2020 Annual Report
FINANCIAL
HIGHLIGHTS*
NON-GAAP EARNINGS PER SHARE
$11.60
$10.26
2019
2020
ADJUSTED FREE CASH FLOW
(IN MILLIONS)
$2,686
$2,095
$ in millions
2019
2020
Organic Revenue*
$17,677
$18,194
Non-GAAP EBIT*
$3,039
$3,280
Non-GAAP EBIT Margin*
16.8%
18.0%
Capital Returns
Dividends
Share Repurchases
$499
$725
$1,500
$2,290
FIVE-YEAR CUMULATIVE TOTAL RETURN
2019
2020
NET DEBT/EBITDA
1.8
$198
$147
$109
$100
$295
$263
$270
LHX
S&P
500
LHX UP
170%
SINCE FY15
S&P UP
102%
SINCE FY15
1.6
FY15
FY16
FY17
FY18
FY19
1/3/2020
FY20
2019
2020
TOTAL BACKLOG (IN MILLIONS)
$21,670
$20,146
ABOUT L3HARRIS TECHNOLOGIES
L3Harris Technologies is an agile global aerospace
and defense technology innovator, delivering end-to-end
solutions that meet customers’ mission-critical needs.
The company provides advanced defense and commercial
technologies across air, land, sea, space and cyber
domains. L3Harris has approximately $18 billion in
annual revenue and 48,000 employees, with customers
in more than 100 countries.
2019
2020
L3HARRIS TECHNOLOGIES 2020 ANNUAL REPORT
*Includes or reflects non–GAAP financial measures (NGFMs) and/or pro forma financial
measures; refer to disclosures and NGFM reconciliations in “Non-GAAP and Pro Forma
Financial Measures” section on pages 5-6.
L3HARRIS TECHNOLOGIES 2020 ANNUAL REPORT
LETTER TO
SHAREHOLDERS
Integrating a merger of equals while meeting
stakeholder commitments is challenging even under
ideal circumstances. 2020 was anything but ideal.
Global health, economic and social crises tested the
very fabric of our merger vision – to create a company
with the scale, resources and capabilities to provide
affordable, innovative and rapidly fielded solutions
that address our customers’ mission critical needs.
But, it was the strength of that vision – combined
with the heroic efforts of our employees, suppliers
and customers – that enabled L3Harris to not only
succeed, but emerge stronger than we imagined
when we set out on this journey over two years ago.
OUR HEROES
Our 48,000 employees succeeded amid some of
the most challenging circumstances imaginable.
With an equal number working remotely and onsite,
employees adhered to strict health and safety
protocols while continuing to design and deliver
innovative new technologies to meet our customer
commitments. They accomplished this while donating
time to support first responders, healthcare workers,
educators and community organizations’ COVID-19
and economic relief efforts.
L3Harris’ 7,000-plus suppliers – many small
businesses – were forced to overcome their own
staffing, resource and material constraints. We
supported them by accelerating payments and
sharing best practices, and they responded by
delivering the products and services we required
to operate without interruption.
Through shared adversity we also tightened
the bonds with our customers and changed the
way we do business. Together we created more
efficient problem-solving approaches that will
pay benefits well into the future, such as using
remote communication tools to increase dialogue,
collaboration and even virtual inspections.
FINANCIAL RESULTS*
Despite 2020’s challenges, L3Harris delivered solid
results in its first full year of operation as a combined
company – exceeding initial pre-pandemic guidance
on margins, EPS and free cash flow. Non-GAAP
earnings per share grew 13% to $11.60, with
revenue up 3% organically and margin increasing
120 bps to 18%. Adjusted free cash flow rose 28%,
and we reported solid orders and a book-to-bill
above 1.
After the calendar-year close, we raised our quarterly
dividend by 20% – representing a nearly 50% increase
since the merger – and established a new $6 billion
share repurchase authorization. The actions reflect
the strength of our company and confidence in our
financial outlook and ability to generate strong free
cash flow while continuing to invest for future growth.
STRATEGIC PRIORITIES
We continued to make significant strides executing
against our strategic priorities during the year. Our
focus on excellence helped deliver $205 million in
net synergy savings in 2020 – $270 million since
the merger. We increased our net savings target to
$320-$350 million in 2021, still a year ahead of schedule.
We maintained our innovation strategy, focusing
our leadership team and industry leading ~4% R&D
investment on open architecture, multi-function and
software-defined solutions across our broad C5ISR
portfolio of capabilities. Our investments included
funding revenue synergy opportunities involving
new solutions that combine capabilities from across
legacy companies.
Our emphasis on working capital reduction led to
an eight-day improvement in 2020, which helped
generate $2.7 billion in adjusted free cash flow.
This enabled us to return $3 billion to shareholders
through $725 million in dividends and $2.3 billion
in share repurchases.
We continued to position the business for long-term
value creation by exiting non-core businesses – with
a goal to divest a cumulative 8-10% of revenue – and
focusing our management time and R&D investments
on more strategic, technology-based business areas.
PAGE 1
MERGER INTEGRATION
In a short period, we’ve made tremendous progress
integrating two large organizations into a single high-
performance, technology-focused operating company
– and positioning L3Harris as a full, end-to-end
mission solutions prime.
OUTLOOK
We have laid the important building blocks for our
new company. Entering 2021, we are well positioned
with a strong organization and technologies that align
with our customers’ budgets and national defense
priorities to counter near-peer threats.
Since the merger close, we’ve established a culture
of integrity, excellence and respect and issued our
first Diversity & Inclusion report and Sustainability
report. We made great strides maturing our culture
of continuous improvement by institutionalizing
the company’s e3 (excellence, everywhere, every
day) operating model – embedding metrics into our
business processes and providing employees with
tools and training.
We also leveraged functional efficiencies and shared
services, empowering the company to harmonize
benefits, rationalize our geographic footprint and
consolidate our supply chain, among other cost-
saving improvements.
These actions helped foster collaboration throughout
the company, leading to both cost and revenue
synergies that exceeded initial expectations. The
combined capabilities of our company are allowing
us to offer new solutions, as well as enter new
markets and gain share in existing markets, which
would not have been possible independently. Our
revenue synergy pipeline matured faster than
originally anticipated – nearing $7 billion, with an
approximately two-thirds win rate on proposals
awarded to date, which have over $2 billion in
potential lifetime value.
We will continue to execute on our strategic priorities
– focusing on growing the top-line, completing the
integration, expanding margins through flawless
execution and continuous improvement, reshaping
our portfolio and maximizing cash flow to support
capital returns.
As established by the merger agreement, we will
complete a leadership transition on June 29, 2021,
with Bill serving as Executive Chair of the Board and
Chris becoming CEO. We developed the L3Harris
vision together, have partnered throughout the
integration and are committed to continuing to
execute the strategy established at the merger close.
We are proud of the progress we have made so
far, which has garnered third-party recognition
including being named to FORTUNE’s Most Admired
Companies’ list, Bloomberg’s Gender Equality Index
and the Human Rights Campaign’s Best Places to
Work for LGBTQ Equality Index.
Integrating the two companies and overcoming this
past year’s challenges would not have been possible
without the support of our Board of Directors,
leadership team and company’s 48,000 employees.
Our company’s success is a testament to their
resilience and dedication.
William M. Brown
Chair and CEO
Christopher E. Kubasik
Vice Chair, President and COO
COMPANY
HIGHLIGHTS
$18B
ANNUAL REVENUE
~19K
ENGINEERS
& SCIENTISTS
L3HARRIS TECHNOLOGIES 2020 ANNUAL REPORT
~4%
INDUSTRY-LEADING
INTERNAL R&D INVESTMENT
EMPLOYEES
48K
CUSTOMERS IN
MORE THAN
100 COUNTRIES
L3HARRIS TECHNOLOGIES 2020 ANNUAL REPORT
INTEGRATED
MISSION SYSTEMS
SPACE AND
AIRBORNE SYSTEMS
$5.5B
$4.9B
Leading technology integrator to U.S. and
international militaries for complex ISR,
airborne, maritime and space platforms
ISR | Maritime | Electro-Optical
Mission solutions for space and airborne
domains with defense, intelligence and
commercial applications
Space | Intel and Cyber | Avionics |
Electronic Warfare
COMMUNICATION
SYSTEMS
AVIATION
SYSTEMS
$4.4B
$3.4B
Secure ground and airborne communications
and network systems for U.S. military, international
forces and commercial customers
Tactical Communications | Broadband
Communications | Integrated Vision Solutions |
Public Safety
Commercial and military aviation solutions,
systems, networks and pilot training
Defense Aviation | Commercial Aviation |
Commercial & Military Training |
Mission Networks
L3HARRIS
LEADERSHIP
BOARD OF DIRECTORS
> William M. Brown
> Peter W. Chiarelli
> Roger B. Fradin
> Rita S. Lane
Chair and CEO
General, U.S. Army(Retired)
> Christopher E. Kubasik
Vice Chair, President
and COO
> Thomas A. Corcoran
Former President and CEO,
Allegheny Teledyne
> Sallie B. Bailey
Former EVP and CFO,
Louisiana-Pacific
> Thomas A. Dattilo
Former Chairman,
CEO and President,
Cooper Tire & Rubber
Former Vice Chairman,
Honeywell
Former Vice President,
Operations, Apple
> Lewis Hay III
Former Chairman
and CEO, NextEra Energy
> Robert B. Millard
Chair Emeritus,
MIT Corporation
> Lewis Kramer
Retired Partner,
Ernst & Young
> Lloyd W. Newton
General, U.S. Air Force
(Retired)
EXECUTIVE OFFICERS
> William M. Brown
> Todd W. Gautier
> Scott T. Mikuen
Chair and CEO
President, Aviation Systems
> Christopher E. Kubasik
Vice Chair, President
and COO
> James P. Girard
Vice President and Chief
Human Resources Officer
> Jesus “Jay” Malave Jr.
> Dana A. Mehnert
Senior Vice President and
Chief Financial Officer
President,
Communication Systems
Senior Vice President,
General Counsel and
Secretary
> Sean J. Stackley
President, Integrated
Mission Systems
> Todd A. Taylor
Vice President,
Principal Accounting Officer
> Edward J. Zoiss
President,
Space & Airborne Systems
PAGE 3
SUSTAINABILITY
PROGRAM
L3Harris is committed to creating a more sustainable future for our society. The company will issue its first
Sustainability Report in 2021, which will provide information about the company’s strategy and metrics on
environmental, social and governance initiatives.
ENVIRONMENTAL
L3Harris has invested in energy efficiency and carbon-reduction projects while enhancing management of
energy and water usage, greenhouse gas (GHG) emissions and solid waste generation. The company signed
a virtual renewable energy power purchase agreement – ~110,000 metric tons of avoided GHG emissions
annually through L3Harris’ agreement, equivalent to removing 24,000 cars from the road every year.
OUR CURRENT ENVIRONMENTAL
SUSTAINABILITY PROGRAM
2026 GOALS INCLUDE:
*GHG and water use reduction
compared to 2019 baseline.
30%
GHG EMISSIONS
REDUCTION
20%
WATER USE
REDUCTION
75%
SOLID WASTE
DIVERSION
SOCIAL
L3Harris invests heavily in our employees’ safety, training and career success – and took key steps early to
keep employees safe throughout the COVID-19 pandemic. In addition, we support communities where we
work and live, focusing our philanthropy and employee volunteerism in STEM, mission-aligned and community
initiatives. Our L3Harris Investing For Tomorrow (LIFT) employee volunteerism program empowered
employees to support approximately 530 virtual and other community service projects in 2020. In the wake
of social unrest, L3Harris promoted dialogue around the topic of Diversity and Inclusion (D&I), particularly
through our D&I council and our Employee Resource Groups (ERGs), while also committing to new diversity goals.
L3HARRIS EMPLOYEE RESOURCE GROUPS
APEX
(Asian Professionals for Excellence)
ECP
(Early Career Professionals)
HOLA
(Hispanic/Latino Organization
for Leadership & Advancement)
INTRAPRENEURS
(Technology & Innovation Resource Group)
LEAD
(L3Harris Employees of African Descent)
PRIDE
(LGBTQ+ Resource Group)
SERVE
(Supporting Emergency Responders
and Veterans Engagement)
WE3
(Women Who Strive for Empowering,
Enhancing, & Encouraging Other Women)
WILA
(Willing & Able)
REPRESENTATION
50%
WOMEN
GLOBALLY
33%
PERSONS OF COLOR
IN THE U.S.
GOVERNANCE
L3Harris is committed to responsible and effective corporate governance to ensure sustainable, long-term
shareholder value, and to be accountable and responsive to all stakeholders. The Board is elected annually
by shareholders and is comprised of independent directors except for two employee directors – the CEO and
COO. The ESG Steering Committee is led by our CEO and consists of key executives and an executive sponsor
for each of the three main pillars: Environmental, Social and Governance.
COMPANY VALUES
INTEGRITY
INTEGRITY
EXCELLENCE
RESPECT
> Accountable
> Flawless Execution
> Safe & Sustainable
RESPECT
EXCELLENCE
> Ethical
> Honest
> Customer-Focused
> Community-Minded
> Innovative
> Inclusive
L3HARRIS TECHNOLOGIES 2020 ANNUAL REPORT NON-GAAP AND PRO FORMA FINANCIAL MEASURES
To supplement results presented in accordance with U.S. generally accepted accounting principles (“GAAP”), results in this Annual Report include non-
GAAP financial measures (“NGFMs”) within the meaning of Regulation G promulgated by the Securities and Exchange Commission (“SEC”), including organic
revenue; adjusted earnings before interest and taxes (“EBIT”); adjusted EBIT margin; non-GAAP earnings per diluted share from continuing operations
(“EPS”); adjusted free cash flow; and [adjusted] earnings before interest, taxes, depreciation and amortization; in each case, adjusted for certain costs,
charges, expenses, losses or other amounts as set forth in the reconciliations of NGFMs included below. A “NGFM” is generally defined as a numerical
measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most
directly comparable measure calculated and presented in accordance with GAAP). L3Harris management believes that these NGFMs, when considered
together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate
and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. L3Harris management
also believes that these NGFMs enhance the ability of investors to analyze L3Harris business trends and to understand L3Harris performance. In addition,
L3Harris may utilize NGFMs as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for some
management compensation purposes. NGFMs should be considered in addition to, and not as a substitute for, or superior to, financial measures presented
in accordance with GAAP.
Results in this Annual Report also include pro forma financial measures for full-year 2019, which combine the applicable actual GAAP results for the third
and fourth quarters of 2019 (which occurred following the L3Harris merger) with the corresponding results for the first two quarters of 2019 (preceding the
L3Harris merger) in the pro forma condensed combined income statement information (prepared in a manner consistent with Article 11 of Regulation S-X)
included in L3Harris’ Current Report on Form 8-K filed with the SEC on May 4, 2020. Adjusted pro forma financial measures are included among the NGFMs
described in the preceding paragraph and refer to the applicable prior-year pro forma financial measure as adjusted for certain costs, charges, expenses,
losses or other amounts as set forth in the reconciliations of NGFMs included below.
A reconciliation of these NGFMs with the most directly comparable financial measures calculated in accordance with GAAP follows:
NON-GAAP INCOME FROM CONTINUING OPERATIONS PER DILUTED COMMON SHARE
DOLLARS IN MILLIONS
Income from continuing operations per diluted common share attributable to L3Harris Technologies, Inc. common shareholders
Adjustments:
REVENUE
DOLLARS IN MILLIONS
Pre-merger integration costs, including change in control charges
Revenue from product sales and services
L3Harris Merger-related transaction costs
Adjustment ( c )
L3Harris Merger integration costs
Organic revenue
Restructuring charges and other items
YOY % increase
Charges related to consolidation of facilities, including right-of-use asset impairment
Organic YOY % increase
Gain on pension plan curtailment
EBIT MARGIN
Amortization of acquisition-related intangibles
DOLLARS IN MILLIONS
Additional cost of sales related to the fair value step-up in inventory sold
Net income (A)
Business divestiture-related (gains) losses
Adjustments:
Other divestiture-related expenses
Discontinued operations, net of income taxes
Impairment of goodwill and other assets related to divestitures and COVID-19 impacts
Net interest expense
Gain on sale of property, plant and equipment
Income taxes
Gain on sale of asset group
Pre-merger integration costs, including change in control charges
Non-cash cumulative adjustment to lease expense
L3Harris Merger-related transaction costs
(Gains) losses and other costs related to debt refinancing
L3Harris Merger integration costs
Noncontrolling interests portion of adjustments
Restructuring charges and other items
Total pre-tax adjustments
Charges related to consolidation of facilities, including right-of-use asset impairment
Income taxes on above adjustments
Gain on pension plan curtailment
Total adjustments after-tax
Amortization of acquisition-related intangibles
Additional cost of sales related to the fair value step-up in inventory sold
Business divestiture-related (gains) losses
Other divestiture-related expenses
Impairment of goodwill and other assets related to divestitures and COVID-19 impacts
Gain on sale of property, plant and equipment
Gain on sale of asset group
Additions of property, plant and equipment
Non-cash cumulative adjustment to lease expense
Proceeds from sale of property, plant and equipment, net
(Gains) losses and other costs related to debt refinancing
Total adjustments
Non-GAAP income from continuing operations per diluted common share
YOY % decrease
Non-GAAP YOY % increase
ADJUSTED FREE CASH FLOW
DOLLARS IN MILLIONS
Net cash provided by operating activities
Free cash flow
Cash used for L3Harris Merger transaction costs, including change in control payments
Adjusted EBIT (B)
Cash used for L3Harris Merger integration costs
Revenue from product sales and services (C)
Voluntary contribution to pension plans
Net income margin (A) / (C)
Adjusted free cash flow
Adjusted EBIT margin percentage (A) / (B)
YOY % increase
Net income margin YOY decrease
Adjusted free cash flow YOY % increase
Adjusted EBIT margin YOY increase
FULL YEAR
January 3, 2020 ( a )
$
7.25
January 1, 2021
$
5.19
FULL YEAR
$
January 3, 2020 ( a )
18,097
$
(420)
17,677
0.45
0.37
0.45
0.52
0.22
(0.10)
2.68
January 3, 2020 ( a )
0.64
$
1,650
(1.02)
-
-
-
(0.05)
0.04
0.02
-
4.22
(1.21)
3.01
10.26
2
253
189
100
83
102
117
48
(23)
601
142
(229)
-
-
-
1,655
(12)
(267)
10
-
6
1,388
1,389
278
$
3,039
127
18,097
$
302
9.1%
2,095
16.8%
January 1, 2021
1,086
$
January 1, 2021
-
18,194
$
-
-
0.60
18,194
0.13
1%
-
3%
-
3.29
0.14
$
0.24
0.06
3.56
(0.10)
-
(0.01)
(0.01)
(0.19)
7.71
(1.30)
6.41
11.60
-28%
13%
2
254
234
-
-
130
29
-
-
709
31
51
13
767
(22)
-
2,790
(368)
(2)
91
(2)
2,513
2,194
-
$
3,280
173
18,194
$
-
6.0%
2,686
18.0%
69%
(310 bps)
28%
120 bps
January 3, 2020
January 1, 2021
$
$
$
$
$
$
( a )
Information for the four quarters ended January 3, 2020 is presented on a pro forma basis. "Pro forma" refers to the applicable result for full-year 2019, which combines the actual
GAAP results for the third and fourth quarters of 2019 (which occurred following the L3Harris merger) with the corresponding results for the first two quarters of 2019 (preceding the
L3Harris merger) in the pro forma condensed combined income statement information (prepared in a manner consistent with Article 11 of Regulation S-X) included in L3Harris'
Current Report on Form 8-K filed on May 4, 2020.
( b )
The four quarters ended January 3, 2020 adjusted to exclude backlog related to divested businesses.
( c )
The four quarters ended January 3, 2020 adjusted to exclude revenue attributable to each divested business for the remaining portion of calendar 2019 that is equivalent to the
balance of fiscal 2020 following the date the business was divested.
PAGE 5
NET DEBT TO NON-GAAP EBITDA RATIO
DOLLARS IN MILLIONS
Short-term debt
Current portion of long-term debt, net
Long-term debt, net
Total debt
Less cash and cash equivalents
Net debt
Income from continuing operations before income taxes ( a )
Net interest expense ( a )
Depreciation and amortization ( a )
EBITDA ( a )
Net Debt to EBITDA ratio ( a )
Adjustments ( a ) :
Pre-merger integration costs, including change in control charges
L3Harris Merger-related transaction costs
L3Harris Merger integration costs
Restructuring charges and other items
Charges related to consolidation of facilities, including right-of-use asset impairment
Gain on pension plan curtailment
Additional cost of sales related to the fair value step-up in inventory sold
Business divestiture-related (gains) losses
Other divestiture-related expenses
Impairment of goodwill and other assets related to divestitures and COVID-19 impacts
Gain on sale of property, plant and equipment
Gain on sale of asset group
Non-cash cumulative adjustment to lease expense
(Gains) losses and other costs related to debt refinancing
Total adjustments
Non-GAAP EBITDA ( a )
Net Debt to Non-GAAP EBITDA ratio ( a )
TOTAL BACKLOG
DOLLARS IN MILLIONS
Total backlog
Adjustment ( b )
Organic total backlog
REVENUE
DOLLARS IN MILLIONS
Revenue from product sales and services
Adjustment ( c )
Organic revenue
YOY % increase
Organic YOY % increase
EBIT MARGIN
DOLLARS IN MILLIONS
Net income (A)
Adjustments:
Discontinued operations, net of income taxes
Net interest expense
Income taxes
Pre-merger integration costs, including change in control charges
L3Harris Merger-related transaction costs
L3Harris Merger integration costs
Restructuring charges and other items
Charges related to consolidation of facilities, including right-of-use asset impairment
Gain on pension plan curtailment
Amortization of acquisition-related intangibles
Additional cost of sales related to the fair value step-up in inventory sold
Business divestiture-related (gains) losses
Other divestiture-related expenses
Impairment of goodwill and other assets related to divestitures and COVID-19 impacts
Gain on sale of property, plant and equipment
Gain on sale of asset group
Non-cash cumulative adjustment to lease expense
(Gains) losses and other costs related to debt refinancing
Total adjustments
Adjusted EBIT (B)
Revenue from product sales and services (C)
Net income margin (A) / (C)
Adjusted EBIT margin percentage (A) / (B)
Net income margin YOY decrease
Adjusted EBIT margin YOY increase
January 3, 2020
$
3
257
6,694
6,954
824
6,130
1,841
253
945
3,039
2.0
$
$
January 1, 2021
2
$
8
6,908
6,918
1,276
5,642
1,322
254
1,032
2,608
2.2
$
$
100
83
102
117
48
(23)
142
(229)
-
-
-
(12)
10
6
344
3,383
1.8
$
-
-
130
29
-
-
31
51
13
767
(22)
-
(2)
(2)
995
3,603
1.6
$
AS OF
January 3, 2020
January 1, 2021
$
$
$
$
20,551
(405)
20,146
FULL YEAR
January 3, 2020 ( a )
18,097
$
(420)
17,677
$
January 1, 2021
$
$
21,670
-
21,670
18,194
-
18,194
1%
3%
January 3, 2020 ( a )
$
1,650
January 1, 2021
$
1,086
2
253
189
100
83
102
117
48
(23)
601
142
(229)
-
-
-
(12)
10
6
1,389
3,039
18,097
9.1%
16.8%
$
$
2
254
234
-
-
130
29
-
-
709
31
51
13
767
(22)
-
$
$
(2)
(2)
2,194
3,280
18,194
6.0%
18.0%
(310 bps)
120 bps
( a )
Information for the four quarters ended January 3, 2020 is presented on a pro forma basis. "Pro forma" refers to the applicable result for full-year 2019, which combines the actual
GAAP results for the third and fourth quarters of 2019 (which occurred following the L3Harris merger) with the corresponding results for the first two quarters of 2019 (preceding the
L3Harris merger) in the pro forma condensed combined income statement information (prepared in a manner consistent with Article 11 of Regulation S-X) included in L3Harris'
Current Report on Form 8-K filed on May 4, 2020.
( b )
The four quarters ended January 3, 2020 adjusted to exclude backlog related to divested businesses.
( c )
The four quarters ended January 3, 2020 adjusted to exclude revenue attributable to each divested business for the remaining portion of calendar 2019 that is equivalent to the
balance of fiscal 2020 following the date the business was divested.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-3863
L3HARRIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
34-0276860
(I.R.S. Employer Identification No.)
1025 West NASA Boulevard
Melbourne, Florida
(Address of principal executive offices)
32919
(Zip Code)
Registrant’s telephone number, including area code: (321) 727-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
LHX
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
þ
¨
Accelerated filer
Smaller reporting company
Emerging growth company
¨
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of the voting common equity held by non-affiliates of the registrant at July 3, 2020 was $36,993,861,277
(based on the quoted closing sale price per share of the stock on the New York Stock Exchange). For purposes of this calculation, the registrant
has assumed that its directors and executive officers as of July 3, 2020 are affiliates.
The number of shares outstanding of the registrant’s common stock as of February 26, 2021 was 205,565,782.
Documents Incorporated by Reference:
Portions of the registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Shareholders scheduled to be held on April 23,
2021, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended
January 1, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2021
L3HARRIS TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page No.
ITEM 1. Business...................................................................................................................................
ITEM 1A. Risk Factors.............................................................................................................................
ITEM 1B. Unresolved Staff Comments....................................................................................................
ITEM 2. Properties.................................................................................................................................
ITEM 3. Legal Proceedings....................................................................................................................
ITEM 4. Mine Safety Disclosures..........................................................................................................
Information about our Executive Officers.....................................................................................................
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.................................................................................................
ITEM 6. [Reserved].................................................................................................................................
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk................................................
ITEM 8. Financial Statements and Supplementary Data.......................................................................
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
ITEM 9A. Controls and Procedures..........................................................................................................
ITEM 9B. Other Information....................................................................................................................
ITEM 10. Directors, Executive Officers and Corporate Governance......................................................
ITEM 11. Executive Compensation.........................................................................................................
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.................................................................................................................
ITEM 13. Certain Relationships and Related Transactions, and Director Independence........................
ITEM 14. Principal Accounting Fees and Services.................................................................................
Part I:
Part II:
Part III:
Part IV:
ITEM 15. Exhibits, Financial Statement Schedules.................................................................................
ITEM 16. Form 10-K Summary...............................................................................................................
Signatures......................................................................................................................................................................
1
11
24
25
25
27
28
30
32
33
69
70
132
132
133
133
134
134
134
134
135
141
142
Exhibits
This Annual Report on Form 10-K contains trademarks, service marks and registered marks of L3Harris Technologies, Inc.
and its subsidiaries. All other trademarks are the property of their respective owners.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this “Report”), including “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as
assumptions that may not materialize or prove correct, which could cause our results to differ materially from those expressed in
or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including, but not limited to, statements concerning: our plans, strategies and objectives for
future operations; new products, systems, technologies, services or developments; future economic conditions, performance or
outlook; future political conditions; the outcome of contingencies or litigation; environmental remediation cost estimates; the
potential level of share repurchases, dividends or pension contributions; potential acquisitions or divestitures; the integration of
Harris Corporation (“Harris”) and L3 Technologies, Inc. (“L3”) and of our acquisitions; the value of contract awards and
programs; expected revenue; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or
developments that we intend, expect, project, believe or anticipate will or may occur in the future; and assumptions underlying
any of the foregoing. Forward-looking statements may be identified by their use of forward-looking terminology, such as
“believes,” “expects,” “may,” “could,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects” and
similar words or expressions. You should not place undue reliance on these forward-looking statements, which reflect our
management’s opinions only as of the date of filing of this Report and are not guarantees of future performance or actual results.
Factors that might cause our results to differ materially from those expressed in or implied by these forward-looking statements,
from our current expectations or projections or from our historical results include, but are not limited to, those discussed in
“Item 1A. Risk Factors” of this Report. All forward-looking statements are qualified by, and should be read in conjunction with,
those risk factors. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and are made as of the date of filing of this Report, and we disclaim any intention or obligation, other than
imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events or
developments or otherwise, after the date of filing of this Report or, in the case of any document incorporated by reference, the
date of that document.
Amounts contained in this Report may not always add to totals due to rounding.
L3Harris Merger
As described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation” and Note 5:
Business Combination in the Notes to Consolidated Financial Statements in this Report (the “Notes”), on October 12, 2018, Harris
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with L3 and Leopard Merger Sub Inc., a newly formed,
direct wholly-owned subsidiary of Harris (“Merger Sub”), pursuant to which Harris and L3 agreed to combine their respective
businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3, with L3 continuing as the
surviving corporation and a direct wholly-owned subsidiary of Harris (the “L3Harris Merger”), and Harris’ name would change to
“L3Harris Technologies, Inc.” The closing of the L3Harris Merger occurred on June 29, 2019, after the end of Harris’ fiscal 2019
on June 28, 2019.
ITEM 1.
BUSINESS.
PART I
L3HARRIS
General
L3Harris Technologies, Inc. is an agile global aerospace and defense technology innovator, delivering end-to-end solutions
that meet customers’ mission-critical needs. We were incorporated in Delaware in 1926 as the successor to three companies
founded in the 1890s. Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and “L3Harris” as used in
this Report mean the combined company L3Harris Technologies, Inc. and its subsidiaries, when referring to periods after the end
of fiscal 2019 (after the L3Harris Merger) and mean Harris and its subsidiaries when referring to periods prior to the end of fiscal
2019 (prior to the L3Harris Merger).
We provide advanced defense and commercial technologies across air, land, sea, space and cyber domains. We support
government and commercial customers in more than 100 countries, with our largest customers being various departments and
agencies of the U.S. Government and their prime contractors. Our products, systems and services have defense and civil
government applications, as well as commercial applications. As of January 1, 2021, we had approximately 48,000 employees,
including approximately 19,000 engineers and scientists.
1
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 following four reportable segments, which are also referred to as
our business segments:
•
•
•
•
Integrated Mission Systems, including multi-mission intelligence, surveillance and reconnaissance (“ISR”) and
communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-
optical and infrared (“EO/IR”) solutions;
Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence
and cyber defense; mission avionics; and electronic warfare;
Communication Systems, including tactical communications; broadband communications; integrated vision
solutions; and public safety; and
Aviation Systems, including defense aviation; commercial aviation products; commercial and military pilot
training; and mission networks for air traffic management.
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 and Airborne Systems segments. The historical results, discussion
and presentation of our business segments as set forth in this Report reflect the impact of these changes to our segment reporting
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.
L3Harris Merger
As noted above and described in more detail in Note 1: Significant Accounting Policies under “Principles of Consolidation”
and Note 5: Business Combination in the Notes, we completed the L3Harris Merger on June 29, 2019, the day after Harris’ fiscal
2019 ended and the first day of our Fiscal Transition Period (as defined below). L3 was a prime contractor in ISR systems, aircraft
sustainment (including modifications and fleet management of special mission aircraft), simulation and training, night vision and
image intensification equipment, and security and detection systems. L3 also was a leading provider of a broad range of
communication, electro-optical solutions, and electronic and sensor systems used on military, homeland security and commercial
platforms. L3 customers included the U.S. Department of Defense (“DoD”) and its prime contractors, the U.S. Intelligence
Community, the U.S. Department of Homeland Security (“DHS”), foreign governments and domestic and foreign commercial
customers.
Change in Fiscal Year
Through fiscal 2019, our fiscal years ended on the Friday nearest June 30. Commencing June 29, 2019, our fiscal year ends
on the Friday nearest December 31. The period that commenced on June 29, 2019 was a fiscal transition period that ended on
January 3, 2020 (“Fiscal Transition Period”), and our fiscal 2020 commenced on January 4, 2020 and ended on January 1, 2021.
Divestitures
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, during the Fiscal
Transition Period and fiscal 2020, we completed the following business divestitures:
• The divestiture of the Harris Night Vision business, completed on September 13, 2019, the results of which are
included in “Other non-reportable business segments” through the date of divestiture;
• The divestiture of the Security & Detection Systems and MacDonald Humfrey Automation solutions business (“airport
security and automation business”), completed on May 4, 2020, the results of which are reported as part of our
Aviation Systems segment through the date of divestiture;
• The divestiture of the Applied Kilovolts and Analytical Instrumentation business, completed on May 15, 2020, the
results of which are reported as part of our Space and Airborne Systems segment through the date of divestiture; and
• The divestiture of the EOTech business, completed on July 31, 2020, the results of which are reported as part of our
Communication Systems segment through the date of divestiture.
See Note 25: Business Segments in the Notes for further information regarding our business segments, including how we
define segment operating income or loss.
Description of Business by Segment
Our four business segments provide a wide-range of products and services to various customers and are described below.
For financial information with respect to our business segments, including revenue, operating income and total assets, and with
respect to our operations outside the United States, see Note 25: Business Segments in the Notes, and for additional information
with respect to our business segments, see “Discussion of Business Segment Results of Operations” in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Report. For a discussion of certain risks
2
affecting our business segments, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1.
Business - Principal Customers: Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Integrated Mission Systems
Integrated Mission Systems segment revenue of $5,538 million for fiscal 2020, represented 30 percent of our total revenue.
This segment is comprised of three business sectors: ISR, Maritime and Electro Optical, the principal products and services of
which are described below.
ISR: We develop, integrate and maintain multi-mission ISR and communication systems, including fleet management
support services, sensor development, modifications and periodic depot maintenance for ISR and airborne missions. Significant
customers include DoD and classified customers within the U.S. Government, U.K. Ministry of Defence, Royal Australian Air
Force and other select foreign military services.
Maritime: We are a manufacturer and integrator of maritime integrated command, control, communications, computers and
cyber ISR (“C5ISR”) systems for maritime platforms, specializing in signals intelligence and multi-intelligence platforms;
unmanned surface and undersea autonomous solutions; power and ship control systems and other electronic and electrical
products and systems. Significant customers include the U.S. Navy (“USN”), the U.S. Coast Guard, the U.S. Army, allied navies,
other military customers and commercial ship owners.
Electro Optical: We design and manufacture advanced EO/IR sensors and surveillance and targeting systems and provide
modernization and life extension maintenance upgrade and support services for military aircraft. Significant customers include the
National Aeronautics Space Administration, DoD, USN, the U.S. Air Force (“USAF”), select foreign militaries and commercial
space companies.
Additional information regarding the composition of Integrated Mission Systems revenue for fiscal 2020 is as follows:
•
•
•
77 percent 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;
67 percent was derived from contracts under which we are the prime contractor; and
21 percent was derived from products and services for which the end consumer is located outside the U.S.
For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and
subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal
Proceedings” of this Report.
Space and Airborne Systems
Space and Airborne Systems segment revenue of $4,946 million for fiscal 2020, represented 27 percent of our total revenue.
This segment is comprised of four business sectors: Space, Intel & Cyber, Mission Avionics and Electronic Warfare, the principal
products and services of which are described below.
Space: We provide intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning,
navigation and timing (“PNT”) and environmental solutions for national security, defense, civil and commercial customers, using
advanced sensors, antennas and payloads, as well as ground processing and information analytics. Many of these solutions include
reliable resilient and innovative capabilities. We are a global provider of PNT products, systems and solutions. We also provide
space antenna systems and precision space structures. We are an experienced space reflector manufacturer and specialize in large,
high-accuracy reflectors, which can range from unfurlable and fixed-mesh reflector antennas to solid spot beam antennas. We are
also a prime contractor developing and integrating end-to-end systems of satellites. Some of the more significant programs in this
business sector include:
• Maintenance of Space Situational Awareness Integrated Capabilities (“MOSSAIC”), a program to provide
sustainment services for current and future ground-based space domain awareness sensors and space battle
management command and control capabilities for the U.S. Space Force and Missile Systems Center;
Geostationary Operational Environmental Satellite - Series R (“GOES-R”), a program to design, develop and build
systems to measure, understand and monitor weather and environmental trends for the U.S. National Oceanic and
Atmospheric Administration; and
Global Positioning System (“GPS”) III, a program to modernize the GPS satellite system for the USAF.
•
•
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, on May 15, 2020,
as part of our ongoing process to reshape our business portfolio to focus on technology-differentiated, high-margin businesses, we
completed the divestiture of our Applied Kilovolts and Analytical Instrumentation business.
Intel & Cyber: We provide situational awareness optical networks and advanced wireless solutions for classified intelligence
and cyber defense. Although classified programs are generally not discussed in this Report, the operating results relating to
classified programs are included in our Consolidated Financial Statements in this Report. We believe that the business risks
3
associated with our classified programs do not differ materially from the business risks associated with our other U.S.
Government programs.
Mission Avionics: We provide avionic sensors, hardened electronics, release systems, data links and antennas supporting
fixed wing and rotary platforms. Significant customers include military aircraft manufacturers, DoD customers within the U.S.
Government and select foreign military services. For example, we provide advanced avionics components, carriage and release
systems, sensors, encryption solutions, antenna systems and data processing technology for the F-35 Lightning II Joint Strike
Fighter (“F-35”) program, including development and production of the next generation integrated core processor, panoramic
cockpit display unit and aircraft memory systems.
Electronic Warfare: We provide multi-spectral situational awareness, threat warning and countermeasures capabilities for
electronic warfare solutions for airborne and maritime platforms. Significant customers include military aircraft manufacturers,
DoD customers within the U.S. Government and select foreign military services.
Additional information regarding the composition of Space and Airborne Systems revenue for fiscal 2020 is as follows:
•
•
•
90 percent 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;
54 percent was derived from contracts under which we are the prime contractor; and
15 percent was derived from products and services for which the end consumer is located outside the U.S.
For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and
subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal
Proceedings” of this Report.
Communication Systems
Communication Systems segment revenue of $4,443 million for fiscal 2020, represented 24 percent of our total revenue.
This segment is comprised of four business sectors: Tactical Communications, Broadband Communications, Integrated Vision
Solutions and Public Safety, the principal products and services of which are described below.
Tactical Communications: We provide tactical radios to the U.S. Army, USAF, U.S. Marine Corps, USN, U.S. Special
Operations Command (“SOCOM”) and international defense customers, including developing and manufacturing software-
defined radios for key DoD network modernization programs. For example, we are providing Handheld, Manpack and Small
Form-Fit (“HMS”) radios to the U.S. Army.
We operate in this market principally on a “commercial” market-driven business model. We believe our business model,
which drives speed and innovation, coupled with the scale provided by our international presence, will continue to make us
competitive in the global market for tactical radios as it undergoes a modernization cycle.
Broadband Communications: We develop, design, manufacture and integrate broadband secured mobile networked
communication equipment, including airborne, space and surface data link terminals, ground stations and transportable tactical
satellite communication (“SATCOM”) systems used on manned aircraft, unmanned aerial vehicles (“UAVs”) and naval ships.
Significant customers include U.S. defense and intelligence agencies.
Integrated Visions Solutions: We provide a full suite of helmet and weapon mounted integrated night vision systems for
U.S. and international customers. For the Enhanced Night Vision Goggle - Binocular (“ENVG-B”) program, we provide
advanced helmet-mounted night vision goggles to DoD customers.
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, on July 31, 2020,
as part of our ongoing process to reshape our business portfolio to focus on technology-differentiated, high-margin businesses, we
completed the divestiture of our EOTech business.
Public Safety: We provide radios, systems applications and equipment for critical public safety and professional
communications to Federal, state and local government customers as well as to utility companies.
Global Communications Solutions: We provide SATCOM terminals and battlefield management networks for U.S. and
international defense customers.
Additional information regarding the composition of Communication Systems revenue for fiscal 2020 is as follows:
•
•
•
69 percent 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;
70 percent was derived from contracts under which we are the prime contractor; and
28 percent was derived from products and services for which the end consumer is located outside the U.S.
4
Aviation Systems
Aviation Systems segment revenue of $3,448 million for fiscal 2020, represented 19 percent of our total revenue. This
segment is comprised of four business sectors: Defense Aviation, Commercial Aviation Products, Commercial and Military
Training and Mission Networks, the principal products and services of which are described below.
Defense Aviation: We provide precision engagement sensors and systems, small UAVs, antennas and arrays, radio
frequency amplifiers and microwave electronic devices. In addition, this business sector provides combat vehicle engines,
transmissions and GPS receivers for guided projectiles and precision munitions as well as navigation for fire control systems.
Significant customers include U.S. defense and foreign military agencies.
Commercial Aviation Products: We provide airborne avionics products, such as traffic collision avoidance and flight
recorders. Significant customers include commercial airplane manufacturers, commercial airlines and automotive manufacturers.
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, on May 4, 2020, as
part of our ongoing process to reshape our business portfolio to focus on technology-differentiated, high-margin businesses, we
completed the divestiture of our airport security and automation business.
Commercial and Military Training: We develop, install and maintain flight simulators and training systems that are
customized to military and commercial aircraft. We also provide commercial and military pilot training services, including airline
training for licensed pilots, academy programs for new cadets and flight school training for military pilots. Significant customers
include commercial airlines, aircraft manufacturers, DoD and foreign military agencies.
Mission Networks: We provide mission-critical infrastructure communications and networking solutions for air traffic
management for the U.S. Federal Aviation Administration (“FAA”) and international airspace national service providers. We are
the prime contractor and system architect for the FAA Telecommunications Infrastructure (“FTI”) program and several major
FAA Next Generation Air Transportation System (“NextGen”) programs to transform and upgrade the National Airspace System
(“NAS”), including the Automatic Dependent Surveillance-Broadcast (“ADS-B”) program.
Additional information regarding the composition of Aviation Systems revenue for fiscal 2020 is as follows:
•
•
•
71 percent 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;
65 percent was derived from contracts under which we are the prime contractor; and
18 percent was derived from products and services for which the end consumer is located outside the U.S.
International Business
Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales
through the U.S. Government, was $3.7 billion (20 percent of our revenue), $2.0 billion (21 percent of our revenue), $1.5 billion
(22 percent of our revenue) and $1.4 billion (23 percent of our revenue) in fiscal 2020, the two quarters ended January 3, 2020,
and fiscal 2019 and 2018, respectively. Direct export sales are primarily denominated in U.S. Dollars, whereas sales from foreign
subsidiaries are generally denominated in the local currency of the subsidiary. For financial information regarding our domestic
and international operations, including long-lived assets, see Note 25: Business Segments in the Notes.
The majority of our international marketing activities are conducted through subsidiaries that operate in the EMEA (Europe,
Middle East and Africa) and APAC (Asia-Pacific) regions and Canada. We also have established international marketing
organizations and several regional sales offices. For further information regarding our international subsidiaries, see Exhibit 21 of
this Report.
International revenue for fiscal 2020 came from a large number of countries, and no single foreign country accounted for
more than 5 percent of our total revenue. Some of our exports are paid for by letters of credit, with the balance carried on an open
account. Advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of
the related costs incurred. Significant foreign government contracts generally require us to provide performance guarantees. In
order to remain competitive in international markets, we also enter into offset agreements or recourse or vendor financing
arrangements to facilitate sales to certain customers.
We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some
lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or,
in some cases, solicit orders from commercial or government customers for direct sales by us. Prices to the ultimate customer in
many instances may be recommended or established by the independent representative and may be above or below our list prices.
Our dealers and distributors generally receive a discount from our list prices and may mark up those prices in setting the final
sales prices paid by the customer.
The particular economic, social and political conditions for business conducted outside the U.S. differ from those
encountered by businesses in the U.S. We believe that the overall business risk for our international business as a whole is
somewhat greater than that faced by our domestic businesses as a whole. A description of the types of risks to which we are
5
subject in our international business is contained in “Item 1A. Risk Factors” of this Report. In our opinion, these risks are partially
mitigated by the diversification of our international business and the protection provided by letters of credit and advance
payments, progress payments and other similar payments.
Competitive Conditions and Trends in Market Demand
We operate in highly competitive markets that are sensitive to technological advances. Some of our competitors in each of
our markets are larger than we are and can maintain higher levels of expenditures for research and development. In each of our
markets, we concentrate on the opportunities that we believe are compatible with our resources, overall technological capabilities
and objectives. Principal competitive factors in these markets are product quality and reliability; technological capabilities,
including reliable, resilient and innovative cyber capabilities; service; past performance; ability to develop and implement
complex, integrated solutions; ability to meet delivery schedules; the effectiveness of third-party sales channels in international
markets; and cost-effectiveness. We frequently “partner” or are involved in subcontracting and teaming relationships with
companies that are, from time to time, competitors on other programs. We compete domestically and internationally against large
aerospace and defense companies; principally, BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman,
Raytheon Technologies and Thales; and, increasingly, non-traditional defense contractors.
For further discussion of trends in market demand, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Report.
Principal Customers; Government Contracts
The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales
funded through the U.S. Government, whether directly or through prime contractors, was 78 percent, 73 percent, 77 percent and
75 percent in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. No other customer
accounted for more than 5 percent of our revenue in fiscal 2020. Additional information regarding customers for each of our
segments is provided under “Item 1. Business — Description of Business by Segment” of this Report. Our U.S. Government sales
are predominantly derived from contracts with departments and agencies of, and prime contractors to, the U.S. Government. Most
of the sales in our Space and Airborne Systems and Integrated Mission Systems segments are made directly or indirectly to the
U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination
of profits, if applicable, and for termination for the convenience of the U.S. Government or for default based on performance.
Our U.S. Government contracts and subcontracts include both cost-reimbursable and fixed-price contracts. Government-
wide Acquisition Contracts (“GWACs”) and multi-vendor indefinite duration-indefinite quantity (“IDIQ”) contracts, which can
include task orders for each contract type, require us to compete both for the initial contract and then for individual task or
delivery orders under such contracts.
Our U.S. Government cost-reimbursable contracts provide for the reimbursement of allowable costs plus payment of a fee
and fall into three basic types: (i) cost-plus fixed-fee contracts, which provide for payment of a fixed fee irrespective of the final
cost of performance; (ii) cost-plus incentive-fee contracts, which provide for payment of a fee that may increase or decrease,
within specified limits, based on actual results compared with contractual targets relating to factors such as cost, performance and
delivery schedule; and (iii) cost-plus award-fee contracts, which provide for payment of an award fee determined at the
customer’s discretion based on our performance against pre-established performance criteria. Under our U.S. Government cost-
reimbursable contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract
progress. Some overhead costs have been made partially or wholly unallowable for reimbursement by statute or regulation.
Examples include certain merger and acquisition costs, lobbying costs, charitable contributions, interest expense and certain
litigation defense costs.
Our U.S. Government fixed-price contracts are either firm fixed-price contracts or fixed-price incentive contracts. Under our
U.S. Government firm fixed-price contracts, we agree to perform a specific scope of work or sell a specific product for a fixed
price and, as a result, benefit from cost savings and carry the burden of cost overruns. Under our U.S. Government fixed-price
incentive contracts, we share with the U.S. Government both savings accrued for performance at less than target cost as well as
costs incurred in excess of target cost up to a negotiated ceiling price, which is higher than the target cost, but carry the entire
burden of costs exceeding the negotiated ceiling price. Accordingly, under such incentive contracts, profit may also be adjusted up
or down depending on whether specified performance objectives are met. Under our U.S. Government firm fixed-price and fixed-
price incentive contracts, we generally receive from the U.S. Government either milestone payments totaling 100 percent of the
contract price or monthly progress payments in amounts equaling 80 percent of costs incurred under the contract (however, in
response to the novel COVID-19 strain of coronavirus pandemic (“COVID”), the U.S. Government has taken steps to increase the
current rate for certain progress payments to 90 percent of costs incurred under relevant contracts to enhance cash flow and
liquidity for the defense industrial base). The remaining amounts, including profits or incentive fees, are billed upon delivery and
final acceptance of end items and deliverables under the contract. Our production contracts are mainly fixed-price contracts, and
development contracts are generally cost-reimbursable contracts.
6
As stated above, U.S. Government contracts are terminable for the convenience of the U.S. Government, as well as for
default based on performance. Companies supplying goods and services to the U.S. Government are dependent on Congressional
appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies resulting from
various military, political, economic and international developments. Long-term U.S. Government contracts and related orders are
subject to cancellation if appropriations for subsequent performance periods become unavailable. Under contracts terminable for
the convenience of the U.S. Government, a contractor is entitled to receive payments for its allowable costs and, in general, the
proportionate share of fees or earnings for the work done. Contracts that are terminable for default generally provide that the
U.S. Government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of re-
procurement and may hold the contractor liable for damages. In many cases, there is also uncertainty relating to the complexity of
designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and
highly sophisticated technical work. Under many U.S. Government contracts, we are required to maintain facility and personnel
security clearances complying with DoD and other Federal agency requirements.
From time to time we may begin performance of a U.S. Government contract under an undefinitized contract action
(“UCA”) with a not to exceed price before the terms, specifications or price are finally agreed to between the parties. In these
arrangements, the U.S. Government has the ability to unilaterally definitize the contract if a mutual agreement regarding terms,
specifications and price cannot be reached.
The U.S. Government has increased its focus on procurement process improvement initiatives and has implemented certain
changes in its procurement practices. These developments may change the way U.S. Government contracts are solicited,
negotiated and managed, which may affect whether and how we pursue opportunities to provide our products and services to the
U.S. Government, including the terms and conditions under which we do so, which may have an adverse impact to our business,
financial condition, results of operations, cash flows and equity. For example, contracts awarded under the DoD’s Other
Transaction Authority for research and prototypes generally require cost-sharing and may not follow, or may follow only in part,
standard U.S. Government contracting practices and terms, such as the Federal Acquisition Regulation (“FAR”) and Cost
Accounting Standards.
For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors” and “Item 3. Legal
Proceedings” of this Report.
Backlog
Company-wide total backlog was $21.7 billion at January 1, 2021, of which $16.3 billion was funded backlog, compared
with $20.6 billion at January 3, 2020, of which $16.2 billion was funded backlog. Backlog at January 3, 2020 included $405
million associated with businesses divested in fiscal 2020, including $380 million of backlog associated with the airport security
and automation business divested during the quarter ended July 3, 2020. We expect to recognize approximately 54 percent of the
revenue associated with Company-wide total backlog by the end of 2021 and approximately 85 percent of the revenue associated
with Company-wide total backlog by the end of 2023, with the remainder to be recognized thereafter. However, we can give no
assurance of such fulfillment or that our backlog will become revenue in any particular period, if at all. Backlog is subject to
delivery delays and program cancellations, which are beyond our control.
We define funded backlog as unfilled firm orders for products and services for which funding has been authorized and, in
the case of U.S. Government customers, appropriated. The level of order activity related to U.S. Government programs can be
affected by the timing of U.S. Government funding authorizations and project evaluation cycles. Year-over-year comparisons
could, at times, be impacted by these factors, among others.
We define unfunded backlog as unfilled firm orders for products and services for which funding has not been authorized
and, in the case of U.S. Government customers, appropriated. The determination of the unfunded portion of total backlog involves
substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a
cost-reimbursable or incentive nature. We do not include the value of unexercised contract options or potential orders under IDIQ
contracts in our unfunded backlog.
For backlog information for each of our business segments, see “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Report.
See Note 24: Backlog in the Notes for additional information regarding Company-wide total backlog.
Research and Development (“R&D”)
Company-sponsored R&D costs, which include R&D for commercial products and services and independent R&D related to
government products and services, were $684 million, $329 million, $331 million and $311 million in fiscal 2020, in the two
quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. A portion of our independent R&D costs are allocated
among contracts and programs in process under U.S. Government contractual arrangements. Company-sponsored R&D costs not
7
otherwise allocable are charged to expense when incurred. Company-sponsored research is directed to the development of new
products and services and to building technological capability in various markets.
Customer-sponsored R&D costs are incurred pursuant to contractual arrangements, principally U.S. Government-sponsored
contracts requiring us to provide a product or service meeting certain defined performance or other specifications (such as
designs). This research helps strengthen and broaden our technical capabilities. Customer-sponsored research costs are accounted
for principally by the cost-to-cost percentage-of-completion method and included in our revenue and cost of product sales and
services.
Patents and Other Intellectual Property
We consider our patents and other intellectual property, in the aggregate, to constitute an important asset. We own a large
portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property,
including reliable, resilient and innovative cyber capabilities, and we routinely apply for new patents, trademarks and copyrights.
We also license intellectual property to and from third parties. As of January 1, 2021, we held approximately 2,300 U.S. patents
and 2,100 foreign patents, and had approximately 250 U.S. patent applications pending and 400 foreign patent applications
pending. Unpatented research, development and engineering skills also make an important contribution to our business. Although
our intellectual property rights in the aggregate are important to our business and the operations of our business segments, we do
not consider our business or any business segment to be materially dependent on any single patent, license or other intellectual
property right, or any group of related patents, licenses or other intellectual property rights. We are engaged in a proactive patent
licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty
income. Although existing license agreements have generated income in past years and may do so in the future, there can be no
assurances we will enter into additional income-producing license agreements. From time to time, we engage in litigation to
protect our patents and other intellectual property. Any of our patents, trade secrets, trademarks, copyrights and other proprietary
rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. For further discussion of
risks relating to intellectual property, see “Item 1A. Risk Factors” of this Report. With regard to certain patents, the
U.S. Government has an irrevocable, non-exclusive, royalty-free license, pursuant to which the U.S. Government may use or
authorize others to use the inventions covered by such patents. Pursuant to similar arrangements, the U.S. Government may
consent to our use of inventions covered by patents owned by other persons. Numerous trademarks used on or in connection with
our products are also considered to be a valuable asset.
Government Regulations
Our company is subject to various federal, state, local and international laws and regulations relating to the development,
manufacturing, sale and distribution of our products, systems and services, and it is our policy to comply with the applicable laws
in each jurisdiction in which we conduct business. Regulations include but are not limited to those related to import and export
controls, corruption, bribery, environment, government procurement, wireless communications, competition, product safety,
workplace health and safety, employment, labor and data privacy. The following describes significant regulations that may impact
our businesses. For further discussion of risks relating to government regulations, see “Item 1A. Risk Factors” of this Report.
Import/Export Regulations. We sell products and solutions to customers all over the world and are required to comply with
U.S. Export Administration Regulations and economic and trade sanctions programs limiting or banning sales into certain
countries. Countries outside of the U.S. have implemented similar controls and sanction regulations. Together these controls and
regulations may impose licensing requirements on exports of certain technology and software from the U.S. and may impact our
ability to transact business in certain countries or with certain customers. We have developed compliance programs and training to
prevent violations of these programs and regulations, and we regularly monitor changes in the law and regulations and create
strategies to deal with changes. Changes in the law may restrict or further restrict our ability to sell products and solutions.
Anti-Corruption Regulations. Because we have significant international operations, we must comply with complex
regulations, including U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other local laws prohibiting corrupt payments
to governmental officials, and anti-competition regulations. We have compliance policies, programs and training to prevent non-
compliance with such anti-corruption regulations in the U.S. and outside the U.S. We monitor pending and proposed legislation
and regulatory changes that may impact our business and develop strategies to address the changes and incorporate them into
existing compliance programs.
Environmental Regulations. Our facilities and operations are subject to numerous domestic and international laws and
regulations designed to protect the environment, particularly with regard to waste and emissions. The applicable environmental
laws and regulations are common within the industries and markets in which we operate and serve. We believe that we have
complied with these requirements and that such compliance has not had a material adverse effect on our financial condition,
results of operations, cash flows or equity. We have installed waste treatment facilities and pollution control equipment to satisfy
legal requirements and to achieve our waste minimization and prevention goals. A portion of our environmental expenditures
relates to businesses or operations we no longer own, but for which we have retained certain environmental liabilities. We did not
spend material amounts on environmental-related capital projects in fiscal 2020, the two quarters ended January 3, 2020, or fiscal
8
2019 or 2018. Based on currently available information, we do not expect capital expenditures in fiscal 2021 or over the next
several years to protect the environment and to comply with current environmental laws and regulations, as well as to comply
with current and pending climate control legislation, regulation, treaties and accords, to be material or to have a material impact
on our competitive position or financial condition, but we can give no assurance that such expenditures will not exceed current
expectations, and such expenditures may increase in future years. If future treaties, laws and regulations contain more stringent
requirements than presently anticipated, actual expenditures may be higher than our present estimates of those expenditures.
Additional information regarding environmental and regulatory matters is set forth in “Item 3. Legal Proceedings” of this
Report and in Note 1: Significant Accounting Policies and Note 26: Legal Proceedings and Contingencies in the Notes.
Electronic products are subject to governmental environmental regulation in a number of jurisdictions, such as domestic and
international requirements requiring end-of-life management and/or restricting materials in products delivered to customers,
including the European Union’s Directive 2012/19/EU on Waste Electrical and Electronic Equipment and Directive 2011/65/EU
on the Restriction of the use of certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), as amended.
Other jurisdictions have adopted similar legislation. Such requirements typically are not applicable to most equipment produced
by our segments. We believe that we have complied with such rules and regulations, where applicable, with respect to our existing
products sold into such jurisdictions. We intend to comply with such rules and regulations with respect to our future products.
Wireless Communications Regulations. Wireless communications, whether radio, satellite or telecommunications, are also
subject to governmental regulation. Equipment produced in our Communication Systems and Space and Airborne Systems
segments, in particular, is subject to domestic and international requirements to avoid interference among users of radio and
television frequencies and to permit interconnection of telecommunications equipment. We are also required to comply with
technical operating and licensing requirements that pertain to our wireless licenses and operations. We believe that we have
complied with such rules and regulations and licenses with respect to our existing products and services, and we intend to comply
with such rules and regulations and licenses with respect to our future products and services. Governmental reallocation of the
frequency spectrum could impact our business, financial condition and results of operations.
