 percent to $9.09 in fiscal 2021 from $5.19 in fiscal 2020, reflecting the increase in income from continuing operations and lower weighted average diluted common shares outstanding due to share repurchases during fiscal 2021; and

•Total backlog decreased 3 percent to $21.1 billion at December 31, 2021 from $21.7 billion at January 1, 2021. Backlog at January 1, 2021 included $1.5 billion associated with businesses divested in fiscal 2021.

Refer to MD&A heading “Operations Review” below in this Report for more information.