Raw Materials and Supplies
Because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities, we use
numerous sources for the wide array of raw materials, such as electronic components, printed circuit boards, metals and plastics,
needed for our operations and for our products. We are dependent on suppliers and subcontractors for a large number of
components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials
restrictions and to meet performance and quality specifications and delivery schedules. In some instances, we are dependent on
one or a few sources, either because of the specialized nature of a particular item or because of local content preference
requirements pursuant to which we operate on a given project. In addition, in connection with our U.S. Government contracts, we
are required to procure certain materials, components and parts, including microelectronics components, from supply sources
approved by the U.S. Government, which may limit the suppliers and subcontractors we may utilize. Although we have been
affected by financial and performance issues of some of our suppliers and subcontractors, we have not been materially adversely
affected by the inability to obtain raw materials or products. On occasion, we have experienced component shortages from
vendors as a result of natural disasters, or the RoHS environmental regulations in the European Union or similar regulations in
other jurisdictions. These events or regulations may cause a spike in demand for certain electronic components, such as lead-free
components, resulting in industry-wide supply chain shortages. As of January 1, 2021, these component shortages have not had a
material adverse effect on our business. For further discussion of risks relating to subcontractors and suppliers, see “Item 1A. Risk
Factors” of this Report.
Seasonality
We do not consider any material portion of our business to be seasonal. Various factors can affect the distribution of our
revenue between accounting periods, including the timing of contract awards and the timing and availability of U.S. Government
funding, as well as the timing of product deliveries and customer acceptance.
Human Capital
As a global aerospace and defense technology company, we depend on our highly educated and skilled workforce for our
success. Attracting, developing, motivating and retaining highly skilled employees, particularly those with technical, engineering
and science backgrounds and experience, is a critical factor in our ability to execute our strategic priorities. We use human capital
measures to set goals and monitor performance in several areas, including employee health and safety; talent acquisition,
development and retention; and diversity and inclusion.
Workforce Demographics. We had approximately 48,000 employees at January 1, 2021, including approximately 19,000
engineers and scientists. Approximately 88 percent of our employees are located in the U.S. and a significant number of our
employees possess a U.S. Government security clearance. As of January 1, 2021, approximately 3,100 of our U.S. employees
9
were covered by various labor union collective bargaining agreements, which we expect will be renegotiated as they expire, as we
historically have done without significant disruption to operating activities.
Health and Safety. We strive to maintain a safe work environment for all employees and eliminate workplace incidents,
risks and hazards. We review and monitor our performance closely to reduce Occupational Safety and Health Administration
reportable incidents. For fiscal 2020, our total recordable injury rate and lost day injury rate declined 34 percent and 43 percent,
respectively, compared with the previous year, and numerous locations across L3Harris have reached one year or more without a
recordable injury. In response to COVID, we implemented safety measures in our facilities to ensure the overall health and
wellness of our workforce. For example, we instituted work-from-home (for employees who are able to work remotely) and social
distancing arrangements; canceled non-essential travel and external events; procured personal protective equipment for
employees; implemented health screening procedures at all facilities; staggered work shifts, redesigned work stations,
implemented stringent cleaning protocols and initiated more detailed safety precautions and protocols for on-site work, such as
daily health assessments and mandatory face coverings, which currently remain in effect.
Talent Acquisition, Development and Retention. Our talent acquisition, development and retention strategy is focused on
attracting the best talent, recognizing and rewarding performance and continually developing, engaging and retaining high-
performing employees. We support and develop our employees through global training that promotes our “e3” operating system
(excellence, everywhere, everyday). We provide ongoing training and career development focused on compliance with our Code
of Conduct, ethics and laws applicable to our businesses; skills and competencies directly related to employees’ positions; and
responsibility for personal safety and the safety of fellow employees, others and the environment. We offer competitive salaries,
development programs that enable continued learning and growth and a comprehensive benefits package, including health care,
retirement planning, educational assistance, child and elder back-up care, paid parental leave and a discretionary paid time off
program. In addition, we have established a comprehensive employee survey process to help us better understand the total
employee experience, including periodic engagement surveys. In fiscal 2020, 82 percent of our employees participated in our
engagement survey, exceeding the benchmark of 75 percent.
Diversity and Inclusion. We believe that our future success depends on our ability to continue to innovate and develop new
solutions to solve our customers’ most critical challenges, and that diversity of thought, experience, perspectives and backgrounds
drives innovation. We are investing in an inclusive and diverse workforce by supporting a variety of science, technology,
engineering and mathematic initiatives focused on underserved communities. We believe these efforts will help encourage a
broader range of students to consider careers in engineering and science. We also have established a diversity council, comprised
of employee resource group leadership and executives from across the company, to evaluate and influence the strategies, policies
and steps we take to advance diversity and inclusion. We have established two clear long-term goals with respect to the diversity
of our workforce: (1) that half of our employees will be women and (2) that at least a third of our employees will be persons of
color. Through the above and other efforts, we have improved the diversity of our workforce and we continue to set higher goals.
The table below provides the makeup of our workforce in fiscal 2020:
Overall
Executive
Female population
Persons of color
Persons with disabilities
Veterans
Generational breakout(1):
Boomers (1945-1964)
Generation X (1965-1980)
Millennials (1981-1996)
24%
24%
6%
15%
31%
35%
32%
Generation Z (after 1996)
_______________
(1) Age ranges align with Pew Research Center definitions. “Traditionalists” represent less than 1 percent of our employee population.
2%
31%
17%
4%
14%
35%
55%
10%
—%
Additional information regarding our human capital strategy is available in our Diversity and Inclusion 2020 Annual Report
that can be found on our company website. Information on our website, including our Diversity and Inclusion 2020 Annual
Report, is not incorporated by reference into this Report.
Website Access to L3Harris Reports; Available Information
General. We maintain an Internet website at https://www.l3harris.com. Our annual reports on Form 10-K, this Report,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website as soon as reasonably practicable after
10
these reports are electronically filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). We also will
provide the reports in electronic or paper form free of charge upon request to our Secretary at L3Harris Technologies, Inc.,
1025 West NASA Boulevard, Melbourne, Florida 32919. We also make available free of charge on our website our annual report
to shareholders and proxy statement. Our website and the information posted thereon are not incorporated into this Report or any
current or other periodic report that we file with or furnish to the SEC. All reports we file with or furnish to the SEC also are
available free of charge via the SEC’s electronic data gathering and retrieval, or EDGAR, system available through the SEC’s
website at https://www.sec.gov.
Additional information relating to our business, including our business segments, is set forth in “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
Corporate Governance Guidelines and Committee Charters. We previously adopted Corporate Governance Guidelines,
which are available on the Corporate Governance section of our website at https://www.l3harris.com/company/environmental-
social-and-governance. In addition, the charters of each of the standing committees of our Board of Directors, namely, the Audit
Committee, Compensation Committee, Finance Committee and Nominating and Governance Committee, are also available on the
Corporate Governance section of our website. A copy of the charters is also available free of charge upon written request to our
Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919.
Certifications. We have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as
exhibits to this Report. In addition, an annual CEO certification was submitted by our Chief Executive Officer to the NYSE in
May 2020 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation
by L3Harris of the NYSE’s corporate governance listing standards.
ITEM 1A.
RISK FACTORS.
We have described many of the trends and other factors that we believe could impact our business and future results in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. In addition,
our business, financial condition, results of operations, cash flows and equity are subject to, and could be materially adversely
affected by, various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our
actual results to vary materially from recent results or our anticipated future results.
COVID-Related Risks
COVID and ongoing attempts to contain and reduce its spread could have a material adverse effect on our business
operations, financial condition, results of operations, cash flows and equity.
COVID, which in fiscal 2020 was recognized as a pandemic by the World Health Organization and declared a national
emergency by the U.S. Government, and ongoing attempts to contain and reduce its spread, such as mandatory closures, “shelter-
in-place” orders and travel and quarantine restrictions, have caused significant volatility, uncertainty, disruption and other adverse
effects on the U.S. and global economies, including impacts to supply chains, customer demand, international trade and capital
markets. These effects have adversely affected certain of our business operations, may further adversely affect our business
operations and may materially and adversely affect our financial condition, results of operations, cash flows and equity.
Our response to COVID and related impacts has involved increasing our focus on keeping our employees safe while striving
to maintain continuity of operations, meet customer commitments and support suppliers. For example, we instituted work-from-
home (for employees who are able to work remotely) and social distancing arrangements; canceled travel and external events;
procured personal protective equipment for employees; implemented health screening procedures at all facilities; staggered work
shifts, redesigned work stations, implemented stringent cleaning protocols and initiated more detailed safety precautions and
protocols for on-site work, such as daily health assessments and mandatory face coverings, which currently remain in effect. We
also have maintained an active dialog with key suppliers and developed plans to mitigate supply chain risks. We have allowed
certain essential business travel to resume and continue to expect to utilize a phased approach based on local conditions for
transitioning employees from work-from-home arrangements to on-site work. The U.S. Government response has included
identifying the defense industrial base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense
Industrial Base, such as by increasing progress payments and accelerating contract awards. As a part of the Defense Industrial
Base, these actions have enabled us to keep our U.S. production facilities largely operational in support of national security
commitments to U.S. Government customers and to accelerate payments to small business suppliers, which we expect to continue
while the U.S. Government’s responsive actions remain in effect.
Although we believe that the large percentage of our revenue, earnings and cash flow that is derived from sales to the U.S.
Government, both directly and through prime contractors, will be relatively predictable, in part due to the responsive actions taken
by the U.S. Government described above, our commercial, international and public safety businesses have experienced adverse
COVID-related impacts and remain at a higher risk of further adverse COVID-related impacts. For example, the severe decline in
global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer
11
operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in our
Aviation Systems segment’s Commercial Aviation Solutions sector. As a result, we temporarily, and in some circumstances
permanently, closed, or will soon close, some of our flight training facilities, initiated restructuring and other actions to align
resources with the outlook for the commercial aviation market (including workforce reduction and facility consolidation) and also
recognized $767 million of charges for impairment of goodwill and other assets and other COVID-related impacts in fiscal 2020.
We are continuing to closely monitor COVID-related impacts on all aspects of our business and geographies, including on
our workforce, supply chain and customers. We may continue to or further restrict operations of our facilities if we deem it
necessary or if recommended or mandated by governmental authorities, and we may experience further volatility in the overall
demand environment for our products, systems and services, any of which would have a further adverse impact on us. Our
management’s focus on mitigating COVID-related impacts has required and will continue to require a large investment of time
and resources across our enterprise, which may impact other value-added services or initiatives. Additionally, it remains uncertain
when and on what scale our employees that are working remotely will return to work in person, and an extended period of remote
work arrangements could strain our business continuity plans, create additional operational risk, such as cyber security risks, and
impair our ability to manage our business. We may suffer damage to our reputation, which could adversely affect our business, if
our responses to COVID-related impacts are unsuccessful or perceived as inadequate for the U.S. or our international markets.
COVID-related costs for us and our suppliers could be significant, and we are seeking reimbursement of certain COVID-
related costs under our U.S. Government contracts through a combination of equitable adjustments to the contract price and
reimbursement of the costs under Section 3610 of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which
allows federal agencies to reimburse contractors at the minimum applicable contract billing rate for certain COVID-related costs
from March 27, 2020 through March 31, 2021. Reimbursement of any costs under Section 3610 of the CARES Act would
increase sales, but is not expected to be at a profit or fee and, thus, would have the effect of reducing our margins in future
periods. These cost increases, including costs for employees whose jobs cannot be performed remotely, may not be fully
recoverable under our contracts, particularly fixed-price contracts, or adequately covered by insurance. We also have no assurance
that Congress will appropriate funds to cover the reimbursement of defense contractors as authorized by the CARES Act, which
could reduce funds available for other U.S. Government defense priorities.
The manner and extent to which COVID-related impacts further affect us, directly and indirectly by affecting our workforce,
supply chain and customers, will depend on numerous evolving factors and future developments that we are not able to predict,
including: the ultimate severity and duration of COVID; the extent, effectiveness and other consequences of attempts to contain
and reduce its spread; governmental, business and other actions, which could include closures or other limitations on our or our
supply chain’s operations or mandates to provide products, systems or services; impacts on economic activity and customer
demand, budgets and buying patterns; the health of and the effect on our workforce and our ability to meet staffing needs in our
businesses and facilities, particularly if members of our workforce are quarantined as a result of exposure; any impairment in
value of our tangible or intangible assets which could be recorded as a result of weaker economic conditions; and the potential
effects on our internal controls, including those over financial reporting, as a result of changes in working environments, among
others. In addition, disruptions or turmoil in the credit or financial markets or impacts on our credit ratings could adversely affect
our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and
cannot be predicted. COVID-related impacts also may exacerbate other risks discussed below, as well as affect us in a manner
that we are not aware of currently, any of which could have a material effect on us.
Macroeconomic, Industry and Governmental Risks
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.
We are highly dependent on sales to U.S. Government customers, primarily defense-related programs with the DoD and a
broad range of programs with the U.S. Intelligence Community and other U.S. Government departments and agencies. The
percentage of our revenue derived from sales to U.S. Government customers, including foreign military sales funded through the
U.S. Government, both directly and through prime contractors, was 78 percent, 73 percent, 77 percent and 75 percent in fiscal
2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. Therefore, any significant disruption or
deterioration of our relationship with the U.S. Government (in particular, the DoD) would significantly reduce our revenue and
have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
We operate in highly competitive markets, and the U.S. Government may choose to use contractors other than us, for
example as part of competitive bidding processes (through which we expect that a majority of the business we seek will be
awarded), or otherwise due to our competitors’ ongoing efforts to expand their business relationships with the U.S. Government.
The U.S. Government has increasingly relied on certain types of contracts that are subject to multiple competitive bidding
processes, including multi-vendor IDIQ, GWAC, General Services Administration Schedule and other multi-award contracts,
which has resulted in greater competition and increased pricing pressure. Some of our competitors have greater financial
12
resources than we do and may have more extensive or more specialized engineering, manufacturing and marketing capabilities
than we do in some areas. We may not be able to continue to win competitively awarded contracts or to obtain task orders under
multi-award contracts. Further, competitive bidding processes involve significant cost and managerial time to prepare bids and
proposals for contracts that may not be awarded to us or may be split with competitors and the risk that we may fail to accurately
estimate the resources and costs required to fulfill any contract awarded to us. The current competitive bidding environment has
resulted in an increase of bid protests from unsuccessful bidders, which typically extends the time until work on a contract can
begin and may result in us experiencing significant expense or delay, contract modification or contract rescission as a result of our
competitors protesting or challenging contracts awarded to us.
Our U.S. Government programs must compete with programs managed by other government contractors and with other
policy imperatives for consideration for limited resources and for uncertain levels of funding during the budget and appropriations
process. Budget and appropriations decisions made by the U.S. Government are outside of our control and have long-term
consequences for our business. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are
affected by numerous factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts)
and potential alternative funding arrangements. A change in U.S. Government spending priorities or an increase in non-
procurement spending at the expense of our programs, or a reduction in total U.S. Government spending, could have material
adverse consequences on our current or future business. Any inability of the U.S. Government to complete its budget process for
any government fiscal year, and consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a
“continuing resolution” or shut down, also could have material adverse consequences on our current or future business. For more
information regarding sequestration, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Business Considerations - Industry-Wide Opportunities, Challenges and Risks” of this Report.
We depend significantly on U.S. Government contracts, which often are only partially funded, subject to immediate
termination, and heavily regulated and audited. The termination or failure to fund, or negative audit findings for, one or more
of these contracts could have an adverse impact on our business, financial condition, results of operations, cash flows and
equity.
A U.S. Government program may be implemented by the award of many different individual contracts and subcontracts
over its lifetime, and its funding is subject to Congressional appropriations, which have been affected by larger U.S. Government
budgetary issues and related legislation in recent years. Although multi-year contracts may be authorized and appropriated in
connection with major procurements, Congress generally appropriates funds on a government fiscal year basis. Procurement funds
are typically made available for obligation over the course of one to three years. Consequently, programs often initially receive
only partial funding, and additional funds are obligated only as Congress authorizes further appropriations. We cannot predict the
extent to which total funding and/or funding for individual programs will be included, increased or reduced as part of the annual
appropriations process ultimately approved by Congress and the President or in separate supplemental appropriations or
continuing resolutions, as applicable. The termination of funding for a U.S. Government program would result in a loss of
anticipated future revenue attributable to that program, which could have an adverse impact on our operations. In addition, the
termination of a program or the failure to commit additional funds to a program that already has been started could result in lost
revenue and increase our overall costs of doing business.
U.S. Government contracts also generally are subject to U.S. Government oversight audits, which could result in
adjustments to our contract costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and
such costs already reimbursed must be refunded. We have recorded contract revenue based on costs we expect to realize upon
final audit. However, we do not know the outcome of any future audits and adjustments, and we may be required to materially
reduce our revenue or profits upon completion and final negotiation of audits. Negative audit findings could also result in
termination of a contract, forfeiture of profits, suspension of payments, fines or suspension or debarment from U.S. Government
contracting or subcontracting for a period of time.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part, without
prior notice at the U.S. Government’s convenience upon payment only for work done and commitments made at the time of
termination. For some contracts, we are a subcontractor and not the prime contractor, and in those arrangements, the U.S.
Government could terminate the prime contractor for convenience without regard for our performance as a subcontractor. We
may be unable to procure new contracts to offset revenue or backlog lost as a result of any termination of our U.S. Government
contracts. Because a significant portion of our revenue is dependent on our performance and payment under our U.S. Government
contracts, the loss of one or more large contracts could have a material adverse impact on our business, financial condition, results
of operations, cash flows and equity.
Our U.S. Government business also is subject to specific procurement regulations and a variety of socioeconomic and other
requirements that, although customary in U.S. Government contracts, increase our performance and compliance costs. These costs
might increase in the future, thereby reducing our margins, which could have an adverse effect on our business, financial
condition, results of operations, cash flows and equity. In addition, the U.S. Government has and may continue to implement
13
initiatives focused on efficiencies, affordability and cost growth and other changes to its procurement practices. These initiatives
and changes to procurement practices may change the way U.S. Government contracts are solicited, negotiated and managed,
which may affect whether and how we pursue opportunities to provide our products and services to the U.S. Government,
including the terms and conditions under which we do so, which may have an adverse impact on our business, financial condition,
results of operations, cash flows and equity. For example, contracts awarded under the DoD’s Other Transaction Authority for
research and prototypes generally require cost-sharing and may not follow, or may follow only in part, standard U.S. Government
contracting practices and terms, such as the FAR and Cost Accounting Standards.
Failure to comply with applicable regulations and requirements could lead to fines, penalties, repayments, or compensatory
or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting for a period of time. Among
the causes for debarment are violations of various laws and regulations, including those related to procurement integrity, export
control (including International Traffic in Arms Regulations (“ITAR”)), U.S. Government security, employment practices,
protection of the environment, accuracy of records, proper recording of costs and foreign corruption. The termination of a
U.S. Government contract or relationship as a result of any of these acts would have an adverse impact on our operations and
could have an adverse effect on our standing and eligibility for future U.S. Government contracts.
The U.S. Government’s budget deficit and the national debt, as well as any inability of the U.S. Government to complete its
budget process for any government fiscal year and consequently having to shut down or operate on funding levels equivalent
to its prior fiscal year pursuant to a “continuing resolution,” could have an adverse impact on our business, financial
condition, results of operations, cash flows and equity.
Considerable uncertainty exists regarding how future budget and program decisions will unfold, including the defense
spending priorities of the U.S. Government, what challenges budget reductions will present for the defense industry and whether
annual appropriations bills for all agencies will be enacted for U.S. Government fiscal 2022 and thereafter. The
U.S. Government’s budget deficit and the national debt could have an adverse impact on our business, financial condition, results
of operations, cash flows and equity in a number of ways, including the following:
•
•
The U.S. Government could reduce or delay its spending on, or reprioritize its spending away from, the
government programs in which we participate;
U.S. Government spending could be impacted by alternate arrangements to sequestration, which increases the
uncertainty as to, and the difficulty in predicting, U.S. Government spending priorities and levels; and
• We may experience declines in revenue, profitability and cash flows as a result of reduced or delayed orders or
payments or other factors caused by economic difficulties of our customers and prospective customers, including
U.S. Federal, state and local governments.
Furthermore, we believe continued budget pressures and additional budget pressures from COVID-related impacts could
have serious negative consequences for U.S. security and for companies in the defense industrial base and the customers,
employees, suppliers, investors and communities that rely on them. Budget and program decisions made in this environment
would have long-term implications for us and the rest of the defense industry.
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 inflation.
We generate revenue through various fixed-price, cost-plus and time-and-material contracts. For a general description of our
U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable
versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report. For a description
of our revenue recognition policies, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of
Operations - Critical Accounting Policies and Estimates - Revenue Recognition” of this Report.
14
In fiscal 2020, 74 percent of our revenue was derived from fixed-price contracts which allow us to benefit from cost savings,
but subject us to the risk of potential cost overruns, particularly for firm fixed-price contracts because we assume all of the cost
burden. If our initial estimates are incorrect, we can lose money (or make more or less money than estimated) on these contracts.
U.S. Government contracts can expose us to potentially large losses because the U.S. Government can hold us responsible for
completing a project or, in certain circumstances, paying the entire cost of its replacement by another provider regardless of the
size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these contracts involve new
technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations in the price
of raw materials, a significant increase in inflation, problems with our suppliers and cost overruns, can result in the contractual
price becoming less favorable or even unprofitable to us over time. Furthermore, if we do not meet contract deadlines or
specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or liquidated damages or
suffer major losses if the customer exercises its right to terminate. In addition, some of our contracts have provisions relating to
cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we may not realize their full benefits.
Cost overruns would adversely impact our results of operations, which are dependent on our ability to maximize our earnings
from our contracts, and the potential risk would be greater if our contracts shifted toward a greater percentage of fixed-price
contracts, particularly firm fixed-price contracts.
In fiscal 2020, 26 percent of our revenue was derived from cost-plus and time-and-material contracts, substantially all of
which are with U.S. Government customers. Sales to foreign government and commercial customers are generally under fixed-
price arrangements and are included in our fixed-price contract sales. For a cost-plus contract, we are paid our allowable incurred
costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels
established by our customers. For a time-and-material contract, we are paid on the basis of direct labor hours expended at
specified fixed-price hourly rates (which include wages, overhead, allowable general and administrative expenses and profit) and
materials at cost. Therefore, on cost-plus and time-and-material type contracts, we do not bear the risks of unexpected cost
overruns, provided that we do not incur costs that exceed the predetermined funded amounts.
Our commercial aviation products, systems and services businesses are affected by global demand and economic factors that
could negatively impact our financial results.
The operating results of our commercial aviation products, systems and services businesses may be adversely affected by
downturns in the global demand for air travel which impacts new aircraft production and orders, and global flying hours, which
impacts air transport, regional and business aircraft utilization rates and pilot training needs. The aviation industry is highly
cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and international economies and is impacted
by long-term trends in airline passenger and cargo traffic. The results of our commercial aviation businesses also depend on other
factors, including general economic growth, political stability in both developed and emerging markets, pricing pressures, trends
in capital goods markets and changes in original equipment manufacturer production rates. As described above under “COVID-
Related Risks,” our commercial aviation businesses experienced adverse COVID-related impacts in fiscal 2020 and remain at a
higher risk of further adverse COVID-related impacts.
We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth
in our markets and, as a result, future income and expenditures.
We participate in U.S. and international markets that are subject to uncertain economic conditions. In particular, U.S.
Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors,
including sequestration and potential alternative funding arrangements and COVID-related impacts. In addition, certain of our
non-U.S. customers, including in the Middle East and other oil or natural gas-producing countries, could be adversely affected by
weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility, which could adversely
affect demand for tactical communications, electronic systems or other products, systems, services or technologies. As a result of
that uncertainty, it is difficult to develop accurate estimates of the level of growth in the markets we serve. Because those
estimates underpin all components of our budgeting and forecasting, our estimates or guidance for future revenue, income and
expenditures may be inaccurate, and we may make significant investments and expenditures but never realize the anticipated
benefits.
We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we
operate, our ability to insure against risks, our operations or our profitability.
Ongoing instability and current conflicts in global markets, including in the Middle East and Asia, and the potential for other
conflicts and future terrorist activities and other recent geo-political events throughout the world, including new or increased
tariffs and potential trade wars and the withdrawal of the United Kingdom (the “UK”) from the European Union (the “EU”) in
January 2020 (commonly referred to as “Brexit”), have created and may continue to create economic and political uncertainties
and impacts that could have a material adverse effect on our business, operations and profitability. Since January 1, 2021, when
the Brexit transition period ended, the UK and EU’s trade and cooperation agreement (covering the general objectives and
framework of their relationship, including as to trade, transport and certain other matters, but not providing for free movement of
people between the UK and EU, free movement of UK goods or automatic access to the entire EU single market for UK service
15
suppliers) has applied provisionally, but it remains subject to EU ratification and revision before formal effectiveness. The effects
of Brexit in part depend on application of the terms of the agreement, and thus remain uncertain. We generated 2 percent of our
fiscal 2020 revenue in the UK, but we and our suppliers may experience supply chain disruptions, increased tariffs, currency
devaluation in the UK or other adverse impacts on operations or profitability. These types of matters cause uncertainty in financial
and insurance markets and may significantly increase the political, economic and social instability in the geographic areas in
which we operate. If credit in financial markets outside of the U.S. tightened, it could adversely affect the ability of our
international customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders for our
products, systems and services or impact the ability of our customers to make payments. These matters also may cause us to
experience increased costs, such as for insurance coverages and performance bonds (or for them to be unavailable altogether), as
well as difficulty with future borrowings under our commercial paper program or credit facilities or in the debt markets or
otherwise with financing our operating, investing (including any future acquisitions) or financing activities.
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.
We are dependent on sales to customers outside the U.S. The percentage of our total revenue represented by revenue from
products, systems and services where the end consumer is located outside the U.S., including foreign military sales through the
U.S. Government, was 20 percent, 21 percent, 22 percent and 23 percent in fiscal 2020, the two quarters ended January 3, 2020,
and fiscal 2019 and 2018, respectively. In fiscal 2020, 32 percent of our international business was transacted in local currency.
Losses resulting from currency rate fluctuations can adversely affect our results. We expect that international revenue will
continue to account for a significant portion of our total revenue. Also, a significant portion of our international revenue is from,
and a significant portion of our business activity is being conducted with or in, less-developed countries and sometimes countries
with unstable governments, or in areas of military conflict or at military installations. Other risks of doing business internationally
include:
•
•
•
•
•
•
•
•
•
•
•
•
•
Currency exchange controls, fluctuations of currency and currency revaluations;
Laws, regulations and policies of foreign governments relating to investments and operations, as well as U.S. laws
affecting activities of U.S. companies abroad, including the Foreign Corrupt Practices Act (“FCPA”);
Import and export licensing requirements and regulations, including ITAR, as well as unforeseen changes in export
controls and other trade regulations;
Changes in regulatory requirements, including business or operating license requirements, imposition of tariffs or
embargoes;
Uncertainties and restrictions concerning the availability of funding, credit or guarantees;
Risk of non-payment or delayed payment by non-U.S. customers;
Contractual obligations to non-U.S. customers may include specific in-country purchases, investments,
manufacturing agreements or financial or other support arrangements or obligations, known as offset obligations,
that may extend for many years, require teaming with local companies and result in significant penalties if not
satisfied;
Complexities and necessities of using, and disruptions involving, international dealers, distributors, sales
representatives and consultants;
Difficulties of managing a geographically dispersed organization and culturally diverse workforces, including
compliance with local laws and practices;
Difficulties with repatriating cash generated or held abroad in a tax-efficient manner and changes in tax laws;
Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional
requirements for onerous contract terms;
Rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism or threats
of international boycotts or U.S. anti-boycott legislation; and
Increased risk of an incident resulting in damage or destruction to our facilities or products or resulting in injury or
loss of life to our employees, subcontractors or other third parties.
We are subject to government investigations, which could have a material adverse effect on our business, financial condition,
results of operations, cash flows and equity.
U.S. Government contractors are subject to extensive legal and regulatory requirements, including ITAR and FCPA, and
from time to time agencies of the U.S. Government investigate whether we have been and are operating in accordance with these
requirements. We may cooperate with the U.S. Government in those investigations. Under U.S. Government regulations, an
indictment of L3Harris by a federal grand jury, or an administrative finding against us as to our present responsibility to be a U.S.
Government contractor or subcontractor, could result in us being suspended for a period of time from eligibility for awards of new
government contracts or task orders or in a loss of export privileges, which could have a material adverse effect on our business,
financial condition, results of operations, cash flows and equity. A conviction, or an administrative finding against us that satisfies
16
the requisite level of seriousness, could result in debarment from contracting with the U.S. Government for a specific term, which
could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Business and Operational Risks
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.
We face the risk of a security breach, whether through cyber attack, cyber intrusion or insider threat via the Internet,
malware, computer viruses, attachments to e-mails, persons inside our organization or with access to systems inside our
organization, threats to the physical security of our facilities and employees or other significant disruption of our IT networks and
related systems or those of our suppliers or subcontractors. We face an added risk of a security breach or other significant
disruption of the IT networks and related systems that we develop, install, operate and maintain for certain of our customers,
which may involve managing and protecting information relating to national security and other sensitive government functions or
personally identifiable or protected health information. The risk of a security breach or disruption, particularly through cyber
attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, is persistent and substantial as
the volume, intensity and sophistication of attempted attacks, intrusions and threats from around the world remain elevated and
unlikely to diminish. As an advanced technology-based solutions provider, and particularly as a government contractor with
access to national security or other sensitive government information, we face a heightened risk of a security breach or disruption
from threats to gain unauthorized access to our and our customers’ proprietary or classified information on our IT networks and
related systems and to the IT networks and related systems that we operate and maintain for certain of our customers. These types
of information and IT networks and related systems are critical to the operation of our business and essential to our ability to
perform day-to-day operations, and, in some cases, are critical to the operations of certain of our customers. We make significant
efforts to maintain the security and integrity of these types of information and IT networks and related systems and have
implemented various measures to manage the risk of a security breach or disruption. Our efforts and measures have not been
entirely effective in the case of every cyber security incident, but no incident has had a material negative impact on us to date.
Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted
security breaches, particularly cyber attacks and cyber intrusions, or disruptions will occur in the future, and because the
techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in
some cases are designed not to be detected and, in fact, may not be detected (for example, the SolarWinds cyber incident). In
some cases, the resources of foreign governments may be behind such attacks due to the nature of our business and the industries
in which we operate. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or
other preventative measures. Thus, it is impossible for us to entirely mitigate this risk, and there can be no assurance that future
cyber security incidents will not have a material negative impact on us. A security breach or other significant disruption involving
these types of information and IT networks and related systems could:
•
•
•
•
•
•
•
Disrupt proper functioning of these networks and systems and, therefore, our operations and/or those of certain of
our customers;
Result in unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary,
confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including trade
secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and
outcomes;
Compromise national security and other sensitive government functions;
Require significant management attention and resources to remedy damages that result;
Result in costs which exceed our insurance coverage and/or indemnification arrangements;
Subject us to claims for contract breach, damages, credits, penalties or termination; and
Damage our reputation with our customers (particularly agencies of the U.S. Government) and the general public.
We must also rely on the safeguards put in place by customers, suppliers, vendors, subcontractors or other third parties to
minimize the impact of cyber threats, other security threats or business disruptions. These third parties may have varying levels of
cybersecurity expertise and safeguards, and their relationships with government contractors, such as us, may increase their
likelihood of being targeted by the same cyber threats we face. Our commercial arrangements with these third parties include
processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the
storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach
due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data
protection processes, which may not be as sophisticated as ours, or a cyber-attack on a third party’s information network and
systems.
17
Any or all of the foregoing could have a negative impact on our business, financial condition, results of operations, cash
flows and equity.
Our future success will depend on our ability to develop new products, systems, services and technologies that achieve market
acceptance in our current and future markets.
Our businesses are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our
performance depends on a number of factors, including our ability to:
•
•
•
•
•
•
•
•
Identify market needs and growth opportunities;
Identify emerging technological trends in our current and target markets;
Identify additional uses for our existing technology to address customer needs;
Develop and maintain competitive products, systems, services and technologies;
Enhance our offerings by adding innovative hardware, software or other features that differentiate our products,
systems, services and technologies from those of our competitors;
Develop, manufacture and bring to market cost-effective offerings quickly;
Enhance product designs for export and releasability to international markets; and
Effectively structure our businesses to reflect the competitive environment, including through the use of joint
ventures, collaborative agreements and other forms of alliances.
To remain competitive, we need to continue to design, develop, manufacture, assemble, test, market and support new
products, systems, services and technologies, which will require the investment of significant financial resources. In the past, we
have allocated substantial funds for such investments through customer funded and internal research and development,
acquisitions or other teaming arrangements. This practice will continue to be required, but we may not be able to successfully
identify new opportunities and may not have the necessary financial resources to develop new products, systems, services and
technologies in a timely or cost-effective manner. Furthermore, the need to make these expenditures could divert our attention and
resources from other projects, and we cannot be sure that these expenditures ultimately will lead to the timely development of new
products, systems, services or technologies. Due to the design complexity of some of our products, systems, services and
technologies, we may experience delays in completing development and introducing new products, systems, services or
technologies in the future. Any delays could result in increased costs of development or divert resources from other projects. In
addition, the markets for our products, systems, services or technologies may not develop as we currently anticipate, we may not
be as successful in newly identified markets as we currently anticipate, and acquisitions, joint ventures or other teaming
arrangements we may enter into to pursue developing new products, systems, services or technologies may not be successful.
Failure of our products, systems, services or technologies to gain market acceptance could significantly reduce our revenue and
harm our business. Furthermore, competitors may develop competing products, systems, services or technologies that gain market
acceptance in advance of our products, systems, services or technologies, or competitors may develop new products, systems,
services or technologies that cause our existing products, systems, services or technologies to become non-competitive or
obsolete, which could adversely affect our results of operations. The future direction of the domestic and global economies,
including its impact on customer demand, also will have a significant impact on our overall performance.
We must attract and retain key employees, and any failure to do so could seriously harm us.
Our future success depends to a significant degree upon the continued contributions of our management and our ability to
attract and retain highly qualified management and technical personnel, including employees who have U.S. Government security
clearances, particularly clearances of top-secret and above. To the extent that the demand for qualified personnel exceeds supply,
as has been the case from time to time in recent years, we could experience higher labor, recruiting or training costs in order to
attract and retain such employees, or could experience difficulties in performing under our contracts if our needs for such
employees were unmet. Failure to attract and retain such personnel would damage our future prospects.
Some of our workforce is represented by labor unions, so a prolonged work stoppage could harm our business.
At January 1, 2021, approximately 3,100 of our U.S. employees, or approximately 7 percent of our employee base, were
unionized. If we encounter difficulties with renegotiation or renewals of collective bargaining arrangements or are unsuccessful in
those efforts, we could incur additional costs and experience work stoppages. Union actions at suppliers can also affect us. We
cannot predict how stable our union relationships will be or whether we will be able to successfully negotiate successor collective
bargaining agreements without impacting our financial condition. In addition, the presence of unions may limit our flexibility in
dealing with our workforce. Work stoppages could negatively impact our ability to manufacture products or provide services on a
timely basis, which could negatively impact our business, financial condition, results of operations, cash flows and equity.
Disputes with our subcontractors or key suppliers, or their inability to perform or timely deliver our components, parts or
services, could cause our products, systems or services to be produced or delivered in an untimely or unsatisfactory manner.
We engage subcontractors on many of our contracts and from time to time may have disputes with them, including
regarding the quality and timeliness of work performed by them, customer concerns about the subcontract or subcontractor, our
18
failure to extend existing task orders or issue new task orders under a subcontract, our hiring of the personnel of a subcontractor or
vice versa or the subcontractor’s failure to comply with applicable law. In addition, there are certain parts, components and
services for many of our products, systems and services that we source from other manufacturers or vendors. Some of our
suppliers, from time to time, experience financial and operational difficulties, which may impact their ability to supply the
materials, components, subsystems and services that we require. Tariffs recently imposed on certain materials and other trade
issues may create or exacerbate existing materials shortages and may result in further supplier business closures. Our supply chain
could also be disrupted by external events, such as natural disasters or other significant disruptions (including COVID-related
impacts as described above under “COVID-Related Risks,” extreme weather conditions, epidemics, acts of terrorism, cyber
attacks and labor disputes), governmental actions and legislative or regulatory changes, including product certification or
stewardship requirements, sourcing restrictions, product authenticity and climate change or greenhouse gas emission standards, or
availability constraints from increased demand from customers. These or any further political or governmental developments or
health concerns in countries in which we operate could result in social, economic and labor instability. Any inability to develop
alternative sources of supply on a cost-effective and timely basis could materially impair our ability to manufacture and deliver
products, systems and services to our customers. We may experience disputes with our subcontractors; material supply constraints
or problems; or component, subsystems or services problems in the future. Also, our subcontractors and other suppliers may not
be able to acquire or maintain the quality of the materials, components, subsystems and services they supply, which might result
in greater product returns, service problems and warranty claims and could harm our business, financial condition, results of
operations, cash flows and equity. In addition, in connection with our government contracts, we are required to procure certain
materials, components and parts, including certain microelectronics components, from supply sources approved by the
U.S. Government and we rely on our subcontractors and suppliers to comply with applicable laws, regulations and other
requirements regarding procurement of counterfeit, unauthorized or otherwise non-compliant parts or materials, including parts or
materials they supply to us, and in some circumstances, we rely on their certifications as to their compliance. From time to time,
there are components for which there may be only one supplier, which may be unable to meet our needs. Each of these
subcontractor and supplier risks could have a material adverse effect on our business, financial condition, results of operations,
cash flows and equity.
We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster
or other significant disruption.
Our corporate headquarters and significant business operations are located in Florida, which is subject to the risk of major
hurricanes. Our worldwide operations and operations of our suppliers and customers could be subject to natural disasters or other
significant disruptions, including hurricanes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other extreme
weather conditions, epidemics, pandemics, COVID-related impacts as described above under “COVID-Related Risks,” acts of
terrorism, power shortages and blackouts, telecommunications failures, cyber attacks and other natural and manmade disasters or
disruptions. In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our
operations or the operations of our suppliers, subcontractors, distributors, resellers or customers, including inability of employees
to work; destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses, delay or
decrease orders and revenue from our customers and have a material adverse effect on the continuity of our business and our
business, financial condition, results of operations, cash flows and equity.
Financial Risks
Changes in estimates we use in accounting for many of our programs could adversely affect our future financial results.
Accounting for our contracts requires judgment relative to assessing risks, including risks associated with customer-directed
delays and reductions in scheduled deliveries, unfavorable resolutions of claims and contractual matters, and judgment associated
with estimating contract revenue and costs and assumptions for schedule and technical issues. Due to the size and nature of many
of our contracts, the estimation of total revenue and cost at completion is complicated and subject to many variables. For example,
we must make assumptions regarding: (i) the length of time to complete the contract because costs also include expected increases
in wages and prices for materials; (ii) whether contracts should be accounted for as having one or more performance obligations
based on the goods and services promised to the customer; (iii) incentives or penalties related to performance on contracts in
estimating revenue and profit rates, and recording them when there is sufficient information for us to assess anticipated
performance; and (iv) estimates of award fees in estimating revenue and profit rates based on actual and anticipated awards.
Because of the significance of the judgments and estimation processes involved in accounting for our contracts, materially
different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes
in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial
condition. For additional information regarding our critical accounting policies and estimates applicable to our accounting for our
contracts, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical
Accounting Policies and Estimates” of this Report.
19
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit
plans liability may materially adversely affect our financial and operating activities or our ability to incur additional debt.
At January 1, 2021, we had $6.8 billion in aggregate principal amount of outstanding debt and $1.9 billion of unfunded
defined benefit plans liability. These amounts may increase; however, our ability to increase our borrowings is subject to
limitations imposed on us by our debt agreements. Our ability to make payments on and to refinance our current or future
indebtedness, and our ability to make contributions to our unfunded defined benefit plans liability, will depend on our ability to
generate cash from operations, financings or asset sales, which may be subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our debt as it becomes
due or make contributions to our unfunded defined benefit plans liability, we may be forced to sell assets or take other
disadvantageous actions, including reducing financing for working capital, capital expenditures and general corporate purposes;
reducing our cash dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow from operations to
the payment of principal and interest on our indebtedness. In addition, our ability to withstand competitive pressures and to react
to changes in the defense technology industry could be impaired. The lenders who hold such debt could also accelerate amounts
due, which could potentially trigger a default or acceleration of any of our other debt.
Additionally, certain of our financial obligations and instruments, including our 2019 Credit Facility (defined below) and
Floating Rate Notes due March 10, 2023, as well as financial instruments that we hold or use or may hold or use, such as interest
rate swaps, are or may be made at variable interest rates that use the London interbank offered rate (“LIBOR”) (or metrics derived
from or related to LIBOR) as a benchmark for establishing the applicable interest rate. The potential consequences from
discontinuation, modification or reform of LIBOR, implementation of alternative reference rates and any interest rate transition
process cannot be fully predicted and may have an adverse impact on values of LIBOR-linked securities and other financial
obligations or extensions of credit and may involve, among other things, increased volatility or illiquidity in markets for
instruments that rely on LIBOR, reductions in effectiveness of related transactions such as hedges, increased borrowing costs,
uncertainty under applicable documentation, or difficult and costly consent processes. This could materially and adversely affect
our results of operations, cash flows and liquidity. See Note 13: Credit Arrangements in the Notes for additional information
regarding our 2019 Credit Facility and Note 14: Debt in the Notes for additional information regarding our Floating Rate Notes
due March 10, 2023.
A downgrade in our credit ratings could materially adversely affect our business.
The credit ratings assigned to our debt securities could change based on, among other things, our results of operations,
financial condition, mergers, acquisitions or dispositions. These ratings are subject to ongoing evaluation by credit rating agencies
and may be changed or withdrawn by rating agencies in the future. Moreover, these credit ratings are not recommendations to
buy, sell or hold any of our debt securities. Actual or anticipated changes or downgrades in our credit ratings, including any
announcement that our ratings are under review for a downgrade or have been assigned a negative outlook, would likely increase
our borrowing costs and affect our ability to incur new indebtedness or refinance our existing indebtedness, which in turn could
have a material adverse effect on our financial condition, results of operations, cash flows, equity and the market value of our
common stock and outstanding debt securities.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect
our financial condition, results of operations, cash flows and equity in future periods.
A substantial portion of our current and retired employee population is covered by defined benefit pension and other
postretirement defined benefit plans (collectively, “defined benefit plans”). We may experience significant fluctuations in costs
related to defined benefit plans as a result of macro-economic factors, such as interest rates, that are beyond our control. The cost
of our defined benefit plans is incurred over long periods of time and involves various factors and uncertainties during those
periods that can be volatile and unpredictable, including the rates of return on defined benefit plan assets, discount rates used to
calculate liabilities and expenses, mortality of plan participants and trends for future medical costs. We develop our assumptions
using relevant plan experience and expectations in conjunction with market-related data. These assumptions and other actuarial
assumptions may change significantly due to changes in economic, legislative, and/or demographic experience or circumstances.
Significant changes in key economic indicators, financial market volatility, future legislation and other governmental regulatory
actions could materially affect our financial condition, results of operations, cash flows and equity.
We will make contributions to fund our defined benefit plans when considered necessary or advantageous to do so. The
macro-economic factors discussed above, including the rates of return on defined benefit plan assets and the minimum funding
requirements established by government funding or taxing authorities, or established by other agreement, may influence future
funding requirements. A significant decline in the fair value of our plan assets, or other adverse changes to our overall defined
benefit plans, could require us to make significant funding contributions and affect cash flows in future periods.
U.S. Government Cost Accounting Standards (“CAS”) govern the extent to which postretirement costs and plan
contributions are allocable to and recoverable under contracts with the U.S. Government. We expect to continue to seek
reimbursement from the U.S. Government for a portion of our postretirement costs and plan contributions; however, pension plan
cost recoveries under our U.S. Government contracts may occur in different periods from when those pension costs are
20
recognized for financial statement purposes or when pension funding is made. CAS rules have been revised to partially harmonize
the measurement and period of assignment of pension plan costs allocable to U.S. Government contracts and minimum required
contributions under the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of
2006. However, there is still a lag between the time when we contribute cash to our plans under pension funding rules and when
we recover pension costs under CAS rules. These timing differences could have a material adverse effect on our cash flows.
Legal, Tax and Regulatory Risks
Changes in our effective tax rate may have an adverse effect on our results of operations.
Our future effective tax rate may be adversely affected by a number of factors including:
•
•
•
•
•
•
•
•
Changes in domestic or international tax laws or the interpretation of such tax laws;
The jurisdictions in which profits are determined to be earned and taxed;
Adjustments to estimated taxes upon finalization of various tax returns;
Increases in expenses not fully deductible for tax purposes, including write-offs of acquired in-process R&D and
impairment of goodwill or other long-term assets in connection with mergers or acquisitions;
Changes in available tax credits;
Changes in share-based compensation expense;
Changes in the valuation of our deferred tax assets and liabilities; and
The resolution of issues arising from tax audits with various tax authorities.
For example, provisions in the Tax Cuts and Jobs Act of 2017 require that, beginning in 2022, R&D expenditures be
capitalized and amortized over five years, which would result in a material increase to our cash taxes in 2022 through 2026 and
establishment of a material deferred tax asset, if the provisions are not modified or repealed before then.
Any significant increase in our future effective tax rates could adversely impact our results of operations for future periods.
We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may
prevent proposed sales to certain foreign governments.
We must first obtain export and other licenses and authorizations from various U.S. Government agencies before we are
permitted to sell certain products and technologies outside of the U.S. For example, the U.S. Department of State must notify
Congress at least 15 to 60 days, depending on the size and location of the proposed sale, prior to authorizing certain sales of
defense equipment and services to foreign governments. During that time, Congress may take action to block the proposed sale.
We may be unsuccessful in obtaining necessary licenses or authorizations or Congress may prevent or delay certain sales. Our
ability to obtain necessary licenses and authorizations timely or at all is subject to risks and uncertainties, including changing U.S.
Government policies or laws or delays in Congressional action due to geopolitical and other factors. If we are not successful in
obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be
reversed, prevented or delayed, and any significant impairment of our ability to sell products or technologies outside of the U.S.
could negatively impact our business, financial condition, results of operations, cash flows and equity.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business
partners.
We have implemented compliance controls, training, policies and procedures designed to prevent and detect reckless or
criminal acts from being committed by our employees, agents or business partners that would violate the laws of the jurisdictions
in which we operate, including laws governing payments to government officials, such as the FCPA, the protection of export
controlled or classified information, such as ITAR, false claims, procurement integrity, cost accounting and billing, competition,
information security and data privacy and the terms of our contracts. This risk of improper conduct may increase as we continue
to grow and expand our operations. We cannot ensure, however, that our controls, training, policies and procedures will prevent
or detect all such reckless or criminal acts, and we have been adversely impacted by such acts in the past. If not prevented, such
acts could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and debarment by
the U.S. Government and could have a material adverse effect on our business, results of operations and reputation. In addition,
misconduct involving data security lapses resulting in the compromise of personal information or the improper use of our
customer’s sensitive or classified information could result in remediation costs, regulatory sanctions against us and serious harm
to our reputation and could adversely impact our ability to continue to contract with the U.S. Government.
The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an adverse decision
in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and
equity.
The size, nature and complexity of our business make us susceptible to investigations, claims, disputes, enforcement actions,
litigation and other legal proceedings, particularly those involving governments. From time to time, we are defendants in a
number of litigation matters and are involved in a number of arbitration matters. These actions may divert financial and
21
management resources that would otherwise be used to benefit our operations. The results of these or new matters may be
unfavorable to us. Although we maintain insurance policies, they may not be adequate to protect us from all material judgments
and expenses related to current or future claims and may not cover the conduct that is the subject of the litigation or arbitration.
Desired levels of insurance may not be available in the future at economical prices or at all. In addition, we believe that while we
have valid defenses with respect to legal matters pending against us, the results of litigation or arbitration can be difficult to
predict, including litigation involving jury trials. Accordingly, our current judgment as to the likelihood of our loss (or our current
estimate as to the potential range of loss, if applicable) with respect to any particular litigation or arbitration matter may be wrong.
A significant judgment or arbitration award against us arising out of any of our current or future litigation or arbitration matters
could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their
intellectual property rights, and third parties may infringe upon our intellectual property rights.
Many of the markets we serve are characterized by vigorous protection and pursuit of intellectual property rights, which
often has resulted in protracted and expensive litigation. Our efforts to gain awards of contracts and ensure a competitive position
in the market depends in part on our ability to ensure that our intellectual property is protected, that our intellectual property rights
are not diluted or subject to misuse, and that we are able to license certain third party intellectual property on reasonable terms.
Third parties have claimed in the past and may claim in the future that we are infringing directly or indirectly upon their
intellectual property rights, and we may be found to be infringing or to have infringed directly or indirectly upon those intellectual
property rights. Claims of infringement might also require us to enter into costly royalty or license agreements. Our patents and
other intellectual property may be challenged, invalidated, misappropriated or circumvented by third parties. Moreover, we may
not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant
damages or injunctions against development and sale of certain of our products, services and solutions. Our success depends in
large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, know-how,
confidentiality provisions and licensing arrangements to establish and protect our intellectual property rights. In addition, the laws
concerning intellectual property vary among nations and the protection provided to our intellectual property by the laws and
courts of foreign nations may differ from those of the U.S. If we fail to successfully protect and enforce these rights, our
competitive position could suffer. Our pending patent and trademark registration applications may not be allowed, or competitors
may challenge the validity or scope of our patents or trademark registrations. In addition, our patents may not provide us a
significant competitive advantage. We may be required to spend significant resources to monitor and enforce our intellectual
property rights. Litigation to determine the scope of intellectual property rights, even if ultimately successful, could be costly and
could divert management’s attention away from other aspects of our business. We may not be able to detect infringement, and our
competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop
competing technologies.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or
indemnity.
We are exposed to liabilities that are unique to the products, systems and services we provide. A significant portion of our
business relates to designing, developing and manufacturing advanced defense, technology and communications systems and
products. New technologies associated with these systems and products may be untested or unproven. Components of certain
defense systems and products we develop are inherently dangerous. Failures of satellites, missile systems, air traffic control
systems, electronic warfare systems, space superiority systems, C5ISR systems, homeland security applications and aircraft have
the potential to cause loss of life and extensive property damage. Other examples of unforeseen problems that could result, either
directly or indirectly, in the loss of life or property or otherwise negatively affect revenue and profitability include loss on launch
of spacecraft, premature failure of products that cannot be accessed for repair or replacement, problems with quality and
workmanship, country of origin, delivery of subcontractor components or services and unplanned degradation of product
performance. In addition, problems and delays in development or delivery as a result of issues with respect to design, technology,
licensing and patent rights, labor, learning curve assumptions or materials and components could prevent us from achieving
contractual requirements. In many circumstances, we may receive indemnification from the U.S. Government. We generally do
not receive indemnification from foreign governments. Although we maintain insurance for certain risks, including certain
cybersecurity exposures, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may
be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against
all operational risks and liabilities. Substantial claims resulting from an incident in excess of U.S. Government indemnity and our
insurance coverage would harm our financial condition, results of operations, cash flows and equity. Other factors that may affect
revenue and profits include loss of follow-on work, and, in the case of certain contracts, liquidated damages, penalties and
repayment to the customer of contract cost and fee payments we previously received. Moreover, any accident or incident for
which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making
it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the
future.
22
Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results of
operations, cash flows and equity.
Our operations are subject to various U.S. Federal, state and local, as well as certain foreign, environmental laws and
regulations within the countries in which we operate relating to the discharge, storage, treatment, handling, disposal and
remediation of certain materials, substances and wastes used in our operations. In addition, we could be affected by future
environmental laws or regulations, including, for example, new restrictions on materials used in our operations, or future
regulations imposed or claims asserted in response to concerns over climate change, other aspects of the environment or natural
resources. Compliance with current and future environmental laws and regulations may require significant operating and capital
costs. Environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to
address violations, and may require the installation of costly pollution control equipment or operational changes to limit emissions
or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations
related to remediation of conditions in the environment. In addition, if violations of environmental laws result in us, or in one or
more of our operations, being identified as an excluded party in the U.S. Government’s System for Award Management, then we
or one or more of our operations would become ineligible to receive certain contracts, subcontracts and other benefits from the
Federal government or to perform work under a government contract or subcontract. Generally, such ineligibility would continue
until the basis for the listing has been appropriately addressed. Developments such as the adoption of new environmental laws and
regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of
previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs
associated with any such developments under previously priced contracts, or financial insolvency of other responsible parties
could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Strategic Transactions and Investments Risks
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.
Strategic mergers, acquisitions and divestitures we have made in the past and may make in the future present significant
risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity,
which include:
•
•
•
•
•
•
•
•
•
•
•
Difficulty in identifying and evaluating potential mergers and acquisitions, including the risk that our due diligence
does not identify or fully assess valuation issues, potential liabilities or other merger or acquisition risks;
Difficulty and expense in integrating newly merged or acquired businesses and operations, including combining
product and service offerings, and in entering into new markets in which we are not experienced, in an efficient
and cost-effective manner while maintaining adequate standards, controls and procedures, and the risk that we
encounter significant unanticipated costs or other problems associated with integration;
Difficulty and expense in consolidating and rationalizing IT infrastructure, which may include multiple legacy
systems from various mergers and acquisitions and integrating software code;
Challenges in achieving strategic objectives, cost savings and other expected benefits;
Risk that our markets do not evolve as anticipated and that the strategic mergers, acquisitions and divestitures do
not prove to be those needed to be successful in those markets;
Risk that we assume or retain, or that companies we have merged with or acquired have assumed or retained or
otherwise become subject to, significant liabilities that exceed the limitations of any applicable indemnification
provisions or the financial resources of any indemnifying parties;
Risk that indemnification related to businesses divested or spun off that we may be required to provide or
otherwise bear may be significant and could negatively impact our business;
Risk that mergers, acquisitions, divestitures, spin offs and other strategic transactions fail to qualify for the
intended tax treatment for U.S. Federal income tax purposes, such as a tax-free reorganization in the case of the
L3Harris Merger;
Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including non-
competition arrangements applicable to certain of our business lines, or within expected timeframes;
Potential loss of key employees or customers of the businesses merged with or acquired or to be divested; and
Risk of diverting the attention of senior management from our existing operations.
Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other
long-term assets to become impaired, resulting in substantial losses and write-downs that would materially adversely affect our
results of operations and financial condition.
From time to time, we acquire a minority or majority interest in a business, following careful analysis and due diligence
procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and
judgment in determining acquisition price. After acquisition, such assumptions and judgment may prove to have been inaccurate
23
and unforeseen issues could arise, which could adversely affect the anticipated returns or which are otherwise not recoverable as
an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from
initial estimates. As of January 1, 2021, we had goodwill of $18.9 billion recorded in our Consolidated Balance Sheet, the large
majority of which was recorded in connection with the L3Harris Merger. We evaluate the recoverability of recorded goodwill
annually, as well as when we change reporting units and when events or circumstances indicate there may be an impairment. We
test goodwill for impairment at an organizational level referred to as the reporting unit, which is our business segment level or one
level below the business segment. The impairment test is based on several factors requiring judgment. Principally, a decrease in
expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill. In
addition, following the L3Harris Merger, our reporting units are generally one level below the segment level and two of our
segments are comprised of several reporting units. During fiscal 2020, we recorded non-cash charges for impairment of goodwill
and other assets of $718 million related to our Commercial Aviation Solutions reporting unit due to COVID-related impacts on
global air traffic and customer operations. Allocation of goodwill to several reporting units could make it more likely that we will
have additional impairment charges in the future. Because of the significance of our goodwill and other intangible assets, any
future impairment of these assets could have a material adverse effect on our results of operations and financial condition. For
additional information on our accounting policies related to impairment of goodwill, see our discussion under “Critical
Accounting Policies and Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Report and Note 1: Significant Accounting Policies and Note 10: Goodwill in the Notes.
We may fail to realize all of the anticipated benefits of the L3Harris Merger or those benefits may take longer to realize than
expected. We may also encounter significant difficulties in integrating the businesses.
Our ability to realize the anticipated benefits of the L3Harris Merger will depend, to a large extent, on our ability to integrate
the businesses. The combination of independent businesses is a complex, costly and time-consuming process. As a result, we will
be required to devote significant management attention and resources to integration activities. The integration process may disrupt
the businesses and, if implemented ineffectively, could restrict the realization of the full benefits anticipated. The failure to meet
the challenges involved in integrating the businesses and to realize the anticipated benefits of the L3Harris Merger could cause an
interruption of or a loss of momentum in our activities and could adversely affect our results of operations. In addition, the overall
integration may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customer
relationships and diversion of management’s attention. The difficulties of combining the operations of the companies include,
among others:
•
•
•
•
•
•
•
•
•
•
The diversion of management’s attention to integration matters;
Difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects;
Difficulties in the integration of operations and systems;
Conforming standards, controls, procedures and accounting and other policies, business cultures and compensation
structures between the companies;
Difficulties in the assimilation of employees;
Difficulties in managing the expanded operations of a significantly larger and more complex company;
Difficulties in establishing effective uniform controls, systems, procedures and policies for the combined
company;
Challenges in keeping existing customers and obtaining new customers;
Challenges in attracting and retaining key personnel; and
Coordinating a geographically dispersed organization.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the
amount of expected revenue and diversion of management’s time and energy, which could materially impact our business,
financial condition and results of operations. In addition, even if our operations are integrated successfully, the full benefits of the
L3Harris Merger may not be realized, including the synergies, cost savings or sales or growth opportunities that are expected.
These benefits may not be achieved within the anticipated time frame or at all. Further, additional unanticipated costs may be
incurred in the integration. All of these factors could cause dilution to our earnings per share, decrease or delay the expected
benefits of the L3Harris Merger and negatively impact the price of our stock. As a result, we can give no assurances that the
L3Harris Merger will result in the realization of the full benefits anticipated.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not applicable.
24
ITEM 2.
PROPERTIES.
Our principal executive offices are located at owned facilities in Melbourne, Florida. As of January 1, 2021, we operated
approximately 340 locations in the U.S., Europe, Canada, Australia, Asia, the Middle East and South America, consisting of
approximately 26 million square feet of manufacturing, administrative, R&D, warehousing, engineering and office space, of
which we owned approximately 11 million square feet and leased approximately 15 million square feet. There are no material
encumbrances on any of our owned facilities. As of January 1, 2021, we had major operations at the following locations:
Integrated Mission Systems — Greenville, Rockwall and Waco, Texas; Burlington and Mirabel, Canada; Camden, New
Jersey; Mason, Ohio; Sylmar, California; Tulsa, Oklahoma; Pittsburgh and Philadelphia, Pennsylvania; and Salt Lake City, Utah.
Space and Airborne Systems — Palm Bay, Malabar and Melbourne, Florida; Rochester and Amityville, New York;
Clifton, New Jersey; Colorado Springs, Colorado; Van Nuys and San Diego, California; Fort Wayne, Indiana; Wilmington,
Massachusetts; and Alpharetta, Georgia.
Communication Systems — Salt Lake City, Utah; Rochester, New York; Londonderry, New Hampshire; Lynchburg,
Virginia; Tempe, Arizona; Farnborough, United Kingdom; Melbourne, Florida; and Brisbane, Australia.
Aviation Systems — Melbourne, Florida; Muskegon and Grand Rapids, Michigan; Torrance, Menlo Park and Anaheim,
California; Arlington and Plano, Texas; Cincinnati, Ohio; Hauppauge, New York; Herndon, Virginia; Crawley, United Kingdom;
and Phoenix, Arizona.
Corporate — Melbourne, Florida; and Washington, D.C.
The following is a summary of the approximate floor space of our offices and facilities in productive use, by segment, at
January 1, 2021:
(In millions)
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Corporate
Total
Approximate
Total Sq. Ft.
Owned
Approximate
Total Sq. Ft.
Leased
Approximate
Total
Sq. Ft.
1.9
4.5
1.7
2.6
0.3
11.0
6.9
2.4
1.6
3.5
0.3
14.7
8.8
6.9
3.3
6.1
0.6
25.7
In our opinion, our facilities, whether owned or leased, are suitable and adequate for their intended purposes and have
capacities adequate for current and projected needs. We frequently review our anticipated requirements for facilities and will,
from time to time, acquire additional facilities, expand existing facilities and dispose of existing facilities or parts thereof, as
management deems necessary. For more information about our lease obligations, see Note 19: Lease Commitments in the Notes.
Our facilities and other properties are generally maintained in good operating condition.
ITEM 3.
LEGAL PROCEEDINGS.
General. From time to time, as a normal incident of the nature and kind of businesses in which we are or were engaged,
various claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to
matters, including, but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual
property; labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or
use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters.
Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the
extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we
consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized
and legal costs generally are expensed when incurred. At January 1, 2021, our accrual for the potential resolution of lawsuits,
claims or proceedings that we consider probable of being decided unfavorably to us was not material. Although it is not feasible
to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be
disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the
opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being
rendered against us in litigation or arbitration in existence at January 1, 2021 are reserved against or would not have a material
adverse effect on our financial condition, results of operations, cash flows or equity.
Tax Audits. Our tax filings are subject to audit by taxing authorities in jurisdictions where we conduct or conducted
business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or
25
ultimately through legal proceedings. We believe we have adequately accrued for any ultimate amounts that are likely to result
from these audits; however, final assessments, if any, could be different from the amounts recorded in our Consolidated Financial
Statements. See Note 23: Income Taxes in the Notes for additional information regarding audits and examinations by taxing
authorities of our tax filings.
U.S. Government Business. We are engaged in supplying goods and services to various departments and agencies of the
U.S. Government. We are therefore dependent on Congressional appropriations and administrative allotment of funds and may be
affected by changes in U.S. Government policies. U.S. Government development and production contracts typically involve long
lead times for design and development, are subject to significant changes in contract scheduling and may be unilaterally modified
or canceled by the U.S. Government. Often these contracts call for successful design and production of complex and
technologically advanced products or systems. We may participate in supplying goods and services to the U.S. Government as
either a prime contractor or as a subcontractor to a prime contractor. Disputes may arise between the prime contractor and the
U.S. Government or between the prime contractor and its subcontractors and may result in litigation or arbitration between the
contracting parties.
Generally, U.S. Government contracts are subject to procurement laws and regulations, including the FAR, which outline
uniform policies and procedures for acquiring goods and services by the U.S. Government, and specific agency acquisition
regulations that implement or supplement the FAR, such as the Defense Federal Acquisition Regulation Supplement. As a
U.S. Government contractor, our contract costs are audited and reviewed on a continuing basis by the Defense Contract Audit
Agency (“DCAA”). The DCAA also reviews the adequacy of, and a U.S. Government contractor’s compliance with, the
contractor’s business systems and policies, including the contractor’s property, estimating, compensation and management
information systems. In addition to these routine audits, from time to time, we may, either individually or in conjunction with
other U.S. Government contractors, be the subject of audits and investigations by other agencies of the U.S. Government. These
audits and investigations are conducted to determine if our performance and administration of our U.S. Government contracts are
compliant with applicable contractual requirements and procurement and other applicable Federal laws and regulations, including
ITAR and FCPA. These investigations may be conducted with or without our knowledge or cooperation. We are unable to predict
the outcome of such investigations or to estimate the amounts of resulting claims or other actions that could be instituted against
us or our officers or employees. Under present U.S. Government procurement laws and regulations, if indicted or adjudged in
violation of procurement or other Federal laws, a contractor, such as us, or one or more of our operating divisions or subdivisions,
could be subject to fines, penalties, repayments, or compensatory or treble damages. U.S. Government regulations also provide
that certain findings against a contractor may lead to suspension or debarment from eligibility for awards of new
U.S. Government contracts for a period of time to be determined by the U.S. Government. Suspension or debarment would have a
material adverse effect on us because of our reliance on U.S. Government contracts. In addition, our export privileges could be
suspended or revoked, which also would have a material adverse effect on us. For further discussion of risks relating to
U.S. Government contracts, see “Item 1A. Risk Factors” of this Report.
International. As an international company, we are, from time to time, the subject of investigations relating to our
international operations, including under U.S. export control laws (such as ITAR), the FCPA and other similar U.S. and
international laws.
In September 2019, we reached an administrative settlement with the Department of State to resolve alleged U.S. export
control regulation violations. Under the terms of the settlement we have committed to strengthen our trade compliance program
under the supervision of a special compliance officer and will pay a civil penalty of $13 million over three years (with $6.5
million suspended on the condition of use for qualified remedial compliance measures). The settlement did not result in any
debarment or limitation on export licensing.
Environmental Matters. We are subject to numerous U.S. Federal, state, local and international environmental laws and
regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental
issues. We or companies we have acquired are responsible, or alleged to be responsible, for environmental investigation and/or
remediation of multiple sites. These sites are in various stages of investigation and/or remediation and in some cases our liability
is considered de minimis. Notices from the U.S. Environmental Protection Agency (“EPA”) or equivalent state or international
environmental agencies allege that a number of sites formerly or currently owned and/or operated by us or companies we have
acquired, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or
recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances of us being
identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act
(commonly known as the “Superfund Act”) and/or equivalent state and international laws. For example, in June 2014, the U.S.
Department of Justice, Environment and Natural Resources Division, notified several potentially responsible parties, including
Exelis Inc., which we acquired on May 29, 2015 (“Exelis”), of potential responsibility for contribution to the environmental
investigation and remediation of multiple locations in Alaska. In addition, in March 2016, the EPA notified over 100 potentially
responsible parties, including Exelis, of potential liability for the cost of remediation for the 8.3-mile stretch of the Lower Passaic
River, estimated by the EPA to be $1.38 billion, but the parties’ respective allocations have not been determined. Although it is
26
not feasible to predict the outcome of these environmental claims made against us, based on available information, in the opinion
of our management, any payments we may be required to make as a result of environmental claims made against us in existence at
January 1, 2021 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition,
results of operations, cash flows or equity.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not Applicable.
27
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The name, age, position held with us, and principal occupation and employment during at least the past five years for each
of our executive officers as of February 28, 2021, were as follows:
Name and Age
Position Currently Held and Past Business Experience
William M. Brown, 58
...... Chair and Chief Executive Officer since June 29, 2019. Chair, President and Chief
Executive Officer from April 2014 to June 2019. President and Chief Executive Officer from
November 2011 to April 2014. Formerly with United Technologies Corporation (“UTC”), as
Senior Vice President, Corporate Strategy and Development from April 2011 to October
2011; as President of UTC’s Fire & Security division from 2006 to 2011; and in U.S. and
international roles at UTC’s Carrier Corporation from 2000 to 2006, including President of
the Carrier Asia Pacific Operations; and as Director, Corporate Strategy and Business
Development from 1997 to 2000.
Todd W. Gautier, 57
...... President, Aviation Systems since June 29, 2019. Served with L3 as Senior Vice President
James P. Girard, 44
Christopher E. Kubasik, 59
and President of Electronic Systems Segment from March 2017 to June 2019; as President of
Precision Engagement and Training Sector from January 2014 to March 2017; as President
of Precision Engagement Sector from January 2010 to January 2014; and as Vice President
of Business Development and Strategy for the Sensors and Simulation Group from January
2005 to January 2010. Before joining L3 in 2001, Mr. Gautier served in the U.S. Navy for 15
years as a Strike/Fighter Pilot.
...... Vice President and Chief Human Resources Officer since June 29, 2019. Vice President,
Human Resources from July 2015 to June 2019. Vice President, Human Resources -
Government Communications Systems from May 2014 to June 2015. Before joining
L3Harris in May 2014, Mr. Girard worked for UTC, as Vice President, Human Resources at
Sikorsky Aircraft from February 2014 to April 2014; as Director, Talent Resources from
November 2011 to January 2014; as Vice President, Human Resources at UTC’s Global Fire
Products from June 2010 to October 2011; and served in various Human Resources roles
from 1995 to 2010.
...... Vice Chair, President and Chief Operating Officer since June 29, 2019. Served with L3,
as Chair, Chief Executive Officer and President from May 2018 to June 2019; as Chief
Executive Officer and President from January 2018 to May 2018; and as President and Chief
Operating Officer from October 2015 to December 2017. Before joining L3 in October 2015,
Mr. Kubasik worked for Seabury Advisory Group as President and Chief Executive Officer
from March 2014 to October 2015; for Ackuity Advisors, Inc., as President and Chief
Executive Officer from January 2013 to March 2014; and for Lockheed Martin Corporation,
where he held various senior executive and finance roles from 1999 to 2012, including Vice
Chair, President and Chief Operating Officer from 2010 to 2012.
Jesus “Jay” Malave Jr., 52
...... Senior Vice President and Chief Financial Officer since June 29, 2019. Before joining
L3Harris, Mr. Malave worked at UTC, as Vice President and Chief Financial Officer of
UTC’s Carrier Corporation from April 2018 to June 2019; as Chief Financial Officer of
UTC’s Aerospace Systems from January 2015 to April 2018; as Head of Investor Relations
from June 2012 to December 2014; as Vice President, Financial Planning and Treasury at
Hamilton Sundstrand, with responsibility for planning the integration of Goodrich
Corporation from May 2011 to June 2012; as Director of Investor Relations from June 2009
to May 2011; and prior to that, in other roles of increasing responsibility in financial
planning and analysis, treasury and accounting.
Dana A. Mehnert, 58
...... President, Communication Systems since September 2018. Senior Vice President, Chief
Scott T. Mikuen, 59
Global Business Development Officer from July 2015 to September 2018. Group President,
RF Communications from May 2009 to July 2015. President, RF Communications from July
2006 to May 2009. Mr. Mehnert joined L3Harris in 1984.
...... Senior Vice President, General Counsel and Secretary since February 2013. Vice President,
General Counsel and Secretary from October 2010 to February 2013. Vice President,
Associate General Counsel and Secretary from October 2004 to October 2010. Vice
President — Counsel, Corporate and Commercial Operations and Assistant Secretary from
November 2000 to October 2004. Mr. Mikuen joined L3Harris in 1996 as Finance Counsel.
28
Sean J. Stackley, 63
...... President, Integrated Mission Systems since June 29, 2019. Served with L3 as Senior Vice
President and President of Communications & Networked Systems Segment from September
2018 to June 2019; and as Corporate Vice President, Strategic Advance Programs and
Technologies from January 2018 to September 2018. Before joining L3 in January 2018,
(Hon.) Mr. Stackley spent four decades in public service, including a 27-year career with the
U.S. Navy, where he most recently was Acting Secretary of the Navy from January 2017 to
July 2017 and Secretary of the Navy for Research, Development and Acquisition from 2008
to 2017.
Todd A. Taylor, 48
...... Vice President, Principal Accounting Officer since May 2015. Vice President from April
Edward J. Zoiss, 56
2015 to May 2015. Formerly with Molex, Inc., as Vice President, Chief Accounting Officer
and Corporate Controller from September 2012 to April 2015; as Director of Finance and
Corporate Controller from September 2010 to September 2012; and as Director of
Accounting from June 2008 to September 2010; Before joining Molex, Mr. Taylor worked
for PricewaterhouseCoopers as Internal Audit Advisory Director from March 2003 to June
2008.
...... President, Space and Airborne Systems since June 29, 2019. President, Electronic Systems
from July 2015 to June 2019. Vice President and General Manager, Defense Programs,
Government Communications Systems from June 2013 to July 2015. Vice President, C4ISR
Electronics, Government Communications Systems from June 2012 to June 2013; Vice
President, Advanced Programs and Technology, Government Communications Systems
from July 2010 to June 2012. Mr. Zoiss joined L3Harris in 1995.
There is no family relationship between any of our executive officers or directors. There are no arrangements or
understandings between any of our executive officers or directors and any other person pursuant to which any of them was
appointed or elected as an officer or director, other than arrangements or understandings with our directors or officers acting
solely in their capacities as such. All of our executive officers are elected annually and serve at the pleasure of our Board of
Directors.
29
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock, par value $1.00 per share, is listed and traded on the NYSE, under the ticker symbol “LHX.” According
to the records of our transfer agent, as of February 26, 2021, there were 10,935 holders of record of our common stock.
Dividends
We paid per share cash dividends on our common stock of $.85 each quarterly period of fiscal 2020, $.75 each quarterly
period of the two quarters ended January 3, 2020, $.685 each quarterly period of fiscal 2019 and $.57 each quarterly period of
fiscal 2018. On January 28, 2021, we announced that our Board of Directors increased the quarterly per share cash dividend rate
on our common stock from $.85 to $1.02, commencing with the dividend declared by our Board of Directors for the first quarter
of fiscal 2021, for an annualized per share cash dividend rate of $4.08, which was our twentieth consecutive annual increase in
our quarterly cash dividend rate. Our annualized per share cash dividend rate was $3.40 in fiscal 2020, $3.00 in the two quarters
ended January 3, 2020, and $2.74 and $2.28 in fiscal 2019 and 2018, respectively. Quarterly cash dividends are typically paid in
March, June, September and December. We currently expect that cash dividends will continue to be paid in the near future, but
we can give no assurances concerning payment of future dividends or future dividend increases. The declaration of dividends and
the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results
of operations, future business prospects and other factors our Board of Directors may deem relevant.
L3Harris Stock Performance Graph
The following performance graph and table do not constitute soliciting material and the performance graph and table
should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or
the Exchange Act, except to the extent that we specifically incorporate the performance graph and table by reference therein.
The performance graph and table below compare the 4-year fiscal period ended June 28, 2019, the Fiscal Transition Period
and fiscal 2020 cumulative total shareholder return of our common stock (the common stock of Harris Corporation prior to the
L3Harris Merger and the common stock of L3Harris Technologies, Inc. after the L3Harris Merger) with the comparable
cumulative total returns of the Standard & Poor’s 500 Composite Stock Index (“S&P 500”) and the Standard & Poor’s 500
Aerospace & Defense Index (“S&P 500 Aerospace & Defense”). The figures in the performance graph and table below assume an
initial investment of $100 at the close of business on July 3, 2015 in L3Harris common stock, the S&P 500 and the S&P 500
Aerospace & Defense and the reinvestment of all dividends.
30
COMPARISON OF FOUR FISCAL-YEAR (PRIOR TO L3HARRIS MERGER), FISCAL TRANSITION PERIOD
AND FISCAL 2020 (AFTER L3HARRIS MERGER) CUMULATIVE TOTAL RETURN AMONG L3HARRIS, S&P 500
AND S&P 500 AEROSPACE & DEFENSE
$400
$350
$300
$250
$200
$150
$100
$50
July 3,
2015
July 1,
2016
June 30,
2017
June 29,
2018
June 28,
2019
January 3,
2020
January 1,
2021
L3Harris
S&P 500
S&P 500 Aerospace & Defense
L3HARRIS PERIOD END
July 3,
2015
July 1,
2016
June 30,
2017
June 29,
2018
June 28,
2019
January 3,
2020
January 1,
2021
L3Harris Technologies, Inc.
S&P 500
$
$
S&P 500 Aerospace & Defense $
100 $
100 $
100 $
109 $
104 $
112 $
147 $
122 $
144 $
198 $
139 $
181 $
263 $
154 $
200 $
295 $
171 $
219 $
270
202
177
Recent Sales of Unregistered Securities
During fiscal 2020, we did not issue or sell any unregistered securities.
31
Issuer Purchases of Equity Securities
As discussed in more detail in Note 28: Subsequent Events in the Notes, on January 28, 2021, we announced that our Board
of Directors approved a new $6 billion share repurchase authorization under our repurchase program that was in addition to the
remaining unused authorization of $210 million remaining as of January 1, 2021, for a total unused authorization of $6.2 billion.
We have announced that we currently expect to repurchase up to $2.3 billion in shares under our repurchase program in fiscal
2021, exclusive of any proceeds from divestitures we may complete, but we can give no assurances regarding the level and timing
of share repurchases.
During fiscal 2020, we repurchased 12.0 million shares of our common stock under our share repurchase program for $2.3
billion at an average share price of $191.40, excluding commissions of $.02 per share. During the two quarters ended January 3,
2020, we repurchased 7.4 million shares of our common stock under our repurchase program for $1.5 billion at an average share
price of $203.90, excluding commissions of $.02 per share. 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 and management may deem relevant. The timing, volume and nature of repurchases are
subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or
discontinued at any time. Shares repurchased by us are cancelled and retired. The following table sets forth information with
respect to repurchases by us of our common stock during the fiscal quarter ended January 1, 2021:
Period*
Month No. 1
(October 3, 2020-October 30, 2020)
Repurchase program(1)
Employee transactions(2)
Month No. 2
(October 31, 2020-November 27, 2020)
Repurchase program(1)
Employee transactions(2)
Month No. 3
(November 28, 2020-January 1, 2021)
Repurchase program(1)
Employee transactions(2)
Total
Total number of
shares purchased
as part of publicly
announced plans
or programs
(1)
Maximum
approximate
dollar value
of shares that may
yet be purchased
under the plans
(1)
or programs
Total number of
shares purchased
Average price
paid per share
— $
5,652 $
—
170.67
—
—
$650,336,263
—
1,155,755 $
3,289 $
192.17
176.29
1,155,755
—
$428,238,336
—
1,138,598 $
3,051 $
2,306,345
191.34
189.62
1,138,598
—
2,294,353
$210,383,051
—
$210,383,051
_______________
* Periods represent our fiscal months.
(1) On July 1, 2019, we announced that our Board of Directors approved a new share repurchase program with a $4 billion share repurchase authorization
replacing our prior share repurchase programs. Our repurchase program does not have an expiration date and authorizes us to repurchase shares of our
common stock through open market purchases, private transactions, transactions structured through investment banking institutions or any combination
thereof. As of January 1, 2021, the remaining unused authorization under our repurchase program was $210 million (as reflected in the table above).
(2) Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance units,
restricted units or restricted shares that vested during the quarter and (b) performance units, restricted units or restricted shares returned to us upon retirement
or employment termination of employees. Our equity incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to
cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs.
The information required by this Item with respect to securities authorized for issuance under our equity compensation plans
is included in “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of
this Report. See Note 16: Stock Options and Other Share-Based Compensation in the Notes for a general description of our share-
based incentive plans.
ITEM 6.
[RESERVED.]
32
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 January 1, 2021 compared with the four quarters ended January 3,
2020 and the two quarters ended January 3, 2020 compared with two quarters ended December 28, 2018. For a discussion of our
results for fiscal 2019 compared with fiscal 2018, see “Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations” included in our Transition Report on Form 10-KT for the Fiscal Transition Period. 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 2020
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, contractual obligations, off-balance sheet
arrangements, 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.
COVID
The ongoing COVID pandemic and attempts to contain and reduce the spread of the virus, such as mandatory closures,
“shelter-in-place” orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on the U.S.
and global economies, such as impacts to supply chains, customer demand, international trade and capital markets. Our response
has involved increasing our focus on keeping our employees safe while striving to maintain continuity of operations, meet
customer commitments and support suppliers. For example, we instituted work-from-home (for employees who are able to work
remotely) and social distancing arrangements; canceled travel and external events; procured personal protective equipment for
employees; implemented health screening procedures at all facilities; staggered work shifts, redesigned work stations,
implemented stringent cleaning protocols and initiated more detailed safety precautions and protocols for on-site work, such as
daily health assessments and mandatory face coverings, which currently remain in effect. We have also maintained an active
dialog with key suppliers and developed plans to mitigate supply chain risks. We have allowed certain essential business travel to
resume, and we continue to expect to utilize a phased approach based on local conditions for transitioning employees from work-
from-home arrangements to on-site work. The U.S. Government response to COVID has included identifying the defense
industrial base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the defense industrial base, such as by
increasing progress payments and accelerating contract awards. As a part of the defense industrial base, these actions have
enabled us to keep our U.S. production facilities largely operational in support of national security commitments to U.S.
Government customers and to accelerate payments to small business suppliers, which we expect to continue while the U.S.
Government’s responsive actions remain in effect.
Although we believe that the large percentage of our revenue, earnings and cash flow that is derived from sales to the U.S.
Government, whether directly or through prime contractors, will be relatively predictable, in part due to the responsive actions
33
taken by the U.S. Government described above, our commercial, international and public safety businesses are at a higher risk of
adverse impacts related to COVID. For example, the severe decline in global air traffic from travel restrictions and the resulting
downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight
training, flight simulators and commercial avionics products in our Aviation Systems segment. As a result, we temporarily, and in
some circumstances permanently, closed or will soon close some of our flight training facilities, initiated restructuring and other
actions to align our resources with the outlook for the commercial aviation market (including workforce reduction and facility
consolidation) and have recognized $767 million of charges for impairment of goodwill and other assets and other COVID-related
impacts in fiscal 2020.
The extent of these disruptions and impacts, including on our ability to perform under U.S. Government contracts and other
contracts within agreed timeframes and ultimately on our results of operations and cash flows, will depend on future
developments, including the severity and duration of the pandemic and associated containment and mitigation actions taken by the
U.S. Government, state and local government officials and international governments, and consequences thereof, and global air
traffic demand and governmental subsidies to airlines, all of which are uncertain and unpredictable.
The impact of COVID may also exacerbate other risks discussed in Part I, “Item 1A. Risk Factors” in this Report, any of
which could have a material effect on us. We continue to work with our customers, employees, suppliers, subcontractors,
distributors, resellers and communities to address the impact of the pandemic. We continue to assess possible implications to our
business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. For further information
regarding the impact, and the risks of the impact, of COVID on the Company, see Part I, “Item 1A. Risk Factors” in this Report.
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 January 1, 2021, we had approximately 48,000 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 we
report the financial results of our continuing operations in the following four reportable segments, which are also 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 and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence
and cyber defense; mission avionics; and electronic warfare;
Communication Systems, including tactical communications; broadband communications; integrated vision
solutions; and public safety; and
Aviation Systems, including defense aviation; commercial aviation products; commercial and military pilot
training; and mission networks for air traffic management.
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 and 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.
34
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in the Notes, during the Fiscal
Transition Period and fiscal 2020, we completed the following business divestitures (which had the revenue attributable to them
as set forth below):
(In millions)
Revenue attributable to divested businesses(1):
Harris Night Vision business(2)
Airport security and automation business(3)
Applied Kilovolts and Analytical Instrumentation business(4)
EOTech business(5)
Total
Fiscal Year Ended
January 1, 2021
As Reported
Four Quarters
Ended
January 3, 2020
Pro Forma(6)
$
$
—
147
7
48
202
$
$
23
495
16
52
586
______________
(1) Net of intracompany sales.
(2) Divested on September 13, 2019, the results of which are included in “Other non-reportable business segments” through the date of divestiture.
(3) Divested on May 4, 2020, the results of which are reported as part of our Aviation Systems segment through the date of divestiture.
(4) Divested on May 15, 2020, the results of which are reported as part of our Space and Airborne Systems segment through the date of divestiture.
(5) Divested on July 31, 2020, the results of which are reported as part of our Communication Systems segment through the date of divestiture.
(6) For information regarding the basis for the presentation of this supplemental unaudited pro forma combined income statement information, see the
discussion in “Business Considerations — Value Drivers” below in this MD&A.
See Note 25: 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: Restructuring and Other Exit Costs and Note 5: Business Combination in the Notes,
we recorded the following charges at our corporate headquarters in connection with the L3Harris Merger.
(In millions)
Equity award acceleration charges, recognized upon
change in control
Transaction costs, recognized as incurred
Additional cost of sales related to the fair value step-up
in inventory sold
Restructuring charges
Facility consolidation costs
Integration costs, recognized as incurred
Total L3Harris Merger-related charges
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
Two Quarters
Ended
Fiscal Year
Ended
January 3,
2020
June 28, 2019
As Reported
As Reported
(Unaudited)
Pro Forma
As Reported
$
$
—
—
31
10
—
130
171
$
$
70 $
105
142
117
48
102
584 $
70 $
83
142
117
48
132
592 $
70 $
83
142
117
48
72
532 $
—
31
—
—
—
34
65
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, which is included in the “Cost of product sales and services” line item in our Consolidated Statement of Income
and facility consolidation costs, the majority of which is included in the “Impairment of goodwill and other assets” line item in
our Consolidated Statement of Income.
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.
Value Drivers of Our Business
During fiscal 2020, 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 to our
35
commercial aviation and public safety businesses, we met customer commitments, delivered organic revenue growth in our core
U.S. Government and international businesses on a pro forma (as defined below in this MD&A) basis, advanced the integration
and made progress on portfolio shaping, while increasing our focus on keeping our employees safe.
We received several key strategic contract awards in fiscal 2020, establishing us as a mission solutions prime contractor
with our responsive satellites and unmanned surface vehicles and within missile defense, as well as highlighting our technology
and solutions for the contested environments our customers will need to compete and operate in in the future. We also invested
$684 million (4 percent of total revenue) in company-sponsored R&D focused on technologies that expand our capabilities in the
following areas:
Open systems architecture;
•
• Multi-function system capabilities; and
•
Software-defined solutions.
We also made progress during the fiscal year reshaping our portfolio to focus on technology-differentiated businesses,
completing three divestitures, and used the proceeds along with our net cash provided by operating activities to repurchase shares
of our common stock. In addition, we refinanced debt and expanded our future financial flexibility.
We plan to build on our fiscal 2020 momentum, and together with broad programs support across key areas in the DoD
budget, expected international growth and 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 2021 and thereafter, which include the
following:
•
•
•
Growing revenue through investments in R&D in high growth, high margin areas where technology is a key
differentiator to address our customers’ most critical challenges;
Executing seamless integration and achieving at least $320 million to $350 million in net cost synergies from the
L3Harris Merger by the end of 2021;
Driving flawless execution and margin expansion through our e3 (excellence, everywhere, every day) operational
excellence program;
Reshaping our business portfolio to focus on high margin, high growth businesses; and
•
• Maximizing cash flow with shareholder friendly capital deployment.
During fiscal 2020, we returned to our shareholders $725 million through dividends and $2,290 million through share
repurchases. On January 28, 2021, we announced that our Board of Directors approved a 20 percent increase in the quarterly per
share cash dividend rate on our common stock to $1.02, commencing with the dividend to be declared for the first quarter of
2021, for an annualized per share rate of $4.08, as well as a new $6 billion share repurchase authorization under our repurchase
program that was in addition to the remaining unused authorization of $210 million, for a total unused authorization of $6.2
billion. In fiscal 2021, we believe revenue growth across our business segments and margin expansion will improve our operating
cash flow, which we expect to use for investments in technology and innovation, dividends and share repurchases.
Beyond fiscal 2020, we expect three main building blocks will support growth over the next three to five years, although we
can give no assurances on this subject. First, we have a portfolio that is well aligned with national security priorities for threats
identified in the National Defense Strategy. We have realigned 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 technology. Second, we uniquely
benefit from the revenue synergy opportunities created by the L3Harris Merger expanding our addressable market. 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.
Because of the L3Harris Merger, fiscal 2020 reflects the results of the combined Company, while the four quarters ended
January 3, 2020 reflect the results of only Harris operating businesses for the two quarters ended June 28, 2019 and the results of
the combined Company for the two quarters ended January 3, 2020. Due to the significance of the L3 operating businesses
included in the combined Company results following the L3Harris Merger, the reported results for fiscal 2020 and four quarters
36
ended January 3, 2020 generally are not comparable. Therefore, to assist with a discussion of the consolidated results of
operations for fiscal 2020 and four quarters ended January 3, 2020 on a more comparable basis, certain supplemental unaudited
pro forma combined income statement information prepared in accordance with the requirements of Article 11 of Regulation S-X
(referred to in this MD&A as “pro forma”) also is provided (see “Supplemental Unaudited Pro Forma Condensed Combined
Income Statement Information” below in this MD&A).
Fiscal 2020 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:
Consolidated — as reported
•
•
•
•
•
Revenue increased 42 percent to $18.2 billion in fiscal 2020 from $12.9 billion in the four quarters ended January
3, 2020 primarily due to the inclusion of $5.5 billion of revenue (net of intercompany sales eliminations) from L3
operations in operating results for the two quarters ended July 3, 2020 (but not for the comparable prior-year two
quarters preceding the L3Harris Merger);
Income from continuing operations attributable to L3Harris common shareholders decreased 16 percent to $1,121
million in fiscal 2020 from $1,335 million in the four quarters ended January 3, 2020, primarily due to the
combined effects of the reasons discussed below on an as reported basis, particularly the non-cash charges for
impairment 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
decreased to 6 percent in fiscal 2020 from 10 percent in the four quarters ended January 3, 2020;
Income from continuing operations per diluted common share attributable to L3Harris common shareholders
decreased 34 percent to $5.19 in fiscal 2020 from $7.90 in the four quarters ended January 3, 2020, reflecting the
decrease in income from continuing operations as noted above and higher weighted average diluted common
shares outstanding due to 104 million shares issued in connection with the L3Harris Merger on June 29, 2019,
partially offset by share repurchases during fiscal 2020; and
Total backlog increased 5 percent to $21.7 billion at January 1, 2021 from $20.6 billion at January 3, 2020.
Backlog at January 3, 2020 included $405 million associated with businesses divested in fiscal 2020, including
$380 million of backlog associated with the airport security and automation business divested during the quarter
ended July 3, 2020.
Consolidated — pro forma
•
•
•
•
•
Revenue increased 1 percent to $18.2 billion in fiscal 2020 from $18.1 billion in the four quarters ended January 3,
2020 primarily due to growth in core U.S. and international businesses, mostly offset by divestitures and COVID-
related impacts to our commercial aviation and public safety businesses;
Income from continuing operations attributable to L3Harris common shareholders decreased 31 percent to $1,121
million in fiscal 2020 from $1,628 million in the four quarters ended January 3, 2020, primarily due to the
combined effects of the reasons discussed below on a pro forma basis, particularly the non-cash charges for
impairment 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
decreased to 6 percent in fiscal 2020 from 9 percent in the four quarters ended January 3, 2020;
Income from continuing operations per diluted common share attributable to L3Harris common shareholders
decreased 28 percent to $5.19 in fiscal 2020 from $7.25 in the four quarters ended January 3, 2020, reflecting the
decrease in income from continuing operations as noted above, partially offset by fewer weighted average diluted
common shares outstanding due to repurchases of shares of common stock under our repurchase program during
fiscal 2020; and
Total backlog increased 5 percent to $21.7 billion at January 1, 2021 from $20.6 billion at January 3, 2020.
Backlog at January 3, 2020 included $405 million associated with businesses divested in fiscal 2020, including
$380 million of backlog associated with the airport security and automation business divested during the quarter
ended July 3, 2020.
Refer to MD&A heading “Operations Review” below in this Report for more information.
Fiscal 2020 Liquidity and Capital Resources Key Indicators: Net cash provided by operating activities, return on invested
capital, return on average equity and our consolidated total indebtedness to total capital ratio also represent key measurements of
our value drivers:
37
•
•
•
•
Net cash provided by operating activities increased to $2,790 million in fiscal 2020 from $1,655 million in the four
quarters ended January 3, 2020 reflecting the inclusion of cash flows from L3 operations following the L3Harris
Merger;
Return on invested capital decreased to 4 percent in fiscal 2020 from 7 percent in the four quarters ended January
3, 2020;
Return on average equity decreased to 5 percent in fiscal 2020 from 10 percent in the four quarters ended January
3, 2020; and
Our consolidated total indebtedness to total capital ratio at January 1, 2021 was 25 percent, compared with our 65
percent covenant limitation under our senior unsecured revolving credit facility.
Refer to MD&A heading “Liquidity, Capital Resources and Financial Strategies” below in this Report for more information
on net cash provided by (used in) operating, investing and financing activities.
We also measure the success of our business using certain measures that are not defined by GAAP, such as adjusted
earnings before interest and taxes, adjusted earnings per share and adjusted free cash flow, which may be calculated differently by
other companies. We use these measures, along with our key indicators above, to assess the success of our business and our
ability to create shareholder value. We also use some of these and other performance metrics for executive compensation
purposes.
Industry-Wide Opportunities, Challenges and Risks
Department of Defense and Other U.S. Federal Markets: 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 78 percent, 73
percent, 77 percent and 75 percent in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively.
Defense spending has been constrained by discretionary spending caps since the 2011 Budget Control Act. To appropriate
funding exceeding the caps, Congress has passed a series of two-year budget deals to raise the caps on both discretionary defense
and non-defense spending. The latest two-year agreement was signed into law on August 2, 2019 by the President. The Bipartisan
Budget Act of 2019 (“BBA 2019”) raised the discretionary defense caps for government fiscal year (“GFY”) 2020 and GFY 2021
to $738 billion ($667 billion in defense base funding and $71 billion for Overseas Contingency Operations (“OCO”) funding) and
$741 billion ($672 billion in defense base funding and $69 billion for OCO funding), respectively (U.S. Government fiscal years
begin October 1 and end September 30). This represented a 3% increase from GFY 2019 funding levels and builds on sustained
funding increases Congress also provided in GFY 2017 and GFY 2018. The BBA 2019 also temporarily suspended the statutory
debt ceiling through July 31, 2021.
On December 27, 2020, the President signed into law H.R.133, the Consolidated Appropriations Act, 2021. This bill
appropriates $635 billion in total DoD base funding and $69 billion in OCO funding. It also appropriates $28 billion for the
Department of Energy national security mission and $9 billion for other defense related activities, in line with the budget request
and consistent with the total national defense budget cap of $741 billion for GFY 2021 established in BBA 2019. In 2020 there
were several COVID-related measures passed by Congress and enacted into law, totaling approximately $3.5 trillion in funding.
We expect Congress and the new administration to consider additional COVID legislation in early 2021, which could drive
increased scrutiny of discretionary spending. However, although we anticipate debate will continue within the U.S. Government
over defense spending for future years (which may have a significant impact on defense spending broadly and on our specific
programs), our programs have been well supported in recent years, and our major efforts are aligned to key DoD needs.
Government Oversight and Risk: As a U.S. Government contractor, we are subject to U.S. Government oversight. The U.S.
Government may investigate our business practices and audit our compliance with applicable rules and regulations. Depending on
the results of those investigations and audits, the U.S. Government could make claims against us. Under U.S. Government
procurement regulations and practices, an indictment or conviction of a government contractor could result in that contractor
being fined and/or suspended from being able to bid on, or from being awarded, new U.S. Government contracts for a period of
time determined by the U.S. Government. Similar government oversight exists in most other countries where we conduct
business.
For a discussion of risks relating to U.S. Government contracts and subcontracts, see “Item 1. Business — Principal
Customers; Government Contracts” and “Item 1A. Risk Factors” of this Report. We are also subject to other risks associated with
U.S. Government business, including technological uncertainties, dependence on annual appropriations and allotment of funds,
extensive regulations and other risks, which are discussed in “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this
Report.
State and Local: We also provide products to state and local government agencies that are committed to protecting our
homeland and public safety. The public safety market was highly competitive and dependent on state and local government
budgets during fiscal 2020. Fiscal 2020 revenue in our Public Safety business sector was adversely impacted by COVID-related
pressures on state and local government customers and we expect a continued decrease in Public Safety revenue in early fiscal
38
2021. Future market opportunities include upgrading aging analog infrastructure to new digital standards, as well as opportunities
associated with next-generation Long Term Evolution (“LTE”) solutions for high data-rate applications.
International: We believe there is continuing international demand from military and government customers for tactical
radios, electronic warfare equipment, products and systems for maritime platforms, air traffic management, release systems and
ISR. We believe we can leverage our domain expertise and proven technology provided in the U.S. to further expand our
international business.
We believe that our experience, technologies and capabilities are well aligned with the demand and requirements of the
markets noted above in this Report. However, we remain subject to the spending levels, pace and priorities of the U.S.
Government as well as international governments and commercial customers, and to general economic conditions that could
adversely affect us, our customers and our suppliers. We also remain subject to other risks associated with these markets,
including technological uncertainties, adoption of our new products and other risks that are discussed below in this Report under
“Forward-Looking Statements and Factors that May Affect Future Results” and in “Item 1A. Risk Factors” of this Report.
OPERATIONS REVIEW
Consolidated Results of Operations
(Dollars in millions, except per share amounts)
As Reported
As Reported
(Unaudited)
Pro Forma
Fiscal Year
Ended
January 1, 2021
January 3, 2020
Four Quarters Ended
%
Inc/(Dec)
January 3, 2020
%
Inc/(Dec)
Revenue:
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments
Corporate eliminations
Total revenue
Total cost of product sales and services
% of total revenue
Gross margin
% of total revenue
$
5,538
4,946
4,443
3,448
—
(181)
18,194
(12,886)
71 %
5,308
29 %
$
2,783
4,352
3,340
2,368
102
(89)
12,856
(9,088)
* $
14 %
33 %
*
*
*
5,360
4,689
4,278
3,917
23
(170)
42 %
18,097
3 %
5 %
4 %
(12) %
*
6 %
1 %
42 %
(12,907)
— %
71 %
71 %
3,768
41 %
5,190
2 %
29 %
29 %
Engineering, selling and administrative expenses
(3,315)
(2,540)
31 %
(3,588)
(8) %
% of total revenue
Business divestiture-related (losses) gains
Impairment of goodwill and other assets
Non-operating income
Net interest expense
Income from continuing operations before income taxes
Income taxes
Effective tax rate
Income from continuing operations
Noncontrolling interests, net of income taxes
Income from continuing operations attributable to
L3Harris common shareholders
% of total revenue
Income from continuing operations per diluted common
share attributable to L3Harris common shareholders
_________________
Not meaningful
*
18 %
(51)
(767)
401
(254)
1,322
(234)
18 %
1,088
33
20 %
229
(46)
286
(204)
1,493
(146)
10 %
1,347
(12)
*
*
40 %
25 %
(11) %
60 %
20 %
229
(46)
309
(253)
1,841
(189)
10 %
*
*
30 %
— %
(28) %
24 %
(19) %
1,652
(34) %
*
(24)
*
$
1,121
$
1,335
(16) % $
1,628
(31) %
6 %
10 %
9 %
$
5.19
$
7.90
(34) % $
7.25
(28) %
39
(Dollars in millions, except per share amounts)
As Reported
As Reported
(Unaudited)
Pro Forma
Two Quarters Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
December 28,
2018
%
Inc/(Dec)
Revenue:
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments
Corporate eliminations
Total revenue
Total cost of product sales and services
% of total revenue
Gross margin
% of total revenue
Engineering, selling and administrative expenses
% of total revenue
Business divestiture-related (losses) gains
Impairment of goodwill and other assets
Non-operating income
Net interest expense
Income from continuing operations before income taxes
Income taxes
Effective tax rate
Income from continuing operations
Noncontrolling interests, net of income taxes
Income from continuing operations attributable to
L3Harris common shareholders
% of total revenue
Income from continuing operations per diluted common
share attributable to L3Harris common shareholders
_________________
Not meaningful
*
$
$
$
2,758
2,377
2,151
2,038
23
(84)
9,263
(6,726)
73 %
2,537
27 %
(1,881)
20 %
229
(46)
192
(123)
908
(73)
8 %
835
(12)
823
$
9 %
$
28
1,736
1,018
342
86
(2)
3,208
(2,105)
* $
37 %
111 %
*
(73) %
*
189 %
220 %
2,497
2,059
1,949
1,970
12
(83)
8,404
(5,939)
10 %
15 %
10 %
3 %
92 %
1 %
10 %
13 %
66 %
71 %
1,103
130 %
2,465
3 %
34 %
29 %
(583)
223 %
(1,598)
18 %
18 %
—
—
94
(86)
528
(87)
16 %
441
—
441
14 %
*
*
104 %
43 %
72 %
(16) %
89 %
*
19 %
(6)
—
122
(143)
840
(80)
10 %
760
(12)
87 % $
748
9 %
*
*
57 %
(14) %
8 %
(9) %
10 %
— %
10 %
3.68
$
3.66
1 % $
3.27
13 %
40
(Dollars in millions, except per share amounts)
Revenue:
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments
Corporate eliminations
Total revenue
Total cost of product sales and services
% of total revenue
Gross margin
% of total revenue
Engineering, selling and administrative expenses
% of total revenue
Non-operating income
Net interest expense
Income from continuing operations before income taxes
Income taxes
Effective tax rate
Income from continuing operations attributable to L3Harris common shareholders
% of total revenue
Income from continuing operations per diluted common share attributable to
L3Harris common shareholders
Revenue
Fiscal Years Ended
June 28, 2019
June 29, 2018
%
Inc/(Dec)
$
$
$
$
52
3,711
2,208
672
165
(7)
6,801
(4,467)
66 %
2,334
34 %
55
3,294
2,015
668
148
(12)
6,168
(4,066)
(5) %
13 %
10 %
1 %
11 %
(42) %
10 %
10 %
66 %
2,102
11 %
34 %
(1,242)
(1,182)
5 %
18 %
188
(167)
1,113
(160)
14 %
953
14 %
$
19 %
156
(168)
908
(206)
23 %
702
11 %
21 %
(1) %
23 %
(22) %
36 %
7.89
$
5.78
37 %
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in revenue in
fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to the inclusion of $5.5 billion of revenue
(net of intercompany sales eliminations) from L3 operations in operating results for the two quarters ended July 3, 2020 (but not
for the comparable prior-year two quarters preceding the L3Harris Merger) and organic revenue growth in our Space and
Airborne Systems, Integrated Mission Systems and Communication Systems, partially offset by the impact of divestitures and the
COVID-related downturn in the commercial aviation market and its impact on customer operations in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in revenue in
the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to the
inclusion of $5.7 billion of revenue (net of intercompany sales eliminations) from L3 operations in operating results for the two
quarters ended January 3, 2020 and organic revenue growth in all four segments.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Gross Margin
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Gross margin increased in
fiscal 2020 compared with the four quarters ended January 3, 2020 primarily due to the inclusion of L3 operations in operating
results for the two quarters ended July 3, 2020 (but not for the comparable prior-year two quarters preceding the L3Harris
Merger). Gross margin as a percentage of revenue (“gross margin percentage”) for fiscal 2020 was comparable with the four
quarters ended January 3, 2020 reflecting integration benefits and operational excellence, and $111 million of lower cost of sales
related to the fair value step-up in inventory sold, offset by a mix of program revenue and product sales with relatively lower
gross margin percentage and $37 million of higher amortization of identifiable intangible assets acquired as a result of the
L3Harris Merger.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Gross margin increased in
the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 primarily due to the inclusion
of L3 operations in operating results for the two quarters ended January 3, 2020. The decrease in gross margin percentage for the
41
two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to a mix of
program revenue and product sales with relatively lower gross margin, $142 million of additional cost of sales related to the fair
value step-up in inventory sold and $42 million of amortization of identifiable intangible assets acquired as a result of the
L3Harris Merger in the two quarters ended January 3, 2020.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Engineering, Selling and Administrative Expenses
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in engineering,
selling and administrative (“ESA”) expenses in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily
due to the inclusion of L3 operations in operating results (but not for the comparable prior-year two quarters preceding the
L3Harris Merger), $333 million of higher amortization of identifiable intangible assets acquired as a result of the L3Harris
Merger, $16 million of COVID-related restructuring expenses and other costs and $13 million of higher divestiture-related
expenses, partially offset by $254 million of lower L3Harris Merger-related transaction, integration and restructuring expenses
and a $22 million gain on sale of property, plant and equipment.
The decrease in ESA expenses as a percentage of revenue (“ESA percentage”) in fiscal 2020 compared with the four
quarters ended January 3, 2020 was primarily driven by cost management, operational excellence, integration benefits, as well as
lower L3Harris Merger-related transaction, integration and restructuring expenses and a gain on sale of property, plant and
equipment, partially offset by higher amortization of identifiable intangible assets acquired as a result of the L3Harris Merger,
COVID-related restructuring expenses and other items, and divestiture-related expenses, as discussed above.
Overall Company-sponsored R&D costs were $684 million in fiscal 2020 compared with $504 million in the four quarters
ended January 3, 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in ESA
expenses and ESA percentage in the two quarters ended January 3, 2020 compared with the two quarters ended December 28,
2018 was primarily due to the inclusion of L3 operations in operating results, as well as $344 million of L3Harris Merger-related
transaction, integration and restructuring expenses and $197 million of amortization of identifiable intangible assets acquired as a
result of the L3Harris Merger in the two quarters ended January 3, 2020. ESA expenses for the two quarters ended January 3,
2020 also included a $12 million gain on sale of a product line, offset by a $10 million non-cash cumulative adjustment to lease
expense.
Overall Company-sponsored R&D costs were $329 million in the two quarters ended January 3, 2020 compared with $144
million in the two quarters ended December 28, 2018.
See the “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.
Business Divestiture-Related (Losses) Gains
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Business divestiture-related
(losses) gains for fiscal 2020 included a $23 million pre-tax loss on the sale of the airport security and automation business
divestiture, an $18 million non-cash remeasurement loss on a potential divestiture, a $12 million non-cash adjustment to the gain
on the sale of the Harris Night Vision business, partially offset by a $2 million pre-tax gain on the sale of the EOTech business.
The business divestiture-related gain for the four quarters ended January 3, 2020 was a $229 million pre-tax gain on the sale of the
Harris Night Vision business.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The business divestiture-
related gain for the two quarters ended January 3, 2020 was the same item as noted above for the four quarters ended January 3,
2020.
See Note 3: Business Divestitures and Asset Sales in the Notes for further information.
Impairment of Goodwill and Other Assets
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Impairment of goodwill and
other assets for fiscal 2020 reflects $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 the quarter ended July 3, 2020 in connection with a potential divestiture and a
$5 million non-cash charge for impairment of goodwill recorded in the quarter ended April 3, 2020 in connection with the then-
pending divestiture of our Applied Kilovolts and Analytical Instrumentation business.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Impairment of goodwill
and other assets for the two quarters ended January 3, 2020 reflects a $46 million impairment of right-of-use assets associated
with L3Harris Merger-related facilities consolidation.
42
See Note 3: Business Divestitures and Asset Sales, Note 4: Restructuring and Other Exit Costs and Note 10: Goodwill in the
Notes for further information.
Non-Operating Income
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in non-operating
income in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to an increase in the non-service
cost components of pension and other postretirement benefit plan income, reflecting the inclusion of income from benefit plans
assumed in connection with the L3Harris Merger.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in non-
operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was
primarily due to an increase in the non-service cost components of pension and other postretirement benefit plan income,
including a $23 million gain on a pension plan curtailment, reflecting the inclusion in pension and other postretirement benefit
plan income of benefit plans assumed in connection with the L3Harris Merger.
See Note 21: Non-Operating Income in the Notes for further information.
Net Interest Expense
Fiscal Year Ended January 1, 2021 Compared With Four quarters ended January 3, 2020: Our net interest expense
increased in fiscal 2020 compared with the four quarters ended January 3, 2020 primarily due to higher average debt levels as a
result of the assumption of $3.5 billion of debt in connection with the L3Harris Merger.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in net
interest expense in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018 was due to
the same reason as noted above for fiscal 2020 compared with the four quarters ended January 3, 2020.
See Note 14: Debt in the Notes for further information.
Income Taxes
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Our effective tax rate (income
taxes as a percentage of income from continuing operations before income taxes) was 18 percent in fiscal 2020 compared with 10
percent in the four quarters ended January 3, 2020. During fiscal 2020, we benefited from the favorable impact of:
•
•
•
•
Favorable adjustments upon the finalization of our Federal tax returns, primarily due to recently released tax
regulations and the resolution of audit uncertainties;
Favorable impact of R&D credits; and
Excess tax benefits related to equity-based compensation; partially offset by
Unfavorable impact of non-deductible goodwill impairment charges.
In the four quarters ended January 3, 2020, our effective tax rate benefited from the net favorable impact of:
•
•
•
•
•
Excess tax benefits related to equity-based compensation;
The ability to utilize capital loss carryforwards with a full valuation allowance against capital gains generated from
the Harris Night Vision business divestiture;
The release of reserves for uncertain tax positions due to statute of limitations expirations;
Additional research credits claimed on our prior year tax returns; and
Favorable adjustments recorded upon the filing of our Federal tax returns.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Our effective tax rate was
8 percent in the two quarters ended January 3, 2020 compared with 16 percent in the two quarters ended December 28, 2018. In
the two quarters ended January 3, 2020, our effective tax rate benefited from the favorable impact of:
• Excess tax benefits related to equity-based compensation;
• The ability to utilize capital loss carryforwards with a full valuation allowance against capital gains generated from
the Harris Night Vision business divestiture; and
• The release of reserves for uncertain tax positions due to statute of limitations expirations.
In the two quarters ended December 28, 2018, our effective tax rate benefited from the net favorable impact of:
• A reduction in the deferred tax liability maintained on the basis differences related to the unremitted foreign
earnings;
• The favorable impact of excess tax benefits related to equity-based compensation; and
• An increase in the R&D credit; partially offset by
43
• An unfavorable impact of the differences in U.S. generally accepted accounting principles (“GAAP”) and tax
accounting related to investments.
See Note 23: Income Taxes in the Notes for further information.
Income From Continuing Operations
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in income from
continuing operations in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to the combined
effects of the reasons noted above regarding the fiscal year ended January 1, 2021 and four quarters ended January 3, 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in income
from continuing operations in the two quarters ended January 3, 2020 compared with the two quarters ended December 28, 2018
was primarily due to the combined effects of the reasons noted above regarding the two quarters ended January 3, 2020 and two
quarters ended December 28, 2018.
Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in income from
continuing operations per diluted common share attributable to L3Harris common shareholders in fiscal 2020 compared with the
four quarters ended January 3, 2020 was primarily due to the combined effects of the reasons noted above regarding the fiscal
year ended January 1, 2021 and four quarters ended January 3, 2020, particularly the non-cash charges for impairment of goodwill
and other assets and other COVID-related impacts in our Commercial Aviation Solutions reporting unit associated with the
downturn in the commercial aviation market and its impact on customer operations, the absence of a prior-year benefit from the
gain on the sale of the Harris Night Vision business and divestitures in fiscal 2020, as well as higher diluted weighted average
common shares outstanding as a result of 104 million shares issued in connection with the L3Harris Merger, partially offset by
share repurchases during fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in income
from continuing operations per diluted common share attributable to L3Harris common shareholders in the two quarters ended
January 3, 2020 compared with the two quarters ended December 28, 2018 was primarily due to higher income from continuing
operations, as discussed above, partially offset by higher diluted weighted average common shares outstanding as a result of 104
million shares issued in connection with the L3Harris Merger, partially offset by share repurchases during fiscal 2020.
See the “Common Stock Repurchases” discussion below in this MD&A for further information.
Pro Forma Basis Discussion for Fiscal Year Ended January 1, 2021 Compared With the Four Quarters Ended January 3,
2020
Revenue
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in revenue for
fiscal 2020 compared with pro forma revenue for the four quarters ended January 3, 2020 was primarily due to growth in core
U.S. and international businesses, excluding commercial aviation and public safety markets, which more than offset the COVID-
related decline. Revenue growth was driven by $257 million of higher revenue in our Space and Airborne Systems segment, $178
million of higher revenue in our Integrated Mission Systems segment and $165 million of higher revenue in our Communication
Systems segment, partially offset by a decline in our Aviation Systems segment, due to the divestiture of the airport security and
automation business and COVID-related impacts.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in revenue
for the two quarters ended January 3, 2020 compared with pro forma revenue for the two quarters ended December 28, 2018 was
primarily due to $321 million higher revenue in our Space and Airborne Systems segment, from a ramp in modernization of the
F-35 platform in Mission Avionics, increased production of electronic warfare systems for F/A-18 and B-52 aircraft in Electronic
Warfare and growth in ground-based adjacencies and exquisite systems in classified areas; $257 million higher revenue in our
Integrated Mission Systems segment, driven by growth in all three business sectors: ISR, Electro Optical and Maritime; $202
million higher revenue in our Communication Systems segment, from a ramp in DoD modernization programs in Tactical
Communications and Integrated Vision Solutions as well as increased demand with state and federal customers in Public Safety;
and higher revenue in our Aviation Systems segment, reflecting organic growth from precision engagement sensors and systems,
partially offset by the prior period competitive loss of the USAF C-17 training contract.
44
Gross Margin
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in gross margin
and comparability of gross margin percentage for fiscal 2020 compared with pro forma gross margin and gross margin percentage
for the four quarters ended January 3, 2020 reflects integration benefits, higher volume, operational excellence and $111 million
of lower cost of sales related to the fair value step-up in inventory sold in the L3Harris Merger, partially offset by a mix of
program revenue and product sales with relatively lower gross margin percentage in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in gross
margin and decrease in gross margin percentage for the two quarters ended January 3, 2020 compared with pro forma gross
margin and gross margin percentage for the two quarters ended December 28, 2018 were primarily due to higher volume and
strong operational performance, partially offset by $142 million of additional cost of sales related to the fair value step-up in
inventory sold in the two quarters ended January 3, 2020.
Engineering, Selling and Administrative Expenses
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decreases in ESA expenses
and ESA percentage for fiscal 2020 compared with pro forma ESA expenses and ESA percentage for the four quarters ended
January 3, 2020 were primarily due to $262 million of lower L3Harris Merger-related transaction, integration and restructuring
expenses, a $22 million gain on sale of property, plant and equipment and integration savings, partially offset by $105 million of
higher amortization of identifiable intangible assets acquired as a result of the L3Harris Merger, $16 million of COVID-related
restructuring expenses and other costs and $13 million of higher divestiture-related expenses in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increases in ESA
expenses and ESA percentage for the two quarters ended January 3, 2020 compared with pro forma ESA expenses and ESA
percentage for the two quarters ended December 28, 2018 were primarily due to $344 million of L3Harris Merger-related
transaction, integration and restructuring expenses in the two quarters ended January 3, 2020, partially offset by integration
savings.
Business Divestiture-Related (Losses) Gains
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Business divestiture-related
(losses) gains for fiscal 2020 and the four quarters ended January 3, 2020 on a pro forma basis included the same items as noted
above for fiscal 2020 and the four quarters ended January 3, 2020 on an as reported basis.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Business divestiture-
related (losses) gains for the two quarters ended January 3, 2020 included the same items as noted above for the two quarters
ended January 3, 2020 and December 28, 2018 on an as reported basis.
See Note 3: Business Divestitures and Asset Sales in the Notes for further information.
Impairment of Goodwill and Other Assets
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Impairment of goodwill and
other assets for fiscal 2020 and the four quarters ended January 3, 2020 on a pro forma basis reflects the same charges as noted
above for fiscal 2020 and the four quarters ended January 3, 2020 on an as reported basis.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Impairment of goodwill
and other assets for the two quarters ended January 3, 2020 reflects the same charges as noted above for the two quarters ended
January 3, 2020 and December 28, 2018 on an as reported basis.
See Note 3: Business Divestitures and Asset Sales, Note 4: Restructuring and Other Exit Costs and Note 10: Goodwill in the
Notes for further information.
Non-Operating Income
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in non-operating
income for fiscal 2020 compared with pro forma non-operating income for the four quarters ended January 3, 2020 was primarily
due to an increase in the non-service cost components of pension and other postretirement benefit plan income, partially offset by
a $23 million gain on a pension plan curtailment in the four quarters ended January 3, 2020.
45
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in non-
operating income for the two quarters ended January 3, 2020 compared with pro forma non-operating income for the two quarters
ended December 28, 2018 was primarily due to an increase in the non-service cost components of pension and other
postretirement benefit plan income, including a $23 million gain on a pension plan curtailment, in the two quarters ended
January 3, 2020 and a $21 million debt extinguishment loss recognized by L3 in the two quarters ended December 28, 2018.
Net Interest Expense
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Net interest expense for fiscal
2020 was largely unchanged compared with pro forma net interest expense for the four quarters ended January 3, 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The decrease in net
interest expense for the two quarters ended January 3, 2020 compared with pro forma net interest expense for the two quarters
ended December 28, 2018 was primarily due to lower average debt levels as a result of the repayment at maturity of the entire
outstanding $300 million aggregate principal amount of our Floating Rate Notes due February 27, 2019. See Note 14: Debt in the
Notes for further information.
Income Taxes
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: Our effective tax rate was 18
percent in fiscal 2020 compared with a 10 percent pro forma effective tax rate for the four quarters ended January 3, 2020. Our
effective tax rate for fiscal 2020 was impacted by the same items as noted above for fiscal 2020 on an as reported basis.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: Our effective tax rate was
8 percent in the two quarters ended January 3, 2020 compared with a 10 percent pro forma effective tax rate for the two quarters
ended December 28, 2018. Our effective tax rate for the two quarters ended January 3, 2020 was impacted by the same items as
noted above for the two quarters ended January 3, 2020 on an as reported basis.
See “Supplemental Unaudited Pro Forma Condensed Combined Income Statement Information” below in this MD&A for
information regarding our pro forma effective tax rate for the four quarters ended January 3, 2020.
Income From Continuing Operations
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in income from
continuing operations for fiscal 2020 compared with pro forma income from continuing operations for the four quarters ended
January 3, 2020 was primarily due to the combined effects of the reasons noted above in this “Pro Forma” discussion regarding
the fiscal year ended January 1, 2021 and four quarters ended January 3, 2020, particularly the non-cash charges for impairment
of goodwill and other assets in our Commercial Aviation Solutions reporting unit associated with the COVID-related downturn in
the commercial aviation market and its impact on customer operations, the absence of a prior-year benefit from the gain on the
sale of the Harris Night Vision business, and divestitures in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in income
from continuing operations for the two quarters ended January 3, 2020 compared with pro forma income from continuing
operations for the two quarters ended December 28, 2018 was primarily due to the combined effects of the reasons noted above in
this “Pro Forma” discussion regarding the two quarters ended January 3, 2020 and two quarters ended December 28, 2018.
Income From Continuing Operations Per Diluted Common Share Attributable to L3Harris Common Shareholders
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in income from
continuing operations per diluted common share attributable to L3Harris common shareholders for fiscal 2020 compared with pro
forma income from continuing operations per diluted common share attributable to L3Harris common shareholders for the four
quarters ended January 3, 2020 was primarily due to lower income from continuing operations, as discussed above, partially offset
by a decrease in our diluted weighted average common shares outstanding from shares of our common stock repurchased under
our repurchase program during fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in income
from continuing operations per diluted common share attributable to L3Harris common shareholders for the two quarters ended
January 3, 2020 compared with pro forma income from continuing operations per diluted common share attributable to L3Harris
common shareholders for the two quarters ended December 28, 2018 was primarily due to higher income from continuing
operations, as discussed above, and the decrease in our diluted weighted average common shares outstanding from shares of our
common stock repurchased under our repurchase program during the two quarters ended January 3, 2020.
See the “Common Stock Repurchases” discussion below in this MD&A for further information.
46
Supplemental Unaudited Pro Forma Condensed Combined Income Statement Information
The following supplemental unaudited pro forma condensed combined income statement information prepared in
accordance with the requirements of Article 11 of Regulation S-X provides further information supporting the preparation of the
supplemental unaudited pro forma condensed combined financial information for the four quarters ended January 3, 2020
provided above in the “Consolidated Results of Operations” discussion in this MD&A and has been prepared to give effect to the
L3Harris Merger under the acquisition method of accounting. It combines the historical results of operations of Harris and L3 and
reflects the L3Harris Merger as if it closed on June 30, 2018, the first day of Harris’ fiscal 2019, and gives effect to pro forma
events that are (a) directly attributable to the L3Harris Merger, (b) factually supportable and (c) expected to have a continuing
impact on our results of operations. The adjustments include adjustments to reflect the sale of the Harris Night Vision business,
which is directly attributable to the L3Harris Merger, but do not include any adjustments for the use of proceeds from such sale,
because the use is not directly attributable to the L3Harris Merger. The pro forma condensed combined income statement
information is provided for informational and supplemental purposes only, and does not purport to indicate what L3Harris’ results
of operations would have been, or L3Harris’ future results of operations, had the L3Harris Merger actually occurred on June 30,
2018. The supplemental unaudited pro forma condensed combined income statement information should be read in conjunction
with other sections of this MD&A, our Consolidated Financial Statements and the Notes appearing elsewhere in this Report.
47
Unaudited Pro Forma Condensed Combined Statement of Income
For the Four Quarters Ended January 3, 2020
(In millions, except per share amounts)
Two Quarters Ended June 28, 2019
Historical
Harris
Historical
L3
Pro Forma
Adjustments
Note
Ref
Pro Forma
Two
Quarters
Ended
January 3,
2020
L3Harris
As Reported
Four
Quarters
Ended
January 3,
2020
Pro Forma
Revenue from product sales and services
$ 3,593 $ 5,331 $
Cost of product sales and services
(2,362)
(3,875)
Engineering, selling and administrative expenses
(659)
(824)
a
b
a
b
c
b
c
d
e
f
j
j
j
g
j
j
j
h
i
k
(11)
(79)
11
54
(9)
11
(228)
38
(4)
4
(45)
—
—
45
23
19
(34)
3
8
4
14
(176)
44
(132)
—
$ 8,834 $
9,263 $ 18,097
(6,181)
(6,726) (12,907)
(1,707)
(1,881)
(3,588)
—
—
—
117
—
—
9
(139)
933
(116)
817
(12)
229
(46)
—
192
—
—
12
(135)
229
(46)
—
309
—
—
21
(274)
908
(73)
835
(12)
1,841
(189)
1,652
(24)
—
—
—
94
—
—
1
(82)
585
(73)
512
—
—
—
(45)
—
15
(3)
—
(75)
524
(87)
437
(12)
$
512 $
425 $
(132)
$
805 $
823 $ 1,628
$ 4.32
$ 4.23
118.1
120.7
$
3.62 $
3.72 $
7.34
$
3.57 $
3.68 $
7.25
104.1
104.6
l
l
222.2
221.2
221.7
225.3
223.7
224.5
Business divestiture-related gains
Impairment of right-of-use asset
Merger, acquisition and divestiture related
expenses
Non-operating income
Interest and other income, net
Debt retirement charges
Interest income
Interest expense
Income from continuing operations before
income taxes
Income taxes
Income from continuing operations
Noncontrolling interests, net of income taxes
Income from continuing operations attributable
to common shareholders
Income from continuing operations per basic
common share attributable to common
shareholders
Income from continuing operations per diluted
common share attributable to common
shareholders
Basic weighted average common shares
outstanding
Diluted weighted average common shares
outstanding
Notes:
a. Reflects the elimination of intercompany balances and transactions between L3 and Harris.
b. Reflects the sale of the Harris Night Vision business.
48
c. Reflects the net increase in amortization expense related to the fair value of acquired finite-lived identifiable intangible assets
and the elimination of historical amortization expense recognized by L3 for the two quarters ended June 28, 2019.
Assumptions and details are as follows:
Identifiable Intangible Assets Acquired:
Customer relationships
Trade names — Divisions
Adjustment to engineering, selling and administrative expenses
Developed technology
Less: L3 historical amortization
Adjustment to cost of product sales and services
Total net adjustment to amortization expense
_________
(1) As of May 4, 2020, the date of filing our Current Report on Form 8-K.
Weighted
Average
Amortization
Period
(In years)
Fair Value(1)
Two Quarters
Ended June
28, 2019
(In millions)
15
9
7
$
5,417 $
123
562
$
222
6
228
33
(24)
9
237
d. Represents the elimination of transaction costs, which were included in merger, acquisition and divestiture related expenses
in L3’s historical statement of operations and in engineering, selling and administrative expenses in Harris’ historical
statement of income.
e.
In connection with the L3Harris Merger, on October 12, 2018, each company entered into a letter of agreement with its chief
executive officer, to outline the terms of each such person’s role and compensation arrangements following the merger.
Amounts shown reflect the increase in compensation expense as a result of these modified arrangements.
f. Reflects the impact of change-in-control payments under certain post-retirement and share-based and deferred compensation
arrangements.
g. Reflects the elimination of amortization of net actuarial losses from accumulated comprehensive loss related to L3’s
postretirement benefit plans as part of purchase accounting.
h. Reflects the elimination of amortization of deferred debt issuance costs as part of purchase accounting.
i. Reflects amortization of the increase to L3’s long-term debt based on a $172 million fair value adjustment.
j. Certain amounts from L3’s historical statement of operations data were reclassified to conform their presentation to that of
Harris. These reclassifications include:
1. Merger, acquisition and divestiture related expenses were reclassified to engineering, selling and administrative
expenses; and
2.
Interest and other income, net which was reclassified to interest income.
k. Represents the income tax impact of the pro forma adjustments, using the blended worldwide tax rates for L3, in the case of
pro forma adjustments to L3’s historical results, and the federal and state statutory tax rates for Harris, in the case of pro
forma adjustments to Harris’ historical results. As a result, the combined statutory tax rate used to tax-effect the pro forma
adjustments was 25 percent for the two quarters ended June 28, 2019. This tax rate does not represent the combined
company’s effective tax rate, which will include other tax charges and benefits, and does not take into account any historical
or possible future tax events that may impact the combined company following the consummation of the L3Harris Merger.
l.
Increase in common stock due to shares of L3Harris common stock issued for outstanding L3 common stock and in respect of
vested L3 restricted stock units and L3 performance stock units. Diluted shares also include the dilutive impact of L3Harris
stock options issued in replacement of L3 stock options calculated using the treasury stock method.
49
Discussion of Business Segment Results of Operations
Integrated Mission Systems Segment
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
%
Inc/(Dec)
January 3,
2020
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
$ 5,538
847
$
15 %
$ 2,783
377
$
14 %
Pro forma
* $ 5,360
698
* $
13 %
3%
21%
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
June 28, 2019
June 29, 2018
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
$ 2,758
$
371
$
$
13 %
28
4
14 %
* $
* $
As Reported
$
$
52
10
19 %
55
9
16 %
(5%)
11%
(Dollars in millions)
Revenue
Operating income
% of revenue
(Dollars in millions)
Revenue
Operating income
% of revenue
_________________
Not meaningful
*
As Reported
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increases in segment
revenue, operating income and operating income as a percentage of revenue (“operating margin percentage”) in fiscal 2020
compared with the four quarters ended January 3, 2020 were primarily due to the inclusion of L3 operations in segment operating
results for the two quarters ended July 3, 2020 (but not for the comparable prior-year two quarters preceding the L3Harris
Merger). Because the Integrated Mission Systems segment is almost entirely comprised of L3 businesses, comparison to the four
quarters ended January 3, 2020 segment operating metrics is not meaningful. The funded backlog for this segment was $6.3
billion at January 1, 2021 compared with $5.3 billion at January 3, 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 77 percent in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The changes in segment
revenue, operating income and operating margin percentage in the two quarters ended January 3, 2020 compared with the two
quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of
the L3Harris Merger during the two quarters ended January 3, 2020. Because the Integrated Mission Systems segment is almost
entirely comprised of L3 businesses, comparison to prior year segment operating metrics is not meaningful. In the two quarters
ended January 3, 2020, segment revenue also benefited from $213 million of revenue growth in ISR and growth in Electro
Optical. The funded backlog for this segment was $5.3 billion at January 3, 2020 compared with $5.4 billion at the beginning of
the Fiscal Transition Period (primarily from backlog acquired on June 29, 2019 in connection with the L3Harris Merger).
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 75 percent in the two
quarters ended January 3, 2020.
Pro Forma
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in segment
revenue in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to $163 million of higher
revenue in Maritime from a ramp in manned and classified platforms and $31 million of higher revenue in ISR.
The increases in segment operating income and operating margin percentage in fiscal 2020 compared with the four quarters
ended January 3, 2020 were primarily driven by operational excellence and integration benefits.
50
Space and Airborne Systems Segment
(Dollars in millions)
Revenue
Operating income
% of revenue
(Dollars in millions)
Revenue
Operating income
% of revenue
As Reported
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
%
Inc/(Dec)
January 3,
2020
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
Pro forma
$ 4,946
932
$
19 %
$ 4,352
816
$
19 %
14% $ 4,689
873
14% $
19 %
5%
7%
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
June 28, 2019
June 29, 2018
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
As Reported
$ 2,377
$ 1,736
37% $ 3,711
$ 3,294
$
447
$
327
37% $
696
$
626
13%
11%
19 %
19 %
19 %
19 %
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increases in segment
revenue and operating income in fiscal 2020 compared with the four quarters ended January 3, 2020 were primarily due to the
inclusion of L3 operations in segment operating results for the two quarters ended July 3, 2020 (but not for the comparable prior-
year two quarters preceding the L3Harris Merger), as well as organic growth in Mission Avionics and Intel and Cyber as
discussed further below in the “Pro Forma” discussion for the fiscal year ended January 1, 2021 compared with the four quarters
ended January 3, 2020. The funded backlog for this segment was $3.8 billion at January 1, 2021 compared with $3.9 billion at
January 3, 2020. Segment operating margin percentage in fiscal 2020 was comparable with the four quarters ended January 3,
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 90 percent in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increases in segment
revenue and operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28,
2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during
the two quarters ended January 3, 2020, as well as higher revenue in Mission Avionics from growth on long-term platforms, $54
million higher revenue from growth in ground-based adjacencies and exquisite systems in classified areas and $58 million of
higher revenue in Electronic Warfare from increased production of electronic warfare systems for F/A-18 and B-52 aircraft. The
funded backlog for this segment was $3.9 billion at January 3, 2020 compared with $4.3 billion at the beginning of the Fiscal
Transition Period (including backlog acquired on June 29, 2019 in connection with the L3Harris Merger). Segment operating
margin percentage in the two quarters ended January 3, 2020 was comparable with the two quarters ended December 28, 2018.
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 88 percent in the two
quarters ended January 3, 2020 compared with 89 percent in the two quarters ended December 28, 2018.
Pro Forma
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in segment
revenue in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to $317 million of higher
revenue in Mission Avionics, driven by a ramp on the F-35 platform, and $70 million of higher revenue in Intel and Cyber from
growth on classified programs, partially offset by $107 million of lower revenue in Space and lower revenue in Electronic
Warfare, reflecting program transition timing.
The increase in segment operating income in fiscal 2020 compared with the four quarters ended January 3, 2020 was
primarily due to cost management, operational excellence and integration benefits, partially offset by program mix, including in
respect of newly awarded fixed-priced development contracts. Segment operating margin percentage for fiscal 2020 was
comparable with the four quarters ended January 3, 2020.
51
Communication Systems Segment
(Dollars in millions)
Revenue
Operating income
% of revenue
(Dollars in millions)
Revenue
Operating income
% of revenue
As Reported
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
%
Inc/(Dec)
January 3,
2020
%
Inc/(Dec)
As Reported
$ 4,443
$ 1,084
24 %
As Reported
(Unaudited)
$ 3,340
836
$
25 %
Pro forma
33% $ 4,278
958
30% $
22 %
4%
13%
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
June 28, 2019
June 29, 2018
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
As Reported
$ 2,151
$ 1,018
111% $ 2,208
$ 2,015
$
493
$
294
68% $
637
$
561
10%
14%
23 %
29 %
29 %
28 %
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increases in segment
revenue and operating income, and decrease in segment operating margin percentage in fiscal 2020 compared with the four
quarters ended January 3, 2020 were primarily due to the inclusion of L3 operations in segment operating results for the two
quarters ended July 3, 2020 (but not for the comparable prior-year two quarters preceding the L3Harris Merger), as well as
organic growth in Tactical Communications, partially offset by lower revenue in Public Safety and the divestiture of the EOTech
business as discussed further below in the “Pro Forma” discussion for the fiscal year ended January 1, 2021 compared with the
four quarters ended January 3, 2020. The funded backlog for this segment was $3.3 billion at January 1, 2021 compared with $3.7
billion at January 3, 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 69 percent in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increases in segment
revenue and operating income in the two quarters ended January 3, 2020 compared with the two quarters ended December 28,
2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of the L3Harris Merger during
the two quarters ended January 3, 2020, as well as $112 million of higher revenue in Tactical Communications from a ramp in
DoD modernization programs, $46 million of higher revenue in Public Safety, reflecting increased demand from state and federal
customers, and $38 million of higher revenue in Integrated Vision Solutions. The funded backlog for this segment was $3.7
billion at January 3, 2020 compared with $3.2 billion at the beginning of the Fiscal Transition Period (including backlog acquired
on June 29, 2019 in connection with the L3Harris Merger).
The decrease in segment operating margin percentage in the two quarters ended January 3, 2020 compared with the two
quarters ended December 28, 2018 was primarily due to a mix of program revenue and product sales with relatively lower
operating margin percentage, partially offset by strong operational performance and integration savings.
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 percent in the two
quarters ended January 3, 2020 compared with 54 percent in the two quarters ended December 28, 2018.
Pro Forma
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in revenue in
fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to $268 million of higher Tactical
Communications revenue (including Global Communications Solutions), primarily due to a ramp in DoD modernization programs
that also benefited Integrated Vision Solutions, partially offset by $84 million of lower revenue in Public Safety, reflecting
COVID-related pressures on state and local government municipality customers, and a $21 million revenue impact from the
divestiture of the EOTech business.
52
The increases in segment operating income and operating margin percentage in fiscal 2020 compared with the four quarters
ended January 3, 2020 were primarily due to operational excellence, integration benefits and cost management.
Additional Information on Known Trends and Uncertainties
Revenue and operating income in our Public Safety business sector has been, and we expect will continue to be, adversely
impacted by COVID-related pressures on state and local government customers, including reduced staffing, limited remote work
technology capabilities, significant reductions in near-term tax revenues and competing budget priorities. Revenue in our Public
Safety business sector decreased by $84 million in fiscal 2020 compared with the four quarters ended January 3, 2020 and we
expect a continued decrease in Public Safety revenue in early fiscal 2021 with stability and modest recovery later in the year;
however, the ultimate extent of the COVID-related impact to our Public Safety business sector remains uncertain.
We expect to see growth and identify new opportunities in our Tactical Communications business sector, including
international growth in the Middle East, Europe and Asia Pacific. We also expect modernization demand to continue to benefit
both our Tactical Communications and Integrated Vision Systems business sectors.
Aviation Systems Segment
(Dollars in millions)
Revenue
Operating income (loss)
% of revenue
(Dollars in millions)
Revenue
Operating income
% of revenue
_________________
Not meaningful
*
As Reported
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
%
Inc/(Dec)
January 3,
2020
%
Inc/(Dec)
As Reported
$ 3,448
(177)
$
(5) %
As Reported
(Unaudited)
$ 2,368
325
$
14 %
Pro forma
* $ 3,917
503
* $
13 %
(12%)
*
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
June 28, 2019
June 29, 2018
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
$ 2,038
289
$
14 %
$
$
342
40
12 %
As Reported
* $
* $
$
$
672
76
11 %
668
54
8 %
1%
41%
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The increase in segment
revenue in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to the inclusion of L3 operations
in segment operating results for the two quarters ended July 3, 2020 (but not for the comparable prior-year two quarters preceding
the L3Harris Merger). Because the Aviation Systems segment is primarily comprised of L3 businesses, comparison to the four
quarters ended January 3, 2020 segment operating metrics is not meaningful. The funded backlog for this segment was $3.0
billion at January 1, 2021 compared with $3.4 billion at January 3, 2020, reflecting a $380 million reduction from the divestiture
of the airport security and automation business during the quarter ended July 3, 2020.
The segment operating loss in fiscal 2020 compared with segment operating income for the four quarters ended January 3,
2020 was primarily due to $635 million of non-cash charges for the impairment of goodwill and other assets, $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 the divestiture of the airport security and automation business, partially
offset by the inclusion of L3 operations in segment operating results for the two quarters ended July 3, 2020 (but not for the
comparable prior-year two quarters preceding the L3Harris Merger), principally Defense Aviation operations.
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 71 percent in fiscal 2020.
Two quarters ended January 3, 2020 Compared With Two quarters ended December 28, 2018: The increases in segment
revenue, operating income and operating margin percentage in the two quarters ended January 3, 2020 compared with the two
quarters ended December 28, 2018 were primarily due to the inclusion of L3 operations in segment operating results as a result of
53
the L3Harris Merger during the two quarters ended January 3, 2020. Because the Aviation Systems segment is primarily
comprised of L3 businesses, comparison to the two quarters ended December 28, 2018 segment operating metrics is not
meaningful. In the two quarters ended January 3, 2020, segment revenue also reflected growth from precision engagement sensors
and systems and $24 million of higher revenue in Mission Networks, partially offset by a $50 million revenue impact from the
prior period competitive loss of the C-17 training contract. The funded backlog for this segment was $3.4 billion at January 3,
2020 compared with $3.1 billion at the beginning of the Fiscal Transition Period (including backlog acquired on June 29, 2019 in
connection with the L3Harris Merger).
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 59 percent in the two
quarters ended January 3, 2020.
Pro Forma
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in segment
revenue in fiscal 2020 compared with the four quarters ended January 3, 2020 was primarily due to $681 million of lower
commercial aviation sales, including a $364 million impact from the airport security and automation business divestiture and
lower revenue from the downturn in the commercial aviation market and its impact on customer operations, partially offset by
$189 million of higher revenue in Defense Aviation, from a ramp on classified programs and combat propulsion systems, and
higher FAA volume in Mission Networks.
The segment operating loss in fiscal 2020 compared with segment operating income for the four quarters ended January 3,
2020 was primarily due to $635 million of non-cash charges for impairment of goodwill and other assets, $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 and its impact on customer operations, as well as a $39 million impact from the
divestiture of the airport security and automation business, partially offset by operational efficiencies, integration benefits and cost
management in fiscal 2020.
Additional Information on Known Trends and Uncertainties
Revenue and operating income from our Commercial Aviation Solutions reporting unit declined for 2020 due to decreased
commercial training and commercial avionics sales volume, reflecting COVID and its impact on global air traffic and customer
operations. On a pro forma basis, revenue in our Commercial Aviation Solutions reporting unit decreased by $317 million in
fiscal 2020 compared with the four quarters ended January 3, 2020, primarily due to COVID-related impacts. We expect a
continued decline in revenue in our commercial aviation businesses in early fiscal 2021 with stability and modest recovery later in
the year; however, the ultimate duration and extent of COVID-related impacts to these businesses remains uncertain. In addition,
the divestiture of our airport security and automation business on May 4, 2020 decreased segment revenue and operating income
in calendar year fiscal 2020 compared with the four quarters ended January 3, 2020. Customer revenue from the airport security
and automation business through the date of divestiture was $147 million compared with $495 million for the four quarters ended
January 3, 2020 on a pro forma basis.
Unallocated Corporate Expenses
(Dollars in millions)
Unallocated corporate expenses and corporate eliminations
L3Harris Merger-related transaction, integration and other
expenses and losses
L3Harris Merger-related restructuring costs
Amortization of acquisition-related intangibles
Impairment of identifiable intangible assets
Business divestiture-related losses (gains)
Fiscal Year
Ended
January 1,
2021
Four Quarters Ended
January 3,
2020
%
Inc/(Dec)
January 3,
2020
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
Pro forma
$
109 $
140
(22%) $
145
(25%)
130
10
709
113
51
325
117
339
—
(229)
(60%)
(91%)
109%
*
*
333
117
601
—
(229)
(61%)
(91%)
18%
*
*
54
(Dollars in millions)
Unallocated corporate expenses and corporate
eliminations
L3Harris Merger-related transaction, integration
and other expenses and losses
L3Harris Merger-related restructuring costs
Amortization of acquisition-related intangibles
Business divestiture-related losses (gains)
_________________
Not meaningful
*
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
December 28,
2018
%
Inc/(Dec)
June 28, 2019
June 29, 2018
%
Inc/(Dec)
As Reported
As Reported
(Unaudited)
As Reported
$
139 $
273
117
289
(229)
2
13
—
50
—
* $
2 $
65
(97%)
*
*
478%
*
65
—
101
—
—
—
101
—
*
*
—%
*
Fiscal Year Ended January 1, 2021 Compared With Four Quarters Ended January 3, 2020: The decrease in unallocated
corporate expense in fiscal 2020 compared with the four quarters ended January 3, 2020 on both an as reported and pro forma
basis was primarily due to $111 million of lower cost of sales related to the fair value step-up in inventory sold in fiscal 2020 and
a $22 million gain on sale of property, plant and equipment, partially offset by higher L3Harris Merger-related equity
compensation expense, the timing of expense accruals, a $14 million non-cash goodwill impairment charge related to a potential
divestiture, and $13 million of higher divestiture-related expenses in fiscal 2020.
Two Quarters Ended January 3, 2020 Compared With Two Quarters Ended December 28, 2018: The increase in
unallocated corporate expense during the two quarters ended January 3, 2020 compared with the two quarters ended December
28, 2018 was due to $142 million of additional cost of sales related to the fair value step-up in inventory sold and a $10 million
non-cash cumulative adjustment to lease expense, partially offset by a $12 million gain on the sale of an asset group in the two
quarters ended January 3, 2020.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES
Cash Flows
(In millions)
Net cash provided by operating activities
Net cash provided by (used in) investing
activities
Net cash used in financing activities
Effect of exchange rate changes on cash and
cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of period
$
Fiscal Year
Ended
January 1,
2021
Four
Quarters
Ended
Two Quarters Ended
Fiscal Years Ended
January 3,
2020
January 3,
2020
December
28, 2018
June 28,
2019
June 29,
2018
As Reported
As Reported
(Unaudited)
As Reported
As Reported
(Unaudited)
As Reported
$
2,790 $
1,655 $
939 $
469 $
1,185 $
751
751
(3,112)
1,228
(2,410)
1,320
(1,971)
(67)
(342)
(159)
(781)
(141)
(805)
23
452
8
481
6
294
(5)
(3)
(1)
55
242
(196)
824
1,276 $
343
824 $
530
824 $
288
343 $
288
530 $
484
288
Cash and cash equivalents
The $452 million net increase in cash and cash equivalents in fiscal 2020 was primarily due to:
•
•
•
•
•
$2,790 million of net cash provided by operating activities;
$1,040 million of net proceeds from sale of business;
$901 million of net proceeds from borrowings, including $650 million in proceeds from the issuance of our 1.80%
notes due January 15, 2031 and $250 million in proceeds from the issuance of our Floating Rate Notes due March
10, 2023;
$91 million of net proceeds sale of property, plant and equipment; and
$56 million of proceeds from exercises of employee stock options; partially offset by
55
•
•
•
•
•
$2,290 million used to repurchase shares of our common stock;
$931 million used for repayment of borrowings, including $650 million used for our optional redemption of our
4.95% Notes due February 15, 2021 and $250 million used for repayment of our Floating Rate Notes due April 30,
2020;
$725 million used to pay cash dividends;
$368 million used for additions of property, plant and equipment; and
$113 million used for payments of interest rate derivative obligations.
The $294 million net increase in cash and cash equivalents during the two quarters ended January 3, 2020 was primarily due
to:
•
•
•
•
•
•
•
•
•
•
•
$1,130 million of net cash acquired in the L3Harris Merger;
$939 million of net cash provided by operating activities;
$396 million of net proceeds from borrowings, including $400 million in proceeds from the issuance of our 2.90%
notes due December 15, 2029;
$343 million of net proceeds from sale of business; and
$109 million of proceeds from exercises of employee stock options; partially offset by
$1,500 million used to repurchase shares of our common stock;
$505 million used for repayment of borrowings, including $400 million used for our optional redemption of our
2.7% Notes due April 27, 2020 and $100 million used for repayment of short-term debt;
$337 million used to pay cash dividends;
$173 million used for additions of property, plant and equipment;
$86 million used for tax withholding payments associated with vested share-based awards; and
$32 million used for payments of interest rate derivative obligations.
We ended fiscal 2020 with cash and cash equivalents of $1,276 million, and we have a senior unsecured $2 billion revolving
credit facility that expires in June 2024 (all of which was available to us as of January 1, 2021). Additionally, we had $6.9 billion
of net long-term debt outstanding at January 1, 2021, the majority of which we incurred in connection with our the L3Harris
Merger in the Fiscal Transition Period and the acquisition of Exelis in the fourth quarter of fiscal 2015. For further information
regarding our long-term debt, see Note 14: Debt in the Notes. Our $1,276 million of cash and cash equivalents at January 1, 2021
included $296 million held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S.
with minimal tax cost.
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facility, cash
needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity,
although we can give no assurances concerning our future liquidity, particularly in light of our current level of debt, U.S.
Government budget uncertainties and the state of global commerce and general political and financial uncertainty. We cannot
predict the impact that COVID, among other potential risks and uncertainties, will have on our cash from operations. For further
information regarding COVID-related risks and uncertainties, see Part I, “Item 1A. Risk Factors” in this Report.
Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from
operations, our credit facility 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 reasonably foreseeable future thereafter.
Our total capital expenditures for fiscal 2021 are expected to be approximately $375 million. We anticipate tax payments for
fiscal 2021 to be approximately equal to or marginally less than our tax expense for the same period, subject to adjustment for
certain timing differences. For additional information regarding our income taxes, see Note 23: Income Taxes in the Notes. Other
than those cash outlays noted in the “Contractual Obligations” discussion below in this MD&A, capital expenditures, dividend
payments, repurchases under our share repurchase program and L3Harris Merger-related transaction and integration costs, we do
not anticipate any significant cash outlays in fiscal 2021. For additional information regarding potential repurchases of our
common stock, see Note 28: Subsequent Events in the Notes. For further information regarding COVID-related risks and
uncertainties, see Part I, “Item 1A. Risk Factors” in this Report.
There can be no assurance, however, 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 in the debt markets will
not be impacted by any potential future credit or capital markets disruptions. For example, the commercial paper market was
temporarily disrupted in March 2020 as a result of COVID, and although commercial paper markets are currently functioning in a
normal manner, depending on future market conditions and volatility, commercial paper may not be available on favorable terms
or at all, or in the capacity desired. If we are unable to maintain cash balances, generate sufficient cash flow from operations or
borrow under our commercial paper program or our credit facility sufficient to service our obligations, we may be required to sell
assets, 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 or obtain additional financing. Our ability to make principal
56
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 in or affecting the defense, government and other markets we serve and to general
economic, political, financial, competitive, legislative and regulatory factors beyond our control.
Net cash provided by operating activities: The $1,135 million increase in net cash provided by operating activities in fiscal
2020 compared with the four quarters ended January 3, 2020 was primarily due to the impact of higher income (excluding the
impacts of a $721 million increase in non-cash impairments of goodwill and other assets and $461 million increase in depreciation
and amortization in fiscal 2020), reflecting the inclusion of cash flows from L3 operations following the L3Harris Merger, as well
as a $302 million voluntary contribution to our U.S. qualified pension plans and $278 million of cash used for L3Harris Merger
transaction costs, including change in control charges, in the four quarters ended January 3, 2020, partially offset by a $306
million increase in cash used to fund working capital in fiscal 2020.
The $470 million increase in net cash provided by operating activities in the two quarters ended January 3, 2020 compared
with the two quarters ended December 28, 2018 was primarily due to the impact of higher income, including a $229 million pre-
tax gain on sale of business, $182 million decrease in net cash used to fund working capital and $157 million more in share-based
compensation, partially offset by $328 million more in qualified pension contributions, including a $302 million voluntary
contribution, in the two quarters ended January 3, 2020.
Cash flow from operations was positive in all of our business segments in fiscal 2020, the two quarters ended January 3,
2020 and fiscal 2019 and 2018.
Net cash provided by investing activities: The $477 million decrease in net cash provided by investing activities in fiscal
2020 compared with the four quarters ended January 3, 2020 was primarily due to $1,130 million of net cash received from the
L3Harris Merger in the four quarters ended January 3, 2020 and $101 million increase in cash used for additions of property,
plant and equipment, partially offset by a $697 million increase in net proceeds from sales businesses and $91 million of proceeds
from sale of property, plant and equipment in fiscal 2020.
The $1.4 billion increase in net cash provided by investing activities in the two quarters ended January 3, 2020 compared
with the two quarters ended December 28, 2018 was primarily due to $1.1 billion of net cash received from L3Harris Merger and
$343 million of net proceeds from the sale of the Harris Night Vision business, partially offset by a $106 million increase in cash
used for additions of property, plant and equipment.
Net cash used in financing activities: The $702 million increase in net cash used in financing activities in fiscal 2020
compared with the four quarters ended January 3, 2020 was primarily due to a $790 million increase in cash used to repurchase
our common stock, a $226 million increase in cash used to pay dividends, a $121 million increase in cash used for repayments of
borrowings, a $85 million decrease in proceeds from exercises of employee stock options and $81 million of payments of interest
rate derivatives obligations, partially offset by a $504 million increase in net proceeds from borrowings and a $87 million
decrease in cash used for tax withholding payments associated with vested share-based awards in fiscal 2020.
The $1.6 billion increase in net cash used in financing activities in the two quarters ended January 3, 2020 compared with
the two quarters ended December 28, 2018 was primarily due to a $1.3 billion increase in cash used to repurchase our common
stock, a $174 million increase in cash used to pay dividends, a $502 million increase in net cash used for repayments of
borrowings and a $66 million increase in cash used for tax withholding payments associated with vested share-based awards,
partially offset by a $370 million increase in net proceeds from borrowings and a $91 million increase in proceeds from exercises
of employee stock options.
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. Failure to satisfy the minimum funding thresholds could result
in restrictions on our ability to amend the plan or make benefit payments. With respect to our U.S. qualified defined benefit
pension plans, we intend to contribute annually not less than the required minimum funding thresholds.
The Highway and Transportation Funding Act of 2014 and the Bipartisan Budget Act of 2015 further extended the interest
rate stabilization provision of MAP-21 until 2020. We made a $302 million voluntary contribution to our U.S. qualified defined
benefit pension plans in the two quarters ended January 3, 2020. As a result of this voluntary contribution, as well as $300 million
and $400 million of voluntary contributions in fiscal 2018 and 2017, respectively, we are not required to make any contributions
to our U.S. qualified defined benefit pension plans in fiscal 2021 and 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
57
plans, the level of future statutory required minimum contributions could be material. We had net unfunded defined benefit
pension plan obligations of $1.8 billion as of January 1, 2021 compared with $1.7 billion as of January 3, 2020. See Note 15:
Pension and Other Postretirement Benefits in the Notes for further information regarding our defined benefit pension plans.
Common Stock Repurchases
During fiscal 2020, we used $2.3 billion to repurchase 12.0 million shares of our common stock under our share repurchase
program at an average price per share of $191.42, including commissions of $.02 per share. During the two quarters ended
January 3, 2020, we repurchased 7.4 million shares of our common stock under our share repurchase program for $1.5 billion at
an average price per share of $203.92, including commissions of $.02 per share. We did not repurchase any shares of our common
stock under our prior repurchase program during the third and fourth quarters of fiscal 2019. In fiscal 2020, $4 million in shares of
our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. In two
quarters ended January 3, 2020, $86 million 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 July 1, 2019, we announced that our Board of Directors approved our 2019 Repurchase Program, a new share
repurchase program with a $4 billion share repurchase authorization replacing our prior share repurchase programs. 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 January 1, 2021, we had a remaining, unused authorization under our repurchase program of $210 million. As
discussed in more detail in Note 28: Subsequent Events in the Notes, on January 28, 2021, we announced that our Board of
Directors approved a new $6 billion share repurchase authorization under our repurchase program that was in addition to the
remaining unused authorization of $210 million, for a total unused authorization of $6.2 billion. We have announced that we
currently expect to repurchase up to $2.3 billion in shares under our repurchase program in fiscal 2021, exclusive of any proceeds
from divestitures we may complete, but we can give no assurances regarding the level and timing of shares repurchases. 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. For additional information regarding potential repurchases of our common stock, see Note 28:
Subsequent Events in the Notes.
Dividends
On January 28, 2021, we announced that our Board of Directors increased the quarterly per share cash dividend rate on our
common stock from $.85 to $1.02, commencing with the dividend declared by our Board of Directors for the first quarter of fiscal
2021, for an annualized per share cash dividend rate of $4.08, which was our twentieth consecutive annual increase in our
quarterly cash dividend rate. Our annualized per share cash dividend rate was $3.40 in fiscal 2020, $3.00 in the two quarters
ended January 3, 2020, and $2.74 and $2.28 in fiscal 2019 and 2018, respectively. Quarterly cash dividends are typically paid in
March, June, September and December. We currently expect that cash dividends will continue to be paid in the near future, but
we can give no assurances concerning payment of future dividends or future dividend increases. The declaration of dividends and
the amount thereof will depend on a number of factors, including our financial condition, capital requirements, cash flows, results
of operations, future business prospects and other factors our Board of Directors may deem relevant. 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.
Capital Structure and Resources
2019 Credit Agreement: We have a $2 billion, 5-year senior unsecured revolving credit facility (the “2019 Credit Facility”)
under a Revolving Credit Agreement (the “2019 Credit Agreement”) entered into on June 28, 2019 with a syndicate of lenders.
The description of the 2019 Credit Facility and the 2019 Credit Agreement set forth in Note 13: Credit Arrangements in the Notes
is incorporated herein by reference.
We were in compliance with the covenants in the 2019 Credit Agreement at January 1, 2021, including the covenant
requiring that we not permit our ratio of consolidated total indebtedness to total capital, each as defined in the 2019 Credit
Agreement, to be greater than 0.65 to 1.00. At January 1, 2021, we had no borrowings outstanding under the 2019 Credit
Agreement.
Exchange Offer: In connection with the L3Harris Merger, on May 30, 2019, we commenced offers to eligible holders to
exchange any and all outstanding 4.950% Senior Notes due 2021, 3.850% Senior Notes due 2023, 3.950% Senior Notes due
2024, 3.850% Senior Notes due 2026 and 4.400% Senior Notes due 2028 issued by L3 for up to $3.35 billion aggregate principal
amount of new notes issued by L3Harris and cash. On July 2, 2019, we settled the debt exchange offer, and on March 31, 2020,
58
we commenced offers to eligible holders to exchange any and all the outstanding notes that were previously issued by L3Harris
pursuant to an exemption from the registration requirements of the Securities Act (“Original Notes”) for an equal principal
amount of new notes registered under the Securities Act (the “Exchange Notes”). The terms of the Exchange Notes are
substantially identical to the terms of the corresponding series of the Original Notes, except that the Exchange Notes are
registered under the Securities Act, and the transfer restrictions, registration rights and related special interest provisions
applicable to the Original Notes do not apply to the Exchange Notes. The Exchange Offers expired at 5:00 p.m., New York City
time, on May 1, 2020. On May 5, 2020, we settled the Exchange Offers and issued Exchange Notes for validly tendered Original
Notes. See Note 14: Debt in the Notes for additional information.
Short-Term Debt: Our short-term debt at January 1, 2021 and January 3, 2020 was $2 million and $3 million, respectively,
consisting of local borrowing by international subsidiaries for working capital needs. Our commercial paper program was
supported by the 2019 Credit Facility at January 1, 2021 and January 3, 2020. See Note 13: 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 14: Debt in the Notes
is incorporated herein by reference. As discussed in Note 14: Debt in the Notes, during the first quarter of fiscal 2020, we
completed the issuance and sale of $250 million in aggregate principal amount of Floating Rate Notes due March 10, 2023 and
used the net proceeds from the sale to repay in full the entire outstanding $250 million aggregate principal amount of our Floating
Rate Notes due April 30, 2020 that had been issued in the second quarter of fiscal 2018.
Long-Term Fixed-Rate Debt: The description of our long-term fixed-rate debt set forth in Note 14: Debt in the Notes is
incorporated herein by reference. As discussed in Note 14: Debt in the Notes, on November 25, 2020, we completed the issuance
and sale of $650 million in aggregate principal amount of 1.80% notes due January 15, 2031 (the “1.80% 2031 Notes”) and used
the proceeds from the sale to redeem the entire outstanding $650 million aggregate principal amount of our 4.95% Notes due
February 15, 2021 (the “4.95% 2021 Notes”) ( $501 million of which was issued by L3Harris and $149 million of which was
issued by L3). On November 27, 2019, we completed the issuance and sale of $400 million in aggregate principal amount of
2.900% Notes due December 15, 2029 and used the proceeds from the sale to redeem the entire outstanding $400 million
aggregate principal amount of our 2.7% Notes due April 27, 2020 (the “2.7% 2020 Notes”) at a “make-whole” redemption price
of $403 million, as set forth in the 2.7% 2020 Notes. The 4.95% 2021 Notes and 2.7% 2020 Notes were terminated and cancelled.
Other Agreements: We have a receivable sales agreement (“RSA”) with a third-party financial institution that permits us to
sell, on a non-recourse basis, up to $100 million of outstanding receivables at any given time. From time to time, we have sold
certain customer receivables under the RSA, which we continue to service and collect on behalf of the third-party financial
institution and which we account for as sales of receivables with sale proceeds included in net cash from operating activities. The
impact to net cash from operating activities from these transactions was not material in fiscal 2020, the two quarters ended
January 3, 2020 or in fiscal 2019 or 2018.
Contractual Obligations
At January 1, 2021, we had contractual cash obligations to repay debt, to purchase goods and services and to make payments
under operating leases. Payments due under these long-term obligations are as follows:
(In millions)
Long-term debt
Purchase obligations (1)
Operating lease commitments
Interest on long-term debt
Minimum pension contributions (2)
Total(3)
Total
$ 6,832
3,676
997
2,520
6
$ 14,031
Less than
1 Year
$
8
3,051
148
268
6
$ 3,481
Payment Due by Period
Years
1 - 3
Years
3 - 5
$ 1,062
586
243
518
—
$ 2,409
$
955
32
181
433
—
$ 1,601
More than
5 Years
$ 4,807
7
425
1,301
—
$ 6,540
_______________
(1) The purchase obligations of $3.7 billion included $570 million of purchase obligations related to cost-plus type contracts where our costs are fully
reimbursable.
(2) Amount includes fiscal 2021 minimum contributions to non-U.S. pension plans. Contributions beyond fiscal 2021 have not been determined. During the two
quarters ended January 3, 2020, we made voluntary contributions of $302 million to our U.S. qualified defined benefit pension plans. As a result of this
voluntary contribution, as well as $700 million of voluntary contributions made in fiscal 2018 and 2017, we made no material contributions to our U.S.
qualified defined benefit pension plans in fiscal 2020 and are not required to make any contributions to these plans during fiscal 2021.
(3) The above table does not include unrecognized tax benefits of $542 million.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules, any of the following qualify as off-balance sheet arrangements:
59
•
•
•
•
Any obligation under certain guarantee contracts;
A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves
as credit, liquidity or market risk support to that entity for such assets;
Any obligation, including a contingent obligation, under certain derivative instruments; and
Any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that
is held by, and material to, the registrant, where such entity provides financing, liquidity, market risk or credit risk
support to the registrant, or engages in leasing, hedging or R&D services with the registrant.
As of January 1, 2021, we were not participating in any material transactions that generated relationships with
unconsolidated entities or financial partnerships, including variable interest entities, and we did not have any material retained or
contingent interest in assets as defined above. As of January 1, 2021, we did not have material financial guarantees or other
contractual commitments that are reasonably likely to adversely affect our financial condition, results of operations, cash flows or
equity, and we were not a party to any related party transactions that materially affect our financial condition, results of
operations, cash flows or equity.
We have, from time to time, divested certain of our businesses and assets. In connection with these divestitures, we often
provide representations, warranties and/or indemnities to cover various risks and unknown liabilities, such as environmental
liabilities and tax liabilities. We cannot estimate the potential liability from such representations, warranties and indemnities
because they relate to unknown conditions. We do not believe, however, that the liabilities relating to these representations,
warranties and indemnities will have a material adverse effect on our financial condition, results of operations, cash flows or
equity.
Due to our downsizing of certain operations pursuant to acquisitions, divestitures, restructuring plans or otherwise, certain
properties leased by us have been sublet to third parties. If any of these third parties vacates any of these premises, we would be
legally obligated under master lease arrangements. We believe that the financial risk of default by such sub lessees is individually
and in the aggregate not material to our financial condition, results of operations, cash flows or equity.
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 January 1, 2021, we had commercial commitments on outstanding surety bonds, standby letters of credit and other
arrangements, as follows:
(In millions)
Surety bonds used for:
Bids
Performance
Standby letters of credit used for:
Down payments
Performance
Warranty
Total
Less than
1 Year
Year 2
Year 3
After 3 years
Expiration of Commitments
$
3 $
3 $
488
491
354
357
351
305
72
728
1,219 $
172
147
67
386
743 $
— $
17
17
83
65
4
152
169 $
— $
109
109
37
14
—
51
160 $
—
8
8
59
79
1
139
147
Total commitments
$
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 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
60
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 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 percent change in currency exchange rates for our foreign
currency derivatives held at January 1, 2021 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 20: Derivative Instruments and Hedging Activities in the Notes for additional
information.
Interest Rates: As of January 1, 2021, we had long-term fixed-rate debt obligations. The fair value of these obligations is
impacted by changes in interest rates; however, a 10 percent change in interest rates for our long-term fixed-rate debt obligations
at January 1, 2021 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 putable 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 fixed-rate debt
obligations over the next twelve months. See Note 14: Debt in the Notes for information regarding the maturities of our long-term
fixed-rate debt obligations.
We use derivative instruments from time to time to manage our exposure to interest rate risk associated with our anticipated
issuance of new long-term fixed-rate notes to repay at maturity our existing long-term fixed-rate debt obligations. 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 and reclassified to interest expense in the period in which the
hedged transaction affects earnings. See Note 20: Derivative Instruments and Hedging Activities in the Notes for additional
information.
At January 1, 2021, 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 our 4.95% 2021 Notes. These treasury locks were terminated as planned in connection with our issuance of our
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 accumulated other comprehensive loss 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 Statement of Cash Flows. See Note 20: Derivative
Instruments and Hedging Activities in the Notes for additional information.
At January 1, 2021, we also had long-term variable-rate debt obligations of $250 million of Floating Rate Notes due March
10, 2023. These debt obligations bear interest that is variable based on certain short-term indices, thus exposing us to interest-rate
risk; however, a 10 percent change in interest rates for these debt obligations at January 1, 2021 would not have had a material
impact on our results of operations or cash flows. See Note 14: 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.
61
Impact of Foreign Exchange
In fiscal 2020, 32 percent of our international business was transacted in local currency environments compared with
40 percent in the two quarters ended January 3, 2020, 18 percent in fiscal 2019 and 22 percent in fiscal 2018. 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
January 1, 2021, the cumulative foreign currency translation adjustment included in shareholders’ equity was a $58 million loss
compared with a $81 million loss at January 3, 2020. 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 2020, the two quarters ended January 3, 2020 or fiscal 2019 or 2018.
Impact of Inflation
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. Inflation and changing prices did not
materially adversely impact our gross margin, revenue or operating income in fiscal 2020, the two quarters ended January 3, 2020
or fiscal 2019 or 2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following is not intended to be a comprehensive list of our accounting policies or estimates. Our significant accounting
policies are more fully described in Note 1: Significant Accounting Policies in the Notes. In preparing our financial statements and
accounting for the underlying transactions and balances, we apply our accounting policies and estimates as disclosed in the Notes.
We consider the policies and 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 policies and estimates and the
related disclosure included herein with the Audit Committee of our Board of Directors. Preparation of this Report 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. 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 recognition, a single estimated profit margin is used to recognize profit for each performance obligation
over its period of performance. Recognition of profit on a contract requires estimates of the total cost at completion and
transaction price and the measurement of progress towards completion. Due to the long-term nature of many of our contracts,
developing the estimated total cost at completion and total transaction price often requires judgment. Factors that must be
considered in estimating the cost of the work to be completed include: the nature and complexity of the work to be performed,
subcontractor performance and the risk and impact of delayed performance. Factors that must be considered in estimating the total
transaction price include contractual cost or performance incentives (such as incentive fees, award fees and penalties) and other
forms of variable consideration as well as our historical experience and our expectation for performance on the contract. 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 estimate
at completion (“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
62
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:
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Favorable adjustments
Unfavorable adjustments
Net operating income adjustments
$
$
714 $
(314)
400 $
303 $
(166)
137 $
138 $
(121)
17 $
127
(146)
(19)
There were no individual impacts to operating income due to EAC adjustments in fiscal 2020, the two quarters ended
January 3, 2020 or fiscal 2019 or 2018 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 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 a 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.
Postretirement Benefit Plans
Certain of our current and former employees participate in defined benefit pension and other postretirement defined benefit
plans (collectively, referred to as “defined benefit plans”) in the United States, Canada, United Kingdom and Germany, which are
sponsored by L3Harris. The determination of projected benefit obligations 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 15: 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.
As part of our accounting for the L3Harris Merger, we completed a valuation and re-measurement of all L3 pension and
other postretirement benefit (“OPEB”) plans as of the June 29, 2019 closing date of the L3Harris Merger and we recorded a $233
million increase to L3’s pension and OPEB liability as of June 29, 2019 based on the results of this valuation. The total L3
pension and OPEB liability assumed by L3Harris was $1.4 billion at June 29, 2019. The discount rate assumption used was a
yield curve rather than a single interest rate. For the pension plans, the average June 29, 2019 discount rate used was 3.54 percent
for U.S. plans and 2.95 percent for Canadian plans. For OPEB plans, the average June 29, 2019 discount rate used was 3.31
percent for U.S. plans and 2.92 percent for Canadian plans.
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 projected benefit obligations and net periodic benefit cost as they
pertain to our defined benefit pension plans.
63
Obligation assumptions as of:
Discount rate
Rate of future compensation increase
Cash balance interest crediting rate
Cost assumptions for fiscal periods ended:
Discount rate to determine service cost
Discount rate to determine interest cost
Expected return on plan assets
Rate of future compensation increase
Cash balance interest crediting rate
January 1, 2021
January 3, 2020
2.31%
3.01%
3.50%
3.14%
2.80%
3.50%
January 1, 2021
January 3, 2020
2.87%
2.74%
7.68%
2.80%
3.50%
3.11%
2.94%
7.68%
2.97%
3.50%
Key assumptions for the Salaried Pension Plan (our largest defined benefit plan, with 85% of the total projected benefit
obligation as of January 1, 2021) included a discount rate for obligation assumptions of 2.32%, a cash balance interest crediting
rate of 3.50% and expected return on plan assets of 7.75% for fiscal 2020, which is being decreased to 7.50% for fiscal 2021.
There is also a frozen pension equity benefit that assumes a 3.25% 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 15: 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 7.68% for
fiscal 2020 and is estimated to be 25 basis points lower for fiscal 2021.
Discount Rate. The discount rate is used to calculate the present value of expected future benefit payments at the
measurement date. A decrease in the discount rate increases the present value of benefit obligations 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:
(In millions)
Increase/(Decrease)
in Pension Expense
25 Basis
Point Increase
25 Basis
Point Decrease
Long-term rate of return on assets used to determine net periodic benefit cost
Discount rate used to determine net periodic benefit cost
$
$
(20) $
3 $
20
(3)
Projected Benefit Obligation. Funded status is derived by subtracting the respective year-end values of the projected benefit
obligations (“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 $320 million and an increase
of 25 basis points would decrease the PBO by approximately $303 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. 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
64
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 15: Pension and
Other Postretirement Benefits in the Notes for further information.
Goodwill
Goodwill in our Consolidated Balance Sheet as of January 1, 2021 and January 3, 2020 was $18.9 billion and $20.0 billion,
respectively. Goodwill is not amortized. We perform annual (or under certain circumstances, more frequent) impairment tests of
our goodwill. We identify potential impairment by comparing the fair value of each of our reporting units with its carrying
amount, including goodwill, which is adjusted for allocations of Corporate assets and liabilities as appropriate. 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.
L3Harris Merger Goodwill Allocation. As discussed in more detail in Note 25: Business Segments in the Notes, after the
completion of the L3Harris Merger, we adjusted our segment reporting to reflect our new organizational structure effective June
29, 2019. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill
impairment under our former and new segment reporting structure and determined that no impairment existed. See Note 5:
Business Combination and Note 10: Goodwill in the Notes for additional information.
Airport Security and Automation Business Goodwill Allocation. As described in more detail in Note 3: Business Divestitures
and Asset Sales in the Notes, we entered into a definitive agreement to sell our airport security and automation business on
February 4, 2020 and completed the sale on May 4, 2020. Because the divestiture of the airport security and automation business
represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned $531 million of
goodwill to the airport security and automation business disposal group on a relative fair value basis. In conjunction with the
relative fair value allocation, we tested goodwill assigned to the airport security and automation business disposal group and
goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill impairment
existed at the time the held for sale criteria were met in late January 2020.
EOTech Business Goodwill Allocation. As described in more detail in Note 3: Business Divestitures and Asset Sales in the
Notes, we entered into a definitive agreement to sell our EOTech business on March 20, 2020 and completed the sale on July 31,
2020. Because the divestiture of the EOTech business represented the disposal of a portion of a reporting unit within our
Communication Systems segment, we assigned $9 million of goodwill to the EOTech business disposal group on a relative fair
value basis. In conjunction with the relative fair value allocation, we tested goodwill assigned to the EOTech business disposal
group and goodwill assigned to the retained businesses of the reporting unit for impairment and concluded that no goodwill
impairment existed.
VSE Disposal Group Goodwill Allocation and Impairment. As described in more detail in Note 3: Business Divestitures and
Asset Sales in the Notes, during the second quarter of fiscal 2020, we determined the criteria to be classified as held for sale were
met with respect to certain portions of our Voice Switch Enterprise business that we planned to divest (“VSE disposal group”).
The income before income taxes of the VSE disposal group was not material for fiscal 2020. Because the divestiture of the VSE
disposal group represented the disposal of a portion of a reporting unit within our Aviation Systems segment, we assigned
$14 million of goodwill to the VSE disposal group on a relative fair value basis. In conjunction with the relative fair value
allocation, we tested goodwill assigned to the VSE disposal group and goodwill assigned to the retained businesses of the
reporting unit for impairment and concluded that goodwill related to the VSE disposal group was impaired. As a result, we
recorded a non-cash impairment charge of $14 million, which is included in the “Impairment of goodwill and other assets” line
item in our Consolidated Statement of Income for fiscal 2020.
Harris Night Vision Goodwill Allocation. As described in more detail in Note 3: Business Divestitures and Asset Sales in the
Notes, we entered into a definitive agreement to sell the Harris Night Vision business on April 4, 2019 and completed the sale on
September 13, 2019. Because the divestiture of the Harris Night Vision business represented the disposal of a portion of a
reporting unit within our former Communication System segment, we assigned $30 million of goodwill to the Harris Night Vision
business disposal group on a relative fair value basis. In conjunction with the relative fair value allocation, we tested goodwill
assigned to the Harris Night Vision business disposal group and goodwill assigned to the retained businesses of the reporting unit
for impairment and concluded that no goodwill impairment existed.
For purposes of allocating goodwill to the disposal groups above, 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 and 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.
65
Fiscal 2020 Impairment Tests. We perform an annual impairment test of our goodwill as of the first day of our fourth
quarter of each fiscal year, and more frequently if we believe indicators of impairment exist. Following our fiscal year end
change, we made a corresponding change to our annual impairment assessment date and continued to perform our annual
impairment test on the first day of our fourth quarter, which for the Fiscal Transition Period was September 28, 2019 (the first day
of the last quarter of the Fiscal Transition Period) and was October 3, 2020 for fiscal 2020.
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 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 raw
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 determined
by using all of the above-described models, is reasonable.
Indications of potential impairment of goodwill related to our Commercial Aviation Solutions reporting unit (which is part
of our Aviation Systems segment) were present at April 3, 2020 due to COVID and its impact on global air traffic and customer
operations, resulting in a decrease in fiscal 2020 outlook for the reporting unit, which we considered to be a triggering event
requiring an interim impairment test. Consequently, in connection with the preparation of our financial statements for the quarter
ended April 3, 2020, we performed a quantitative impairment test. To test for potential impairment of goodwill related to our
Commercial Aviation Solutions reporting unit, we prepared an estimate of the fair value of the reporting unit based on a
combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions,
and projected discounted cash flows. Given the level of uncertainty in the outlook for the commercial aviation industry caused by
the impact of COVID on global air traffic, our methodology for determining the fair value of the reporting unit placed the greatest
weight on the expected fair value technique, and was dependent on our best estimates of future sales, operating costs and balance
sheet metrics under a range of scenarios for future economic conditions. We assigned a probability to each scenario to calculate a
set of probability-weighted projected cash flows, and an appropriate discount rate reflecting the risk in the projected cash flows
was used to discount the expected cash flows to present value.
As a result of this impairment test, we concluded that goodwill related to our Commercial Aviation Solutions reporting unit
was impaired as of April 3, 2020 and recorded non-cash goodwill impairment charges of $296 million in the first quarter of 2020.
As adverse global economic and market conditions attributable to COVID, including projected declines and subsequent
recovery in commercial air traffic and original equipment manufacturer production volumes, continued to develop during fiscal
2020, we continued to monitor for facts and circumstances that could negatively impact key valuation assumptions in determining
the fair value of our Commercial Aviation Solutions reporting unit, including recent valuations, expectations regarding the timing
of a return to pre-COVID commercial flight activity and the associated level of uncertainty, long-term revenue and profitability
projections, discount rates and general industry, market and macroeconomic conditions. As a result, we determined indications of
further impairment of assets related to our Commercial Aviation Solutions reporting unit existed as of July 3, 2020 and again as of
early December 2020 and recorded $54 million and $368 million of additional non-cash charges for the impairment of goodwill
and other assets during the second and fourth quarters of 2020, respectively. These charges are included in the “Impairment of
goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2020 and are primarily not deductible for
66
tax purposes.
We also performed our annual impairment test of all of our other reporting units goodwill as of October 3, 2020 and
concluded that the estimated fair values for each of our other reporting units exceeded their carrying values by greater than 10
percent. As of January 1, 2021, the Commercial Aviation Solutions reporting unit has $847 million of goodwill and the estimated
fair value approximates the carrying value of the reporting unit.
We are continuing to monitor the impacts of COVID on the fair value of our reporting units and do not currently anticipate
any further material goodwill impairment charges as a result of COVID. However, an impairment of goodwill could result from a
number of circumstances, including different assumptions used in determining the fair value of the reporting units, future
deterioration in the business, including from the impact of COVID, or a sharp increase in interest rates without a corresponding
increase in future revenue.
See Note 10: Goodwill in the Notes for additional information.
Accounting for Business Combinations
We follow the acquisition method of accounting to record identifiable assets acquired, liabilities assumed and noncontrolling
interests 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 generally consist of customer relationships, trade names, developed technology and in-process R&D.
Determination of the estimated fair value of identifiable intangible assets requires judgment. The fair value of customer
contractual relationships is determined based on estimates and judgments regarding future after-tax earnings and cash flows
arising from follow-on sales on contract renewals expected from customer contractual relationships over their estimated lives,
including the probability of expected future contract renewals and sales, less a contributory asset charge, all of which is
discounted to present value. The fair value of trade name identifiable intangible assets is determined utilizing the relief from
royalty method. Under this form of the income approach, a royalty rate based on observed market royalties is applied to projected
revenue supporting the trade name and discounted to present value using an appropriate discount rate. Identifiable intangible
assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. Finite-lived identifiable
intangible assets are amortized to expense over their useful lives, generally ranging from three to twenty years. The fair value of
identifiable intangible assets acquired in connection with the L3Harris Merger was $8.5 billion.
We assess the recoverability of finite-lived identifiable intangible assets whenever events or changes in circumstances
indicate the carrying amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the
expectations of undiscounted cash flows of the assets. If the sum of expected future undiscounted cash flows were less than the
carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. See
Note 5: Business Combination and Note 11: Intangible Assets in the Notes for additional information.
Income Taxes
We record the estimated future tax effects of temporary 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 2020, the Fiscal Transition Period or the previous two fiscal years.
Our Consolidated Balance Sheet as of January 1, 2021 included deferred tax assets of $119 million and deferred tax
liabilities of $1.24 billion. This compares with deferred tax assets of $102 million and deferred tax liabilities of $1.48 billion as of
January 3, 2020. For all jurisdictions for 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 $165 million as of January 1, 2021
compared with $185 million as of January 3, 2020. 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
67
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 percent
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 January 1, 2021, we had $542 million of unrecognized tax benefits, of which $453 million would favorably impact our
future tax rates in the event that the tax benefits are eventually recognized. As of January 3, 2020, we had $438 million of
unrecognized tax benefits, of which $313 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 cannot be made for remaining unrecognized tax benefits
because of the significant number of jurisdictions in which we do business and the number of open tax periods. See Note 23:
Income Taxes in the Notes for additional information.
Impact of Recently Issued Accounting Pronouncements
Accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note
2: Accounting Changes or Recent Accounting Pronouncements in the Notes, which describes the potential impact that these
pronouncements are expected to have on our financial condition, results of operations, cash flows or equity.
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.
•
COVID and ongoing attempts to contain and reduce its spread could have a material adverse effect on our business
operations, financial condition, results of operations, cash flows and equity.
• 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.
• 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 any inability of the U.S. Government to
complete its budget process for any government fiscal year and consequently having to shut down or operate on
funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution,” 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 inflation.
Our commercial aviation products, systems and services businesses are affected by global demand and economic
factors that could negatively impact our financial results.
•
•
•
• 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 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.
• 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 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, systems, services and technologies that
achieve market acceptance in our current and future markets.
•
68
• We must attract and retain key employees, and any failure to do so could seriously harm us.
•
•
Some of our workforce is represented by labor unions, so a prolonged work stoppage could harm our business.
Disputes with our subcontractors or key suppliers, or their inability to perform or timely deliver our components,
parts or services, could cause our products, systems or services to be produced or delivered in an untimely or
unsatisfactory manner.
• 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.
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 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.
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.
Unforeseen environmental issues could have a material adverse effect on our business, financial condition, results
of operations, cash flows and equity.
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.
• We may fail to realize all of the anticipated benefits of the L3Harris Merger or those benefits may take longer to
realize than expected. We may also encounter significant difficulties in integrating the businesses.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, we are exposed to the 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. For a discussion of such policies and procedures and the related risks, see “Financial Risk Management” in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report, which is incorporated
by reference into this Item 7A.
In addition, we are exposed to market return fluctuations on our defined benefit plans. A material adverse decline in the
value of these assets and/or the discount rate for projected benefit obligations would result in a decrease in the funded status of the
defined benefit plans, an increase in net periodic benefit cost and an increase in required funding. To protect against declines in
the discount rate (i.e., interest rates), we will continue to monitor the performance of these assets and market conditions as we
evaluate the amount of future contributions. For further information, see Note 15: Pension and Other Postretirement Benefits in
the Notes, which information is incorporated by reference into this Item 7A.
69
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting........................................................................................
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements....................................
Report of Independent Registered Public Accounting Firm on the Effectiveness of Internal Control Over Financial
Reporting................................................................................................................................................................................
Consolidated Statement of Income — Fiscal Year Ended January 1, 2021, Two Quarters Ended January 3, 2020, and Fiscal
Years Ended June 28, 2019 and June 29, 2018......................................................................................................................
Consolidated Statement of Comprehensive Income — Fiscal Year Ended January 1, 2021, Two Quarters Ended January 3,
2020, and Fiscal Years Ended June 28, 2019 and June 29, 2018...........................................................................................
Consolidated Balance Sheet — January 1, 2021 and January 3, 2020 .......................................................................................
Consolidated Statement of Cash Flows — Fiscal Year Ended January 1, 2021, Two Quarters Ended January 3, 2020, and
Fiscal Years Ended June 28, 2019 and June 29, 2018............................................................................................................
Consolidated Statement of Equity — Fiscal Year Ended January 1, 2021, Two Quarters Ended January 3, 2020, and Fiscal
Years Ended June 28, 2019 and June 29, 2018......................................................................................................................
Notes to Consolidated Financial Statements................................................................................................................................
Page
71
72
75
76
77
78
79
80
81
70
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The management of L3Harris Technologies, Inc. (the “Company”) is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance,
based on an appropriate cost-benefit analysis, regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal
control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of
the Company’s internal control over financial reporting as of January 1, 2021. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013 framework). Based on management’s assessment and those criteria, management concluded that the
Company maintained effective internal control over financial reporting as of January 1, 2021.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued a report on the effectiveness
of the Company’s internal control over financial reporting. This report appears on page 75 of this Annual Report on Form 10-K.
71
To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of L3Harris Technologies, Inc. (the Company) as of January 1,
2021and January 3, 2020, the related consolidated statements of income, comprehensive income, cash flows and equity for the
year ended January 1, 2021, the two quarters ended January 3, 2020 and for each of the two years in the period ended June 28,
2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at January 1, 2021 and
January 3, 2020 and the results of its operations and its cash flows for the year ended January 1, 2021, the two quarters ended
January 3, 2020 and each of the two years in the period ended June 28, 2019, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of January 1, 2021, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
72
Description of the Matter
How We Addressed the
Matter in Our Audit
Cost estimation for revenue recognition on development and production contracts
As described in Note 1 of the consolidated financial statements, the Company recognized revenue for
certain of its development and production contracts over time, typically using a percentage of
completion cost-to-cost method, which required estimates of the total cost to be incurred for each
contract at completion. At the outset of the contract, the Company establishes an estimated total cost
to complete, taking into consideration the complexity and perceived risks associated with the
technical, schedule, and cost aspects of the contract. After establishing the estimated total cost to
complete, the Company reviews the progress and performance on its ongoing development and
production contracts at least quarterly and updates the estimated total cost to complete as needed.
Such estimates are subject to change during the performance of the contract and significant changes in
estimates could have a material effect on the Company’s results of operations. Auditing the cost
estimation for development and production contracts involved subjective auditor judgment because
the Company’s development of the estimated total cost at completion required estimates of the cost of
the work to be completed based on the Company’s assumptions around achieving the technical,
schedule and cost aspects of its development and production contracts. In determining the estimates of
the cost of the work to be completed, the Company considered the nature and complexity of the work
to be performed, subcontractor performance and the risk and impact of delayed performance.
Estimates of total cost at completion were also affected by management’s assessment of the current
status of the contract and expectation for performance on the contract, as well as historical experience.
We obtained an understanding, evaluated the design and tested the operating effectiveness of certain
internal controls over the Company’s accounting for cost estimation for development and production
contracts. For example, we tested certain controls over management’s review of the estimate at
completion analyses and the significant assumptions underlying the estimated total costs to complete.
We also tested certain of management’s controls to validate that the data used in the estimate at
completion analyses was complete and accurate.
To test the cost estimation for development and production contracts, our audit procedures included,
among others, obtaining an understanding of the contract, meeting with program management to
confirm our understanding of the risks associated with the arrangement and the current contract
performance, review of customer correspondence and contractual milestones, and comparing cost
estimates to historical cost experience with similar contracts, when applicable. Additionally, we
obtained an understanding of the Company’s past performance of estimating total costs to complete
by reviewing changes in the cost estimates from previous periods and reviewing the overall accuracy
of management’s cost to completion estimations through lookback analyses.
73
Description of the Matter
How We Addressed the
Matter in Our Audit
Valuation of Goodwill
At January 1, 2021, the Company’s goodwill was $19 billion. As discussed in Note 1 to the
consolidated financial statements, the Company tests goodwill for impairment annually (or under
certain circumstances, more frequently) at the reporting unit level using either a qualitative or
quantitative approach. Under the quantitative approach to test for goodwill impairment, the Company
compares the fair value of a reporting unit to its carrying amount, including goodwill. Generally, the
Company estimates the fair value of its reporting units using a combination of a discounted cash
flows analysis and market-based valuation methodologies. As further discussed in Note 10, during the
year ended January 1, 2021, the Company recorded a $475 million goodwill impairment charge at a
reporting unit within the Aviation Systems segment.
Auditing the Company’s quantitative goodwill impairment tests involved subjective auditor judgment
due to the significant estimation required in management’s determination of the fair value of the
reporting units. The significant estimation was primarily due to the sensitivity of the underlying
assumptions including changes in the weighted average cost of capital, projected revenue growth
rates, projected operating margins, and terminal growth rate. These assumptions relate to the expected
future operating performance of the Company’s reporting units, are forward-looking, and are sensitive
to and affected by economic, industry and company-specific qualitative factors.
We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant
internal controls over the Company’s goodwill impairment review process, including controls over
management’s review of the valuation models and significant assumptions described above. We also
tested management’s controls to validate that the data used in the valuation models was complete and
accurate.
To test the estimated fair value of the Company’s reporting units, we performed audit procedures that
included, among others, assessing the valuation methodologies used by the Company, involving our
valuation specialists to assist in testing the significant assumptions discussed above, and testing the
completeness and accuracy of the underlying data the Company used in its valuation analyses. For
example, we compared the significant assumptions used by management to current industry, market
and economic trends, the historical results of the reporting units, and other relevant factors. We also
assessed the historical accuracy of management’s estimates and performed sensitivity analyses of
significant assumptions used in the annual impairment test to evaluate the change in the fair value of
the reporting unit resulting from changes in the significant assumptions.
In addition, we reviewed the reconciliation of the fair value of the reporting units based on the annual
impairment test to the market capitalization of the Company.
We have served as the Company’s auditor since at least 1932, but we are unable to determine the specific year.
/s/ Ernst & Young LLP
Orlando, Florida
March 1, 2021
74
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited L3Harris Technologies, Inc.’s internal control over financial reporting as of January 1, 2021, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, L3Harris Technologies, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of January 1, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of January 1, 2021 and January 3, 2020, the related consolidated
statements of income, comprehensive income, cash flows and equity for the year ended January 1, 2021, the two quarters ended
January 3, 2020 and for each of the two years in the period ended June 28, 2019, and the related notes and our report dated
March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Orlando, Florida
March 1, 2021
75
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
$
13,581 $
4,613
18,194
6,908 $
2,355
9,263
5,638 $
1,163
6,801
Revenue from product sales and services
Revenue from product sales
Revenue from services
Cost of product sales and services
Cost of product sales
Cost of services
Engineering, selling and administrative expenses
Business divestiture-related (losses) gains
Impairment of goodwill and other assets
Non-operating income
Interest income
Interest expense
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
Discontinued operations, net of income taxes
Net income
Noncontrolling interests, net of income taxes
Net income attributable to L3Harris Technologies, Inc.
$
5,038
1,130
6,168
(3,239)
(827)
(4,066)
(1,182)
—
—
156
2
(170)
908
(206)
702
(3)
699
—
699
(3,615)
(852)
(4,467)
(1,242)
—
—
188
2
(169)
1,113
(160)
953
(4)
949
—
949 $
(9,464)
(3,422)
(12,886)
(3,315)
(51)
(767)
401
16
(270)
1,322
(234)
1,088
(2)
1,086
33
1,119 $
(4,996)
(1,730)
(6,726)
(1,881)
229
(46)
192
12
(135)
908
(73)
835
(1)
834
(12)
822 $
823 $
(1)
822 $
Amount attributable to L3Harris Technologies, Inc. common shareholders
Income from continuing operations
Discontinued operations, net of income taxes
Net income
$
$
1,121 $
(2)
1,119 $
953 $
(4)
949 $
702
(3)
699
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
$
$
$
$
5.24 $
(0.01)
5.23 $
5.19 $
—
5.19 $
3.72 $
—
3.72 $
3.68 $
(0.01)
3.67 $
8.06 $
(0.03)
8.03 $
7.89 $
(0.03)
7.86 $
5.90
(0.02)
5.88
5.78
(0.02)
5.76
See accompanying Notes to Consolidated Financial Statements.
76
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
Net income
Other comprehensive (loss) income:
Foreign currency translation gain (loss), net of income
taxes
Net unrealized (loss) gain on hedging derivatives, net of
income taxes
Net unrecognized (loss) gain on postretirement obligations,
net of income taxes
Other comprehensive (loss) income, recognized during the
period
Less: reclassification adjustments for (gains) losses included
in net income
Other comprehensive (loss) income, net of income taxes
Total comprehensive income
Comprehensive loss (income) attributable to noncontrolling
interests
Total comprehensive income attributable to L3Harris
Technologies, Inc.
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
1,086 $
834 $
949 $
699
16
25
(7)
(31)
(17)
(18)
(313)
(328)
(3)
(331)
755
178
186
13
199
1,033
(480)
(505)
—
(505)
444
33
(12)
—
$
788 $
1,021 $
444 $
15
1
93
109
—
109
808
—
808
See accompanying Notes to Consolidated Financial Statements.
77
CONSOLIDATED BALANCE SHEET
(In millions, except shares)
Assets
Current Assets
Cash and cash equivalents
Receivables
Contract assets
Inventories
Income taxes receivable
Other current assets
Assets of disposal group held for sale
Total current assets
Non-current Assets
Property, plant and equipment
Operating lease right-of-use assets
Goodwill
Other intangible assets
Deferred income taxes
Other non-current assets
Total non-current assets
Liabilities and Equity
Current Liabilities
Short-term debt
Accounts payable
Contract liabilities
Compensation and benefits
Other accrued items
Income taxes payable
Current portion of long-term debt, net
Liabilities of disposal group held for sale
Total current liabilities
Non-current Liabilities
Defined benefit plans
Operating lease liabilities
Long-term debt, net
Deferred income taxes
Other long-term liabilities
Total non-current liabilities
Equity
Shareholders’ Equity:
January 1, 2021
January 3, 2020
$
$
$
1,276 $
1,344
2,437
973
295
307
35
6,667
2,102
766
18,876
7,908
119
522
30,293
36,960 $
2 $
1,406
1,198
496
1,068
49
8
13
4,240
1,906
734
6,908
1,237
1,094
11,879
824
1,216
2,459
1,219
202
392
—
6,312
2,117
837
20,001
8,458
102
509
32,024
38,336
3
1,261
1,214
460
790
24
257
—
4,009
1,819
781
6,694
1,481
808
11,583
Preferred stock, without par value; 1,000,000 shares authorized; none issued
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding
208,230,353 and 218,226,614 shares at January 1, 2021 and January 3, 2020,
respectively
Other capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Noncontrolling interests
Total equity
See accompanying Notes to Consolidated Financial Statements.
—
—
208
19,008
2,347
(839)
20,724
117
20,841
$
36,960 $
218
20,694
2,183
(508)
22,587
157
22,744
38,336
78
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Operating Activities
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Net income
Adjustments to reconcile net income to net cash provided
$
1,086 $
834 $
949 $
699
by operating activities:
Amortization of acquisition-related intangibles
Depreciation and other amortization
Share-based compensation
Share-based matching contributions under defined
contribution plans
Qualified pension plan contributions
Pension and other postretirement benefit plan income
Gain on pension plan curtailment
Impairment of goodwill and other assets
Business divestiture-related losses (gains)
Gain on sale of property, plant and equipment
Gain on sale of asset group
(Gain) loss on extinguishment of debts
Deferred income taxes
(Increase) decrease in:
Accounts receivable
Contract assets
Inventories
Increase (decrease) in:
Accounts payable
Contract liabilities
Compensation and benefits
Other accrued items
Income taxes
Other
Net cash provided by operating activities
Investing Activities
Net cash acquired in L3Harris Merger
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment, net
Proceeds from sales of businesses, net
Proceeds from sale of asset group
Other investing activities
Net cash provided by (used in) investing activities
Financing Activities
Net proceeds from borrowings
Repayments of borrowings
Payments of interest rate derivative obligations
Proceeds from exercises of employee stock options
Repurchases of common stock
Cash dividends
Tax withholding payments associated with vested share-
based awards
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
See accompanying Notes to Consolidated Financial Statements.
709
323
94
216
(8)
(321)
—
767
51
(22)
—
(2)
(215)
(250)
(116)
60
173
14
43
19
61
108
2,790
—
(368)
91
1,040
—
(12)
751
901
(931)
(113)
56
(2,290)
(725)
(4)
(6)
(3,112)
289
153
125
102
(328)
(129)
(23)
46
(229)
—
(12)
2
—
74
15
158
(148)
—
(28)
(128)
47
119
939
1,130
(173)
—
343
20
—
1,320
396
(505)
(32)
109
(1,500)
(337)
(86)
(16)
(1,971)
115
143
58
83
(1)
(150)
—
—
—
—
—
—
44
(9)
(25)
(1)
(84)
124
19
(78)
(23)
21
1,185
—
(161)
—
—
—
2
(159)
27
(308)
—
50
(200)
(325)
(24)
(1)
(781)
23
452
824
1,276 $
6
294
530
824 $
(3)
242
288
530 $
79
117
142
51
31
(301)
(144)
—
—
—
—
—
24
320
(101)
(76)
(19)
82
81
2
(38)
(117)
(2)
751
—
(136)
—
—
—
(5)
(141)
1,387
(1,658)
—
34
(272)
(272)
(17)
(7)
(805)
(1)
(196)
484
288
CONSOLIDATED STATEMENT OF EQUITY
(In millions, except per share amounts)
Balance at June 30, 2017
Reclassifications due to adoption of accounting standards
Common
Stock
Other
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Noncontrolling
Interests
Total
Equity
$ 120 $ 1,741 $ 1,318 $
(276) $
— $ 2,903
(2)
(132)
(272)
—
—
—
—
—
—
—
update
Net income
Other comprehensive income
Shares issued under stock incentive plans
Shares issued under defined contribution plans
Share-based compensation expense
Tax withholding payments on share-based awards
Repurchases and retirement of common stock
Forward contract component of accelerated share repurchase —
—
Cash dividends ($2.28 per share)
118
Balance at June 29, 2018
—
Net income
—
Other comprehensive income
1
Shares issued under stock incentive plans
Shares issued under defined contribution plans
1
—
Share-based compensation expense
Tax withholding payments on share-based awards
—
Repurchases and retirement of common stock
Cash dividends ($2.74 per share)
Balance at June 28, 2019
Net income
Other comprehensive income
Shares issued for L3Harris Merger
Shares issued under stock incentive plans
Shares issued under defined contribution plans
Share-based compensation expense
Tax withholding payments on share-based awards
Repurchases and retirement of common stock
Cash dividends ($1.50 per share)
Fair value of noncontrolling interest recognized in purchase
—
119
—
—
104
2
—
—
—
—
—
35
—
699
—
—
—
—
33
—
31
49
—
(17) —
(161)
38
—
1,648
1,714
949
—
—
—
—
49
—
82
—
57
(24) —
(100)
—
2,173
1,778
822
—
—
—
—
19,696
—
107
—
101
122
—
(86) —
(1)
(99)
(325)
(7) (1,018)
(475)
(337)
—
accounting
Other, including distributions to noncontrolling interests
Balance at January 3, 2020
Net income
Other comprehensive income
Shares issued under stock incentive plans
Shares issued under defined contribution plans
Share-based compensation expense
Tax withholding payments on share-based awards
Repurchases and retirement of common stock
Cash dividends ($3.40 per share)
Other, including distributions to noncontrolling interests
Balance at January 1, 2021
—
—
218
—
—
1
1
—
—
—
—
(6) —
2,183
20,694
1,119
—
—
—
—
55
—
215
93
—
(4) —
(12) (2,046)
—
—
$ 208 $ 19,008 $ 2,347 $
—
1
(232)
(725)
2
See accompanying Notes to Consolidated Financial Statements.
80
(35)
—
109
—
—
—
—
—
—
—
(202)
—
(505)
—
—
—
—
—
—
(707)
—
199
—
—
—
—
—
—
—
—
—
(508)
—
(331)
—
—
—
—
—
—
—
(839) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12
—
—
—
—
—
—
—
—
—
699
109
33
31
49
(17)
(295)
38
(272)
3,278
949
(505)
50
83
57
(24)
(200)
(325)
3,363
834
199
19,800
109
101
122
(86)
(1,500)
(337)
155
155
(16)
(10)
157
22,744
(33) 1,086
(331)
—
56
—
216
—
93
—
(4)
—
(2,290)
—
(725)
—
(4)
(7)
117 $ 20,841
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Organization — L3Harris Technologies, Inc., together with its subsidiaries, is an agile global aerospace and defense
technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. We provide advanced defense
and commercial technologies across air, land, sea, space and cyber domains. We support government and commercial customers
in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their
prime contractors. Our products, systems and services have defense and civil government applications, as well as commercial
applications. As of January 1, 2021, we had approximately 48,000 employees, including approximately 19,000 engineers and
scientists.
Principles of Consolidation — Our Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc.
and its consolidated subsidiaries. As used in these Notes to Consolidated Financial Statements (these “Notes”), the terms
“L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its consolidated subsidiaries.
Intracompany transactions and accounts have been eliminated.
Amounts contained in this Report may not always add to totals due to rounding.
L3Harris Merger — See Note 5: Business Combination in these Notes for information related to the business combination
in which Harris Corporation (“Harris”) and L3 Technologies, Inc. (“L3”) combined their respective businesses in an all-stock
merger that resulted in our combined Company, L3Harris Technologies, Inc.
Due to the L3Harris Merger (as defined in Note 5: Business Combination in these Notes), which closed on June 29, 2019,
the fiscal year ended January 1, 2021 and two quarters ended January 3, 2020 reflect the results of the combined Company, while
fiscal years ended June 28, 2019 and June 29, 2018 reflect the results of only Harris operating businesses.
Organizational Structure — We implemented a new organizational structure effective on June 29, 2019, which resulted in
changes to our operating segments, which are also reportable segments and referred to as our business segments. During the
quarter ended April 3, 2020, we further adjusted our segment reporting to better align our businesses and transferred two
businesses between our Integrated Mission Systems and Space and Airborne Systems segments. The historical results, discussion
and presentation of our business segments as set forth in the accompanying Consolidated Financial Statements and these Notes
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.
Divestitures —See Note 3: Business Divestitures and Asset Sales in these Notes for information regarding the following
and other divestitures by us in 2019 and 2020: the divestiture of the Harris Night Vision business completed on September 13,
2019; the divestiture of the Security & Detection Systems and MacDonald Humfrey Automation solutions business completed on
May 4, 2020; the divestiture of the Applied Kilovolts and Analytical Instrumentation business completed on May 15, 2020; and
the divestiture of the EOTech business completed on July 31, 2020.
Fiscal Year — Through fiscal 2019, our fiscal year ended on the Friday nearest June 30. Commencing with the period from
June 29, 2019 through January 3, 2020 (“Fiscal Transition Period”), our fiscal year ends on the Friday nearest December 31. Our
fiscal year ended January 1, 2021 included 52 weeks, our Fiscal Transition Period included 27 weeks, and each of our fiscal years
ended June 28, 2019 and June 29, 2018 included 52 weeks. The unaudited prior four quarter period results for the comparative
period ended January 3, 2020 included 53 weeks and the unaudited prior two quarters period results for the comparative period
ended December 28, 2018 included 26 weeks. See Note 27: Transition Period Comparative Data (Unaudited) in these Notes for
additional information.
Use of Estimates — The preparation of financial statements in accordance with U.S. Generally Accepted Accounting
Principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the accompanying
Consolidated Financial Statements and these Notes and related disclosures. These estimates and assumptions are based on
experience and other information available prior to issuance of the accompanying Consolidated Financial Statements and these
Notes. Materially different results can occur as circumstances change and additional information becomes known.
Cash and Cash Equivalents — Cash equivalents are temporary cash investments with a maturity of three or fewer months
when purchased. These investments include accrued interest and are carried at the lower of cost or market.
Fair Value of Financial Instruments — The carrying amounts reflected in our Consolidated Balance Sheet for cash and
cash equivalents, accounts receivable, non-current receivables, notes receivable, accounts payable, short-term debt and long-term
variable-rate debt approximate their fair values. Fair values for long-term fixed-rate debt are primarily based on quoted market
prices for those or similar instruments. See Note 14: Debt in these Notes for additional information regarding fair values for our
81
long-term fixed-rate debt. A discussion of fair values for our derivative financial instruments is included under the caption
“Financial Instruments and Risk Management” in this Note 1: Significant Accounting Policies.
Fair Value Measurements — Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an
orderly transaction between market participants at the measurement date. Entities are required to maximize the use of observable
inputs and minimize the use of unobservable inputs in measuring fair value, and to utilize a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
•
•
•
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included within Level 1, including quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not
active; and inputs other than quoted prices that are observable or are derived principally from, or corroborated by,
observable market data by correlation or other means.
Level 3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of
the assets or liabilities, and reflect our own assumptions about the assumptions market participants would use in
pricing the asset or liability developed using the best information available in the circumstances.
In certain instances, fair value is estimated using quoted market prices obtained from external pricing services. In obtaining
such data from the pricing service, we have evaluated the methodologies used to develop the estimate of fair value in order to
assess whether such valuations are representative of fair value, including net asset value (“NAV”). Additionally, in certain
circumstances, the NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not
representative of fair value.
Accounts Receivable — We record receivables at net realizable value and they generally do not bear interest. This value
includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances
which is charged to the provision for doubtful accounts. We calculate this allowance at inception based on expected loss over the
life of the receivable. We consider historical write-offs by customer, level of past due accounts and economic status of the
customers. A receivable is considered delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are
recorded at the time a customer receivable is deemed uncollectible. See Note 6: Receivables in these Notes for additional
information regarding accounts receivable.
Contract Assets and Liabilities — The timing of revenue recognition, customer billings and cash collections results in
accounts receivable, contract assets and contract liabilities at the end of each reporting period. Contract assets include unbilled
amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage
of completion (“POC”) cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with
agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in
certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion.
Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue. Contract
assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The non-current portion of
contract liabilities is included within the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
Contract assets related to amounts withheld by customers until contract completion are not considered a significant
financing component of our contracts because the intent is to protect the customers from our failure to satisfactorily complete our
performance obligations. Payments received from customers in advance of revenue recognition are not considered a significant
financing component of our contracts because they are utilized to pay for contract costs within a one-year period or are requested
by us to ensure the customers meet their payment obligations. See Note 7: Contract Assets and Contract Liabilities in these Notes
for additional information.
Inventories — Inventories are valued at the lower of cost (determined by average and first-in, first-out methods) or net
realizable value. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory
primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements. See
Note 8: Inventories in these Notes for additional information regarding inventories.
Costs to Obtain or Fulfill a Contract — Costs to obtain a contract are incremental direct costs incurred to obtain a contract
with a customer, including sales commissions and dealer fees, and are capitalized if material. Costs to fulfill a contract include
costs directly related to a contract or specific anticipated contract (for example, mobilization, set-up and certain design costs) that
generate or enhance our ability to satisfy our performance obligations under these contracts. These costs are capitalized to the
extent they are expected to be recovered from the associated contract. Capitalized costs to obtain or fulfill a contract are amortized
to expense over the expected period of benefit for contracts with terms greater than one year on a systematic basis that is
consistent with the pattern of transfer of the associated goods and services to the customer. As a practical expedient, capitalized
costs to obtain or fulfill a contract with a term of one year or less are expensed as incurred. Capitalized costs to obtain or fulfill a
82
contract included in the “Other current assets” and “Other non-current assets” line items in our Consolidated Balance Sheet were
$14 million and $35 million, respectively, at January 1, 2021and $14 million and $48 million, respectively, at January 3, 2020.
Property, Plant and Equipment — Property, plant and equipment are carried on the basis of cost and include software
capitalized for internal use. Depreciation of buildings, machinery and equipment is computed by the straight-line and accelerated
methods. The estimated useful lives of buildings, including leasehold improvements, generally range between 2 and 45 years. The
estimated useful lives of machinery and equipment generally range between 2 and 10 years. Amortization of internal-use software
begins when the software is put into service and is based on the expected useful life of the software. The useful lives over which
we amortize internal-use software generally range between 3 and 10 years. See Note 9: Property, Plant and Equipment in these
Notes for additional information regarding property, plant and equipment.
Goodwill — We follow the acquisition method of accounting to record the assets and liabilities of acquired businesses at
their estimated fair value at the date of acquisition. We initially record goodwill for the amount the consideration transferred
exceeds the acquisition-date fair value of net identifiable assets acquired.
We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our business
segment level or one level below the business segment. We test our goodwill for impairment annually as of the first day of our
fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be
impairment. Such events or circumstances may include a significant deterioration in overall economic conditions, changes in the
business climate of our industry, a decline in our market capitalization, operating performance indicators, competition,
reorganizations of our business or the disposal of all or a portion of a reporting unit.
To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we elect to perform a
qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the reporting unit to determine
the probability that goodwill is impaired. If we determine it is more-likely-than-not that the fair value of the reporting unit is less
than its carrying amount, we measure any loss from an impairment by comparing the fair value of each reporting unit to its
carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered
impaired, and an impairment loss is recognized in an amount equal to that excess. See Note 3: Business Divestitures and Asset
Sales, Note 5: Business Combination and Note 10: Goodwill in these Notes for additional information regarding goodwill.
Long-Lived Assets, Including Intangible Assets — Long-lived assets, including finite-lived intangible assets, are
amortized to expense over their useful lives either according to the underlying economic benefit as reflected by future net cash
inflows or on a straight-line basis depending on the nature of the asset. We assess the recoverability of the carrying value of our
long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable. We evaluate the recoverability of such assets based on the expectations of
undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying
amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. Indefinite-lived
intangible assets are not amortized, but are tested annually for impairment. This testing compares the fair value of the asset to its
carrying amount, and, when appropriate, the carrying amount of these assets is reduced to its fair value. See Note 9: Property,
Plant and Equipment and Note 11: Intangible Assets in these Notes for additional information regarding long-lived assets and
intangible assets.
Leases — We recognize right-of-use (“ROU”) assets and lease liabilities in our balance sheet for operating and finance
leases under which we are the lessee. As a practical expedient, leases with a term of twelve months or less (including reasonably
expected extension periods) and leases with expected lease payments of less than $250 thousand are expensed as incurred. Also as
a practical expedient, we did not reassess lease classification for contracts in existence or expired prior to our adoption of
Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended (“ASC 842”) on June 29, 2019, and we
continue to account for these leases in accordance with Topic 840.
Operating lease assets and finance lease assets, respectively, are included in the “Operating lease right-of-use assets” and
“Property, plant and equipment” line items in our Consolidated Balance Sheet. Operating lease liabilities and finance lease
liabilities for obligations due within twelve months are included in the “Other accrued items” line item in our Consolidated
Balance Sheet. Operating lease liabilities and finance lease liabilities for obligations due longer than twelve months are included
in the “Operating lease liabilities” and “Other long-term liabilities” line items, respectively, in our Consolidated Balance Sheet.
ROU assets and lease liabilities are recognized based on the present value of future lease payments. Lease payments
primarily include base rent. We have some lease payments that are based on an index and changes to the index are treated as
variable lease payments and recognized in the period in which the obligation for those payments is incurred. Our lease payments
also include non-lease components such as real estate taxes and common-area maintenance costs. As a practical expedient, we
account for lease and non-lease components as a single component. In certain of our leases, the non-lease components are variable
and are therefore excluded from lease payments to determine the ROU asset. The present value of future lease payments is
determined using our incremental borrowing rate at lease commencement over the expected lease term. We use our incremental
borrowing rate because our leases do not provide an implicit lease rate. The expected lease term represents the number of years
83
we expect to lease the property, including options to extend or terminate the lease when it is reasonably certain that we will
exercise the option.
Operating lease expense is recognized as an operating cost on a straight-line basis over the expected lease term in our
Consolidated Statement of Income. For finance leases, the asset is amortized on a straight-line basis over the lease term, and
interest on the lease liability is recognized in interest expense.
We are a lessor for certain flight simulators. These leases meet the criteria for operating lease classification. Lease income
associated with these leases was not material in fiscal 2020 or in the two quarters ended January 3, 2020.
See Note 19: Lease Commitments in these Notes for additional information regarding leases.
Other Assets and Liabilities — No assets within the “Other current assets” or “Other non-current assets” line items in our
Consolidated Balance Sheet exceeded 5 percent of our total current assets or total assets, respectively, at January 1, 2021 or
January 3, 2020. No accrued liabilities or expenses within the “Other accrued items” or “Other long-term liabilities” line items in
our Consolidated Balance Sheet exceeded 5 percent of our total current liabilities or total liabilities, respectively, at January 1,
2021 or January 3, 2020.
Income Taxes — We follow the liability method of accounting for income taxes. We record the estimated future tax effects
of temporary 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. 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. See Note 23:
Income Taxes in these Notes for additional information regarding income taxes.
Standard Warranties — We record estimated standard warranty costs in the period in which the related products are
delivered. Factors that affect the estimated cost for warranties include the terms of the contract, the type and complexity of the
delivered product, number of installed units, historical experience and management’s assumptions regarding anticipated rates of
warranty claims and cost per claim. Our standard warranties start from the shipment, delivery or customer acceptance date and
continue as follows:
Segment
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Average Warranty Period
One to three years
One to three years
One to five years
One to two years
Because our products are manufactured, in many cases, to customer specifications and their acceptance is based on meeting
those specifications, we historically have experienced minimal warranty costs. Factors that affect our warranty liability include
the number of installed units, historical experience, anticipated delays in delivery of products to end customers, in-country support
for international sales and our assumptions regarding anticipated rates of warranty claims and cost per claim. We assess the
adequacy of our recorded warranty liabilities every quarter and make adjustments to the liability as necessary. See Note 12:
Accrued Warranties in these Notes for additional information regarding warranties.
Foreign Currency Translation — The functional currency for most international subsidiaries is the local currency. Assets
and liabilities are translated at current rates of exchange and income and expense items are translated at the weighted average
exchange rate for the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.
Stock Options and Other Share-Based Compensation — We measure compensation cost for all share-based payments
(including employee stock options) at fair value and recognize cost over the vesting period, with forfeitures recognized as they
occur. It is our practice to issue shares when options are exercised. See Note 16: Stock Options and Other Share-Based
Compensation in these Notes for additional information regarding share-based compensation.
Restructuring and Other Exit Costs — We record restructuring and other exit costs at their fair value when incurred. In
cases where employees are required to render service until they are terminated in order to receive the termination benefits and will
be retained beyond the minimum retention period, we record the expense ratably over the future service period. These costs are
included as a component of the “Engineering, selling and administrative expenses” line items in our Consolidated Statement of
Income. See Note 4: Restructuring and Other Exit Costs in these Notes for additional information regarding restructuring and
other exit costs.
Revenue Recognition — We account for a contract when it has approval and commitment from all parties, the rights and
payment terms of the parties can be identified, the contract has commercial substance and the collectability of the consideration,
or transaction price, is probable. Our contracts are often subsequently modified to include changes in specifications, requirements
84
or price that may create new or change existing enforceable rights and obligations. We do not account for contract modifications
(including unexercised options) or follow-on contracts until they meet the requirements noted above to account for a contract.
At the inception of each contract, we evaluate the promised goods and services to determine whether the contract should be
accounted for as having one or more performance obligations. A performance obligation is a promise to transfer a distinct good or
service to a customer and represents the unit of accounting for revenue recognition. A substantial majority of our revenue is
derived from long-term development and production contracts involving the design, development, manufacture or modification of
aerospace and defense products and related services according to the customers’ specifications. Due to the highly interdependent
and interrelated nature of the underlying goods and services and the significant service of integration that we provide, which often
result in the delivery of multiple units, we account for these contracts as one performance obligation. For contracts that include
both development/production and follow-on support services (for example, operations and maintenance), we generally consider
the follow-on services distinct in the context of the contract and account for them as separate performance obligations.
Additionally, a significant amount of our revenue is derived from contracts to provide multiple distinct goods to a customer where
the goods can readily be sold to other customers based on their commercial nature and, accordingly, these goods are accounted for
as separate performance obligations. Shipping and handling costs incurred after control of a product has transferred to the
customer (for example, in free on board shipping arrangements) are treated as fulfillment costs and, therefore, are not accounted
for as separate performance obligations. Also, we record taxes collected from customers and remitted to governmental authorities
on a net basis in that they are excluded from revenue.
As noted above, our contracts are often subsequently modified to include changes in specifications, requirements or price.
Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing
contract or as a separate contract. Often, the deliverables in our contract modifications are not distinct from the existing contract
due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are
accounted for as if they are part of the existing contract, and we may be required to recognize a cumulative catch-up adjustment to
revenue at the date of the contract modification.
We determine the transaction price for each contract based on our best estimate of the consideration we expect to receive,
which includes assumptions regarding variable consideration, such as award and incentive fees. These variable amounts are
generally awarded upon achievement of certain negotiated performance metrics, program milestones or cost targets and can be
based upon customer discretion. We include such estimated amounts in the transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable
consideration is resolved. We estimate variable consideration primarily using the most likely amount method.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based
on the relative standalone selling price of the 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
bundle with any other products or services). Our contracts with the U.S. Government, including foreign military sales contracts,
are subject to the Federal Acquisition Regulations (“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, we also generally
use the expected cost plus a reasonable profit margin approach to determine standalone selling price. In addition, we determine
standalone selling price for certain contracts that are commercial in nature based on observable selling prices.
We recognize revenue for each performance obligation when (or as) the performance obligation is satisfied by transferring
control of the promised goods or services underlying the performance obligation to the customer. The transfer of control can
occur over time or at a point in time.
Point in Time Revenue Recognition: Our performance obligations are satisfied at a point in time unless they meet at least
one of the following criteria, in which case they are satisfied over time:
•
•
•
The customer simultaneously receives and consumes the benefits provided by our performance as we perform;
Our performance creates or enhances an asset (for example, work in process) that the customer controls as the
asset is created or enhanced; or
Our performance does not create an asset with an alternative use to us, and we have an enforceable right to
payment for performance completed to date.
As noted above, a significant amount of our revenue is derived from contracts to provide multiple distinct goods to a
customer that are commercial in nature and can readily be sold to other customers. These performance obligations do not meet
any of the three criteria listed above to recognize revenue over time; therefore, we recognize revenue at a point in time, generally
when the goods are received and accepted by the customer.
85
Over Time Revenue Recognition: For U.S. Government development and production contracts, there is a continuous transfer
of control of the asset to the customer as it is being produced based on FAR clauses in the contract that provide the customer with
lien rights to work in process and allow the customer to unilaterally terminate the contract for convenience, pay us for costs
incurred plus a reasonable profit and take control of any work in process. This also typically applies to our contracts with prime
contractors for U.S. Government development and production contracts, when the above-described FAR clauses are flowed down
to us by the prime contractors.
Our non-U.S. Government development and production contracts, including international direct commercial contracts and
U.S. contracts with state and local agencies, utilities, commercial and transportation organizations, often do not include the FAR
clauses described above. However, over time revenue recognition is typically supported either through our performance creating
or enhancing an asset that the customer controls as it is created or enhanced or based on other contractual provisions or relevant
laws that provide us with an enforceable right to payment for our work performed to date plus a reasonable profit if our customer
were permitted to and did terminate the contract for reasons other than our failure to perform as promised.
Revenue for our development and production contracts is recognized over time, typically using the POC cost-to-cost
method, 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 transfer of control of the asset to the customer.
For performance obligations to provide services that are satisfied over time, we recognize revenue either on a straight-line
basis, the POC cost-to-cost method, or based on the right-to-invoice method (i.e., based on our right to bill the customer),
depending on which method best depicts transfer of control to the customer.
Contract Estimates: Under the POC cost-to-cost method of revenue recognition, a single estimated profit margin is used to
recognize profit for each performance obligation over its period of performance. Recognition of profit on a contract requires
estimates of the total cost at completion and transaction price and the measurement of progress towards completion. Due to the
long-term nature of many of our contracts, developing the estimated total cost at completion and total transaction price often
requires judgment. Factors that must be considered in estimating the cost of the work to be completed include the nature and
complexity of the work to be performed, subcontractor performance and the risk and impact of delayed performance. Factors that
must be considered in estimating the total transaction price include contractual cost or performance incentives (such as incentive
fees, award fees and penalties) and other forms of variable consideration as well as our historical experience and our expectation
for performance on the contract. At the outset of each contract, we gauge its complexity and perceived risks and establish an
estimated total cost at completion in line with these expectations. After establishing the estimated total cost at completion, we
follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing
contracts 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.
Net EAC adjustments had the following impact to earnings for the periods presented:
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
(In millions, except per share amounts)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Net EAC adjustments, before income taxes
Net EAC adjustments, net of income taxes
Net EAC adjustments, net of income taxes, per diluted share
$
$
$
400 $
300 $
1.39 $
137 $
103 $
0.46 $
17 $
13 $
(19)
(13)
0.10 $
(0.11)
Revenue recognized from performance obligations satisfied in prior periods was $493 million, $170 million, $59 million
and $43 million in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively.
Bill-and-Hold Arrangements: For certain of our contracts, the finished product may temporarily be stored at our location
under a bill-and-hold arrangement. Revenue is recognized on bill-and-hold arrangements at the point in time when the customer
obtains control of the product and all of the following criteria have been met: the arrangement is substantive (for example, the
customer has requested the arrangement); the product is identified separately as belonging to the customer; the product is ready
for physical transfer to the customer; and we do not have the ability to use the product or direct it to another customer. In
determining when the customer obtains control of the product, we consider certain indicators, including whether we have a
86
present right to payment from the customer, whether title and/or significant risks and rewards of ownership have transferred to the
customer and whether customer acceptance has been received (in the case of arrangements with customer acceptance provisions).
Backlog: Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we
expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which
funding is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential
orders under ordering-type contracts, such as indefinite delivery, indefinite quantity (“IDIQ”) contracts.
Retirement and Post-Employment Benefits — Defined benefit plans that we sponsor are accounted for as defined benefit
pension and other postretirement defined benefit plans (collectively referred to as “defined benefit plans”). Accordingly, the
funded or unfunded position of each defined benefit plan is recorded in our Consolidated Balance Sheet. Actuarial gains and
losses and prior service costs or credits that have not yet been recognized through income are recorded in the “Accumulated other
comprehensive loss” line item within equity in our Consolidated Balance Sheet, net of taxes, until they are amortized as a
component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to defined
benefit plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected
rates of return on plan assets, the rate of future compensation increases, mortality, termination, and health care cost trend rates.
We develop each assumption using relevant Company experience in conjunction with market-related data. Actuarial assumptions
are reviewed annually with third-party consultants and adjusted as appropriate. For the recognition of net periodic benefit cost, the
calculation of the long-term expected return on plan assets is generally derived using a market-related value of plan assets based
on yearly average asset values at the measurement date over the last five years, to be phased in over five years. 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. The fair value of plan assets is
determined based on market prices or estimated fair value at the measurement date. The measurement date for valuing defined
benefit plan assets and obligations is the end of the month closest to our fiscal year end.
We record the service cost component of net periodic benefit income in the “Cost of product sales and services” and
“Engineering, selling and administrative expenses” line items in our Consolidated Statement of Income. The non-service cost
components of net periodic benefit income are included in the “Non-operating income” line item in our Consolidated Statement of
Income.
We also provide retirement benefits to many of our U.S.-based employees through defined contribution retirement plans,
including 401(k) plans and certain non-qualified deferred compensation plans. The defined contribution retirement plans have
matching and savings elements. Company contributions to the retirement plans are based on employees’ savings with no other
funding requirements. We may make additional contributions to the retirement plans at our discretion. Retirement and
postretirement benefits also include unfunded limited healthcare plans for U.S.-based retirees and employees on long-term
disability. We estimate benefits for these plans using actuarial valuations that are based in part on certain key assumptions we
make, including the discount rate, the expected long-term rate of return on plan assets, the rate of future compensation increases,
healthcare cost trend rates and employee turnover and mortality, each appropriately based on the nature of the plans. We accrue
the cost of these benefits during an employee’s active service life, except in the case of our healthcare plans for disabled
employees, the costs of which we accrue when the disabling event occurs.
See Note 15: Pension and Other Postretirement Benefits in these Notes for additional information regarding our defined
benefit plans.
Environmental Expenditures — We capitalize environmental expenditures that increase the life or efficiency of property
or that reduce or prevent environmental contamination. We accrue environmental expenses resulting from existing conditions that
relate to past or current operations. Our accruals for environmental expenses are recorded on a site-by-site basis when it is
probable a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and
existing technologies available to us. Our accruals for environmental expenses represent the best estimates related to the
investigation and remediation of environmental media such as water, soil, soil vapor, air and structures, as well as related legal
fees, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress of investigation
and remediation efforts and changes in facts and legal circumstances. If the timing and amount of future cash payments for
environmental liabilities are fixed or reliably determinable, we generally discount such cash flows in estimating our accrual.
As of January 1, 2021, we were named, and continue to be named, as a potentially responsible party at 84 sites where future
liabilities could exist. These sites included 9 sites owned by us, 65 sites associated with our former and current locations or
operations and 10 hazardous waste treatment, storage or disposal facility sites not owned by us that contain hazardous substances
allegedly attributable to us from past operations.
Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and
regulations for identified sites was $117 million. The current portion of our estimated environmental liability is included in the
“Other accrued items” line item and the non-current portion is included in the “Other long-term liabilities” line item in our
Consolidated Balance Sheet.
87
The relevant factors we considered in estimating our potential liabilities under applicable environmental statutes and
regulations included some or all of the following as to each site: incomplete information regarding particular sites and other
potentially responsible parties; uncertainty regarding the extent of investigation or remediation; our share, if any, of liability for
such conditions; the selection of alternative remedial approaches; changes in environmental standards and regulatory
requirements; potential insurance proceeds; cost-sharing agreements with other parties and potential indemnification from
successor and predecessor owners of these sites. We do not believe that any uncertainties regarding these relevant factors will
materially affect our potential liability under applicable environmental statutes and regulations. We believe the total amount
accrued is appropriate based on existing facts and circumstances, although we note the total amount accrued may increase or
decrease in future years.
Financial Guarantees and Commercial Commitments — Financial guarantees are contingent commitments issued to
guarantee the performance of a customer to a third party in borrowing arrangements, such as commercial paper issuances, bond
financings and similar transactions. As of January 1, 2021, we did not have material financial guarantees and there were no such
contingent commitments accrued for in our Consolidated Balance Sheet.
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 and to obtain insurance policies with our
insurance carriers.
Financial Instruments and Risk Management — In the normal course of business, we are exposed to global market risks,
including the effect of changes in foreign currency exchange rates. We use derivative instruments to manage our exposure to such
risks and formally document all relationships between hedging instruments and hedged items, as well as the risk-management
objective and strategy for undertaking hedge transactions. We may also enter into derivative instruments that are not designated as
hedges and do not qualify for hedge accounting. We recognize all derivatives in our Consolidated Balance Sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities
or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in
earnings. We do not hold or issue derivatives for speculative trading purposes. See Note 20: Derivative Instruments and Hedging
Activities in these Notes for additional information regarding our use of derivative instruments.
Income From Continuing Operations Per Share — For all periods presented in our Consolidated Financial Statements
and these Notes, income from continuing operations per share is computed using the two-class method. The two-class method of
computing income from continuing operations per share is an earnings allocation formula that determines income from continuing
operations per share for common stock and any participating securities according to dividends paid and participation rights in
undistributed earnings. Historically, our restricted stock awards and restricted stock unit awards generally have met the definition
of participating securities and were included in the computations of income from continuing operations per basic and diluted
common share. However, restricted stock awards and restricted stock unit awards granted during fiscal 2020 and the two quarters
ended January 3, 2020 did not meet the definition of participating securities. Under the two-class method, income from continuing
operations per common share is computed by dividing the sum of earnings distributed to common shareholders and undistributed
earnings allocated to common shareholders by the weighted-average number of common shares outstanding for the period.
Income from continuing operations per diluted common share is computed using the more dilutive of the two-class method or the
treasury stock method. In applying the two-class method, undistributed earnings are allocated to both common shares and
participating securities based on the weighted-average shares outstanding during the period. See Note 17: Income From
Continuing Operations Per Share in these Notes for additional information.
Business Segments — We evaluate each business segment’s performance based on its operating income or loss, which we
define as profit or loss from operations before income taxes, including pension income and excluding interest income and
expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from
securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing
segment recognizes a profit that is eliminated. The “Corporate eliminations” line item in Note 25: Business Segments in these
Notes represents the elimination of intersegment sales. Corporate expenses are primarily allocated to our business segments using
an allocation methodology prescribed by U.S. Government regulations for government contractors. The “Unallocated corporate
expenses and corporate eliminations” line item in Note 25: Business Segments in these Notes represents the portion of corporate
expenses not allocated to our business segments and elimination of intersegment profits. The “Pension adjustment” line item in
Note 25: Business Segments in these Notes represents the reconciliation of the non-service components of net periodic pension
and postretirement benefit costs, which are a component of segment operating income but are included in the “Non-operating
income” line item in our Consolidated Statement of Income. The non-service components of net periodic pension and
postretirement benefit costs include interest cost, expected return on plan assets, amortization of net actuarial gain or loss and
effect of curtailments or settlements.
88
NOTE 2: ACCOUNTING CHANGES OR RECENT ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Standards
Effective January 3, 2020, we adopted Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments on a modified retrospective basis. The new standard replaces the
existing impairment model, under which impairment of financial instruments, including accounts receivable and contract assets, is
recognized when it becomes probable a loss has been incurred, with a model that requires recognition of expected credit losses
over the estimated life of an asset at inception and requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. Adopting this standard did not have a material impact on our financial condition,
results of operations, cash flows or equity.
NOTE 3: BUSINESS DIVESTITURES AND ASSET SALES
Divestitures
EOTech business. On July 31, 2020, we completed the divestiture of our EOTech business for $42 million (net cash
proceeds of $40 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price
adjustments as set forth in the definitive sale agreement, and recognized a pre-tax gain of $2 million, which is included in the
“Business divestiture-related (losses) gains” line item in our Consolidated Statement of Income for fiscal 2020. The EOTech
business, which was acquired in connection with the L3Harris Merger on June 29, 2019, manufactures holographic sighting
systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. The
operating results of the EOTech business through the date of divestiture are reported as part of our Communication Systems
segment. Income before income taxes of the EOTech business through the date of divestiture was not material for fiscal 2020 or
the two quarters ended January 3, 2020.
In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we tested goodwill
assigned to the EOTech business disposal group and goodwill assigned to the retained businesses of the reporting unit for
impairment and concluded that no goodwill impairment existed at the time the held for sale criteria were met.
Applied Kilovolts and Analytical Instrumentation business. On May 15, 2020, we completed the divestiture of our Applied
Kilovolts and Analytical Instrumentation business for net cash proceeds of $12 million, after selling costs and purchase price
adjustments as set forth in the definitive sale agreement. The operating results of the Applied Kilovolts and Analytical
Instrumentation business through the date of divestiture are reported as part of our Space and Airborne Systems segment. Income
before income taxes of the Applied Kilovolts and Analytical Instrumentation business through the date of divestiture was not
material in fiscal 2020, the two quarters ended January 3, 2020, or fiscal 2019 or 2018.
In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we tested goodwill
assigned to the Applied Kilovolts and Analytical Instrumentation business disposal group and goodwill assigned to the retained
businesses of the reporting unit for impairment and concluded that goodwill related to the disposal group was impaired. As a
result, we recorded a non-cash impairment charge of $5 million, which is included in the “Impairment of goodwill and other
assets” line item in our Consolidated Statement of Income for fiscal 2020.
Airport security and automation business. On May 4, 2020, we completed the divestiture of the Security & Detection
Systems and MacDonald Humfrey Automation solutions business (“airport security and automation business”) to Leidos, Inc. for
$1 billion (net cash proceeds of $987 million after selling costs and purchase price adjustments as set forth in the definitive sale
agreement, and recognized a pre-tax loss of $23 million, which is included in the “Business divestiture-related (losses) gains” line
item in our Consolidated Statement of Income for fiscal 2020. The airport security and automation business, which was acquired
in connection with the L3Harris Merger on June 29, 2019, provides solutions used by the aviation and transportation industries,
regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities.
The operating results of the airport security and automation business through the date of divestiture are reported as part of our
Aviation Systems segment. Income before income taxes of the airport security and automation business through the date of
divestiture was not material in fiscal 2020, and was $27 million in the two quarters ended January 3, 2020.
Because the then-pending divestiture of the airport security and automation business would represent the disposal of a
portion of a reporting unit within our Aviation Systems segment, we assigned $531 million of goodwill to the airport security and
automation business disposal group on a relative fair value basis during the quarter ended April 3, 2020, when the held for sale
criteria were met. In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we tested
goodwill assigned to the disposal group and goodwill assigned to the retained businesses of the reporting unit for impairment and
concluded that no goodwill impairment existed at the time the held for sale criteria were met in late January 2020. However,
indicators of potential impairment of goodwill related to the retained businesses of the reporting unit were present at April 3, 2020
and July 3, 2020 due to the downturn in the commercial aviation market that resulted from the novel COVID-19 strain of
coronavirus pandemic (“COVID”) and its impact on global air traffic and customer demand. See Note 10: Goodwill in these
Notes for additional information regarding goodwill impairment.
89
VSE Disposal Group. During the quarter ended July 3, 2020, we determined the criteria to be classified as held for sale were
met with respect to certain portions of our Voice Switch Enterprise business that we planned to divest (“VSE disposal group”);
consequently, the assets and liabilities of the VSE disposal group are classified as held for sale in our Consolidated Balance Sheet
as of January 1, 2021. Income before income taxes of the VSE disposal group was not material in fiscal 2020, the two quarters
ended January 3, 2020, or fiscal 2019 or 2018. The VSE disposal group is part of our Aviation Systems segment and provides
voice over internet protocol systems for air traffic management communications.
Because the potential divestiture of the VSE disposal group would represent the disposal of a portion of a reporting unit
within our Aviation Systems segment, we assigned $14 million of goodwill to the VSE disposal group on a relative fair value
basis during the quarter ended July 3, 2020, when the held for sale criteria were met. In connection with the preparation of our
financial statements for fiscal 2020, we recognized a $32 million pre-tax loss to reduce the assets of the VSE disposal group to
fair value, which included a non-cash goodwill impairment charge of $14 million (based on the excess of the carrying value of the
business over estimated net cash proceeds, after estimated purchase price adjustments) and a $18 million non-cash remeasurement
loss to reduce the remaining assets to fair value. These charges are included in the “Impairment of goodwill and other assets” and
“Business divestiture-related (losses) gains” line items in our Consolidated Statement of Income for fiscal 2020. The carrying
amounts of assets and liabilities of the VSE disposal group that were classified as held for sale in our Consolidated Balance Sheet
at January 1, 2021 were $35 million and $13 million, respectively. We expect to complete the sale of the VSE disposal group by
the end of the first half of 2021.
Harris Night Vision. On September 13, 2019, we completed the sale of the Harris Night Vision business, a global supplier of
high-performance, vision-enhancing products for U.S. and allied military and security forces and commercial customers, to Elbit
Systems of America, LLC, a subsidiary of Elbit Systems, Ltd., for $350 million (net cash proceeds of $343 million after selling
costs and estimated purchase price adjustments), subject to final customary purchase price adjustments pursuant to a definitive
agreement we entered into on April 4, 2019 as part of the regulatory process in connection with the L3Harris Merger and
recognized a pre-tax gain of $229 million in the “Business divestiture-related (losses) gains” line item in our Consolidated
Statement of Income during the two quarters ended January 3, 2020. During the quarter ended July 3, 2020, we finalized the
purchase price adjustments and recognized a $12 million non-cash adjustment related to working capital, which decreased the
gain initially recognized and is included in the “Business divestiture-related (losses) gains” line item in our Consolidated
Statement of Income for fiscal 2020.
Through fiscal 2019, the Harris Night Vision business was reported as part of our former Communication Systems segment.
As a result of the then-pending divestiture, the Harris Night Vision business was not included in any of our new business
segments and, consequently, the operating results of the Harris Night Vision business are included in “Other non-reportable
business segments” for the two quarters ended January 3, 2020 and fiscal 2019 and 2018 in this Report. Income before income
taxes for the Harris Night Vision business was not material for the two quarters ended January 3, 2020 and was $27 million and
$20 million for fiscal 2019 and 2018, respectively.
For purposes of allocating goodwill to the disposal groups above, 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 and comparable publicly reported transactions, and projected discounted cash flows. These fair
value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and
unobservable measurement inputs. See Note 1: Significant Accounting Policies in these Notes for additional information
regarding the fair value hierarchy.
Asset Sales
Stormscope. On August 30, 2019, we completed the sale of the Stormscope product line for $20 million in cash and
recorded a pre-tax gain of $12 million in the “Engineering, selling and administrative expenses” line item of our Consolidated
Statement of Income for the two quarters ended January 3, 2020.
NOTE 4: RESTRUCTURING AND OTHER EXIT COSTS
We record charges for restructuring and other exit activities related to sales or terminations of product lines, closures or
relocations of business activities, changes in management structure, and fundamental reorganizations that affect the nature and
focus of operations. Such charges include termination benefits, contract termination costs and costs to consolidate facilities or
relocate employees. We record these charges at their fair value when incurred. In cases where employees are required to render
service until they are terminated in order to receive the termination benefits and will be retained beyond the minimum retention
period, we record the expense ratably over the future service period. These charges are included as a component of the
“Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income.
L3Harris Merger-Related Restructuring Costs. We recorded restructuring charges of $10 million during fiscal 2020 and
$117 million during the two quarters ended January 3, 2020 in connection with the L3Harris Merger. We had liabilities of $26
90
million and $58 million at January 1, 2021 and January 3, 2020, respectively, associated with these restructuring activities. We
expect that the majority of the remaining liabilities as of January 1, 2021 will be paid in the next twelve months.
During the quarter ended January 3, 2020, we finalized our plan to close L3’s former headquarters offices located at 600
Third Avenue in New York City. On December 3, 2019, we entered into an amended lease agreement with the landlord, which
reduced the number of leased floors from six to five effective October 1, 2020 through the expiration of the lease on October 31,
2031. We recorded a $2 million lease modification and a $46 million impairment charge for ROU and other assets in connection
with the modification of the lease. These charges are included in the “Engineering, selling and administrative expenses” and
“Impairment of goodwill and other assets” line items in our Consolidated Statement of Income for the two quarters ended January
3, 2020. During 2020 we exited the facility and executed agreements to sublease three floors to multiple tenants and plan to
sublease the remaining floors. We evaluated the lease for further impairment as commercial real estate conditions in New York
City deteriorated due to COVID, but determined no further impairment was necessary.
COVID Restructuring Costs. During fiscal 2020, we recorded $15 million of restructuring charges, including workforce
reductions and other exit costs within our Aviation Systems segment associated with the COVID-related downturn in our
commercial aviation businesses and its impact on global air traffic and customer operations. In addition, during fiscal 2020, we
recorded $1 million of restructuring charges for workforce reductions in our Communication Systems segment associated with the
COVID impact to local and state government customers of our Public Safety business sector. At January 1, 2021, we had
liabilities of $8 million associated with COVID-related restructuring actions, of which substantially all will be paid in the next
twelve months.
Other Restructuring and Exit Costs. In fiscal 2018, we recorded $5 million for integration and other costs in connection
with our acquisition of Exelis Inc., which we acquired in fiscal 2015 (“Exelis”). At January 1, 2021, we had liabilities of
$5 million associated with these integration activities and previous restructuring actions, which represent lease obligations
associated with exited facilities with remaining terms of three years or less.
In fiscal 2018, we also recorded $45 million of charges in connection with our decision to transition and exit a commercial
line of business that had been developing an air-to-ground radio access network for the business aviation market based on the
Long Term Evolution (“LTE”) standard operating in the unlicensed spectrum The liability associated with this exit activity was
paid in fiscal 2019.
Our liabilities for restructuring and other exit costs are included in the “Compensation and benefits,” “Other accrued items”
and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Changes to our restructuring and other exit costs
liabilities in fiscal 2020 and the two quarters ended January 3, 2020 were as follows:
(In millions)
Balance at June 28, 2019
Additional provisions
Payments
Other
Balance at January 3, 2020
Additional provisions
Payments
Other
Balance at January 1, 2021
Employee
severance-related
costs
Facilities
consolidation and
other exit costs(1)
Total
$
— $
117
(62)
3
58
26
(52)
2
16 $
—
(1)
(8)
7
—
(2)
—
$
34 $
5 $
16
117
(63)
(5)
65
26
(54)
2
39
_______________
(1) Excludes our operating lease liability related to L3’s former headquarter offices.
NOTE 5: BUSINESS COMBINATION
On October 12, 2018, Harris Corporation, a Delaware corporation, entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with L3 Technologies, Inc., a Delaware corporation, and Leopard Merger Sub Inc., a Delaware corporation
and a newly formed, direct wholly-owned subsidiary of Harris (“Merger Sub”), pursuant to which Harris and L3 agreed to
combine their respective businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3,
with L3 continuing as the surviving corporation and a direct wholly-owned subsidiary of Harris (the “L3Harris Merger”).
The closing of the L3Harris Merger occurred on June 29, 2019 (“Closing Date”), the first day of our Fiscal Transition
Period. Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.” and each share of L3
91
common stock converted into the right to receive 1.30 shares (“Exchange Ratio”) of L3Harris common stock. Shares of L3Harris
common stock, which previously traded under ticker symbol “HRS” on the New York Stock Exchange prior to completion of the
L3Harris Merger, are traded under ticker symbol “LHX” following completion of the L3Harris Merger. L3Harris was owned on a
fully diluted basis 54 percent by Harris shareholders and 46 percent by L3 shareholders immediately following the completion of
the L3Harris Merger.
L3 was a prime contractor in intelligence, surveillance and reconnaissance (“ISR”) systems, aircraft sustainment (including
modifications and fleet management of special mission aircraft), simulation and training, night vision and image intensification
equipment, and security and detection systems. L3 also was a leading provider of a broad range of communication, electronic and
sensor systems used on military, homeland security and commercial platforms. L3 employed approximately 31,000 employees
and its customers included the U.S. Department of Defense and its prime contractors, the U.S. Intelligence Community, the U.S.
Department of Homeland Security, foreign governments and domestic and foreign commercial customers. L3 generated calendar
2018 revenue of approximately $10 billion.
In connection with completion of the L3Harris Merger, we issued to L3 shareholders 104 million shares of L3Harris
common stock, the trading price of which was $189.13 per share as of the Closing Date. In addition, we issued L3Harris share-
based awards in replacement of certain outstanding L3 share-based awards held by employees.
We accounted for the L3Harris Merger under the acquisition method of accounting, which required us to measure
identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at their fair values as of the
Closing Date, with the excess of the consideration transferred over those fair values recorded as goodwill.
Our calculation of consideration transferred is as follows:
(In millions, except exchange ratio and per share amounts)
June 29, 2019
Outstanding shares of L3 common stock as of June 28, 2019
L3 restricted stock unit awards settled in shares of L3Harris common stock
L3 performance unit awards settled in shares of L3Harris common stock
Exchange Ratio
Shares of L3Harris common stock issued for L3 outstanding common stock
Price per share of L3Harris common stock as of June 28, 2019
Fair value of L3Harris common stock issued for L3 outstanding common stock
Fair value of replacement restricted stock units attributable to merger consideration
Fair value of L3Harris stock options issued to replace L3 outstanding stock options
Withholding tax liability incurred for converted L3 share-based awards
Fair value of replacement award consideration
Fair value of total consideration
Less cash acquired
Total net consideration transferred
79.63
0.41
0.04
80.08
1.30
104.10
189.13
19,689
10
101
45
156
19,845
(1,195)
18,650
$
$
$
92
Our preliminary fair value estimates and assumptions to measure the assets acquired, liabilities assumed and noncontrolling
interests in L3 were subject to change as we obtained additional information during the measurement period. We completed our
accounting for the L3Harris Merger during the quarter ended July 3, 2020. The following table summarizes the initial fair value
amounts recognized during the quarter ended September 27, 2019 for each major class of assets acquired or liability assumed and
noncontrolling interests, as well as adjustments during the measurement period:
(In millions)
Receivables
Contract assets
Inventories
Other current assets
Property, plant and equipment
Operating lease right-of-use assets
Goodwill
Other intangible assets
Other non-current assets
Total assets acquired
Accounts payable
Contract liabilities
Other current liabilities
Operating lease liabilities
Defined benefit plans
Long-term debt, net
Other long-term liabilities
Total liabilities assumed
Net assets acquired
Noncontrolling interests
Total net consideration transferred
Preliminary Fair Value
as of September 27, 2019
Measurement
Period Adjustments
Adjusted Fair Value
as of July 3, 2020
$
$
$
$
849 $
1,708
1,056
517
1,176
704
15,423
6,768
327
28,528 $
898 $
722
772
715
1,411
3,548
1,661
9,727
18,801
(151)
18,650 $
(20) $
(57)
(73)
(16)
43
108
(841)
1,690
(13)
821 $
(13) $
4
301
45
—
—
480
817
4
(4)
— $
829
1,651
983
501
1,219
812
14,582
8,458
314
29,349
885
726
1,073
760
1,411
3,548
2,141
10,544
18,805
(155)
18,650
Additionally, we acquired certain off-market customer contracts in connection with the L3Harris Merger, and we have
recorded liabilities as well as separate identifiable intangible assets for the acquisition-date fair value of the off-market
components of these customer contracts. In aggregate, the acquisition-date fair value of the off-market components was a net
liability of $139 million. We measured the fair value of these components as the present value of the amount by which the terms
of the contract with the customer deviated from the terms that a market participant could have achieved at the Closing Date. The
off-market components of these contracts will be recognized as an increase to, or reduction of, revenue as we incur costs to satisfy
the associated performance obligations. We recognized $58 million of revenue in fiscal 2020 for amortization of net off-market
contract liabilities (including the cumulative effect of amortization that would have been recognized in the Fiscal Transition
Period). We recognized $13 million for amortization of net off-market contract liabilities in the Fiscal Transition Period. Future
estimated revenue from the amortization of net off-market contract liabilities (based on the estimated pattern of cash flows to be
incurred to satisfy associated performance obligations) is as follows: $20 million in 2021, $15 million in 2022, $10 million in
2023 and $23 million thereafter.
The goodwill resulting from the L3Harris Merger was primarily associated with L3’s market presence and leading positions,
growth opportunities in the markets in which L3 businesses operate, experienced work force and established operating
infrastructures. Most of the goodwill related to the L3Harris Merger is nondeductible for tax purposes.
See Note 10: Goodwill in these Notes for more information regarding the allocation of goodwill by business segment.
93
The following table provides further detail of the fair value and weighted-average amortization period of identified
intangible assets acquired by major intangible asset class:
Identifiable intangible assets acquired:
Customer relationships — government
Customer relationships — commercial
Contract backlog
Trade names — divisions
Developed technologies
Total identifiable intangible assets subject to amortization
Trade names — corporate
In-process research and development
Total identifiable intangible assets
L3Harris Merger-related charges were as follows:
Weighted Average
Amortization
Period
Total
(In years)
(In millions)
14
15
3
9
7
13
indefinite
n/a
$
$
5,082
860
19
123
550
6,634
1,803
21
8,458
(In millions)
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Year
Ended
January 1, 2021
January 3, 2020
June 28, 2019
Equity award acceleration charges, recognized upon change in control
Transaction costs, recognized as incurred
Additional cost of sales related to the fair value step-up in inventory sold
Restructuring charges, recognized as incurred
Facility consolidation costs
Integration costs, recognized as incurred
Total L3Harris Merger-related charges
$
$
—
—
31
10
—
130
171
$
$
70 $
83
142
117
48
72
532 $
—
31
—
—
—
34
65
See Note 4: Restructuring and Other Exit Costs in these Notes for additional information regarding severance and facility
consolidation costs.
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, which is included in the “Cost of product sales and services” line item in our Consolidated Statement of Income
and facility consolidation costs, the majority of which is included in the “Impairment of goodwill and other assets” line item in
our Consolidated Statement of Income.
Pro Forma Results
The following unaudited consolidated pro forma results of operations for the four quarters ended January 3, 2020 combines
reported results for the two quarters ended January 3, 2020 with the pro forma results for the two quarters ended June 28, 2019.
The pro forma results for the two quarters ended June 28, 2019 were prepared on a pro forma basis, as if the L3Harris Merger had
been completed on June 30, 2018, the first day of Harris’ fiscal 2019, after including any post-merger adjustments directly
attributable to the L3Harris Merger, such as the sale of the Harris Night Vision business, and after including the impact of
adjustments such as amortization of identifiable intangible assets, as well as the related income tax effects. This pro forma
presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our
results of operations that actually would have been obtained had the L3Harris Merger been completed on the assumed date or for
the period presented, or which may be realized in the future.
94
(In millions)
Revenue from product sales and services — as reported
Revenue from product sales and services — pro forma
Income from continuing operations — as reported
Income from continuing operations — pro forma
NOTE 6: RECEIVABLES
Receivables are summarized below:
(In millions)
Accounts receivable
Less allowances for collection losses
Four Quarters Ended
Two Quarters Ended
January 3, 2020
December 28, 2018
$
12,856 $
18,097
1,347
1,652
3,208
8,404
441
760
January 1, 2021
January 3, 2020
$
$
1,369 $
(25)
1,344 $
1,228
(12)
1,216
We have a receivables sale agreement (“RSA”) with a third-party financial institution that permits us to sell, on a
nonrecourse basis, up to $100 million of outstanding receivables at any given time. From time to time, we have sold certain
customer receivables under the RSA, which we continue to service and collect on behalf of the third-party financial institution.
Receivables sold pursuant to the RSA meet the requirements for sales accounting under Accounting Standards Codification 860,
Transfers and Servicing, and accordingly, are derecognized from our Consolidated Balance Sheet at the time of sale. We had no
outstanding accounts receivable sold pursuant to the RSA at January 1, 2021 or January 3, 2020.
NOTE 7: CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to
customers for contracts utilizing the POC cost-to-cost revenue recognition method. We bill customers as work progresses in
accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon
deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract
completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred
revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at
the end of each reporting period.
Contract assets and liabilities in fiscal 2020 were impacted primarily by divestitures, reclassifications to assets and liabilities
of disposal group held for sale, accelerated progress payments due to the U.S. Government's increase in the progress payment rate
from 80 percent to 90 percent and the timing of contractual billing milestones. See Note 3: Business Divestitures and Asset Sales
in these Notes for additional information regarding assets and liabilities held for sale.
Contract assets and contract liabilities are summarized below:
(In millions)
Contract assets
Contract liabilities, current
Contract liabilities, noncurrent(1)
Net contract assets
January 1, 2021
January 3, 2020
$
$
2,437 $
(1,198)
(73)
1,166 $
2,459
(1,214)
(87)
1,158
_______________
(1) The non-current portion of contract liabilities is included as a component of the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
The components of contract assets are summarized below:
(In millions)
Unbilled contract receivables, gross
Progress payments
January 1, 2021
January 3, 2020
$
$
4,192 $
(1,755)
2,437 $
3,690
(1,231)
2,459
Impairment losses related to our contract assets were not material in fiscal 2020, the two quarters ended January 3, 2020, or
fiscal 2019 or 2018. In fiscal 2020, we recognized $961 million of revenue related to contract liabilities that were outstanding at
January 3, 2020. In the two quarters ended January 3, 2020 and in fiscal 2019 and 2018, we recognized $776 million, $287
95
million and $204 million, respectively, of revenue related to contract liabilities that were outstanding at the end of the respective
prior fiscal year.
NOTE 8: INVENTORIES
Inventories are summarized below:
(In millions)
Finished products
Work in process
Raw materials and supplies
NOTE 9: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below:
(In millions)
Land
Software capitalized for internal use
Buildings
Machinery and equipment
Less accumulated depreciation and amortization
January 1, 2021
January 3, 2020
136 $
367
470
973 $
216
386
617
1,219
January 1, 2021
January 3, 2020
90 $
417
1,097
2,265
3,869
(1,767)
2,102 $
90
287
1,073
2,194
3,644
(1,527)
2,117
$
$
$
$
Depreciation and amortization expense related to property, plant and equipment was $318 million, $157 million, $138
million and $143 million in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively.
As discussed in more detail in Note 11: Intangible Assets in these Notes, in conjunction with, and in advance of, the tests of
goodwill related to our Commercial Aviation Solutions reporting unit, we recorded a $257 million non-cash impairment charge
for long-lived assets, including a $103 million impairment charge for property, plant and equipment, which is included in the
“Impairment of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2020.
NOTE 10: GOODWILL
As discussed in Note 25: Business Segments in these Notes, after the completion of the L3Harris Merger, we adjusted our
segment reporting to reflect our new organizational structure effective June 29, 2019. Immediately before and after our goodwill
assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting
structure and determined that no impairment existed.
The assignment of goodwill by business segment, and changes in the carrying amount of goodwill, by business segment, for
fiscal 2020 and the two quarters ended January 3, 2020 were as follows:
(In millions)
Balance at June 28, 2019
Goodwill acquired
Currency translation adjustments
Balance at January 3, 2020
Goodwill decrease from divestitures(1)
Impairment of goodwill
Currency translation adjustments
Other (including adjustments to previously estimated
fair value of assets acquired and liabilities assumed)(2)
Balance at January 1, 2021
_______________
Integrated
Mission
Systems
Space and
Airborne
Systems
Communication
Systems
Aviation
Systems
Total
$
64 $
5,704
1
5,768
—
—
(10)
3,737 $
1,390
4
5,131
(2)
(5)
(4)
927 $
612 $
3,316
—
4,243
(9)
—
1
4,239
7
4,859
(530)
(475)
(1)
5,340
14,649
12
20,001
(541)
(480)
(14)
741
6,499 $
112
5,232 $
$
(82)
4,153 $
(861)
(90)
2,992 $ 18,876
96
(1) During fiscal 2020, we completed the divestiture of three businesses (airport security and automation business, Applied Kilovolts and Analytical
Instrumentation business and EOTech business) and derecognized $541 million of goodwill as part of determining the gain or loss on these divestitures. See
Note 3: Business Divestitures and Asset Sales in these Notes for additional information.
(2) See Note 5: Business Combination in these Notes for additional information regarding adjustments to previously estimated fair values of assets acquired and
liabilities assumed.
Commercial Aviation Solutions Impairments. Indications of potential impairment of goodwill related to our Commercial
Aviation Solutions reporting unit (which is part of our Aviation Systems segment) were present at April 3, 2020 due to COVID
and its impact on global air traffic and customer operations, resulting in a decrease in fiscal 2020 outlook for the reporting unit,
which we considered to be a triggering event requiring an interim impairment test. Consequently, in connection with the
preparation of our financial statements for the quarter ended April 3, 2020, we performed a quantitative impairment test. To test
for potential impairment of goodwill related to our Commercial Aviation Solutions reporting unit, we prepared an estimate of the
fair value of the reporting unit based on a combination of market-based valuation techniques, utilizing quoted market prices and
comparable publicly reported transactions, and projected discounted cash flows. Given the level of uncertainty in the outlook for
the commercial aviation industry caused by the impact of COVID on global air traffic, our methodology for determining the fair
value of the reporting unit placed the greatest weight on the expected fair value technique, and was dependent on our best
estimates of future sales, operating costs and balance sheet metrics under a range of scenarios for future economic conditions. We
assigned a probability to each scenario to calculate a set of probability-weighted projected cash flows, and an appropriate discount
rate reflecting the risk in the projected cash flows was used to discount the expected cash flows to present value.
As adverse global economic and market conditions attributable to COVID, including projected declines and subsequent
recovery in commercial air traffic and original equipment manufacturer production volumes, continued to develop during fiscal
2020, we continued to monitor for facts and circumstances that could negatively impact key valuation assumptions in determining
the fair value of our Commercial Aviation Solutions reporting unit, including recent valuations, expectations regarding the timing
of a return to pre-COVID commercial flight activity and the associated level of uncertainty, long-term revenue and profitability
projections, discount rates and general industry, market and macroeconomic conditions. As a result, we determined indications of
further impairment of assets related to our Commercial Aviation Solutions reporting unit existed as of July 3, 2020 and again as of
early December 2020.
As a result of these impairment tests, we concluded that goodwill and other assets related to our Commercial Aviation
Solutions reporting unit were impaired as of April 3, 2020, July 3, 2020 and January 1, 2021, and we recorded the following non-
cash impairment charges:
•
•
$461 million (including $34 million attributable to noncontrolling interests) for impairment of goodwill during fiscal
2020, including $111 million recognized in the fourth quarter of fiscal 2020; and
$257 million for impairment of long-lived assets recognized during the fourth quarter of fiscal 2020, including $113
million for identifiable intangibles assets, $103 million for property, plant and equipment, $31 million for ROU assets
and $10 million for marketable software.
These charges are included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of
Income for fiscal 2020 and are primarily not deductible for tax purposes.
VSE Disposal Group Impairment. During the quarter ended July 3, 2020, we determined the criteria to be classified as held
for sale were met with respect to the VSE disposal group within our Aviation Systems segment and assigned $14 million of
goodwill to the VSE disposal group on a relative fair value basis. In connection with the preparation of our financial statements
for the quarter ended July 3, 2020, we concluded that goodwill related to the VSE disposal group was impaired and recorded a
non-cash impairment charge $14 million, which is included in the “Impairment of goodwill and other assets” line item in our
Consolidated Statement of Income for fiscal 2020.
97
NOTE 11: INTANGIBLE ASSETS
The most significant identifiable intangible asset that is separately recognized for our business combinations is customer
relationships. Our customer relationships are established through written customer contracts (revenue arrangements). The fair
value for customer relationships is determined, as of the date of acquisition, based on estimates and judgments regarding
expectations for the estimated future after-tax earnings and cash flows arising from the follow-on sales expected from the
customer relationships over the estimated lives, including the probability of expected future contract renewals and sales, less a
contributory assets charge, all of which is discounted to present value. We assess the recoverability of the carrying value of our
finite-lived identifiable intangible assets whenever events or changes in circumstances indicate the carrying amount of the assets
may not be recoverable. We assess the recoverability of the carrying value of indefinite-lived identifiable intangible assets
annually, or under certain circumstances more frequently, such as when events and circumstances indicate there may be an
impairment.
In conjunction with, and in advance of, the tests of goodwill related to our Commercial Aviation Solutions reporting unit, we
also performed recoverability tests of the long-lived assets of our Commercial Aviation Solutions reporting unit, including
identifiable intangible assets and property, plant and equipment. To test these long-lived assets for recoverability, we compared
the estimated future cash flows (on an undiscounted basis) to be generated from the use and hypothetical eventual disposition of
the asset group to its carrying value. As a result, we concluded that the long-lived assets of our Commercial Aviation Solutions
reporting unit were impaired as of January 1, 2021 and we recorded a $257 million non-cash impairment charge, including $113
million for impairment of identifiable intangible assets in the fourth quarter of fiscal 2020, which is included in the “Impairment
of goodwill and other assets” line item in our Consolidated Statement of Income for fiscal 2020.
Identifiable intangible assets are summarized below:
(In millions)
Customer relationships
Developed technologies
Contract backlog
Trade names — divisions
Other
Total identifiable intangible assets subject to
amortization
In-process research and development
Trade names — corporate
Total identifiable intangible assets
January 1, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount (1)
Gross
Carrying
Amount
January 3, 2020
Accumulated
Amortization
Net
Carrying
Amount
$
$
6,863 $
653
19
129
3
7,667
21
1,803
9,491 $
1,257 $
261
17
45
3
1,583
—
—
1,583 $
5,606 $
392
2
84
—
6,084
21
1,803
7,908 $
6,518 $
768
—
165
10
7,461
69
1,803
9,333 $
653 $
183
—
35
4
875
—
—
875 $
5,865
585
—
130
6
6,586
69
1,803
8,458
_______________
(1) During fiscal 2020, we completed the divestiture of three businesses and derecognized $296 million of intangibles as part of the gain or loss on these
divestitures. Additionally, in connection with a pending divestiture, we reclassified $5 million of identifiable intangible assets to “Assets of disposal group
held for sale” in our Consolidated Balance Sheet at January 1, 2021. See Note 3: Business Divestitures and Asset Sales in these Notes for additional
information regarding divestitures.
Amortization expense for identifiable intangible assets was $729 million and $290 million in fiscal 2020 and the two
quarters ended January 3, 2020, respectively, and primarily related to the L3Harris Merger and our acquisition of Exelis.
Amortization expense for identifiable intangible assets was $115 million and $117 million in fiscal 2019 and 2018, respectively,
and primarily related to our acquisition of Exelis.
Future estimated amortization expense for identifiable intangible assets is as follows:
2021
2022
2023
2024
2025
Thereafter
Total
(In millions)
669
673
663
623
573
2,883
6,084
$
$
98
NOTE 12: ACCRUED WARRANTIES
Our liability for standard product warranties is included as a component of the “Other accrued items” and “Other long-term
liabilities” line items in our Consolidated Balance Sheet. Changes in our liability for standard product warranties in fiscal 2020
and the two quarters ended January 3, 2020 were as follows:
(In millions)
Balance at the beginning of the period
Acquisitions during the period
Adjustments to previously estimated fair value of warranty liabilities assumed
Decrease from divestitures
Accruals for product warranties issued during the period
Settlements made during the period
Other, including foreign currency translation adjustments
Balance at the end of the period
NOTE 13: CREDIT ARRANGEMENTS
January 1, 2021
January 3, 2020
$
$
112 $
—
19
(9)
72
(61)
—
133 $
25
83
—
—
23
(23)
4
112
On June 28, 2019, we established a new $2 billion, 5-year senior unsecured revolving credit facility (the “2019 Credit
Facility”) by entering into a Revolving Credit Agreement (the “2019 Credit Agreement”) with a syndicate of lenders. The 2019
Credit Facility replaced our prior $1 billion, 5-year senior unsecured revolving credit facility established under the Revolving
Credit Agreement, dated as of June 26, 2018 (the “2018 Credit Agreement”). No loans or letters of credit under the 2018 Credit
Agreement were outstanding at the time of, or were repaid in connection with, such termination, and we incurred no early
termination penalties as a result of such termination.
The 2019 Credit Agreement provides for the extension of credit to us in the form of revolving loans, including swingline
loans and letters of credit, at any time and from time to time during the term of the 2019 Credit Agreement, in an aggregate
principal amount at any time outstanding not to exceed $2 billion for both revolving loans and letters of credit, with a sub-limit of
$140 million for swingline loans and a sub-limit of $350 million for letters of credit. Borrowings under the 2019 Credit
Agreement may be denominated in U.S. Dollars, Euros, Sterling and any other currency acceptable to the administrative agent
and the lenders, with a foreign currency sub-limit of $400 million. The 2019 Credit Agreement includes a provision pursuant to
which, from time to time, we may request that the lenders in their discretion increase the maximum amount of commitments
under the 2019 Credit Agreement by an amount not to exceed $1 billion. Only consenting lenders (including new lenders
reasonably acceptable to the administrative agent) will participate in any increase. In no event will the maximum amount of credit
extensions available under the 2019 Credit Agreement exceed $3 billion. The proceeds of loans or letters of credit borrowings
under the 2019 Credit Agreement are restricted from being used for hostile acquisitions (as defined in the 2019 Credit Agreement)
or for any purpose in contravention of applicable laws. We are not otherwise restricted under the 2019 Credit Agreement from
using the proceeds of loans or letters of credit borrowings under the 2019 Credit Agreement for working capital and other general
corporate purposes or from using the 2019 Credit Facility to refinance existing debt and to repay maturing commercial paper
issued by us from time to time. Subject to certain conditions stated in the 2019 Credit Agreement (including the absence of any
default and the accuracy of certain representations and warranties), we may borrow, prepay and re-borrow amounts under the
2019 Credit Agreement at any time during the term of the 2019 Credit Agreement.
The 2019 Credit Agreement provides that we may designate wholly-owned subsidiaries organized in the United States,
Canada or the United Kingdom (or such other jurisdictions as all lenders shall approve) as borrowers under the 2019 Credit
Agreement. The obligations of any such subsidiary borrower shall be guaranteed by us.
The 2019 Credit Agreement provides that we may from time to time designate certain of our subsidiaries as unrestricted
subsidiaries, which means certain of the representations and covenants in the 2019 Credit Agreement do not apply in respect of
such subsidiaries.
At our election, borrowings under the 2019 Credit Agreement denominated in U.S. Dollars will bear interest either at (i) the
eurocurrency rate for the applicable interest period plus an applicable margin, or (ii) the base rate plus an applicable margin. The
eurocurrency rate for an interest period is the rate per annum equal to (a) the London interbank offered rate (“LIBOR”) for such
interest period, divided by (b) a percentage equal to 1.00 minus the daily average eurocurrency reserve rate for such interest
period. The applicable interest rate margin over the eurocurrency rate is currently equal to 1.250%, but may increase (to a
maximum amount of 1.875%) or decrease (to a minimum amount of 1.125%) based on changes in the ratings of our senior
unsecured long-term debt securities (“Senior Debt Ratings”). The base rate for any day is a rate per annum equal to the greatest of
(i) the prime lending rate published in the Wall Street Journal, (ii) the Federal Reserve Bank of New York (“NYFRB”) Rate
(“NYFRB Rate”) plus 0.500% (the NYFRB Rate is the greater of (a) the federal funds rate and (b) the overnight bank funding rate
99
published by the NYFRB), and (iii) the eurocurrency rate for a one month interest period (as defined in the 2019 Credit
Agreement) plus 1.000%. The applicable interest rate margin over the base rate is initially equal to 0.375%, but may increase (to a
maximum amount of 0.875%) or decrease (to a minimum amount of 0.125%) based on changes in our Senior Debt Ratings.
Borrowings under the 2019 Credit Agreement denominated in a currency other than U.S. Dollars will bear interest at the
eurocurrency rate for the applicable interest period plus an applicable margin, as described above, plus, in some cases, additional
costs. Letter of credit fees are also determined based on our Senior Debt Ratings.
In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the 2019 Credit
Agreement and letter of credit fees, we are required to pay a quarterly unused commitment fee, which shall accrue at an applicable
rate per annum multiplied by the actual daily amount of the lenders’ aggregate unused commitments under the 2019 Credit
Agreement. The applicable rate per annum for the unused commitment fee is currently equal to 0.150%, but may increase (to a
maximum amount of 0.300%) or decrease (to a minimum amount of 0.125%) based on changes in our Senior Debt Ratings.
The 2019 Credit Agreement contains certain representations and warranties for the benefit of the administrative agent and
the lenders, including but not limited to representations relating to: due incorporation and good standing; due authorization of the
2019 Credit Agreement documentation; absence of any requirement for governmental or third party authorization for the due
execution, delivery and performance of the 2019 Credit Agreement documentation; enforceability of the 2019 Credit Agreement
documentation; accuracy of financial statements; no material adverse effect since June 29, 2018; absence of material undisclosed
litigation as of June 28, 2019; compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”) and
environmental, anti-money laundering, sanctions, anti-corruption and certain other laws; payment of taxes; and solvency.
The 2019 Credit Agreement contains certain affirmative covenants, including but not limited to covenants relating to:
reporting obligations; maintenance of corporate existence and good standing; compliance with laws; maintenance of properties
and insurance; payment of taxes; compliance with ERISA and environmental, anti-money laundering, sanctions, export controls,
anti-corruption and certain other laws; maintenance of accurate books and records; and visitation and inspection by the
administrative agent and the lenders. The 2019 Credit Agreement also contains certain negative covenants, including covenants:
limiting certain liens on assets; limiting certain mergers, consolidations or sales of assets; limiting certain sale and leaseback
transactions; limiting certain vendor financing investments; limiting certain investments in unrestricted subsidiaries; and limiting
certain hedging arrangements. The 2019 Credit Agreement also requires that we not permit our ratio of consolidated total
indebtedness (excluding defined benefit plan liabilities) to total capital, each as defined in the 2019 Credit Agreement, to be
greater than 0.65:1.00. We were in compliance with the covenants in the 2019 Credit Agreement at January 1, 2021.
The 2019 Credit Agreement contains certain events of default, including: failure to make payments under the 2019 Credit
Agreement; failure to perform or observe terms, covenants or agreements contained in the 2019 Credit Agreement; material
inaccuracy of any representation or warranty under the 2019 Credit Agreement; payment default by us or certain of our
subsidiaries under other indebtedness with a principal amount in excess of $200 million or acceleration of or ability to accelerate
such other indebtedness; occurrence of one or more final judgments or orders for the payment by us or certain of our subsidiaries
of money in excess of $200 million that remain unsatisfied; incurrence by us or certain of our subsidiaries of certain ERISA
liability in excess of $200 million; any bankruptcy or insolvency of L3Harris or any material subsidiary; invalidity of 2019 Credit
Agreement documentation; or a change of control (as defined in the 2019 Credit Agreement) of L3Harris. If an event of default
occurs, then the lenders may, among other things, terminate their commitments and declare all outstanding borrowings to be
immediately due and payable together with accrued interest and fees.
All principal amounts borrowed or outstanding under the 2019 Credit Agreement are due on June 28, 2024, unless (i) the
commitments are terminated earlier either at our request or if certain events of default described in the 2019 Credit Agreement
occur or (ii) the maturity date is extended pursuant to provisions allowing us, from time to time after June 28, 2020, but at least 45
days prior to the scheduled maturity date then in effect, to request that the scheduled maturity date then in effect be extended by
one calendar year (with no more than one such extension permitted in any calendar year and no more than two such extensions
during the term of the 2019 Credit Agreement), subject to approval by lenders holding a majority of the commitments under the
2019 Credit Agreement and satisfaction of certain conditions stated in the 2019 Credit Agreement (including the absence of any
default and the accuracy of certain representations and warranties); provided, however, that all revolving loans of those lenders
declining to participate in the requested extension and whose commitments under the 2019 Credit Agreement have not been
replaced pursuant to customary replacement rights in our favor shall remain due and payable in full, and all commitments under
the 2019 Credit Agreement of such declining lenders shall terminate, on the maturity date in effect prior to the requested
extension. At January 1, 2021, we had no borrowings outstanding under the 2019 Credit Facility.
100
NOTE 14: DEBT
Long-Term Debt
Long-term debt is summarized below:
(In millions)
Variable-rate debt:
Floating rate notes, due April 30, 2020
Floating rate notes, due March 10, 2023
Total variable-rate debt
Fixed-rate debt:
4.95% notes, due February 15, 2021
3.85% notes, due June 15, 2023
3.95% notes, due May 28, 2024
3.832% notes, due April 27, 2025
7.00% debentures, due January 15, 2026
3.85% notes, due December 15, 2026
6.35% debentures, due February 1, 2028
4.40% notes, due June 15, 2028
2.90% notes, due December 15, 2029
1.80% notes, due January 15, 2031
4.854% notes, due April 27, 2035
6.15% notes, due December 15, 2040
5.054% notes, due April 27, 2045
Other
Total fixed-rate debt
Total debt
Plus: unamortized bond premium
Less: unamortized discounts and issuance costs
Total debt, net
Less: current portion of long-term debt, net
Total long-term debt, net
January 1, 2021
January 3, 2020
$
— $
250
250
—
800
350
600
100
550
26
1,850
400
650
400
300
500
56
6,582
6,832
116
(32)
6,916
$
(8)
6,908 $
250
—
250
650
800
350
600
100
550
26
1,850
400
—
400
300
500
49
6,575
6,825
154
(28)
6,951
(257)
6,694
The potential maturities of long-term debt, including the current portion, for the five years following the end of fiscal 2020
and, in total, thereafter are: $8 million in fiscal 2021; $6 million in fiscal 2022; $1,056 million in fiscal 2023; $353 million in
fiscal 2024; $602 million in fiscal 2025; and $4,807 million thereafter.
Long-Term Debt Repaid in Fiscal 2020
Fixed-rate Debt. On December 14, 2020, we completed our optional redemption of the entire outstanding $650 million
aggregate principal amount of our 4.95% 2021 Notes (as defined below under “Debt Exchange”) for a redemption price of
$650 million as set forth in the 4.95% 2021 Notes. After adjusting for the carrying value of our unamortized premium, we
recorded a $2 million gain on the extinguishment of the 4.95% 2021 Notes, which is included as a component of the “Non-
operating income” line item in our Consolidated Statement of Income for fiscal 2020.
Variable-rate Debt. During the second quarter of fiscal 2020, we repaid at maturity the entire outstanding $250 million
aggregate principal amount of our Floating Rate Notes due April 30, 2020.
Long-Term Debt Issued in Fiscal 2020
Fixed-rate Debt. On November 25, 2020, in order to fund the optional redemption of the 4.95% 2021 Notes as described
above under “Long-Term Debt Repaid in Fiscal 2020”, we completed the issuance of $650 million in aggregate principal amount
of 1.80% notes due January 15, 2031 (the “1.80% 2031 Notes”). Interest on the 1.80% 2031 Notes is payable semi-annually in
arrears on January 15 and July 15 of each year, commencing on July 15, 2021. At any time prior to October 15, 2030, we may
redeem the 1.80% 2031 Notes, in whole or in part, at our option, at a “make-whole” redemption price equal to the greater of 100
percent of the principal amount of the 1.80% 2031 Notes or the sum of the present values of the remaining scheduled payments of
the principal plus accrued interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted
101
to the redemption date on a semi-annual basis at the “Treasury Rate”, as defined in the 1.80% 2031 Notes, plus 15 basis points.
We will pay accrued interest on the principal amount of notes being redeemed to, but not including, the redemption date. At any
time on or after October 15, 2030, we may redeem the 1.80% 2031 Notes, in whole or in part, at our option, at a redemption price
equal to 100 percent of the principal amount of the notes being redeemed, plus accrued interest on the principal amount of the
notes being redeemed to, but not including, the redemption date. In addition, upon change of control combined with a below-
investment-grade rating event, we may be required to make an offer to repurchase the 1.80% 2031 Notes at a price equal to 101
percent of the aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to,
but not including, the date of repurchase. We incurred $6 million of debt issuance costs related to the issuance of the 1.80% 2031
Notes, which are being amortized using the effective interest rate method over the life of the 1.80% 2031 Notes, and such
amortization is included as a component of the “Interest expense” line item in our Consolidated Statement of Income.
Variable-rate Debt. During the first quarter of 2020, we completed the issuance and sale of $250 million in aggregate
principal amount of Floating Rate Notes due March 10, 2023 (the “Floating Rate Notes 2023”). The Floating Rate Notes 2023
bear interest at a floating rate, reset quarterly, equal to three-month LIBOR plus 0.75% per year. Interest on the Floating Rate
Notes 2023 is payable quarterly in arrears on March 10, June 10, September 10 and December 10 of each year, commencing on
June 10, 2020. The Floating Rate Notes 2023 are unsecured and unsubordinated and rank equally in right of payment with all
other unsecured and unsubordinated indebtedness. The Floating Rate Notes 2023 are not redeemable at our option prior to
maturity. Debt issuance costs related to the issuance of the Floating Rate Notes 2023 were not material. We used the net proceeds
from the sale of the Floating Rate Notes 2023 to repay at maturity the aggregate principal amount of our Floating Rate Notes due
April 30, 2020 as described above under “Long-Term Debt Repaid in Fiscal 2020”.
Debt Exchange
In connection with the L3Harris Merger, on July 2, 2019, we settled our previously announced debt exchange offers in
which eligible holders of L3 senior notes (“L3 Notes”) could exchange such outstanding notes for (1) up to $3.35 billion
aggregate principal amount of new notes issued by L3Harris (“New L3Harris Notes”) and (2) one dollar in cash for each $1,000
of principal amount. Each series of the New L3Harris Notes issued has an interest rate and maturity date that is identical to the L3
Notes.
(In millions)
4.95% notes due February 15, 2021 (“4.95% 2021 Notes”)
3.85% notes due June 15, 2023 (“3.85% 2023 Notes”)
3.95% notes due May 28, 2024 (“3.95% 2024 Notes”)
3.85% notes due December 15, 2026 (“3.85% 2026 Notes”)
4.40% notes due June 15, 2028 (“4.40% 2028 Notes”)
Total
Aggregate Principal
Amount of L3 Notes
(prior to debt
exchange)
Aggregate Principal
Amount of
New L3Harris Notes
Issued
Aggregate Principal
Amount of
Remaining L3 Notes
$
$
650 $
800
350
550
1,000
3,350 $
501 $
741
326
535
918
3,021 $
149
59
24
15
82
329
Following the settlement of the exchange offers, there was $329 million of existing L3 Notes outstanding, which remained
the senior unsecured obligations of L3.
On December 14, 2020, we redeemed the 4.95% 2021 Notes, as described above under “Long-Term Debt Repaid in Fiscal
2020.” Interest on the remaining New L3Harris Notes is payable semi-annually in arrears on June 15 and December 15,
commencing on December 15, 2019, in the case of the 3.85% 2023 Notes, 3.85% 2026 Notes and 4.40% 2028 Notes; and on May
28 and November 28, commencing on November 28, 2019, in the case of the 3.95% 2024 Notes. The New L3Harris Notes are
unsecured senior obligations and rank equally in right of payment with all other L3Harris senior unsecured debt.
The New L3Harris Notes are redeemable in whole or in part at any time or in part from time to time, at our option, until
three months prior to the maturity date, in the case of the 3.95% 2024 Notes, 3.85% 2026 Notes and 4.40% 2028 Notes, and until
one month prior to the maturity date, in the case of the 3.85% 2023 Notes, at a redemption price equal to the greater of 100
percent of the principal amount of the notes to be redeemed or the sum of the present values of the principal amount and the
remaining scheduled payments of interest on the notes to be redeemed, discounted from the scheduled payment dates to the date
of redemption at the “treasury rate” as defined in the note, plus 20 basis points, in the case of the 3.85% 2023 Notes and 3.95%
2024 Notes, or 25 basis points, in the case of the 3.85% 2026 Notes and 4.40% 2028 Notes, plus, in each case, accrued and unpaid
interest due at the date of redemption.
On March 31, 2020, we commenced offers to eligible holders (“Exchange Offers”) to exchange any and all outstanding New
L3Harris Notes issued by L3Harris as set forth in the table above (the “Original Notes”), which were previously issued pursuant
to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), for an equal
principal amount of new notes registered under the Securities Act (the “Exchange Notes”).
102
The Exchange Notes were offered to satisfy L3Harris’ obligations under the registration rights agreement entered into as
part of the issuance of the Original Notes, which occurred in exchange for the L3 Notes as described above.
The terms of the Exchange Notes issued in the Exchange Offers are substantially identical to the terms of the corresponding
series of the Original Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions,
registration rights and related special interest provisions applicable to the Original Notes do not apply to the Exchange Notes.
Each series of Exchange Notes is part of the same corresponding series of the Original Notes and were issued under the same base
indenture.
The Exchange Offers expired at 5:00p.m., New York City time, on May 1, 2020. On May 5, 2020, we settled the Exchange
Offers and Issued Exchange Notes for validly tendered Original Notes for over 99.9 percent of the 4.95% 2021 Notes, 3.85%
2023 Notes, 3.95% 2024 Notes and 3.85% 2026 Notes and 98.9 percent of the 4.40% 2028 Notes.
Long-Term Debt Repaid in the Two Quarters Ended January 3, 2020
On December 16, 2019, we completed our optional redemption of the entire outstanding $400 million aggregate principal
amount of our 2.7% Notes due April 27, 2020 (the “2.7% 2020 Notes”) at a “make-whole” redemption price as set forth in the
2.7% 2020 Notes. The “make-whole” redemption price for the 2.7% 2020 Notes was $403 million, and after adjusting for the
carrying value of our unamortized issuance costs, we recorded a $2 million loss on the extinguishment of the 2.7% 2020 Notes in
the two quarters ended January 3, 2020, which is included as a component of the “Non-operating income” line item in our
Consolidated Statement of Income.
Long-Term Debt Issued in the Two Quarters Ended January 3, 2020
Fixed-rate Debt: On November 27, 2019, in order to fund our optional redemption of the 2.7% 2020 Notes as described
above under “Long-Term Debt Repaid in the Two Quarters Ended January 3, 2020,” we completed the issuance of $400 million
in aggregate principal amount of 2.90% notes due December 15, 2029 (the “2.90% 2029 Notes”). Interest on the 2.90% 2029
Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. At any time
prior to September 15, 2029, we may redeem the 2.90% 2029 Notes, in whole or in part, at our option, at a “make-whole”
redemption price equal to the greater of 100 percent of the principal amount of the 2.90% 2029 Notes or the sum of the present
values of the remaining scheduled payments of the principal plus accrued interest (other than interest accruing to the date of
redemption) on the notes being redeemed, discounted to the redemption date on a semi-annual basis at the “Treasury Rate”, as
defined in the 2.90% 2029 Notes, plus 20 basis points. We will pay accrued interest on the principal amount of notes being
redeemed to, but not including, the redemption date. At any time on or after September 15, 2029, we may redeem the 2.90% 2029
Notes, in whole or in part, at our option, at a redemption price equal to 100 percent of the principal amount of the notes being
redeemed, plus accrued interest on the principal amount of the notes being redeemed to, but not including, the redemption date. In
addition, upon change of control combined with a below-investment-grade rating event, we may be required to make an offer to
repurchase the 2.90% 2029 Notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased,
plus accrued interest on the notes being repurchased to, but not including, the date of repurchase. We incurred $3 million of debt
issuance costs related to the issuance of the 2.90% 2029 Notes, which are being amortized using the effective interest rate method
over the life of the 2.90% 2029 Notes, and such amortization is included as a component of the “Interest expense” line item in our
Consolidated Statement of Income.
Long-Term Debt Repaid in Fiscal 2019
During the third quarter of fiscal 2019, we repaid at maturity the entire outstanding $300 million aggregate principal amount
of our Floating Rate Notes due February 27, 2019.
Long-Term Debt Repaid in Fiscal 2018
On June 22, 2018, we completed our optional redemption of the entire outstanding $400 million aggregate principal amount
of our 4.40% notes due December 15, 2020 (the “4.40% 2020 Notes”) and $400 million aggregate principal amount of our 5.55%
notes due October 1, 2021 (the “2021 Notes” and collectively with the 4.40% 2020 Notes, the “2018 Redeemed Notes”) at a
“make-whole” redemption price as set forth in the 2018 Redeemed Notes. The combined “make-whole” redemption price for the
2018 Redeemed Notes was $844 million, and after adjusting for the carrying value of our bond premium, discounts and issuance
costs, we recorded a combined $22 million loss on the extinguishment of the 2018 Redeemed Notes in the fourth quarter of fiscal
2018, which is included as a component of the “Non-operating income (loss)” line item in our Consolidated Statement of Income.
During the fourth quarter of fiscal 2018, we also repaid at maturity the entire outstanding $500 million aggregate principal
amount of the 1.999% notes due April 27, 2018.
During the second quarter of fiscal 2018, we repaid in full the $253 million in remaining outstanding indebtedness under the
5-year tranche of our $1.3 billion senior unsecured term loan facility pursuant to our Term Loan Agreement, dated as of March
16, 2015, and recognized a $1 million extinguishment loss, which is included as a component of the “Non-operating income
(loss)” line item in our Consolidated Statement of Income, as a result of associated unamortized debt issuance costs. During the
fourth quarter of fiscal 2018, we also repaid in full the $36 million in remaining indebtedness under the 3-year tranche (for a total
103
of $305 million in term loan indebtedness repaid during fiscal 2018), and as a result, our $1.3 billion senior unsecured term loan
facility pursuant to our Term Loan Agreement, dated as of March 16, 2015, was terminated.
Long-Term Debt Issued in Fiscal 2018
On June 4, 2018, in order to fund our optional redemption of the 2018 Redeemed Notes as described above under “Long-
Term Debt Repaid in Fiscal 2018,” we completed the issuance of $850 million in aggregate principal amount of 4.40% notes due
June 15, 2028 (the “New 2028 Notes”). Interest on the New 2028 Notes is payable semi-annually in arrears on June 15 and
December 15 of each year, commencing on December 15, 2018. At any time prior to March 15, 2028, we may redeem the New
2028 Notes, in whole or in part, at our option, at a “make-whole” redemption price equal to the greater of 100 percent of the
principal amount of the New 2028 Notes or the sum of the present values of the remaining scheduled payments of the principal
and interest (other than interest accruing to the date of redemption) on the notes being redeemed, discounted to the redemption
date on a semi-annual basis at the “Treasury Rate”, as defined in the New 2028 Notes, plus 25 basis points. We will pay accrued
interest on the principal amount of notes being redeemed to, but not including, the redemption date. At any time on or after March
15, 2028, we may redeem the New 2028 Notes, in whole or in part, at our option, at a redemption price equal to 100 percent of the
principal amount of the notes being redeemed, plus accrued interest on the principal amount of the notes being redeemed to, but
not including, the redemption date. In addition, upon change of control combined with a below-investment-grade rating event, we
may be required to make an offer to repurchase the New 2028 Notes at a price equal to 101 percent of the aggregate principal
amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not including, the date of
repurchase. We incurred $8 million of debt issuance costs related to the issuance of the New 2028 Notes, which are being
amortized using the effective interest rate method over the life of the New 2028 Notes, and such amortization is included as a
component of the “Interest expense” line item in our Consolidated Statement of Income.
Long-Term Debt Issued Prior to Fiscal 2018 that Remained Outstanding at January 1, 2021
On April 27, 2015, in connection with the then-pending acquisition of Exelis, to fund a portion of the cash consideration and
other amounts payable under the terms of the merger agreement and to redeem certain of our existing notes, we issued long-term
fixed-rate debt securities in the aggregate amount of $2.4 billion. The principal amounts, interest rates and maturity dates of these
securities that remained outstanding at January 1, 2021 were as follows:
•
•
•
$600 million in aggregate principal amount of 3.832% notes due April 27, 2025 (the “2025 Notes”),
$400 million in aggregate principal amount of 4.854% notes due April 27, 2035 (the “2035 Notes”), and
$500 million in aggregate principal amount of 5.054% notes due April 27, 2045 (the “2045 Notes” and collectively
with the 2025 Notes and 2035 Notes, the “Exelis Notes”).
Interest on each series of the Exelis Notes is payable semi-annually in arrears on April 27 and October 27 of each year,
commencing October 27, 2015. The Exelis Notes are redeemable at our option up to one month prior to the scheduled maturity
date at a price equal to the greater of 100 percent of the principal amount of the notes being redeemed or the sum of the present
values of the remaining scheduled payments, plus accrued interest, discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, as defined, plus (i) 30 basis points in the case
of the 2025 Notes, (ii) 35 basis points in the case of the 2035 Notes, and (iii) 40 basis points in the case of the 2045 Notes. In
addition, upon a change of control combined with a below-investment-grade rating event, we may be required to make an offer to
repurchase the Exelis Notes at a price equal to 101 percent of the aggregate principal amount of the notes being repurchased, plus
accrued interest on the notes being repurchased to, excluding the date of repurchase.
On December 3, 2010, we completed the issuance of $300 million in aggregate principal amount of 6.150%. notes due
December 15, 2040 (the “2040 Notes”). The 2040 Notes are redeemable at our option at a price equal to the greater of 100 percent
of the principal amount of the notes being redeemed or the sum of the present values of the remaining scheduled payments, plus
accrued interest, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate, as defined, plus 35 basis points. In addition, upon a change of control combined with a below-
investment-grade rating event, we may be required to make an offer to repurchase the notes at a price equal to 101 percent of the
aggregate principal amount of the notes being repurchased, plus accrued interest on the notes being repurchased to, but not
including, the date of repurchase.
In January 1996, we completed the issuance of $100 million in aggregate principal amount of 7.00% debentures due
January 15, 2026. The debentures are not redeemable prior to maturity.
In February 1998, we completed the issuance of $150 million in aggregate principal amount of 6.35% debentures due
February 1, 2028. On December 5, 2007, we repurchased and retired $25 million in aggregate principal amount of the debentures.
On February 1, 2008, we redeemed $99 million in aggregate principal amount of the debentures pursuant to the procedures for
redemption at the option of the holders of the debentures. We may redeem the remaining $26 million in aggregate principal
amount of the debentures in whole, or in part, at any time at a pre-determined redemption price.
104
The following table presents the carrying amounts and estimated fair values of our long-term debt:
(In millions)
January 1, 2021
January 3, 2020
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt (including current portion)(1)
$
6,916 $
7,948 $
6,951 $
7,536
_______________
(1) The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in
our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.
Short-Term Debt
Our short-term debt at January 1, 2021 and January 3, 2020 was $2 million and $3 million, respectively. Interest expense
incurred on our short-term debt was not material in fiscal 2020, the two quarters ended January 3, 2020, or fiscal 2019 or 2018.
Interest Paid
Total interest paid was $313 million, $144 million, $170 million and $175 million in fiscal 2020, the two quarters ended
January 3, 2020, and fiscal 2019 and 2018, respectively.
NOTE 15: PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined Contribution Plan
As of January 1, 2021, we sponsor numerous defined contribution savings plans, which allow our eligible employees to
contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plans include several
match contribution formulas which requires us to match a percentage of the employee contributions up to certain limits, generally
totaling between 2.0% to 6.0% of employee eligible pay. Matching contributions, net of forfeitures, charged to expense were $225
million, $105 million, $85 million and $83 million in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and
2018, respectively.
Deferred Compensation Plan
We also sponsor the L3Harris Excess Retirement Savings Plan (as amended and restated effective January 1, 2020), which is
a nonqualified deferred compensation arrangement for highly compensated employees (within the meaning of section 201(2) of
ERISA). The plan obligations are funded by investments held in a Rabbi Trust.
The following table provides the fair value of our deferred compensation plan investments and liabilities by category and by
fair value hierarchy level:
(In millions)
Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities
Investments measured at NAV:
Corporate-owned life insurance
Total fair value of deferred compensation plan assets
Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds
Investments measured at NAV:
Common/collective trusts and guaranteed investment
contracts
Total fair value of deferred compensation plan liabilities
$
$
$
$
January 1, 2021
January 3, 2020
Total
Level 1
Total
Level 1
67 $
67 $
58 $
58
31
98
29
87
$
4 $
4 $
2 $
2
116
120
69
71
$
_______________
(1) Represents diversified assets held in a “rabbi trust” associated with our non-qualified deferred compensation plans, which we include in the “Other current
assets” and “Other non-current assets” line items in our Consolidated Balance Sheet, and which are measured at fair value.
(2) Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and
benefits” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Under these plans, participants designate
investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.
105
Defined Benefit Plans
We sponsor numerous defined benefit pension plans for eligible employees. Benefits for most participants under the terms
of these plans are based on the employee’s years of service and compensation. We fund these plans as required by statutory
regulations and through voluntary contributions. Some of our employees also participate in other postretirement defined benefit
plans such as health care and life insurance plans.
Our Salaried Pension Plan (“SPP”) is our largest defined benefit pension plan, with assets valued at $7.9 billion and a
projected benefit obligation of $9.4 billion as of January 1, 2021. Effective December 31, 2020, several U.S. defined benefit
pension plans that we sponsor were merged into the SPP.
Balance Sheet Information
Amounts recognized in our Consolidated Balance Sheet for defined benefit pension plans and other postretirement defined
benefit plans (collectively, “defined benefit plans”) reflect the funded status of our plans. The following table provides a summary
of the funded status of our defined benefit plans and the presentation of such balances within our Consolidated Balance Sheet:
(In millions)
Fair value of plan assets
Projected benefit obligation
Funded status
Consolidated Balance Sheet line item amounts:
Other non-current assets
Compensation and benefits
Liabilities of disposal group held for sale
Defined benefit plans
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Total
Pension
Other
Benefits
Total
$
9,301 $
299 $
9,600 $
8,618 $
274 $
8,892
(11,045)
(387)
(11,432)
(10,268)
(369)
(10,637)
$
(1,744) $
(88) $
(1,832) $
(1,650) $
(95) $
(1,745)
$
88 $
(10)
(4)
8 $
(8)
—
96 $
(18)
(4)
91 $
(10)
—
1 $
(8)
—
92
(18)
—
(1,818)
(88)
(1,906)
(1,731)
(88)
(1,819)
A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense (or reductions
of expense) in our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are
amortized as a component of net periodic benefit cost. The following table provides a summary of pre-tax amounts recorded
within accumulated other comprehensive loss:
(In millions)
Net actuarial loss (gain)
Net prior service (credit) cost
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Total
Pension
Other
Benefits
Total
$
1,215 $
(28) $
1,187 $
819 $
(253)
962 $
$
7
(21) $
(246)
941 $
(282)
537 $
(34) $
(1)
(35) $
785
(283)
502
106
The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:
(In millions)
Change in benefit obligation
Benefit obligation at beginning of fiscal year
Benefit obligation assumed in L3Harris Merger
Service cost
Interest cost
Actuarial loss
Amendments
Benefits paid
Settlements
Special termination benefits
Expenses paid
Curtailments
Foreign currency exchange rate changes
Plan participants’ contributions
Divestiture
Benefit obligation at end of fiscal year
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Total
Pension
Other
Benefits
Total
$ 10,268 $
369 $ 10,637 $
6,123 $
221 $
—
65
273
1,035
1
—
2
10
24
8
—
67
283
1,059
9
(569)
(26)
(595)
—
1
(42)
—
11
2
—
—
—
—
—
—
—
—
—
1
(42)
—
11
2
—
4,474
42
149
301
(292)
(342)
(5)
—
(43)
(35)
3
1
(108)
156
1
5
7
—
(21)
—
—
—
—
—
—
—
6,344
4,630
43
154
308
(292)
(363)
(5)
—
(43)
(35)
3
1
(108)
$ 11,045 $
387 $ 11,432 $ 10,268 $
369 $ 10,637
Actuarial losses in the projected benefit obligation as of January 1, 2021 and January 3, 2020 were primarily the result of the
decrease in the discount rate. Other sources of gains and losses such as plan experience, updated census data, mortality updates
and minor adjustments to actuarial assumptions generated combined gains and losses of less than 1% of expected year end
obligations.
The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:
(In millions)
Change in plan assets
Plan assets at beginning of fiscal year
Plan assets acquired in L3Harris Merger
Actual return on plan assets
Employer contributions
Benefits paid
Settlements
Expenses paid
Foreign currency exchange rate changes
Plan participants' contributions
Divestiture
Plan assets at end of fiscal year
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Total
Pension
Other
Benefits
Total
$
8,618 $
274 $
8,892 $
4,958 $
201 $
5,159
—
1,263
20
(569)
—
(42)
9
2
—
—
40
11
(26)
—
—
—
—
—
—
1,303
31
(595)
—
(42)
9
2
—
3,183
548
406
(342)
(5)
(43)
4
1
(92)
68
18
8
(21)
—
—
—
—
—
3,251
566
414
(363)
(5)
(43)
4
1
(92)
$
9,301 $
299 $
9,600 $
8,618 $
274 $
8,892
Funded status at end of fiscal year
$
(1,744) $
(88) $
(1,832) $
(1,650) $
(95) $
(1,745)
The accumulated benefit obligation for all defined benefit pension plans was $11.0 billion at January 1, 2021. The following
tables provide information for benefit plans with accumulated benefit obligations in excess of plan assets and benefit plans with
projected benefit obligations in excess of plan assets:
107
(In millions)
Accumulated benefit obligation
Fair value of plan assets
(In millions)
Projected benefit obligation
Fair value of plan assets
Income Statement Information
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Pension
Other
Benefits
10,469
8,658
N/A $
N/A
9,656
7,931
January 1, 2021
January 3, 2020
Pension
Other
Benefits
Pension
Other
Benefits
10,522 $
8,689 $
181 $
85
9,700 $
7,959
N/A
N/A
322
224
$
$
The following table provides the components of net periodic benefit income and other amounts recognized in other
comprehensive income in fiscal 2020, the two quarters ended January 3, 2020, and in fiscal 2019 and 2018 as they pertain to our
defined benefit plans:
(In millions)
Net periodic benefit income
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Amortization of prior service credit
Cost for special termination benefits
Effect of curtailments or settlements(1)
Net periodic benefit income
Pension
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
65 $
273
(630)
10
(28)
1
—
42 $
149
(314)
1
(5)
—
(18)
36 $
209
(382)
—
—
—
1
39
195
(369)
—
—
—
—
$
(309) $
(145) $
(136) $
(135)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
Net actuarial loss (gain)
Prior service cost (credit)
Amortization of net actuarial loss
Amortization of prior service credit (cost)
Currency translation adjustment
Recognized net loss due to divestiture
$
Total change recognized in other comprehensive loss
Total impact from net periodic benefit cost and changes in
other comprehensive loss
$
55 $
625 $
(106)
403 $
1
(10)
28
2
—
424
(292)
(5)
5
—
(13)
(250)
3
—
(1)
—
—
627
115 $
(395) $
491 $
2
—
—
—
—
(104)
(239)
_______________
(1) Effective January 1, 2020, for certain acquired L3 U.S. defined benefit pension plans, benefit accruals were frozen and replaced with a 1% cash balance
benefit formula for certain employees who were not considered highly compensated on December 31, 2018. During the two quarters ended January 3, 2020,
we recognized a $23 million curtailment gain as a result of this change, and a $5 million settlement loss resulting from the payout of the liabilities of a non-
qualified benefit plan due to the change in control provisions.
108
1
7
(16)
(1)
(9)
(20)
—
1
(19)
(28)
(In millions)
Net periodic benefit income
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial gain
Net periodic benefit income
Other Benefits
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
$
2 $
10
(21)
(3)
(12) $
1 $
5
(10)
(3)
(7) $
— $
8
(16)
(6)
(14) $
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
Net actuarial loss (gain)
Prior service cost
Amortization of net actuarial gain
Total change recognized in other comprehensive loss
Total impact from net periodic benefit cost and changes in
other comprehensive loss
Defined Benefit Plan Assumptions
$
$
4 $
(1) $
4 $
8
3
15
—
3
2
—
6
10
3 $
(5) $
(4) $
The determination of the assumptions related to defined benefit plans are based on the provisions of the applicable
accounting pronouncements, review of various market data and discussions with our actuaries. We develop each assumption using
relevant Company experience in conjunction with market-related data. Assumptions are reviewed annually and adjusted as
appropriate.
The following tables provide the weighted-average assumptions used to determine projected benefit obligations and net
periodic benefit cost, as they pertain to our defined benefit pension plans:
Obligation assumptions as of:
Discount rate
Rate of future compensation increase
Cash balance interest crediting rate
Cost assumptions for fiscal periods ended:
Discount rate to determine service cost
Discount rate to determine interest cost
Expected return on plan assets
Rate of future compensation increase
Cash balance interest crediting rate
January 1, 2021
January 3, 2020
2.31 %
3.01 %
3.50 %
3.14 %
2.80 %
3.50 %
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
2.87 %
2.74 %
7.68 %
2.80 %
3.50 %
3.11 %
2.94 %
7.68 %
2.97 %
3.50 %
3.89 %
3.75 %
7.66 %
2.76 %
3.50 %
3.48 %
3.28 %
7.66 %
2.76 %
3.50 %
Key assumptions for the SPP (our largest defined benefit pension plan with 85% of the total projected benefit obligation)
included a discount rate for obligation assumptions of 2.32%, a cash balance interest crediting rate of 3.50% and expected return
on plan assets of 7.75% for fiscal 2020, which is being reduced to 7.50% for fiscal 2021. There is also a frozen pension equity
benefit that assumes a 3.25% interest crediting rate.
The following table provides the weighted-average assumptions used to determine projected benefit obligations and net
periodic benefit cost, as they pertain to our other postretirement defined benefit plans:
109
Obligation assumptions as of:
Discount rate
Rate of future compensation increase
January 1, 2021
January 3, 2020
2.10 %
N/A
2.97 %
N/A
Cost assumptions for fiscal periods ended:
Discount rate to determine service cost
Discount rate to determine interest cost
Rate of future compensation increase
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
3.25 %
2.55 %
N/A
3.47 %
2.74 %
N/A
4.14 %
3.62 %
N/A
3.62 %
3.04 %
N/A
The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the
plans invest, the weight of each asset class in the strategic allocation, the correlations among asset classes and their expected
volatilities. Our expected rate of return on plan assets is estimated by evaluating both historical returns and estimates of future
returns. Specifically, the determination of the expected long-term rate of return takes into consideration: (1) the plan’s actual
historical annual return on assets over the past 15-, 20- and 25-year time periods, (2) historical broad market returns over long-
term timeframes weighted by the plan’s strategic allocation, and (3) independent estimates of future long-term asset class returns,
weighted by the plan’s strategic allocation. Based on this approach, the long-term expected annual rate of return on assets is
estimated at 7.50% for fiscal 2021 for the U.S. defined benefit pension plans. The weighted average long-term expected annual
rate of return on assets for all defined benefit pension plans is estimated to be 7.43% for fiscal 2021. In fiscal 2020, we adopted
updated mortality tables, which resulted in a decrease in the defined benefit plans’ projected benefit obligation as of January 1,
2021 and estimated net periodic benefit cost beginning with fiscal 2021.
The assumed composite rate of future increases in the per capita healthcare costs (the healthcare trend rate) was 6.50% for
fiscal 2021, decreasing ratably to 4.70% by fiscal 2030. To the extent that actual experience differs from these assumptions, the
effect will be 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.
Investment Policy
The investment strategy for managing defined benefit plan assets is to seek an optimal rate of return relative to an
appropriate level of risk. We manage substantially all defined benefit plan assets on a commingled basis in a master investment
trust. In making these asset allocation decisions, we take into account recent and expected returns and volatility of returns for each
asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To
enhance returns and mitigate risk, we diversify our investments by strategy, asset class, geography and sector and engage a large
number of managers to gain broad exposure to the markets.
The following table provides the current strategic target asset allocation ranges by asset category:
Equity investments
Fixed income investments
Alternative investments
Cash and cash equivalents
Fair Value of Plan Assets
Target Asset
Allocation
40 % — 60%
25 % — 35%
10 % — 25%
0 % — 10%
The following is a description of the valuation techniques and inputs used to measure fair value for major categories of
investments as reflected in the table that follows such description:
•
•
Domestic and international equities, which include common and preferred shares, domestic listed and foreign listed
equity securities, open-ended and closed-ended mutual funds, real estate investment trusts and exchange traded funds,
are generally valued at the closing price reported on the major market exchanges on which the individual securities are
traded at the measurement date. Because these assets are traded predominantly on liquid, widely traded public
exchanges, equity securities are categorized as Level 1 assets.
Private equity funds, which include buy-out, mezzanine, venture capital, distressed asset and secondary funds, are
typically limited partnership investment structures. Private equity funds are valued using a market approach based on
NAV calculated by the funds and are not publicly available. Private equity funds generally have liquidity restrictions
that extend for ten or more years. At January 1, 2021 and January 3, 2020, our defined benefit plans had future
unfunded commitments totaling $518 million and $325 million, respectively, related to private equity fund
investments.
110
•
•
•
•
•
Hedge funds, which include equity long/short, event-driven, fixed-income arbitrage and global macro strategies, are
typically limited partnership investment structures. Limited partnership interests in hedge funds are valued using a
market approach based on NAV calculated by the funds and are not publicly available. Hedge funds generally permit
redemption on a quarterly or more frequent basis with 90 or fewer days-notice. At each of January 1, 2021 and
January 3, 2020, our defined benefit plans had no future unfunded commitments related to hedge fund investments.
Fixed income investments, which include U.S. Government securities, investment and non-investment grade corporate
bonds and securitized bonds are generally valued using pricing models that use verifiable, observable market data such
as interest rates, benchmark yield curves and credit spreads, bids provided by brokers or dealers, or quoted prices of
securities with similar characteristics. Fixed income investments are generally categorized as Level 2 assets. Fixed
income funds valued at the closing price reported on the major market exchanges on which the individual fund is
traded are categorized as Level 1 assets.
Other is comprised of guaranteed insurance contracts valued at book value, which approximates fair value, calculated
using the prior-year balance adjusted for investment returns and changes in cash flows and corporate owned life
insurance policies valued at the accumulated benefit.
Cash and cash equivalents are primarily comprised of short-term money market funds valued at cost, which
approximates fair value, or valued at quoted market prices of identical instruments. Cash and currency are categorized
as Level 1 assets; cash equivalents, such as money market funds or short-term commingled funds, are categorized as
Level 2 assets.
Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient are not
categorized in the fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy
to the aggregate postretirement benefit plan assets.
The following tables provide the fair value of plan assets held by our defined benefit plans by asset category and by fair
value hierarchy level:
(In millions)
Asset Category
Equities:
Domestic equities
International equities
Real Estate Investment Trusts
Fixed income:
Corporate bonds
Government securities
Securitized assets
Fixed income funds
Other
Cash and cash equivalents
Total
Investments Measured at NAV
Equity funds
Fixed income funds
Hedge funds
Private equity funds
Other
Total Investments Measured at NAV
Payables, net
Total fair value of plan assets
Total
Level 1
Level 2
Level 3
January 1, 2021
1,513 $
1,280
197
—
—
—
119
—
20
3,129 $
— $
—
—
1,422
485
150
—
—
182
2,239 $
—
—
—
25
—
—
—
2
—
27
$
$
1,513 $
1,280
197
1,447
485
150
119
2
202
5,395 $
3,088
532
321
312
1
4,254
(49)
9,600
111
(In millions)
Asset Category
Equities:
Domestic equities
International equities
Real Estate Investment Trusts
Fixed income:
Corporate bonds
Government securities
Securitized assets
Fixed income funds
Other
Cash and cash equivalents
Total
Investments Measured at NAV
Equity funds
Fixed income funds
Hedge funds
Private equity funds
Other
Total Investments Measured at NAV
Receivables, net
Total fair value of plan assets
Contributions
Total
Level 1
Level 2
Level 3
January 3, 2020
2,968 $
1,217
211
—
—
—
101
—
17
4,514 $
— $
—
—
1,159
489
131
—
—
674
2,453 $
—
—
—
17
—
—
—
2
—
19
$
$
2,968 $
1,217
211
1,176
489
131
101
2
691
6,986 $
933
323
342
302
1
1,901
5
8,892
Funding requirements under Internal Revenue Service (“IRS”) rules are a major consideration in making contributions to
our postretirement benefit plans. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the
required minimum funding thresholds.
The Highway and Transportation Funding Act of 2014 and the Bipartisan Budget Act of 2015 (“BBA 2015”) further
extended the interest rate stabilization provision of MAP-21 until 2020. We made a $302 million voluntary contribution to our
U.S. qualified defined benefit pension plans during the two quarters ended January 3, 2020. As a result of this voluntary
contribution, as well as $300 million and $400 million of voluntary contributions in fiscal 2018 and 2017, respectively, we made
no material contributions to our U.S. qualified defined benefit pension plans during fiscal 2020 or 2019. Furthermore, we are not
required to make any contributions to our U.S. qualified defined benefit pension plans in fiscal 2021.
Estimated Future Benefit Payments
The following table provides the projected timing of payments for benefits earned to date and benefits expected to be earned
for future service by current active employees under our defined benefit plans.
(In millions)
Fiscal Years:
2021
2022
2023
2024
2025
2026 — 2030
Pension
Other
Benefits
(1)
Total
$
581 $
584
585
585
583
2,872
31 $
30
29
28
26
111
612
614
614
613
609
2,983
_______________
(1) Projected payments for Other Benefits reflect net payments from the Company, which include subsidies that reduce the gross payments by less than 10
percent.
Multi-employer Benefit Plans
Certain of our businesses acquired in connection with the L3Harris Merger participate in multi-employer defined benefit
pension plans. We make cash contributions to these plans under the terms of collective-bargaining agreements that cover union
112
employees based on a fixed rate per hour of service worked by the covered employees. The risks of participating in these multi-
employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multi-employer
plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating
employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating
employers and (3) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans
an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Cash contributed and expenses
recorded for our multi-employer plans were not material in fiscal 2020 or in the two quarters ended January 3, 2020.
See Note 5: Business Combination in these Notes for information regarding postretirement benefit plan liabilities assumed in
connection with the L3Harris Merger.
NOTE 16: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION
At January 1, 2021, we had options or other share-based compensation outstanding under two Harris shareholder-approved
employee stock incentive plans (“SIPs”), the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective
August 27, 2010) and the L3Harris Technologies, Inc. 2015 Equity Incentive Plan (As Amended and Restated Effective
August 28, 2020) (the “2015 EIP”), as well as under employee stock incentive plans of L3 assumed by L3Harris (collectively,
“L3Harris SIPs”). We believe that share-based awards more closely align the interests of participants with those of shareholders.
Harris equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to
such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in
L3Harris Common Stock, except stock options which automatically vested and remained outstanding. Harris equity awards
granted on or after October 12, 2018 did not automatically vest upon closing of the L3Harris Merger, and instead remained
outstanding as an award with respect to L3Harris common stock in accordance with the terms that were applicable to such award
prior to the L3Harris Merger.
L3’s equity awards granted prior to October 12, 2018, in accordance with the terms and conditions that were applicable to
such awards prior to the L3Harris Merger, generally automatically vested upon closing of the L3Harris Merger and settled in
L3Harris common stock (except stock options automatically converted into stock options with respect to L3Harris common stock
and remained outstanding), in each case, after giving effect to the Exchange Ratio and appropriate adjustments to reflect the
consummation of the L3Harris Merger and the terms and conditions applicable to such awards prior to the L3Harris Merger. Any
L3 restricted stock unit or L3 restricted stock award granted on or after October 12, 2018 was converted into a corresponding
award with respect to L3Harris common stock, with the number of shares underlying such award adjusted based on the Exchange
Ratio, and remained outstanding in accordance with the terms that were applicable to such award prior to the L3Harris Merger.
Pursuant to the Merger Agreement, L3Harris assumed the converted L3 equity awards.
Summary of Share-Based Compensation Expense
The following table summarizes the amounts and classification of share-based compensation expense:
(In millions)
Total expense
Included in:
Cost of product sales and services
Engineering, selling and administrative expenses
Income from continuing operations
Tax effect on share-based compensation expense
Total share-based compensation expense after-tax
Fiscal Year Ended
January 1, 2021
Two Quarters
Ended
January 3, 2020(1)
Fiscal Years Ended
June 28, 2019
June 29, 2018
$
$
$
94 $
125 $
58 $
11 $
83
94
(24)
70 $
5 $
120
125
(31)
94 $
12 $
46
58
(14)
44 $
51
8
43
51
(16)
35
_______________
(1)
Includes acceleration expense recognized in connection with the L3Harris Merger.
Compensation cost related to share-based compensation arrangements that was capitalized as part of inventory or fixed
assets was not material in fiscal 2020, the two quarters ended January 3, 2020, or fiscal 2019 or 2018.
As of January 1, 2021, a total of 19.4 million shares of common stock remained available under our 2015 EIP for future
issuance (excluding shares to be issued in respect of outstanding options and other share-based awards, and with each full-value
award (e.g., restricted stock and restricted stock unit awards and performance share and performances share unit awards) counting
as 4.6 shares against the total remaining for future issuance). During fiscal 2020, we issued an aggregate of 803 thousand shares
of common stock under the terms of our L3Harris SIPs, which is net of shares withheld for tax purposes.
113
Stock Options
The following information relates to stock options, including performance stock options, that have been granted under
shareholder-approved L3Harris SIPs. Option exercise prices are equal to or greater than the fair market value of our common
stock on the date the options are granted, using the closing stock price of our common stock. Options may be exercised for a
period of ten years after the date of grant, and options, other than performance stock options, generally become exercisable in
installments, which are typically 33.3 percent one year from the grant date, 33.3 percent two years from the grant date and 33.3
percent three years from the grant date. In certain instances, vesting and exercisability are also subject to performance criteria.
The fair value as of the grant date of each option award was determined using the Black-Scholes-Merton option-pricing
model which uses assumptions noted in the following table. Expected volatility over the expected term of the options is based on
implied volatility from traded options on our common stock and the historical volatility of our stock price. The expected term of
the options is based on historical observations of our common stock, considering average years to exercise for all options
exercised and average years to cancellation for all options canceled, as well as average years remaining for vested outstanding
options, which is calculated based on the weighted-average of these three inputs. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
A summary of the significant assumptions used in determining the fair value of stock option grants under our L3Harris SIPs
is as follows:
Expected dividends
Expected volatility
Risk-free interest rates
Expected term (years)
Fiscal Year
Ended
January 1, 2021
Fiscal Years
Ended
January 3, 2020
Fiscal Years Ended
June 28, 2019
June 29, 2018
1.55 %
22.74 %
0.89 %
5.04
1.70 %
22.18 %
1.68 %
5.65
1.61 %
19.87 %
2.72 %
5.03
1.80 %
19.30 %
1.80 %
5.00
A summary of stock option activity under our L3Harris SIPs as of January 1, 2021 and changes during fiscal 2020 is as
follows:
Stock options outstanding January 3, 2020
Granted
Exercised
Forfeited or expired
Stock options outstanding January 1, 2021
Stock options exercisable January 1, 2021
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
(In years)
(In millions)
110.48
197.73
74.98
196.83
127.93
96.53
6.23 $
5.11 $
280.42
280.42
Shares
4,545,978 $
583,200 $
(774,458) $
(33,084) $
4,321,636 $
3,032,005 $
The weighted-average grant-date fair value per share was $34.49, $38.61, $30.05 and $18.60 for options granted in fiscal
2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. The total intrinsic value of options at the
time of exercise was $103 million, $212 million, $75 million and $39 million for options exercised in fiscal 2020, the two quarters
ended January 3, 2020, and fiscal 2019 and 2018, respectively.
114
A summary of the status of our nonvested stock options at January 1, 2021 and changes during fiscal 2020 is as follows:
Nonvested stock options January 3, 2020
Granted
Vested
Nonvested stock options January 1, 2021
Shares
Weighted-Average
Grant-Date Fair Value
Per Share
738,956 $
583,200 $
(32,525) $
1,289,631 $
38.61
34.49
35.86
36.81
As of January 1, 2021, there was $25 million of total unrecognized compensation expense related to nonvested stock options
granted under our L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 1.87 years. The
total fair value of stock options that vested in fiscal 2020 was not material and the total fair value of stock options that vested in
the two quarters ended January 3, 2020, and in fiscal 2019 and 2018 was $17 million, $14 million and $18 million, respectively.
Restricted Stock and Restricted Stock Unit Awards
The following information relates to awards of restricted stock and restricted stock units that have been granted to
employees and non-employee directors under our L3Harris SIPs. These awards are not transferable until vested and the
restrictions generally lapse upon the achievement of continued employment (or board membership) over a specified time period.
The fair value as of the grant date of these awards was based on the closing price of our common stock on the grant date and
is amortized to compensation expense over the vesting period. At January 1, 2021, there were 64,059 shares of restricted stock
and 634,861 restricted stock units outstanding which were payable in shares.
A summary of the status of these awards at January 1, 2021 and changes during fiscal 2020 is as follows:
Restricted stock and restricted stock units outstanding at January 3, 2020
Granted
Vested
Forfeited
Restricted stock and restricted stock units outstanding at January 1, 2021
Shares or Units
Weighted-Average
Grant Price
Per Share or Unit
535,767 $
272,146 $
(78,828) $
(30,165) $
698,920 $
196.22
195.66
177.23
186.22
196.26
As of January 1, 2021, there was $73 million of total unrecognized compensation expense related to these awards under our
L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 1.63 years. The weighted-average
grant date price per share or per unit was $195.66, $204.62, $160.05 and $141.46 for awards granted in fiscal 2020, the two
quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. The total fair value of these awards was $9 million,
$75 million, $16 million and $11 million for awards that vested in fiscal 2020, in the two quarters ended January 3, 2020, and in
fiscal 2019 and 2018, respectively.
Performance Share Unit Awards
The following information relates to awards of performance share units that have been granted to employees under our
L3Harris SIPs. Generally, these awards are subject to performance criteria, such as meeting predetermined operating income or
earnings per share and return on invested capital targets for a 3-year performance period. These awards also generally vest at the
expiration of the same 3-year period. The final determination of the number of shares to be issued in respect of an award is made
by our Board of Directors or a committee of our Board of Directors.
The fair value as of the grant date of these awards was based on the closing price of our common stock on the grant date and
is amortized to compensation expense over the vesting period if achievement of the performance measures is considered probable.
At January 1, 2021, there were 249,695 performance share units outstanding which were payable in shares.
115
A summary of the status of these awards at January 1, 2021 and changes during fiscal 2020 is as follows:
Performance share units outstanding at January 3, 2020
Granted
Forfeited
Performance share units outstanding at January 1, 2021
Shares or Units
Weighted-Average
Grant Price
Per Share or Unit
55,020 $
203,606 $
(8,931) $
249,695 $
204.85
228.29
228.29
223.28
As of January 1, 2021, there was $51 million of total unrecognized compensation expense related to these awards under our
L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 1.81 years. The weighted-average
grant date price per unit was $228.29, $204.85, $155.12 and $123.13 for awards granted in fiscal 2020, the two quarters ended
January 3, 2020, and fiscal 2019 and 2018, respectively. The total fair value of these awards was not material for awards that
vested in fiscal 2020, and was $107 million, $21 million and $12 million for awards that vested in the two quarters ended January
3, 2020, and fiscal 2019 and 2018, respectively.
NOTE 17: INCOME FROM CONTINUING OPERATIONS PER SHARE
The computations of income from continuing operations per common share attributable to L3Harris common shareholders
are as follows:
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
(In millions, except per share amounts)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Income from continuing operations
Adjustments for participating securities outstanding
Income from continuing operations used in per basic and
diluted common share calculations (A)
Basic weighted average common shares outstanding (B)
Impact of dilutive share-based awards
Diluted weighted average common shares outstanding (C)
Income from continuing operations per basic common share
(A)/(B)
Income from continuing operations per diluted common
share (A)/(C)
$
$
$
$
1,121 $
823 $
—
—
953 $
(2)
702
(2)
1,121 $
823 $
951 $
214.0
1.9
215.9
221.2
2.5
223.7
118.0
2.5
120.5
5.24 $
3.72 $
8.06 $
5.19 $
3.68 $
7.89 $
700
118.6
2.5
121.1
5.90
5.78
Potential dilutive common shares primarily consist of employee stock options and restricted and performance unit awards.
Income from continuing operations per diluted common share excludes the antidilutive impact of 1,300,214, 604,969, 271,892
and 48,590 weighted average share-based awards outstanding in fiscal 2020, the two quarters ended January 3, 2020, and fiscal
2019 and 2018, respectively.
NOTE 18: RESEARCH AND DEVELOPMENT
Company-sponsored research and development (“R&D”) costs are expensed as incurred and are included in the
“Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income. These costs were $684
million, $329 million, $331 million and $311 million in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and
2018, respectively. Customer-sponsored R&D costs are incurred pursuant to contractual arrangements, principally
U.S. Government-sponsored contracts requiring us to provide a product or service meeting certain defined performance or other
specifications (such as designs), and are accounted for principally by the POC cost-to-cost revenue recognition method.
Customer-sponsored R&D is included in our revenue and cost of product sales and services.
NOTE 19: LEASE COMMITMENTS
Our operating and finance leases at January 1, 2021 and January 3, 2020 primarily consist of real estate leases for office
space, warehouses, manufacturing, research and development facilities, tower space and land, and equipment leases. Finance
leases were not material at January 1, 2021 or January 3, 2020 and are not included in the disclosures below.
116
Operating lease cost was $176 million and $88 million for fiscal 2020 and the two quarters ended January 3, 2020,
respectively. Other lease expenses, including short-term and equipment lease cost, variable lease cost and sublease income, were
not material for fiscal 2020 or the two quarters ended January 3, 2020. Rental expense during fiscal 2019 and 2018 was $73
million and $61 million, respectively.
On November 24, 2020, we completed a sale and leaseback transaction of a parcel of land and manufacturing facility
located in Los Angeles, California for $92 million (net cash proceeds of $66 million after $2 million of closing costs and $24
million for a residual value guarantee payment). The lease has a maximum term of sixteen months (including two options to
extend the lease by one month). Due to its short term nature relative to the property’s remaining economic life, the lease will be
accounted for as an operating lease. We recognized a pre-tax gain on this sale and leaseback transaction of $22 million, which is
included in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income for fiscal
2020.
As discussed in more detail in Note 11: Intangible Assets in these Notes, in conjunction with, and in advance of, the tests of
goodwill related to our Commercial Aviation Solutions reporting unit in fiscal 2020, we recorded a $257 million non-cash
impairment charge for long lived assets, including $31 million for impairment of ROU assets. Additionally, in connection with
COVID restructuring actions, we recognized $5 million of non-cash impairment charges for ROU assets associated with
consolidated facilities. These impairments are included in the “Impairment of goodwill and other assets” line item in our
Consolidated Statement of Income for fiscal 2020.
Supplemental operating lease balance sheet information at January 1, 2021 and January 3, 2020 is as follows:
(In millions)
Operating lease ROU assets
Other accrued items
Operating lease liabilities
Total operating lease liabilities
January 1, 2021
January 3, 2020
$
$
766 $
116
734
850 $
837
129
781
910
Other supplemental lease information for fiscal 2020 and the two quarters ended January 3, 2020 is as follows:
(In millions, except lease term and discount rate)
Cash paid for amounts included in the measurement of operating lease liabilities
$
ROU assets obtained in exchange for new operating lease liabilities
Weighted average remaining lease term — operating leases (in years)
Weighted average discount rate — operating leases
Fiscal Year
Ended
Two Quarters
Ended
January 1, 2021
January 3, 2020
$
171
103
8.7
3.0 %
91
17
9.4
3.1 %
Future lease payments under non-cancelable operating leases at January 1, 2021 were as follows:
Fiscal Years
2021
2022
2023
2024
2025
Thereafter
Total future lease payments required
Less: imputed interest
Total
(In millions)
$
$
148
131
112
95
86
425
997
147
850
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold
improvement incentives or unusual provisions or conditions. We do not consider any individual lease material to our operations.
117
At January 1, 2021, we had $290 million of additional operating lease commitments for real estate leases that have not yet
commenced. These leases will commence in 2021 with lease terms of 5 to 25 years.
NOTE 20: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, we are exposed to global market risks, including the effect of changes in foreign currency
exchange rates and changes in interest rates. We use derivative instruments to manage our exposure to such risks and formally
document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy
for undertaking hedge transactions. We also may enter into derivative instruments that are not designated as hedges and do not
qualify for hedge accounting. We recognize all derivatives in our Consolidated Balance Sheet at fair value. We do not hold or
issue derivatives for speculative trading purposes.
Exchange Rate Risk — Fair Value Hedges
To manage the exposure in our balance sheet to risks from changes in foreign currency exchange rates, we implement fair
value hedges. More specifically, we have used foreign currency forward contracts and options to hedge certain balance sheet
items, including foreign currency denominated accounts receivable and inventory. Changes in the value of the derivatives and the
related hedged items are reflected in earnings, in the “Cost of product sales and services” line item in our Consolidated Statement
of Income.
At January 1, 2021, we had no outstanding foreign currency forward contracts to hedge balance sheet items. The net gains or
losses on foreign currency forward contracts designated as fair value hedges were not material in fiscal 2020, the two quarters
ended January 3, 2020, or fiscal 2019 or 2018. In addition, no amounts were recognized in earnings in fiscal 2020, the two
quarters ended January 3, 2020, or fiscal 2019 or 2018 related to hedged firm commitments that no longer qualify as fair value
hedges.
Exchange Rate Risk — Cash Flow Hedges
To manage our exposure to currency risk and market fluctuation risk associated with anticipated cash flows that are probable
of occurring in the future, we implement cash flow hedges. More specifically, we use foreign currency forward contracts and
options to hedge off-balance sheet future foreign currency commitments, including purchase commitments to suppliers, future
committed sales to customers and intersegment transactions. These derivatives are used to hedge currency exposures from cash
flows anticipated across our business segments. We also hedge U.S. Dollar payments to suppliers to maintain our anticipated
profit margins in our international operations. These derivatives have only nominal intrinsic value at the time of purchase and
have a high degree of correlation to the anticipated cash flows they are designated to hedge. Hedge effectiveness is determined by
the correlation of the anticipated cash flows from the hedging instruments and the anticipated cash flows from the future foreign
currency commitments through the maturity dates of the derivatives used to hedge these cash flows. These financial instruments
are marked-to-market using forward prices and fair value quotes with the offset to other comprehensive income (loss) and are
categorized in Level 2 of the fair value hierarchy. Gains and losses in accumulated other comprehensive loss are reclassified to
earnings when the related hedged item is recognized in earnings. The cash flow impact of our derivatives is included in the same
category in our Consolidated Statement of Cash Flows as the cash flows of the related hedged items. Notional amounts are used to
measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. At January 1,
2021, we had open foreign currency forward contracts with an aggregate notional amount of $488 million, hedging certain
forecasted transactions denominated in U.S. Dollars, Canadian Dollars, British Pounds, Euros, Australian Dollars, and New
Zealand Dollars. At January 3, 2020, we had open foreign currency forward contracts with an aggregate notional amount of $511
million, hedging certain forecasted transactions denominated in U.S. Dollars, Euros, British Pounds, Australian Dollars, Canadian
Dollars and United Arab Emirates Dirham.
At January 1, 2021, our foreign currency forward contracts had maturities through 2025.
The table below presents the fair values of our derivatives designated as foreign currency hedging instruments in our
Consolidated Balance Sheet at January 1, 2021 and January 3, 2020.
(In millions)
Derivatives designated as hedging instruments:
Foreign currency forward contracts
Other current assets
Other non-current assets
Other accrued items
Other long-term liabilities
January 1, 2021
January 3, 2020
$
21 $
3
4
—
8
2
6
2
118
Net unrealized gains recognized in other comprehensive income (loss) from foreign currency derivatives designated as cash
flow hedges were $12 million in fiscal 2020. Net unrealized gains and losses recognized in other comprehensive income (loss)
from foreign currency derivatives designated as cash flow hedges were not material in the two quarters ended January 3, 2020 or
in fiscal 2019 or 2018. Net gains and losses reclassified from accumulated other comprehensive loss in to earnings from foreign
currency derivatives designated as cash flow hedges were not material in fiscal 2020, the two quarters ended January 3, 2020, or
fiscal 2019 or 2018.
Gains and losses from foreign currency derivatives designated as cash flow hedges are included in the line item in our
Consolidated Statement of Income associated with the hedged transaction, with the exception of the losses resulting from
discontinued cash flow hedges, which are included in the “Engineering, selling and administrative expenses” line item in our
Consolidated Statement of Income.
At January 1, 2021, the estimated amount of existing gains to be reclassified into earnings within the next twelve months
was $19 million.
Interest-Rate Risk — Cash Flow Hedges
At January 1, 2021, we had no treasury lock agreements (“treasury locks”) classified as cash flow hedges. At January 3,
2020, we had two treasury locks with third-party financial institution counterparties with a combined notional amount of $650
million that were classified as cash flow hedges.
On November 25, 2020, in order to fund our optional redemption of the 4.95% 2021 Notes as described in Note 14: Debt in
these Notes, we completed the issuance of $650 million in aggregate principal amount of the 1.80% 2031 Notes. In connection
with the L3Harris Merger, we assumed two treasury locks that were 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 the 4.95% 2021 Notes. These treasury locks were terminated as planned in connection with
our issuance of the 1.80% 2031 Notes during the quarter ended January 1, 2021, and because interest rates decreased during the
period of the treasury locks, we made a 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 accumulated other comprehensive
loss 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 Statement of Cash Flows.
At January 3, 2020, the combined fair value of these treasury locks was a liability of $56 million, which was categorized in
Level 2 of the fair value hierarchy and recorded in the “Other long-term liabilities” line item in our Consolidated Balance Sheet.
The unrealized after-tax loss associated with these treasury locks included in the “Accumulated other comprehensive loss” line
item in our Consolidated Balance Sheet was $16 million at January 3, 2020. We recognized a $35 million liability for these
treasury locks as part of our purchase accounting for the L3Harris Merger.
On November 27, 2019, in order to fund our optional redemption of the 2.7% 2020 Notes as described in Note 14: Debt in
these Notes, we completed the issuance of $400 million in aggregate principal amount of the 2.90% 2029 Notes. In January 2019,
we initiated a treasury lock 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 the 2.7% 2020 Notes. This treasury
lock was terminated as planned in connection with our issuance of the 2.90% 2029 notes during the quarter ended January 3,
2020, and because interest rates decreased during the period of the treasury lock, we made a cash payment to our counterparty and
recorded an after-tax loss of $24 million in the “Accumulated other comprehensive loss” line item of our Consolidated Balance
Sheet. The accumulated other comprehensive loss balance will be amortized to interest expense over the life of the 2.90% 2029
Notes. We classified the cash outflow from the termination of this treasury lock as cash used in financing activities in our
Consolidated Statement of Cash Flows.
The net gains or losses from interest rate derivatives recognized in earnings were not material in fiscal 2020, the two
quarters ended January 3, 2020, or fiscal 2019 or 2018.
Credit Risk
We are exposed to the risk of credit losses from non-performance by counterparties to the financial instruments discussed
above, but we do not expect any of the counterparties to fail to meet their obligations. To manage credit risks, we select
counterparties based on credit ratings, limit our exposure to any single counterparty under defined guidelines and monitor the
market position with each counterparty.
119
NOTE 21: NON-OPERATING INCOME
The components of non-operating income were as follows:
(In millions)
Pension adjustment(1)
Gain on pension plan curtailment
Gain (loss) on extinguishment of debt(2)
Other
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021 January 3, 2020
June 28, 2019
June 29, 2018
$
$
389 $
—
2
10
401 $
172 $
23
(2)
(1)
192 $
186 $
—
—
2
188 $
184
—
(24)
(4)
156
_______________
(1) The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets, amortization of net
actuarial gain or loss and effect of curtailments or settlements.
(2) Gain associated with our optional redemption of the entire outstanding $650 million principal amount of our 4.95% 2021 Notes in fiscal 2020; loss
associated with our optional redemption of the entire outstanding $400 million principal amount of our 2.7% 2020 Notes in the two quarters ended January
3, 2020; and losses associated with our optional redemption of the entire outstanding $800 million aggregate principal amount of our 2018 Redeemed Notes
and the repayment in full of $253 million in remaining outstanding indebtedness under the 5-year tranche of our $1.3 billion senior unsecured term loan
facility and the termination of our 2015 credit agreement in fiscal 2018. See. Note 14: Debt in these Notes for additional information.
NOTE 22: ACCUMULATED OTHER COMPREHENSIVE LOSS (“AOCI”)
The components of AOCI are summarized below:
(In millions)
Foreign currency
translation
Net unrealized
losses on hedging
derivatives
Unrecognized
postretirement
obligations
Total AOCI
Balance at June 28, 2019
$
(106) $
(38) $
(563) $
(707)
Other comprehensive income (loss), before income
taxes
Income taxes
Other comprehensive income (loss) before
reclassifications to earnings, net of income taxes
Losses reclassified to earnings(1)
Income taxes
Losses reclassified to earnings, net of income taxes
Other comprehensive income (loss), net of income
taxes
Balance at January 3, 2020
Other comprehensive income (loss), before income
taxes
Income taxes
Other comprehensive income (loss) before
reclassifications to earnings, net of income taxes
Losses (gains) reclassified to earnings(1)
Income taxes
Losses (gains) reclassified to earnings, net of
income taxes
Other comprehensive income (loss), net of income
taxes
Balance at January 1, 2021
$
25
—
25
—
—
—
25
(81)
16
—
16
7
—
7
(23)
6
(17)
—
—
—
(17)
(55)
(41)
10
(31)
8
(2)
6
231
(53)
178
18
(5)
13
191
(372)
(418)
105
(313)
(21)
5
(16)
23
(58) $
(25)
(80) $
(329)
(701) $
233
(47)
186
18
(5)
13
199
(508)
(443)
115
(328)
(6)
3
(3)
(331)
(839)
_______________
(1) Losses (gains) reclassified to earnings are included in the “Revenue from product sales and services,” “Business divestiture-related (losses) gains,” “Interest
expense” and “Non-operating income” line items in our Consolidated Statement of Income.
120
NOTE 23: INCOME TAXES
Income Tax Provision
The provisions for current and deferred income taxes are summarized as follows:
(In millions)
Current:
United States
International
State and local
Deferred:
United States
International
State and local
The total income tax provision is summarized as follows:
(In millions)
Continuing operations
Discontinued operations
Total income tax provision
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
$
337 $
76
45
458
(150)
(73)
(1)
(224)
234 $
11 $
37
16
64
33
(15)
(9)
9
73 $
105 $
9
8
122
15
(3)
26
38
160 $
(141)
12
(11)
(140)
324
(3)
25
346
206
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
$
234 $
—
234 $
73 $
—
73 $
160 $
(1)
159 $
206
(5)
201
A reconciliation of the U.S. statutory income tax rate to our effective income tax rate follows:
U.S. statutory income tax rate
State taxes
International income
Non-deductible goodwill impairment
Research and development tax credit
Foreign derived intangibles income deduction
Change in valuation allowance
U.S. production activity benefit
Equity-based compensation(1)
Settlement of tax audits
U.S. tax reform
Other items
Effective income tax rate
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
21.0 %
3.2
0.4
5.8
(9.2)
(1.3)
0.5
—
(1.0)
(1.8)
—
0.1
17.7 %
21.0 %
1.4
0.9
—
(4.7)
(0.8)
(4.8)
—
(5.4)
—
—
0.4
8.0 %
21.0 %
2.4
(0.5)
—
(4.5)
(1.3)
(1.8)
—
(2.1)
—
—
1.2
14.4 %
28.1 %
1.9
(0.5)
—
(2.9)
—
0.2
(0.9)
(1.8)
(2.2)
0.4
0.4
22.7 %
_______________
(1)
Includes non-deductible equity-based compensation and excess tax benefits from equity-based compensation.
As of January 1, 2021, we estimate our outside basis difference in foreign subsidiaries that are considered indefinitely
reinvested to be approximately $1 billion. The outside basis difference is comprised predominantly of purchase accounting
adjustments and to a lesser extent, undistributed earnings and other equity adjustments. In the event of a disposition of the foreign
subsidiaries or a distribution, we may be subject to incremental U.S. income taxes, subject to an adjustment for foreign tax credits,
121
and withholding taxes or income taxes payable to the foreign jurisdictions. As of January 1, 2021, the determination of the amount
of unrecognized deferred tax liability related to the outside basis difference is not practicable.
Tax Law Changes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into U.S. law. Among other
provisions, the Tax Act reduced the U.S. statutory corporate income tax rate from a maximum 35 percent to a flat 21 percent,
effective January 1, 2018. Based on our fiscal year end, our blended U.S. statutory corporate income tax rate for fiscal 2018 was
28.1 percent. This drop in the tax rate resulted in a one-time benefit of $26 million ($.21 per diluted share) at the date of
enactment. Additionally, we recognized expense of $8 million in fiscal 2018 to revalue our existing net deferred income tax
balances.
During the second quarter of fiscal 2019, we completed our accounting for the income tax impact of enactment of the Tax
Act and there were no material changes from the estimates reported in our Current Report on Form 8-K filed with the SEC on
December 13, 2018.
The implementation of a modified territorial tax system under the Tax Act subjects us to tax on our Global Intangible Low-
Taxed Income (“GILTI”) starting with fiscal 2019. The Financial Accounting Standards Board has permitted companies to make
an accounting policy decision to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period
expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred
method”). We have elected to use the period cost method.
Deferred Income Tax Assets (Liabilities)
The components of deferred income tax assets (liabilities) were as follows:
(In millions)
Deferred tax assets:
Accruals
Tax loss and credit carryforwards
Share-based compensation
Capital loss carryforwards
Pension and other post-employment benefits
Operating lease obligation
Other
Valuation allowance(1)
Deferred tax assets, net
Deferred tax liabilities:
Property, plant and equipment
Unbilled receivables
Acquired intangibles
Operating lease right-of-use asset
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
January 1, 2021
January 3, 2020
$
$
315 $
153
33
2
457
202
280
(165)
1,277
(91)
(21)
(1,934)
(182)
(167)
(2,395)
(1,118) $
240
177
27
44
431
213
238
(185)
1,185
(159)
(51)
(2,037)
(196)
(121)
(2,564)
(1,379)
_______________
(1) The valuation allowance has been established to offset certain domestic and foreign deferred tax assets due to uncertainty regarding our ability to realize
them in the future.
Net deferred tax assets (liabilities) were classified as follows in our Consolidated Balance Sheet:
(In millions)
Non-current deferred income tax assets
Non-current deferred income tax liabilities
January 1, 2021
January 3, 2020
$
$
119 $
(1,237)
(1,118) $
102
(1,481)
(1,379)
122
Tax loss and credit carryforwards at January 1, 2021 have expiration dates ranging from less than one year and no expiration
in certain instances. The tax-effected amounts of federal, international, and state and local operating loss carryforwards at
January 1, 2021 were $7 million, $43 million and $15 million, respectively. The tax-effected amounts of federal, international,
and state and local capital loss carryforwards were not material at January 1, 2021. The amounts of federal, international, and state
and local credit carryforwards at January 1, 2021 were $6 million, $10 million and $81 million, respectively.
Loss from continuing operations before income taxes of international subsidiaries was $101 million in fiscal 2020 and
income from continuing operations before income taxes of international subsidiaries was $96 million, $37 million and $43 million
in the two quarters ended January 3, 2020, and in fiscal 2019 and 2018, respectively. We paid $394 million in income taxes, net of
refunds received, in fiscal 2020; received $8 million in income tax refunds, net of income taxes paid, in the two quarters ended
January 3, 2020; paid $137 million in income taxes, net of refunds received, in fiscal 2019; and received $8 million in income tax
refunds, net of income taxes paid, in fiscal 2018.
Tax Uncertainties
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
(In millions)
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Balance at beginning of period
$
Additions based on tax positions taken during current period
Additions based on tax positions taken during prior periods
Additions for tax positions related to acquired entities
Decreases based on tax positions taken during prior periods
Decreases from lapse in statutes of limitations
Decreases from settlements
Balance at end of period
$
438 $
204 $
102 $
60
21
116
(82)
(3)
(8)
542 $
35
—
226
(7)
(20)
—
438 $
31
80
—
(9)
—
—
204 $
90
17
23
—
(28)
—
—
102
As of January 1, 2021, we had $542 million of unrecognized tax benefits, of which $453 million would favorably impact our
future tax rates in the event that the tax benefits are eventually recognized. As of January 3, 2020, we had $438 million of
unrecognized tax benefits, of which $313 million would favorably impact our future tax rates in the event that the tax benefits are
eventually recognized.
We recognize accrued interest and penalties related to unrecognized tax benefits as part of our income tax expense. We
recognized interest and penalties of $14 million and $2 million in fiscal 2020 and the two quarters ended January 3, 2020,
respectively, and none in fiscal 2019. We had accrued $47 million for the potential payment of interest and penalties as of
January 1, 2021 (and this amount was not included in the $542 million of unrecognized tax benefits balance at January 1, 2021
shown above). We had accrued $31 million for the potential payment of interest and penalties as of January 3, 2020 (and this
amount was not included in the $438 million of unrecognized tax benefits balance at January 3, 2020 shown above).
We file numerous separate and consolidated income tax returns reporting our financial results and, where appropriate, those
of our subsidiaries and affiliates, in the U.S. Federal jurisdiction and various state, local and foreign jurisdictions. Pursuant to the
Compliance Assurance Process, the IRS is examining the Harris federal tax returns for fiscal 2017, 2018 and 2019 and refund
claims related to fiscal 2010 through 2016. In addition, legacy L3’s federal tax returns for calendar years 2017 and 2018 are
currently under IRS examination and refund claims related to calendar years 2012, 2013, 2015 and 2016 have been filed with the
IRS.
We are currently under examination or contesting proposed adjustments by various state and international tax authorities for
fiscal years ranging from 2010 through 2018. It is reasonably possible that there could be a significant decrease or increase to our
unrecognized tax benefit balance during the course of the next twelve months as these examinations continue, other tax
examinations commence or various statutes of limitations expire. An estimate of the range of possible changes cannot be made for
remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business and the number of
open tax periods.
NOTE 24: BACKLOG
Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to
recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding is
authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under
ordering-type contracts, such as indefinite delivery, indefinite quantity contracts.
123
At January 1, 2021, our ending backlog was $21.7 billion. We expect to recognize approximately 54 percent of the revenue
associated with this backlog by the end of 2021 and approximately 85 percent by the end of 2023, with the remainder to be
recognized thereafter. At January 3, 2020, our ending backlog was $20.6 billion, including $380 million of backlog associated
with the airport security and automation business, which was divested during the quarter ended July 3, 2020.
NOTE 25: BUSINESS SEGMENTS
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 following four operating segments, which are 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 electro-optical and infrared solutions;
• Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and
cyber defense; mission avionics; and electronic warfare;
• Communication Systems, including tactical communications; broadband communications; integrated vision solutions;
and public safety; and
• Aviation Systems, including defense aviation; commercial aviation products; commercial and military pilot training;
and mission networks for air traffic management.
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 and Airborne Systems segments. The historical results, discussion
and presentation of our business segments as set forth in our Consolidated Financial Statements and these Notes reflect the impact
of these adjustments to our segment reporting for all periods presented in order to present the 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 adjustments.
As described in more detail in Note 3: Business Divestitures and Asset Sales and elsewhere in these Notes, during the Fiscal
Transition Period and fiscal 2020, we completed the following business divestitures:
• The divestiture of the Harris Night Vision business, completed on September 13, 2019, the results of which are
included in “Other non-reportable business segments” through the date of divestiture;
• The divestiture of the airport security and automation business, completed on May 4, 2020, the results of which are
reported as part of our Aviation Systems segment through the date of divestiture;
• The divestiture of the Applied Kilovolts and Analytical Instrumentation business, completed on May 15, 2020, the
results of which are reported as part of our Space and Airborne Systems segment through the date of divestiture; and
• The divestiture of the EOTech business, completed on July 31, 2020, the results of which are reported as part of our
Communication Systems segment through the date of divestiture.
124
Segment revenue, segment operating income and a reconciliation of segment operating income to total income from
continuing operations before income taxes are as follows:
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
Revenue
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments(1)
Corporate eliminations
Income from Continuing Operations before Income Taxes
Segment Operating Income:
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
$
$
$
Other non-reportable business segments(1)
Unallocated corporate expenses and corporate eliminations(2)
L3Harris Merger-related transaction, integration and other
expenses and losses
L3Harris Merger-related restructuring costs
Amortization of acquisition-related intangibles(3)
Impairment of identifiable intangible assets
Business divestiture-related (losses) gains
Pension adjustment
Non-operating income
Net interest expense
Total income from continuing operations before income taxes
$
5,538 $
4,946
4,443
3,448
—
(181)
18,194 $
847 $
932
1,084
(177)
—
(109)
(130)
(10)
(709)
(113)
(51)
(389)
401
(254)
1,322 $
2,758 $
2,377
2,151
2,038
23
(84)
9,263 $
371 $
447
493
289
—
(139)
(273)
(117)
(289)
—
229
(172)
192
(123)
908 $
52 $
3,711
2,208
672
165
(7)
6,801 $
10 $
696
637
76
27
(2)
(65)
—
(101)
—
—
(186)
188
(167)
1,113 $
55
3,294
2,015
668
148
(12)
6,168
9
626
561
54
20
(65)
—
—
(101)
—
—
(184)
156
(168)
908
_______________
(1)
Includes the operating results of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note 3: Business Divestitures
and Asset Sales in these Notes for more information.
(2) For fiscal 2020 includes: (i) $31 million of additional cost of sales related to the fair value step-up in inventory sold (see Note 5: Business Combination in
these Notes for more information); (ii) a $22 million gain on sale of property, plant and equipment; (iii) a $14 million non-cash goodwill impairment charge
related to a potential divestiture, (iv) $13 million of divestiture-related expenses; (v) a $5 million non-cash goodwill impairment charge related to the
divestiture of the Applied Kilovolts and Analytical Instrumentation business; and (vi) a $2 million non-cash cumulative adjustment to lease expense. For the
two quarters ended January 3, 2020 includes: (i) $142 million of additional cost of sales related to the fair value step-up in inventory sold; (ii) a $12 million
gain on the sale of an asset group; and (iii) a $10 million non-cash cumulative adjustment to lease expense. For fiscal 2018 includes: (i) $47 million of
charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items; (ii) a $12
million non-cash adjustment for deferred compensation; and (iii) $5 million of Exelis acquisition-related and other charges.
Includes $609 million and $239 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger for fiscal 2020 and the
two quarters ended January 3, 2020, respectively; and $100 million, $50 million, $101 million and $101 million of amortization of identifiable intangible
assets acquired as a result of our acquisition of Exelis for fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively.
Because the L3Harris Merger and the acquisition of Exelis benefited the entire Company as opposed to any individual segment, the amortization of
identifiable intangible assets acquired was not allocated to any segment.
(3)
Disaggregation of Revenue
We disaggregate revenue for all four business segments by customer relationship, contract type and geographical region. We
believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic factors:
125
Integrated Mission Systems: Integrated Mission Systems revenue is primarily derived from U.S. Government development
and production contracts and is generally recognized over time using the POC cost-to-cost revenue recognition method.
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
Revenue By Customer Relationship
Prime contractor
Subcontractor
Revenue By Contract Type
Fixed-price(1)
Cost-reimbursable
Revenue By Geographical Region
United States
International
$
$
$
$
$
$
3,718 $
1,892 $
1,820
866
5,538 $
2,758 $
4,179 $
2,121 $
1,359
637
5,538 $
2,758 $
4,389 $
2,146 $
1,149
612
5,538 $
2,758 $
27 $
25
52 $
52 $
—
52 $
30 $
22
52 $
26
29
55
54
1
55
40
15
55
_______________
(1)
Includes revenue derived from time-and-materials contracts.
Space and Airborne Systems: Space and Airborne Systems revenue is primarily derived from U.S. Government development
and production contracts and is generally recognized over time using the POC cost-to-cost revenue recognition method.
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
Revenue By Customer Relationship
Prime contractor
Subcontractor
Revenue By Contract Type
Fixed-price(1)
Cost-reimbursable
Revenue By Geographical Region
United States
International
_______________
(1)
Includes revenue derived from time-and-materials contracts.
$
$
$
$
$
$
2,684 $
2,262
4,946 $
2,838 $
2,108
4,946 $
4,195 $
751
4,946 $
1,348 $
1,029
2,377 $
1,384 $
993
2,377 $
2,043 $
334
2,377 $
2,244 $
1,467
3,711 $
2,093 $
1,618
3,711 $
3,255 $
456
3,711 $
2,152
1,142
3,294
1,625
1,669
3,294
2,936
358
3,294
126
Communication Systems: Communication Systems revenue is primarily derived from fixed-price contracts and is generally
recognized at the point in time when products are received and accepted by the customer for standard products offered to multiple
customers and over time for customer-specific products, systems and services.
(In millions)
Revenue By Customer Relationship(1)
Prime contractor
Subcontractor
Revenue By Contract Type(1)
Fixed-price(2)
Cost-reimbursable
Revenue By Geographical Region
United States
International
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
$
$
$
$
$
$
3,102 $
1,341
4,443 $
3,805 $
638
4,443 $
3,204 $
1,239
4,443 $
1,406
745
2,151
1,849
302
2,151
1,518 $
633
2,151 $
1,281 $
927
2,208 $
1,031
984
2,015
_______________
(1) Prior to the L3Harris Merger, Communication Systems did not recognize significant revenue for customer-specific products and systems, and currently, such
customer arrangements primarily exist at operating businesses acquired in connection with the L3Harris Merger. The “Revenue by Customer Relationship”
and “Revenue by Contract Type” disaggregation categories were added beginning in the Fiscal Transition Period to best depict how the nature, amount,
timing and uncertainty of revenue and cash flows from these types of customer arrangements are affected by economic factors.
Includes revenue derived from time-and-materials contracts.
(2)
Aviation Systems: Aviation Systems revenue is primarily derived from fixed-price contracts and is generally recognized at
the point in time when products are received and accepted by the customer for standard products offered to multiple customers
and over time for customer-specific products, systems and services.
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
Revenue By Customer Relationship
Prime contractor
Subcontractor
Revenue By Contract Type
Fixed-price(1)
Cost-reimbursable
Revenue By Geographical Region
United States
International
______________
(1)
Includes revenue derived from time-and-materials contracts.
$
$
$
$
$
$
2,258 $
1,246 $
654 $
1,190
792
18
3,448 $
2,038 $
672 $
2,809 $
639
3,448 $
1,688 $
350
2,038 $
587 $
85
672 $
2,843 $
1,514 $
644 $
605
524
28
3,448 $
2,038 $
672 $
656
12
668
582
86
668
627
41
668
127
Total assets by business segment is as follows:
(In millions)
Total Assets
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Corporate(1)
January 1, 2021
January 3, 2020
$
8,906 $
6,943
5,746
5,026
10,339
$
36,960 $
7,888
6,837
5,930
7,569
10,112
38,336
_______________
(1)
Identifiable intangible assets acquired in connection with the L3Harris Merger in the two quarters ended January 3, 2020 and our acquisition of Exelis in
fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segment. Identifiable intangible asset
balances recorded as Corporate assets were $7.9 billion and $8.5 billion at January 1, 2021 and January 3, 2020, respectively. Corporate assets also consisted
of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment, as well as any assets of
discontinued operations and divestitures. See Note 3: Business Divestitures and Asset Sales in these Notes for additional information.
Other selected financial information by business segment and geographical area is summarized below:
(In millions)
January 1, 2021
January 3, 2020
June 28, 2019
June 29, 2018
Fiscal Year
Ended
Two Quarters
Ended
Fiscal Years Ended
Capital Expenditures
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments(1)
Corporate
Depreciation and Amortization
Integrated Mission Systems
Space and Airborne Systems
Communication Systems
Aviation Systems
Other non-reportable business segments(1)
Corporate
Geographical Information for Continuing Operations
U.S. operations:
Revenue
Long-lived assets(2)
International operations:
Revenue
Long-lived assets(2)
$
$
$
$
$
$
$
$
67 $
92
58
87
—
64
368 $
70 $
66
61
103
—
732
1,032 $
29 $
36
22
64
—
22
173 $
37 $
31
32
53
—
289
442 $
1 $
48
29
54
6
23
161 $
2 $
50
49
29
3
125
258 $
16,998 $
1,949 $
8,485 $
1,865 $
6,530 $
866 $
1,196 $
153 $
778 $
252 $
271 $
28 $
1
49
25
37
4
20
136
2
54
54
22
5
122
259
5,854
892
314
8
_______________
(1)
Includes capital expenditures and depreciation and amortization of the Harris Night Vision business prior to the date of divestiture on September 13, 2019.
See Note 3: Business Divestitures and Asset Sales in these Notes for more information.
(2) Long-lived assets are net fixed assets attributed to the respective geographic regions.
In addition to depreciation and amortization expense related to property, plant and equipment, “Depreciation and
Amortization” in the table above also includes $714 million $285 million, $120 million and $116 million of amortization related
to identifiable intangible assets, debt premium, debt discount, debt issuance costs and other items in fiscal 2020, the two quarters
ended January 3, 2020, and fiscal 2019 and 2018, respectively.
128
Our products and systems are produced principally in the U.S. with international revenue derived primarily from exports. No
revenue earned from any individual foreign country exceeded 5 percent of our total revenue in fiscal 2020, the two quarters
ended January 3, 2020, or fiscal 2019 or 2018.
Sales made to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether
directly or through prime contractors, by all segments as a percentage of total revenue were 78 percent, 73 percent, 77 percent and
75 percent in fiscal 2020, the two quarters ended January 3, 2020, and fiscal 2019 and 2018, respectively. Revenue from services
in fiscal 2020 was 34 percent, 16 percent, 15 percent and 38 percent of total revenue in our Integrated Mission Systems, Space
and Airborne Systems, Communication Systems and Aviation Systems segments, respectively.
Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales
through the U.S. Government, was $3.7 billion (20 percent of our revenue), $2.0 billion (21 percent of our revenue), $1.5 billion
(22 percent of our revenue) and $1.4 billion (23 percent of our revenue) in fiscal 2020, the two quarters ended January 3, 2020,
and fiscal 2019 and 2018, respectively. Export revenue and revenue from international operations in fiscal 2020 was principally
from the EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific) regions and Canada.
NOTE 26: LEGAL PROCEEDINGS AND CONTINGENCIES
From time to time, as a normal incident of the nature and kind of businesses in which we are or were engaged, various
claims or charges are asserted and litigation or arbitration is commenced by or against us arising from or related to matters,
including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property;
labor and employee disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of
former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed
amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any
real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be
probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs
generally are expensed when incurred. At January 1, 2021, our accrual for the potential resolution of lawsuits, claims or
proceedings that we consider probable of being decided unfavorably to us was not material Although it is not feasible to predict
the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed
of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of
management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us
in litigation or arbitration in existence at January 1, 2021 are reserved against or would not have a material adverse effect on our
financial condition, results of operations, cash flows or equity.
Tax Audits
Our tax filings are subject to audit by taxing authorities in jurisdictions where we conduct or conducted business. These
audits may result in assessments of additional taxes that are subsequently resolved with the authorities or ultimately through legal
proceedings. We believe we have adequately accrued for any ultimate amounts that are likely to result from these audits; however,
final assessments, if any, could be different from the amounts recorded in our Consolidated Financial Statements. Additional
information regarding audits and examinations by taxing authorities of our tax filings is set forth in Note 23: Income Taxes in
these Notes.
International
As an international company, we are, from time to time, the subject of investigations relating to our international
operations, including under U.S. export control laws (such as ITAR), the FCPA and other similar U.S. and international laws.
In September 2019, we reached an administrative settlement with the Department of State to resolve alleged U.S. export
control regulation violations. Under the terms of the settlement we have committed to strengthen our trade compliance program
under the supervision of a special compliance officer and will pay a civil penalty of $13 million over three years (with $6.5
million suspended on the condition of use for qualified remedial compliance measures). The settlement did not result in any
debarment or limitation on export licensing.
Environmental Matters
We are subject to numerous U.S. Federal, state, local and international environmental laws and regulatory requirements and
are involved from time to time in investigations or litigation of various potential environmental issues. We or companies we have
acquired are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites. These
sites are in various stages of investigation and/or remediation and in some cases our liability is considered de minimis. Notices
from the U.S. Environmental Protection Agency (“EPA”) or equivalent state or international environmental agencies allege that a
number of sites formerly or currently owned and/or operated by us or companies we have acquired, and other properties or water
supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require
environmental investigation and/or remediation. These sites include instances of being identified as a potentially responsible party
129
under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”)
and/or equivalent state and international laws. For example, in June 2014, the U.S. Department of Justice,, Environment and
Natural Resources Division, notified several potentially responsible parties, including Exelis, of potential responsibility for
contribution to the environmental investigation and remediation of multiple locations in Alaska. In addition, in March 2016, the
EPA notified over 100 potentially responsible parties, including Exelis, of potential liability for the cost of remediation for the
8.3-mile stretch of the Lower Passaic River, estimated by the EPA to be $1.38 billion, but the parties’ respective allocations have
not been determined. Although it is not feasible to predict the outcome of these environmental claims made against us, based on
available information, in the opinion of our management, any payments we may be required to make as a result of environmental
claims made against us in existence at January 1, 2021 are reserved against, covered by insurance or would not have a material
adverse effect on our financial condition, results of operations, cash flows or equity.
130
NOTE 27: TRANSITION PERIOD COMPARATIVE DATA (UNAUDITED)
The following table presents certain comparative financial information for fiscal 2020 compared with the four quarters
ended January 3, 2020 (Unaudited) and two quarters ended January 3, 2020 compared with the two quarters ended December 28,
2018 (Unaudited). Due to the L3Harris Merger on June 29, 2019, fiscal 2020 and the two quarters ended January 3, 2020 reflect
the results of the combined Company, while the four quarters ended January 3, 2020 reflect the results of only Harris operating
businesses for the two quarters ended June 28, 2019 and the results of the combined Company for the two quarters ended
January 3, 2020. The two quarters ended December 28, 2018 reflect the results of only Harris operating businesses. Due to the
significance of the L3 operating businesses included in the combined Company results following the L3Harris Merger, the
reported results for fiscal 2020 and the two quarters ended January 3, 2020 generally are not comparable to the four quarters
ended January 3, 2020 and two quarters ended December 28, 2018, respectively.
(In millions, except per share amounts)
January 1, 2021
January 3, 2020
January 3, 2020
December 28, 2018
(Unaudited)
(Unaudited)
Fiscal Year Ended
Four Quarters
Ended
Two Quarters Ended
$
Revenue from product sales and services
Cost of product sales and services
Engineering, selling and administrative expenses
Business divestiture-related (losses) gains
Impairment of goodwill and other assets
Non-operating income
Interest income
Interest expense
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
Discontinued operations, net of income taxes
Net income
Noncontrolling interests, net of income taxes
Net income attributable to L3Harris Technologies, Inc.
$
18,194 $
(12,886)
(3,315)
(51)
(767)
401
16
(270)
1,322
(234)
1,088
(2)
1,086
33
1,119 $
12,856 $
(9,088)
(2,540)
229
(46)
286
13
(217)
1,493
(146)
1,347
(2)
1,345
(12)
1,333 $
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Net income per common share
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
NOTE 28: SUBSEQUENT EVENTS
Share Repurchase Authorization
$
$
$
$
5.24 $
(0.01)
5.23 $
5.19 $
—
5.19 $
214.0
215.9
8.04 $
—
8.04 $
7.90 $
(0.01)
7.89 $
166.0
169.0
9,263 $
(6,726)
(1,881)
229
(46)
192
12
(135)
908
(73)
835
(1)
834
(12)
822 $
3.72 $
—
3.72 $
3.68 $
(0.01)
3.67 $
221.2
223.7
3,208
(2,105)
(583)
—
—
94
1
(87)
528
(87)
441
(3)
438
—
438
3.74
(0.03)
3.71
3.66
(0.02)
3.64
117.8
120.3
On January 28, 2021, we announced that our Board of Directors approved a new $6 billion share repurchase authorization
under our repurchase program that was in addition to the remaining unused authorization of $210 million, for a total unused
authorization of $6.2 billion. Although our repurchase program does not have a stated expiration date, we announced that we
currently expect to repurchase up to $2.3 billion in shares in fiscal 2021, exclusive of any proceeds from divestitures that we may
complete, but we can give no assurances regarding the level and timing of shares repurchases. Repurchases under our repurchase
program may be made through open-market transactions, private transactions, transactions structured through investment banking
institutions or any combination thereof. The level of our repurchases depends on a number of factors, including our financial
131
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.
Pending Divestitures
Subsequent to the end of fiscal 2020, we entered into definitive agreements to divest two businesses in connection with our
process to reshape our business portfolio to focus on core technologies following the L3Harris Merger. Each divestiture is subject
to regulatory review and other customary closing conditions, and we expect to close the divestitures in the second half of fiscal
2021 and to use proceeds from the divestitures to repurchase shares of our common stock; however, there can be no assurances
that the conditions will be satisfied (or waived, if applicable) or that closing will occur in the second half of fiscal 2021 or at all or
regarding the use of proceeds. Because the two businesses did not meet the held for sale criteria as of January 1, 2021, the assets
and liabilities of the businesses were not classified as held for sale in our Consolidated Balance Sheet at January 1, 2021.
Military training business. On February 27, 2021, we entered into a definitive agreement to sell our military training
business to CAE USA Inc., a subsidiary of CAE Inc., for $1.05 billion in cash, subject to adjustments set forth in the definitive
agreement. The military training business provides flight simulation solutions and training services to DoD and foreign military
agencies. The military training business is part of our Aviation Systems segment and had approximately $500 million in fiscal
2020 revenue.
CPS business. On March 1, 2021, we entered into a definitive agreement to sell our Combat Propulsion Systems and related
businesses (“CPS business”) to RENK AG for approximately $400 million in cash, subject to adjustments set forth in the
definitive agreement. The CPS business engineers, designs, manufactures and remanufactures engines, transmissions, suspensions
and turret drive systems for tracked and wheeled combat vehicle systems. The CPS business is part of our Aviation Systems
segment and had approximately $230 million in fiscal 2020 revenue.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A.
CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures
can provide only reasonable assurance of achieving their control objectives, and management necessarily is required to use its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15 under the
Exchange Act, as of January 1, 2021, we carried out an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer. Based on this work and other evaluation
procedures, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of
January 1, 2021 our disclosure controls and procedures were effective.
(b) Changes in Internal Control: We periodically review our internal control over financial reporting as part of our efforts to
ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our
system of internal control over financial reporting to identify potential changes to our processes and systems that may improve
controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include
such activities as implementing new, more efficient systems, consolidating the activities of business units, migrating certain
processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and
increasing monitoring controls. In addition, when we acquire new businesses, we incorporate our controls and procedures into the
acquired business as part of our integration activities. We evaluated the impacts of COVID on our ability to maintain effective
internal controls and concluded that our internal control environment was not materially affected during fiscal 2020. Other than
changes related to incorporating our controls and procedures with respect to L3’s operations, there have been no changes in our
internal control over financial reporting that occurred during the fourth quarter of fiscal 2020 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
132
(c) Evaluation of Internal Control over Financial Reporting: Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of January 1,
2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our management’s
assessment and those criteria, our management concluded that our internal control over financial reporting was effective as of
January 1, 2021. “Management’s Report on Internal Control Over Financial Reporting” is included within “Item 8. Financial
Statements and Supplementary Data” of this Report. The effectiveness of our internal control over financial reporting was audited
by Ernst & Young LLP, our independent registered public accounting firm, whose unqualified report is included within “Item 8.
Financial Statements and Supplementary Data” of this Report.
ITEM 9B.
OTHER INFORMATION.
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information regarding our directors, executive officers and corporate governance is included in our Proxy Statement for our
2021 Annual Meeting of Shareholders scheduled to be held on April 23, 2021 (our “2021 Proxy Statement”), which is expected to
be filed within 120 days after the end of our fiscal 2020.
(a) Identification of Directors: The information required by this Item with respect to our directors is incorporated herein
by reference to the discussion under the headings Proposal 1: Election of Directors and Nominees for Election in our 2021 Proxy
Statement.
(b) Identification of Executive Officers: Certain information regarding our executive officers is included in Part I of this
Report under the heading “Information about our Executive Officers” in accordance with General Instruction G(3) of Form 10-K.
(c) Audit Committee Information; Financial Expert: The information required by this Item with respect to the Audit
Committee of our Board of Directors and “audit committee financial experts” is incorporated herein by reference to the
discussions under the headings Corporate Governance and Board Committees, Audit Committee in our 2021 Proxy Statement.
(d) Delinquent Section 16(a) Reports: Information related to compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference to the discussion under the heading Delinquent Section 16(a) Reports in our 2021 Proxy
Statement.
(e) Code of Ethics: All of our directors and employees, including our Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and other senior accounting and financial officers, are required to abide by our Code of Conduct.
Our Code of Conduct is posted on our website at https://www.l3harris.com/content/code-of-conduct and is also available free of
charge by written request to our Director of Ethics and Compliance, L3Harris Technologies, Inc., 1025 West NASA Boulevard,
Melbourne, Florida 32919. We intend to disclose on the Code of Conduct section of our website at https://www.l3harris.com/
content/code-of-conduct any amendment to, or waiver from, our Code of Conduct that is required to be disclosed to shareholders,
within four business days following such amendment or waiver. The information required by this Item with respect to codes of
ethics is incorporated herein by reference to the discussion under the heading Code of Conduct in our 2021 Proxy Statement.
(f) Policy for Nominees: The information required under Item 407(c)(3) of Regulation S-K is incorporated herein by
reference to the discussion contained under the heading Director Nomination Process in our 2021 Proxy Statement concerning
procedures by which shareholders may recommend nominees to our Board of Directors, submit nominees for inclusion in our
proxy materials pursuant to our “proxy access” provision of our By-Laws or directly propose nominees for consideration pursuant
to our By-Laws but not pursuant to the proxy access provision . No material changes to those procedures have occurred since the
disclosure regarding those procedures in our Proxy Statement for our 2020 Annual Meeting of Shareholders.
Additional information concerning requirements and procedures for shareholders directly nominating directors is contained
under the heading Shareholder Nominations and Proposals in our 2021 Proxy Statement.
133
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this Item with respect to compensation of our directors and executive officers is incorporated
herein by reference to the discussions under the headings Director Compensation and Benefits, Compensation Discussion and
Analysis and Compensation Committee Report in our 2021 Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table provides information as of January 1, 2021 about our common stock that may be issued, whether upon
the exercise of options, warrants and rights or otherwise, under our existing equity compensation plans.
Plan Category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(2)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(2)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity compensation plans approved by shareholders(1)
Equity compensation plans not approved by shareholders
Total
5,206,192
—
5,206,192
$127.93
—
$127.93
19,402,884
—
19,402,884
_______________
(1) Consists of the Harris Corporation 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010) (the “2005 EIP”) and the L3Harris
Technologies, Inc. 2015 Equity Incentive Plan (As Amended and Restated Effective August 28, 2020) (the “2015 EIP”), as well as employee stock
incentive plans of L3 assumed by L3Harris (collectively with the 2005 EIP and the 2015 EIP, the “L3Harris SIPs”). No additional awards may be granted
under the 2005 EIP.
(2) Under the L3Harris SIPs, in addition to options, we have granted share-based compensation awards in the form of performance shares, shares of restricted
stock, performance share units, restricted stock units, shares of immediately vested common stock and other similar types of share-based awards. As of
January 1, 2021, there were awards outstanding under those plans with respect to 948,615 shares, consisting of (i) awards of 64,059 shares of restricted
stock, for which all 64,059 shares were issued and outstanding; and (ii) awards of 884,556 performance share units and restricted stock units, for which all
884,556 were payable in shares but for which no shares were yet issued and outstanding. The 5,206,192 shares to be issued upon exercise of outstanding
options, warrants and rights as listed in column (a) consisted of shares to be issued in respect of the exercise of 4,321,636 outstanding options and in
respect of awards of 884,556 performance share units and restricted stock units payable in shares. Because there is no exercise price associated with
awards of shares of restricted stock, performance share units or restricted stock units, all of which are granted to employees at no cost, such awards are not
included in the weighted-average exercise price calculation in column (b).
See Note 16: Stock Options and Other Share-Based Compensation in the Notes for a general description of our share-based
incentive plans.
The other information required by this Item with respect to security ownership of certain of our beneficial owners and
management is incorporated herein by reference to the discussions under the headings Principal Shareholders and Shares Owned
By Directors, Nominees and Executive Officers in our 2021 Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this Item is incorporated herein by reference to the discussions under the headings Director
Independence Standards and Related Person Transaction Policy in our 2021 Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item is incorporated herein by reference to the discussion under the heading Proposal 3:
Ratification of Appointment of Independent Registered Public Accounting Firm in our 2021 Proxy Statement.
134
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Report:
(1) List of Financial Statements Filed as Part of this Report:
The following financial statements and reports of L3Harris Technologies, Inc. and its consolidated subsidiaries
are included in Item 8 of this Report at the page numbers referenced below:
Management’s Report on Internal Control Over Financial Reporting........................................................................
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements....................
Report of Independent Registered Public Accounting Firm on the Effectiveness of Internal Control Over
Financial Reporting................................................................................................................................................
Consolidated Statement of Income — Fiscal Year Ended January 1, 2021; Two Quarters Ended January 3, 2020;
and Fiscal Years Ended June 28, 2019 and June 29, 2018.....................................................................................
Consolidated Statement of Comprehensive Income — Fiscal Year Ended January 1, 2021; Two Quarters Ended
January 3, 2020; and Fiscal Years Ended June 28, 2019 and June 29, 2018.........................................................
Consolidated Balance Sheet — January 1, 2021 and January 3, 2020........................................................................
Consolidated Statement of Cash Flows — Fiscal Year Ended January 1, 2021; Two Quarters ended January 3,
2020; and Fiscal Years Ended June 28, 2019 and June 29, 2018...........................................................................
Consolidated Statement of Equity — Fiscal Year ended January 1, 2021; Two Quarters ended January 3, 2020
and Fiscal Years ended June 28, 2019; June 29, 2018...........................................................................................
Notes to Consolidated Financial Statements...............................................................................................................
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable, the amounts are not significant or the required
information is shown in the Consolidated Financial Statements or the Notes thereto.
(3) Exhibits:
Page
71
72
75
76
77
78
79
80
81
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the
SEC:
***(2)(a) Agreement and Plan of Merger, dated as of October 12, 2018, by and among Harris Corporation, L3 Technologies,
Inc. and Leopard Merger Sub, Inc., incorporated herein by reference to Exhibit 2.1 to Harris Corporation’s Current
Report on Form 8-K filed with the SEC on October 16, 2018. (Commission File Number 1-3863)
(2)(b) First Amendment to Agreement and Plan of Merger, dated as of June 28, 2019, among L3 Technologies, Inc., Harris
Corporation and Leopard Merger Sub Inc., incorporated herein by reference to Exhibit 2.2 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number
1-3863)
(3)(a) Restated Certificate of Incorporation of L3Harris Technologies, Inc. (1995), as amended, incorporated herein by
reference to Exhibit 3(a) to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on
May 7, 2020. (Commission File Number 1-3863)
(3)(b) Amended and Restated By-Laws of L3Harris Technologies, Inc., incorporated herein by reference to Exhibit 3.1 to
L3Harris Technologies Inc.’s Current Report on Form 8-K filed with the SEC on April 7, 2020. (Commission File
Number 1-3863)
(4)(a) Specimen Stock Certificate for L3Harris Technologies, Inc.’s common stock, incorporated herein by reference to
Exhibit 4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019.
(Commission File Number 1-3863)
(4)(b) (i) Indenture, dated as of May 1, 1996, between Harris Corporation and The Bank of New York, as Trustee, relating
to unlimited amounts of debt securities which may be issued from time to time by Harris Corporation when and as
authorized by Harris Corporation’s Board of Directors or a Committee of the Board, incorporated herein by
reference to Exhibit 4 to Harris Corporation’s Registration Statement on Form S-3, Registration Statement
No. 333-03111, filed with the SEC on May 3, 1996.
135
(ii) Instrument of Resignation from Trustee and Appointment and Acceptance of Successor Trustee, dated as of
November 1, 2002 (effective November 15, 2002), among Harris Corporation, JP Morgan Chase Bank, as Resigning
Trustee, and The Bank of New York, as Successor Trustee, incorporated herein by reference to Exhibit 99.4 to
Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2002. (Commission
File Number 1-3863)
(iii) Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and The Bank of New York
Mellon (as successor to Chemical Bank), to the Indenture dated as of May 1, 1996 between Harris Corporation and
The Bank of New York (as successor to Chemical Bank), incorporated herein by reference to Exhibit 4.2 to Harris
Corporation’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
**(4)(c) (i) Indenture, dated as of October 1, 1990, between Harris Corporation and U.S. Bank National Association (as
successor to National City Bank), as Trustee, relating to unlimited amounts of debt securities which may be issued
from time to time by Harris Corporation when and as authorized by Harris Corporation’s Board of Directors or a
Committee of the Board, incorporated herein by reference to Exhibit 4 to Harris Corporation’s Registration
Statement on Form S-3, Registration Statement No. 33-35315, filed with the SEC on June 8, 1990.
(ii) Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and U.S. Bank National
Association (as successor to National City Bank), to the Indenture dated as of October 1, 1990 between Harris
Corporation and U.S. National Association (as successor to National City Bank), incorporated herein by reference to
Exhibit 4.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on June 2, 2015. (Commission
File Number 1-3863)
(4)(d)(i) Indenture, dated as of September 3, 2003, between Harris Corporation and The Bank of New York Mellon Trust
Company, N.A., as successor to The Bank of New York, as Trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by Harris Corporation when and as authorized by Harris Corporation’s
Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(b) to Harris
Corporation’s Registration Statement on Form S-3, Registration Statement No. 333-108486, filed with the SEC on
September 3, 2003
(ii) Instrument of Resignation of Trustee, Appointment and Acceptance of Successor Trustee, dated as of June 2,
2009, among Harris Corporation, The Bank of New York Mellon (formerly known as The Bank of New York) and
The Bank of New York Mellon Trust Company, N.A., as to Indenture dated as of September 3, 2003, incorporated
herein by reference to Exhibit 4(m) to Harris Corporation’s Registration Statement on Form S-3, Registration
Statement No. 333-159688, filed with the SEC on June 3, 2009
(iii) Supplemental Indenture, dated June 2, 2015, among Harris Corporation, Exelis Inc. and The Bank of New York
Mellon Trust Company, N.A. (as successor to The Bank of New York), to the Indenture dated as of September 3,
2003 between Harris Corporation and The Bank of New York Mellon Trust Company, N.A. (as successor to The
Bank of New York), incorporated herein by reference to Exhibit 4.3 to Harris Corporation’s Current Report on Form
8-K filed with the SEC on June 2, 2015. (Commission File Number 1-3863)
(4)(e) (i) Subordinated Indenture, dated as of September 3, 2003, between Harris Corporation and The Bank of New York
Mellon Trust Company, N.A., as successor to The Bank of New York, as Trustee, relating to unlimited amounts of
debt securities which may be issued from time to time by Harris Corporation when and as authorized by the Harris
Corporation’s Board of Directors or a Committee of the Board, incorporated herein by reference to Exhibit 4(c) to
the Harris Corporation’s Registration Statement on Form S-3, Registration Statement No. 333-108486, filed with the
SEC on September 3, 2003
(ii) Instrument of Resignation of Trustee, Appointment and Acceptance of Successor Trustee, dated as of June 2,
2009, among Harris Corporation, The Bank of New York Mellon (formerly known as The Bank of New York) and
The Bank of New York Mellon Trust Company, N.A., as to Subordinated Indenture dated as of September 3, 2003,
incorporated herein by reference to Exhibit 4(n) to Harris Corporation’s Registration Statement on Form S-3,
Registration Statement No. 333-159688, filed with the SEC on June 3, 2009
(4)(f) Form of Floating Rate Global Note due March 2023, incorporated herein by reference to Exhibit 4.1 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on March 13, 2020. (Commission File Number
1-3863)
(4)(g) Form of 3.832% Global Note due 2025, incorporated herein by reference to Exhibit 4.3 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(h) Form of 4.400% Global Note due 2028, incorporated herein by reference to Exhibit 4.1 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on June 4, 2018. (Commission File Number 1-3863)
136
(4)(i) Form of 2.90% Global Note due 2029, incorporated herein by reference to Exhibit 4.1 to L3Harris Technologies,
Inc.’s Current Report on Form 8-K filed with the SEC on November 27, 2019. (Commission File Number 1-3863)
(4)(j) Form of 1.80% Global Note due 2031, incorporated herein by reference to Exhibit 4.1 to L3Harris Technologies,
Inc.’s Current Report on Form 8-K filed with the SEC on November 25, 2020. (Commission File Number 1-3863)
(4)(k) Form of 4.854% Global Note due 2035, incorporated herein by reference to Exhibit 4.4 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(l) Form of 6.15% Global Note due 2040, incorporated herein by reference to Exhibit 4.2 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on December 3, 2010. (Commission File Number 1-3863)
(4)(m) Form of 5.054% Global Note due 2045, incorporated herein by reference to Exhibit 4.5 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on April 27, 2015. (Commission File Number 1-3863)
(4)(n) Registration Rights Agreement, dated as of July 2, 2019, by and among L3Harris Technologies, Inc. (f/k/a Harris
Corporation), BofA Securities, Inc. and Morgan Stanley & Co. LLC, incorporated herein by reference to Exhibit 4.1
to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File
Number 1-3863)
(4)(o) Form of New L3Harris 3.850% 2023 Rule 144A Note, incorporated herein by reference to Exhibit 4.4 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(p) Form of New L3Harris 3.850% 2023 Regulation S Note, incorporated herein by reference to Exhibit 4.5 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(q) Form of New L3Harris 3.950% 2024 Rule 144A Note, incorporated herein by reference to Exhibit 4.6 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(r) Form of New L3Harris 3.950% 2024 Regulation S Note, incorporated herein by reference to Exhibit 4.7 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(s) Form of New L3Harris 3.850% 2026 Rule 144A Note, incorporated herein by reference to Exhibit 4.8 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(t) Form of New L3Harris 3.850% 2026 Regulation S Note, incorporated herein by reference to Exhibit 4.9 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(u) Form of New L3Harris 4.400% 2028 Rule 144A Note, incorporated herein by reference to Exhibit 4.10 to L3Harris
Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File Number
1-3863)
(4)(v) Form of New L3Harris 4.400% 2028 Regulation S Note, incorporated herein by reference to Exhibit 4.11 to
L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 3, 2019. (Commission File
Number 1-3863)
(4)(w) Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), L3Harris Technologies, Inc. by this filing agrees, upon request,
to furnish to the SEC a copy of other instruments defining the rights of holders of long-term debt of L3Harris
Technologies, Inc. or L3 Technologies, Inc.
(4)(x) Description of L3Harris Technologies, Inc.’s Securities, incorporated by reference to Exhibit (4)(z) to L3Harris
Technologies, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 28, 2019. (Commission File
Number 1-3863)
*(10)(a) Form of Director and Officer Indemnification Agreement, for use on or after June 29, 2019, incorporated herein by
reference to Exhibit 10.5 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1,
2019. (Commission File Number 1-3863)
*(10)(b) Form of Executive Change in Control Severance Agreement, effective as of, and for use after, April 22, 2010,
incorporated herein by reference to Exhibit 10(o) to Harris Corporation’s Quarterly Report on Form 10-Q for the
fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
137
*(10)(c) L3Harris Technologies, Inc. Executive Change in Control Severance Plan, effective as of March 1, 2020,
incorporated herein by reference to Exhibit 10.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed
with the SEC on March 4, 2020. (Commission File Number 1-3863)
*(10)(d) L3Harris Technologies, Inc. Severance Pay Plan, effective as of March 1, 2020, incorporated herein by reference to
Exhibit 10.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on March 4, 2020.
(Commission File Number 1-3863)
*(10)(e) L3Harris Technologies, Inc. Annual Incentive Plan (Amended and Restated Effective as of August 28, 2020),
incorporated herein by reference to Exhibit 10.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed
with the SEC on September 1, 2020. (Commission File Number 1-3863)
*(10)(f) (i) 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by
reference to Exhibit 10.4 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on September 2,
2010. (Commission File Number 1-3863)
(ii) Form of Stock Option Award Agreement Terms and Conditions (as of July 3, 2010) for grants under the 2005
Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to
Exhibit 10(c) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010.
(Commission File Number 1-3863)
(iii) Form of Stock Option Award Agreement Terms and Conditions (as of August 26, 2011) for grants under the
2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference
to Exhibit 10.1 to Harris Corporation’s Current Report on Form 8-K filed with the SEC on August 31, 2011.
(Commission File Number 1-3863)
(iv) Form of Stock Option Award Agreement Terms and Conditions (as of June 29, 2013) for grants under the 2005
Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by reference to
Exhibit 10(a) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27,
2013. (Commission File Number 1-3863)
(v) Form of Performance Stock Option Award Agreement Terms and Conditions (as of May 27, 2015) for grants
under the 2005 Equity Incentive Plan (As Amended and Restated Effective August 27, 2010), incorporated herein by
reference to Exhibit 10(e)(xi) to Harris Corporation’s Annual Report on Form 10-K for the fiscal year ended July 3,
2015. (Commission File Number 1-3863)
*(10)(g) (i) 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Current
Report on Form 8-K filed with the SEC on October 28, 2015. (Commission File Number 1-3863)
(ii) 2015 Equity Incentive Plan Stock Option Award Agreement Terms and Conditions (as of October 23, 2015),
incorporated herein by reference to Exhibit 10(f) to Harris Corporation’s Quarterly Report on Form 10-Q for the
fiscal quarter ended January 1, 2016. (Commission File Number 1-3863)
(iii) Performance Unit Award Agreement Terms and Conditions (August 1, 2019 CEO-COO Award), incorporated
herein by reference to Exhibit 10.3 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended September 27, 2019. (Commission File Number 1-3863)
(iv) Performance Unit Award Agreement Terms and Conditions (August 1, 2019 Momentum Award), incorporated
herein by reference to Exhibit 10.4 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended September 27, 2019. (Commission File Number 1-3863)
(v) Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 CEO-COO Award),
incorporated herein by reference to Exhibit 10.5 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(vi) Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 Momentum Award),
incorporated herein by reference to Exhibit 10.6 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(vii) Performance Stock Option Award Agreement Terms and Conditions (August 1, 2019 Integration Award),
incorporated herein by reference to Exhibit 10.7 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(viii) Restricted Unit Award Agreement Terms and Conditions (August 1, 2019 Integration/Retention/Fiscal
Transition Period Award), incorporated herein by reference to Exhibit 10.8 to L3Harris Technologies, Inc.’s
Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
138
(ix) Restricted Unit Award Agreement Terms and Conditions (New Hire/Other Award as of August 1, 2019),
incorporated herein by reference to Exhibit 10.9 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended September 27, 2019. (Commission File Number 1-3863)
(x) Non-Employee Director Share Unit Agreement Terms and Conditions (as of June 29, 2019), incorporated herein
by reference to Exhibit 10(f)(x) to L3Harris Technologies, Inc.’s Transition Report on Form 10-KT for the fiscal
year ended January 3, 2020. (Commission File Number 1-3863)
(xi) L3Harris Technologies, Inc. Restricted Unit Award Agreement Terms and Conditions (as of February 5, 2020),
incorporated herein by reference to Exhibit 10.3 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended April 3, 2020. (Commission File Number 1-3863)
(xii) L3Harris Technologies, Inc. Performance Unit Award Agreement Terms and Conditions (as of February 28,
2020), incorporated herein by reference to Exhibit 10.4 to L3Harris Technologies, Inc.’s Quarterly Report on Form
10-Q for the fiscal quarter ended April 3, 2020. (Commission File Number 1-3863)
(xiii) L3Harris Technologies, Inc. Stock Option Award Agreement Terms and Conditions (as of February 28, 2020),
incorporated herein by reference to Exhibit 10.5 to L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q
for the fiscal quarter ended April 3, 2020. (Commission File Number 1-3863)
*(10)(h) L3Harris Technologies, Inc. 2015 Equity Incentive Plan (Amended and Restated Effective as of August 28, 2020),
incorporated herein by reference to Exhibit 10.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed
with the SEC on September 1, 2020. (Commission File Number 1-3863)
*10(i) (i) L3Harris Retirement Savings Plan (Amended and Restated Effective January 1, 2020), incorporated herein by
reference to Exhibit 10(g) to L3Harris Technologies, Inc.’s Transition Report on Form 10-KT for the fiscal year
ended January 3, 2020. (Commission File Number 1-3863)
(ii) Amendment One to the L3Harris Retirement Savings Plan (amended and restated as of January 1, 2020), dated
February 19, 2020 and effective February 1, 2020, incorporated herein by reference to Exhibit 10.6 to L3Harris
Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2020. (Commission File
Number 1-3863)
(iii) Amendment Two to the L3Harris Retirement Savings Plan (amended and restated as of January 1, 2020), dated
February 28, 2020 and effective March 1, 2020, incorporated herein by reference to Exhibit 10.7 to L3Harris
Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2020. (Commission File
Number 1-3863)
(iv) Amendment Three to the L3Harris Retirement Savings Plan (amended and restated as of January 1, 2020), dated
May 1, 2020, incorporated herein by reference to Exhibit 10.1 to L3Harris Technologies, Inc.’s Quarterly Report on
Form 10-Q for the fiscal quarter ended July 3, 2020. (Commission File Number 1-3863)
(v) Amendment Four to the L3Harris Retirement Savings Plan (amended and restated as of January 1, 2020), dated
July 8, 2020, incorporated herein by reference to Exhibit 10.2 to L3Harris Technologies, Inc.’s Quarterly Report on
Form 10-Q for the fiscal quarter ended July 3, 2020. (Commission File Number 1-3863)
*(10)(j) L3Harris Excess Retirement Savings Plan, as amended and restated effective January 1, 2020, incorporated herein
by reference to Exhibit 10(h) to L3Harris Technologies, Inc.’s Transition Report on Form 10-KT for the fiscal year
ended January 3, 2020. (Commission File Number 1-3863)
*(10)(k) L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan, incorporated herein by
reference to Exhibit 10(j) to L3Harris Technologies, Inc.’s Transition Report on Form 10-KT for the fiscal year
ended January 3, 2020. (Commission File Number 1-3863)
*(10)(l) (i) Amended and Restated Master Trust Agreement and Declaration of Trust, made as of December 2, 2003, by and
between Harris Corporation and The Northern Trust Company, incorporated herein by reference to Exhibit 10(c) to
Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004. (Commission File
Number 1-3863)
(ii) Amendment to the Harris Corporation Master Trust, dated May 21, 2009, incorporated herein by reference to
Exhibit 10(m)(ii) to Harris Corporation’s Annual Report on Form 10-K for the fiscal year ended July 3, 2009.
(Commission File Number 1-3863)
(iii) Amendment to the Harris Corporation Master Trust, dated December 8, 2009 and effective December 31, 2009,
incorporated herein by reference to Exhibit 4(e)(iii) to Harris Corporation’s Registration Statement on Form S-8,
Registration Statement No. 333-163647, filed with the SEC on December 10, 2009
139
(iv) Amendment to the Harris Corporation Master Trust, dated and effective May 3, 2010, incorporated herein by
reference to Exhibit 4(e)(iv) to Harris Corporation’s Registration Statement on Form S-8, Registration Statement
No. 333-222821, filed with the SEC on February 1, 2018
*(10)(m) (i)Master Rabbi Trust Agreement, amended and restated as of December 2, 2003, by and between Harris
Corporation and The Northern Trust Company, incorporated herein by reference to Exhibit 10(d) to Harris
Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004. (Commission File
Number 1-3863)
(ii) First Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated September 24, 2004,
incorporated herein by reference to Exhibit 10(b) to Harris Corporation’s Quarterly Report on Form 10-Q for the
fiscal quarter ended October 1, 2004. (Commission File Number 1-3863)
(iii) Second Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated as of December 8, 2004,
incorporated herein by reference to Exhibit 10.5 to Harris Corporation’s Current Report on Form 8-K filed with the
SEC on December 8, 2004. (Commission File Number 1-3863)
(iv) Third Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated January 15, 2009 and
effective January 1, 2009, incorporated herein by reference to Exhibit 10(i) to Harris Corporation’s Quarterly Report
on Form 10-Q for the fiscal quarter ended January 2, 2009. (Commission File Number 1-3863)
(v) Fourth Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated October 27, 2010 and
effective as of August 28, 2010, incorporated herein by reference to Exhibit 10(n) to Harris Corporation’s Quarterly
Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission File Number 1-3863)
(vi) Fifth Amendment to the Harris Corporation Master Rabbi Trust Agreement, dated and effective as of February
28, 2019, incorporated herein by reference to Exhibit 10 to Harris Corporation’s Quarterly Report on Form 10-Q for
the fiscal quarter ended March 29, 2019. (Commission File Number 1-3863)
(10)(n) Commercial Paper Issuing and Paying Agent Agreement, dated as of March 30, 2005, between Citibank, N.A. and
Harris Corporation, incorporated herein by reference to Exhibit 99.2 to Harris Corporation’s Current Report on
Form 8-K filed with the SEC on April 5, 2005. (Commission File Number 1-3863)
(10)(o) Commercial Paper Dealer Agreement, dated as of June 12, 2007, between Citigroup Global Markets Inc. and Harris
Corporation, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Current Report on Form 8-K
filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
(10)(p) Commercial Paper Dealer Agreement, dated June 13, 2007, between Banc of America Securities LLC and Harris
Corporation, incorporated herein by reference to Exhibit 10.2 to Harris Corporation’s Current Report on Form 8-K
filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
(10)(q) Commercial Paper Dealer Agreement, dated as of June 14, 2007, between SunTrust Capital Markets, Inc. and Harris
Corporation, incorporated herein by reference to Exhibit 10.3 to Harris Corporation’s Current Report on Form 8-K
filed with the SEC on June 18, 2007. (Commission File Number 1-3863)
*(10)(r) (i) Employment Agreement, dated October 8, 2011 and effective November 1, 2011, by and between Harris
Corporation and William M. Brown, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s
Current Report on Form 8-K filed with the SEC on October 11, 2011. (Commission File Number 1-3863)
(ii)Employment Agreement Amendment, dated October 12, 2018, by and between Harris Corporation and William
M. Brown, incorporated herein by reference to Exhibit 10.1 to Harris Corporation’s Quarterly Report on Form 10-Q
for the fiscal quarter ended December 28, 2018. (Commission File Number 1-3863)
*(10)(s) Letter Agreement with Christopher E. Kubasik, dated as of November 5, 2018, incorporated herein by reference to
Exhibit 10.4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019.
(Commission File Number 1-3863)
*(10)(t) Offer Letter Agreement with Jesus Malave Jr., dated as of June 6, 2019, incorporated herein by reference to Exhibit
10.3 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission
File Number 1-3863)
*(10)(u) Offer Letter Agreement, dated March 6, 2015, between Harris Corporation and Todd Taylor, incorporated herein by
reference to Exhibit 10(e) to Harris Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended April
3, 2015. (Commission File Number 1-3863)
140
*(10)(v) Summary of Annual Compensation of Non-Employee Directors of L3Harris Technologies, Inc., effective as of June
29, 2019, incorporated herein by reference to Exhibit 10.2 to L3Harris Technologies, Inc.’s Current Report on Form
8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
***(10)(w) Revolving Credit Agreement, dated June 28, 2019, among Harris Corporation and certain of its Subsidiaries from
time to time, as the Borrowers, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, L/C Issuer and Swingline Lender, Citibank, N.A., Bank of America, N.A., Morgan Stanley
MUFG Loan Partners, LLC and Wells Fargo Bank, National Association, as Co-Syndication Agents and JPMorgan
Chase Bank, N.A., Citibank, N.A., Bank of America Securities, Inc., Morgan Stanley MUFG Loan Partners, LLC
and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners, incorporated herein by reference
to Exhibit 10.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019.
(Commission File Number 1-3863)
*(10)(x) (i) L3Harris Salaried Pension Plan (as amended and restated as of August 31, 2020)
(ii) Amendment Number One to the L3Harris Salaried Pension Plan, dated December 22, 2020
*(10)(y) (i) L3Harris Link Simulation and Training Pension Plan (restated effective as of August 31, 2020)
(ii) Amendment Number One to the L3Harris Link Simulation and Training Pension Plan, dated December 22, 2020
*(10)(z) L3Harris Supplemental Executive Retirement Plan (restated January 2, 2020)
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
(24) Power of Attorney.
(31.1) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
(31.2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
(32.1) Section 1350 Certification of Chief Executive Officer.
(32.2) Section 1350 Certification of Chief Financial Officer.
(101) The financial information from L3Harris Technologies, Inc.’s Annual Report on Form 10-K for the period from
January 4, 2020 to January 1, 2021 formatted in Inline XBRL (Extensible Business Reporting Language) includes:
(i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement
of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders Equity, (v) the Consolidated
Statement of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.
(104) Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
_______________
*
**
***
Management contract or compensatory plan or arrangement.
Paper filing.
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. L3Harris Technologies, Inc. hereby undertakes to furnish supplementally
copies of any of the omitted schedules upon request by the SEC.
ITEM 16.
FORM 10-K SUMMARY.
None.
141
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
L3HARRIS TECHNOLOGIES, INC.
Date: March 1, 2021
(Registrant)
By:
/S/ WILLIAM M. BROWN
William M. Brown
Chair and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ WILLIAM M. BROWN
William M. Brown
/s/ CHRISTOPHER E. KUBASIK
Christopher E. Kubasik
/s/ JESUS MALAVE JR.
Jesus Malave Jr.
/s/ TODD A. TAYLOR
Todd A. Taylor
/s/ SALLIE B. BAILEY*
Sallie B. Bailey
/s/ PETER W. CHIARELLI*
Peter W. Chiarelli
/s/ THOMAS A. CORCORAN*
Thomas A. Corcoran
/s/ THOMAS A. DATTILO*
Thomas A. Dattilo
/s/ ROGER B. FRADIN*
Roger B. Fradin
/s/ LEWIS HAY III*
Lewis Hay III
/s/ LEWIS KRAMER*
Lewis Kramer
/s/ RITA S. LANE*
Rita S. Lane
/s/ ROBERT B. MILLARD*
Robert B. Millard
/s/ LLOYD W. NEWTON*
Lloyd W. Newton
Chair and Chief Executive Officer (Principal
Executive Officer)
Vice Chair, President and Chief Operating
Officer
Date
March 1, 2021
March 1, 2021
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
March 1, 2021
Vice President, Principal Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
*By:
/s/ SCOTT T. MIKUEN
Scott T. Mikuen
Attorney-in-Fact
pursuant to a power of attorney
142
Exhibit 21
L3HARRIS TECHNOLOGIES INC.
SUBSIDIARIES AS OF MARCH 1, 2021
(100% direct or indirect ownership by L3Harris Technologies, Inc., unless otherwise noted)
Exhibit 21
Name of Subsidiary
1231670 Ontario Inc.
AeroElite Limited
Aerosim Academy, Inc.
Aerosim Bangkok Company Limited
Aerosim Technologies, Inc.
Aerosim Thai Company Limited
Airline Placement Limited
Airline Recruitment Limited
Applied Defense Solutions, Inc.
Asia Flight Data Services Pte. Ltd.
Asian Aviation Training Centre Ltd.
ASV Global, L.L.C.
Autonomous Surface Vehicles Limited
Autonomous Surface Vehicles, LLC
Aviation Communication & Surveillance Systems, LLC
Azimuth Security Pty Ltd
Azimuth Security Trust
Azimuth Security, LLC
Beijing MAPPS-SERI Technology Company Ltd.*
Calzoni S.r.l.
Cancer Treatment Services International, Inc.*
Combat Advanced Propulsion, LLC
CR MSA LLC
CTC Aviation Group Limited
CTC Aviation Holdings Limited
CTC Aviation International Limited
CTC Aviation Services Limited
CTC Aviation Training (UK) Limited.
Defence Investments Limited
DMRAC-Aviation Corporation - SGPS, Unipessoal LDA
EAA – Escola de Aviação Aerocondor, S.A.
Eagle Technology, LLC
EDO (UK) Ltd.
EDO MBM Technology Ltd.
EDO Western Corporation
Electrodynamics, Inc.
ESSCO Collins Limited
Exelis Arctic Services
Exelis Australia Holdings Pty Ltd
Exelis Australia Pty Ltd
Exelis Holdings, Inc.
Exelis Luxembourg SARL
FAST Holdings Limited*
State or Other
Jurisdiction of Incorporation
Canada
United Kingdom
Florida
Thailand
Minnesota
Thailand
United Kingdom
United Kingdom
Delaware
Singapore
Thailand
Louisiana
United Kingdom
Louisiana
Delaware
Australia
Australia
Florida
China
Italy
Delaware
Delaware
Delaware
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Portugal
Portugal
Delaware
United Kingdom
United Kingdom
Utah
Arizona
Ireland
Delaware
Australia
Australia
Delaware
Luxembourg
United Kingdom
Name of Subsidiary
FAST Training Services Limited
Felec Services, Inc.
Flight Data Services Incorporated
Flight Training Acquisitions LLC
ForceX, Inc
G Air Advanced Training, Lda
G Air II Maintenance, Lda
G4U – Gestão de Activos Aeronáuticos, Sociedade, Lda
Harris Asia Pacific Sdn. Bhd.
Harris Atlas Systems LLC*
Harris C4i Pty Ltd
Harris Canada Systems, Inc.
Harris Cayman Ltd.
Harris Communications (Australia) Pty. Ltd.
Harris Communications (Spain), S. L.
Harris Communications FZCO
Harris Communications GmbH
Harris Communications Limited
Harris Communications Malaysia Sdn. Bhd.
Harris Communications MH Spain, S. L.
Harris Communications Pakistan (Private) Limited
Harris Communications Systems India Private Limited
Harris Comunicações e Participações do Brasil Ltda.
Harris Defence Ltd.
Harris Denmark ApS
Harris Denmark Holding ApS
Harris Geospatial Solutions B.V.
Harris Geospatial Solutions SARL
Harris Geospatial Solutions GmbH
Harris Geospatial Solutions Italia SRL
Harris Geospatial Solutions KK
Harris Geospatial Solutions UK Limited
Harris Geospatial Solutions, Inc.
Harris Global Communications, Inc.
Harris Holdco LLC
Harris International Chile Limitada
Harris International Holdings, LLC
Harris International, Inc.
Harris International, Inc.
Harris International Saudi Communications
Harris International Venezuela, C.A.
Harris Luxembourg Sarl
Harris NV
Harris Orthogon GmbH
Harris Pension Management Limited
Harris Solid-State (Malaysia) Sdn. Bhd.
Harris Systems Limited
Honeywell TCAS Inc.*
Interstate Electronics Corporation
L-3 Afghanistan, LLC
Exhibit 21
State or Other
Jurisdiction of Incorporation
United Kingdom
Delaware
Arizona
Delaware
Tennessee
Portugal
Portugal
Portugal
Malaysia
UAE
Australia
Canada
Cayman Islands
Australia
Spain
UAE
Germany
Hong Kong
Malaysia
Spain
Pakistan
India
Brazil
United Kingdom
Denmark
Denmark
Netherlands
France
Germany
Italy
Japan
United Kingdom
Colorado
New York
Delaware
Chile
Delaware
Afghanistan
Delaware
Saudi Arabia
Venezuela
Luxembourg
Belgium
Germany
United Kingdom
Malaysia
United Kingdom
Delaware
California
Delaware
Name of Subsidiary
L3 Applied Technologies, Inc.
L3 Australia Group Pty Ltd
L3 Aviation Products, Inc.
L-3 Centaur, LLC
L3 Cincinnati Electronics Corporation
L3 Commercial Training Solutions Limited
L-3 Communications Advanced Aviation, Inc.
L-3 Communications Advanced Aviation, LLC
L-3 Communications AIS GP Corporation
L-3 Communications ASA Limited
L-3 Communications Australia Pty Ltd
L-3 Communications Flight Capital LLC
L-3 Communications Holding GmbH
L-3 Communications India Private Limited
L-3 Communications Integrated Systems L.P.
L-3 Communications Investments Inc.
L-3 Communications Link Simulation and Training UK (Overseas) Limited
L3 CTS Airline Academy (NZ) Limited
L3 CTS Airline and Academy Training Limited
L-3 Domestic Holdings, Inc.
L3 Doss Aviation, Inc.
L3 Electron Devices, Inc.
L3 ESSCO, Inc.
L3 Foreign Holdings, Inc.
L3 Fuzing and Ordnance Systems, Inc.
L-3 Global Holding UK Ltd.
L3 International Australia Pty Ltd
L-3 International UK Ltd
L3 Investments UK Holdings Ltd
L3 Investments, LLC
L3 Kenya LTD
L3 Kigre, Inc.
L3 Latitude, LLC
L3 Magnet-Motor GmbH
L3 MAPPS INC.
L3 MAPPS Limited
L3 MAPPS Sdn. Bhd.
L3 Micreo Pty Limited
L3 Open Water Power, Inc.
L-3 Saudi Arabia LLC
L-3 Societá Srl.
L3 Technologies Canada Group Inc.
L3 Technologies Canada Inc.
L3 Technologies Investments Limited
Exhibit 21
State or Other
Jurisdiction of Incorporation
Delaware
Australia
Delaware
Delaware
Ohio
United Kingdom
Montana
Montana
Delaware
United Kingdom
Australia
Delaware
Germany
India
Delaware
Delaware
United Kingdom
New Zealand
United Kingdom
Delaware
Texas
Delaware
Delaware
Delaware
Delaware
United Kingdom
Australia
United Kingdom
United Kingdom
Delaware
Kenya
Ohio
Arizona
Germany
Canada
United Kingdom
Malaysia
Australia
Delaware
Saudi Arabia
Italy
Canada
Canada
Cyprus
Name of Subsidiary
L3 Technologies MAS Inc.
L3 Technologies, Inc.
L-3 Technology & Services UK Ltd
L3 Unidyne, Inc.
L3 Unmanned Systems, Inc.
L3 Westwood Corporation
L3Harris Technologies Australia Pty Ltd.
L3Harris Technologies Australia Group Pty Ltd
L3Harris Technologies BTC Holding, LLC
L3Harris Technologies CMAS Holdings, LLC
L3Haris Technologies CTS Holdings Limited
L3Harris Technologies Holding, LLC
L3Harris Technologies UK Holding Ltd
L3Harris Technologies UK Limited
L3Harris Technologies UK Topco Limited
L3Harris Unlimited
Linchpin Labs Inc.
Linchpin Labs Inc.
Linchpin Labs Limited
Linchpin Labs Limited
Linchpin Labs Pty Limited
L-Tres Comunicaciones Costa Rica, S.A.
Manatee Investment, LLC
Melbourne Leasing, LLC
Mission Systems Australia Pty Ltd
Mustang Technology Group, L.P.
Narda Safety Test Solutions GmbH
Narda Safety Test Solutions S.r.l.
NexGen Communications, LLC
Power Paragon, Inc.
Riptide Autonomous Solutions LLC
S.C. Harris Assured Communications SRL
SARL Assured Communications
Sovcan Star Satellite Communications Inc.
SPD Electrical Systems, Inc.
Sunshine General Services, LLC
TRL Electronics Limited
TRL Technology Limited
Wescam Inc.
Wescam USA, Inc.
_______________
* Subsidiary of L3Harris Technologies, Inc. less than 100% directly or indirectly owned by L3Harris Technologies, Inc.
Exhibit 21
State or Other
Jurisdiction of Incorporation
Canada
Delaware
United Kingdom
Delaware
Texas
Nevada
Australia
Australia
Delaware
Delaware
United Kingdom
Delaware
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Canada
Delaware
United Kingdom
New Zealand
Australia
Costa Rica
Delaware
Florida
Australia
Texas
Germany
Italy
Virginia
Delaware
Delaware
Romania
Algeria
Canada
Delaware
Iraq
United Kingdom
United Kingdom
Canada
Florida
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We consent to the incorporation by reference in the following Registration Statements:
Form S-4
Form S-3
Form S-4/A
Form S-8
Form S-8
Form S-8
Form S-8
Form S-8
Form S-8
Form S-8
No. 333-236885
No. 333-233827
No. 333-228829
No. 333-232482
L3Harris Technologies, Inc. Offer to Exchange
L3Harris Technologies, Inc. Debt and Equity Securities
Harris Corporation Shares of Common Stock
L3 Technologies, Inc. Amended and Restated 2008
Long Term Performance Plan; L3 Technologies, Inc.
Master Savings Plan; and Aviation Communications &
Surveillance Systems 401(k) Plan
No. 333-222821
Harris Corporation Retirement Plan
No. 333-192735
Harris Corporation Retirement Plan
No. 333-163647
No. 333-75114
No. 333-130124
No. 333-207774
Harris Corporation Retirement Plan
Harris Corporation Retirement Plan
Harris Corporation 2005 Equity Incentive Plan
L3Harris Technologies, Inc. 2015 Equity Incentive Plan
of our reports dated March 1, 2021, with respect to the consolidated financial statements of L3Harris Technologies, Inc. and the effectiveness
of internal control over financial reporting of L3Harris Technologies, Inc. included in this Annual Report (Form 10-K) of L3Harris
Technologies, Inc. for the year ended January 1, 2021.
/s/ Ernst & Young LLP
Orlando, Florida
March 1, 2021
POWER OF ATTORNEY
KNOW TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints SCOTT T.
MIKUEN and ROBERT A. JOHNSON JR., each and individually, as his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for and in the name, place and stead of the undersigned, for him or her in any and all capacities, to sign the
Annual Report on Form 10-K of L3Harris Technologies, Inc., a Delaware corporation, with respect to the fiscal year ended January 1, 2021,
and to sign any and all amendments to such Annual Report on Form 10-K and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each such attorneys-in-fact or agents or their substitutes, may do or cause to be done by
virtue hereof. This Power of Attorney may be signed in counterparts.
Exhibit 24
Date: March 1, 2021.
/s/ WILLIAM M. BROWN
William M. Brown
Chair and Chief Executive Officer
/s/ THOMAS A. DATTILO
Thomas A. Dattilo
Director
/s/ CHRISTOPHER E. KUBASIK
Christopher E. Kubasik
Vice Chair, President and Chief Operating Officer
/s/ ROGER B. FRADIN
Roger B. Fradin
Director
/s/ JESUS MALAVE JR.
Jesus Malave Jr
Senior Vice President and Chief Financial Officer
/s/ TODD A. TAYLOR
Todd A. Taylor
Vice President, Principal Accounting Officer
/s/ SALLIE B. BAILEY
Sallie B. Bailey
Director
/s/ PETER W. CHIARELLI
Peter W. Chiarelli
Director
/s/ THOMAS A. CORCORAN
Thomas A. Corcoran
Director
/s/ LEWIS HAY III
Lewis Hay III
Director
/s/ LEWIS KRAMER
Lewis Kramer
Director
/s/ RITA S. LANE
Rita S. Lane
Director
/s/ ROBERT B. MILLARD
Robert B. Millard
Director
/s/ LLOYD W. NEWTON
Lloyd W. Newton
Director
CERTIFICATION
Exhibit 31.1
I, William M. Brown, Chair and Chief Executive Officer of L3Harris Technologies, Inc., certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended January 1, 2021 of L3Harris Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2021
/s/ William M. Brown
Name:
Title:
William M. Brown
Chair and Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Jesus Malave Jr., Senior Vice President and Chief Financial Officer of L3Harris Technologies, Inc., certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended January 1, 2021 of L3Harris Technologies,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2021
/s/ Jesus Malave Jr.
Name:
Title:
Jesus Malave Jr.
Senior Vice President and Chief Financial
Officer
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the filing of the Annual Report on Form 10-K of L3Harris Technologies, Inc. (“L3Harris”) for
the fiscal year ended January 1, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned, William M. Brown, Chair and Chief Executive Officer of L3Harris, hereby certifies, pursuant to 18 U.S.C.
§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of L3Harris as of the dates and for the periods expressed in the Report.
Date: March 1, 2021
/s/ William M. Brown
Name:
Title:
William M. Brown
Chair and Chief Executive Officer
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the filing of the Annual Report on Form 10-K of L3Harris Technologies, Inc. (“L3Harris”) for
the fiscal year ended January 1, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned, Jesus Malave Jr., Senior Vice President and Chief Financial Officer of L3Harris, hereby certifies, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of L3Harris as of the dates and for the periods expressed in the Report.
Date: March 1, 2021
/s/ Jesus Malave Jr.
Name:
Title:
Jesus Malave Jr.
Senior Vice President and Chief Financial
Officer
INFORMATION FOR
SHAREHOLDERS
CORPORATE HEADQUARTERS
L3Harris Technologies
1025 West NASA Boulevard
Melbourne, FL 32919–0001
1–321–727–9100
L3Harris.com
L3HARRIS
T E C H N O L O G I E S
NYSE:LHX
STOCK EXCHANGE
L3Harris stock is listed and traded on the
New York Stock Exchange. Ticker Symbol: LHX
TRANSFER AGENT AND REGISTRAR
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
1–888–261–6777 | Outside the U.S., please dial 1–201–680–6578
www.computershare.com/investor
SHAREHOLDER SERVICES
Computershare maintains the records for our registered shareholders
and can assist you with a variety of shareholder–related services
at no charge. The Computershare automated telephone voice
response system, at 1–888–261–6777, is available 24 hours a day,
7 days a week, to conduct a wide variety of secure transactions.
Electronic access to your financial statements and shareholder
communications is available 24 hours a day, 7 days a week, via
Computershare’s website, computershare.com/investor. Visit
this website to view and print Investment Plan Statements,
Investor Activity Reports, 1099 tax documents, notification
of ACH transmissions, transaction activities, annual meeting
materials and other selected correspondence.
You also can send mail to Computershare at:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
(U.S. mail only)
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
(Overnight delivery only)
ANNUAL MEETING
The annual meeting of shareholders will be held virtually
on April 23, 2021 starting at 9:00 a.m. ET.
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP | Orlando, Florida
TELL US WHAT YOU THINK!
Share your Annual Report feedback:
annualreport@L3Harris.com
FORWARD–LOOKING STATEMENTS
This report, including the letter to shareholders,
contains forward–looking statements that are
based on the views of management regarding
future events at the time of publication of this
report. These forward–looking statements,
which include, but are not limited to: our plans,
strategies and objectives for future operations;
new products, services or developments; future
economic conditions; outlook; the value of
contract and program awards; the effect of the
merger on our business; our growth potential;
and the potential of the industries and markets
we serve, are subject to known and unknown
risks, uncertainties and other factors that
may cause our actual results to be materially
different from those expressed in or implied by
each forward–looking statement. These risks,
uncertainties and other factors are discussed in
our Form 10–K for the fiscal year ended.
ANNUAL CERTIFICATIONS
The most recent certifications by our Chief
Executive Officer and Chief Financial Officer
pursuant to sections 302 and 906 of the
Sarbanes–Oxley Act of 2002 were filed as
exhibits to our Form 10–K for the fiscal year
ended January 1, 2021. Our most recent annual
CEO certification regarding L3Harris compliance
with corporate governance listing standards was
submitted to the New York Stock Exchange in
May 2020.
This report is printed on Neo Star Gloss Cover, Neo Star
Gloss Text, and Lynx Opaque papers that are Forest
Stewardship Council® (FSC®) certified.
DESIGN: CDW STRATEGIC COMMUNICATIONS, INC.
PRINTING: RR DONNELLEY—ORLANDO PLANT
L3HARRIS TECHNOLOGIES
1025 West NASA Boulevard
Melbourne, Florida 32919-0001
U.S.: 1–800–442–7747
International: 1–321–727–9100
L3Harris.com