UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~December 28, 2018~~April 3, 2020



o☐	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

~~HARRIS CORPORATION~~L3HARRIS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



Delaware			34-0276860
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



1025 West NASA Boulevard ~~Melbourne, Florida~~		~~329l9~~
Melbourne,	Florida	32919
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (321) 727-9100


~~(321) 727-9l00~~
~~(Registrant’s telephone number, including area code)~~Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Trading Symbol(s)		Name of each exchange on which registered
~~No changes~~Common Stock, par value $1.00 per share
~~(Former name, former address and former fiscal year, if changed since last report)~~	LHX		New York Stock Exchange

Indicate by check mark whether the registrant (l) 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. þYespo 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 ~~(§ 232.405 of this chapter)~~ during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þYespo 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.

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. po

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). p☐ Yes þ No

The number of shares outstanding of the registrant’s common stock as of ~~January 25, 2019~~May 1, 2020 was ~~117,829,781~~215,870,340 shares.

~~HARRIS CORPORATION~~

L3HARRIS TECHNOLOGIES, INC.

FORM 10-Q

For the Quarter Ended ~~December 28, 2018~~April 3, 2020

~~INDEX~~

TABLE OF CONTENTS




	Page No.
Part I. Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statement of Income for the Quarter Ended April 3, 2020 and ~~Two Quarters Ended December 28, 2018 and December~~March 29, ~~2017~~2019	1
Condensed Consolidated Statement of Comprehensive Income for the Quarter Ended April 3, 2020 and ~~Two Quarters Ended December 28, 2018 and December~~March 29, ~~2017~~2019	2
Condensed Consolidated Balance Sheet at ~~December 28, 2018~~April 3, 2020 and ~~June 29, 2018~~January 3, 2020	3
Condensed Consolidated Statement of Cash Flows for the ~~Two Quarters~~Quarter Ended ~~December 28, 2018~~April 3, 2020 and ~~December~~March 29, ~~2017~~2019	4
Condensed Consolidated Statement of Equity for the Quarter Ended April 3, 2020 and ~~Two Quarters Ended December 28, 2018 and December~~March 29, ~~2017~~2019	5
Notes to Condensed Consolidated Financial Statements	6
Report of Independent Registered Public Accounting Firm	2331
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2432
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3652
Item 4. Controls and Procedures	3753

Part II. Other Information:
Item 1. Legal Proceedings	3854
Item 1A. Risk Factors	3854
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4055
Item 3. Defaults Upon Senior Securities	4056
Item 4. Mine Safety Disclosures	4056
Item 5. Other Information	4056
Item 6. Exhibits	4156

Signature	4257

This ~~Quarterly~~ Report ~~on Form 10-Q~~ contains trademarks, service marks and registered marks of ~~Harris Corporation~~L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

~~HARRIS CORPORATION~~L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)


	Quarter Ended						Two Quarters Ended						Quarter Ended
	December 28, 2018			December 29, 2017			December 28, 2018			December 29, 2017			April 3, 2020			March 29, 2019

	(In millions, except per share amounts)												(In millions, except per share amounts)
Revenue from product sales and services	$	1,666		$	1,535		$	3,208		$	2,945		$	4,626		$	1,728
Cost of product sales and services	(1,095		)	(1,022		)	(2,105		)	(1,941		)	(3,298		)	(1,139		)
Engineering, selling and administrative expenses	(304		)	(291		)	(583		)	(559		)	(815		)	(310		)
Impairment of goodwill and other assets													(324		)	—
Non-operating income	47			44			94			90			95			46
Interest income	—			1			1			1			5			1
Interest expense	(43		)	(42		)	(87		)	(83		)	(68		)	(43		)
Income from continuing operations before income taxes	271			225			528			453			221			283
Income taxes	(46		)	(94		)	(87		)	(157		)	(26		)	(40		)
Income from continuing operations	225			131			441			296			195			243
Discontinued operations, net of income taxes	—			—			(3		)	(6		)	(1		)	—
Net income	$	225		$	131		$	438		$	290		194			243
Noncontrolling interests, net of income taxes													23			—
Net income attributable to L3Harris Technologies, Inc.													$	217		$	243
Amounts attributable to L3Harris Technologies, Inc. common shareholders
Income from continuing operations													$	218		$	243
Discontinued operations, net of income taxes													(1		)	—
Net income													$	217		$	243

Net income per common share
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic
Continuing operations	$	1.91		$	1.10		$	3.74		$	2.49		$	1.00		$	2.06
Discontinued operations	—			—			(0.03		)	(0.06		)	—			—
	$	1.91		$	1.10		$	3.71		$	2.43		$	1.00		$	2.06
Diluted
Continuing operations	$	1.88		$	1.08		$	3.66		$	2.44		$	0.99		$	2.02
Discontinued operations	(0.01		)	—			(0.02		)	(0.05		)	—			—
	$	1.87		$	1.08		$	3.64		$	2.39		$	0.99		$	2.02

Cash dividends paid per common share	$	0.685		$	0.570		$	1.370		$	1.140
Basic weighted average common shares outstanding	117.7			118.5			117.8			118.8			217.3			117.9
Diluted weighted average common shares outstanding	120.0			120.9			120.3			121.1			219.3			120.3

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

~~HARRIS CORPORATION~~

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended						Two Quarters Ended					Quarter Ended
	December 28, 2018			December 29, 2017			December 28, 2018			December 29, 2017		April 3, 2020			March 29, 2019

	(In millions)											(In millions)
Net income	$	225		$	131		$	438		$	290	$	194		$	243
Other comprehensive income (loss):
Other comprehensive loss:
Foreign currency translation gain (loss), net of income taxes	(8		)	(4		)	(8		)	21		(67		)	3
Net unrealized gain on hedging derivatives, net of income taxes	—			—			1			1
Net unrealized loss on hedging derivatives, net of income taxes												(73		)	(8		)
Net unrecognized loss on postretirement obligations, net of income taxes	(1		)	—			(2		)	—		(1		)	(1		)
Other comprehensive income (loss), net of income taxes	(9		)	(4		)	(9		)	22
Other comprehensive loss, net of income taxes												(141		)	(6		)
Total comprehensive income	$	216		$	127		$	429		$	312	53			237
Comprehensive loss attributable to noncontrolling interests												23			—
Total comprehensive income attributable to L3Harris Technologies, Inc.												$	76		$	237

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

~~HARRIS CORPORATION~~

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)



	April 3, 2020			January 3, 2020

	(In millions, except shares)
Assets
Current Assets
Cash and cash equivalents	$	663		$	824
Receivables	1,278			1,216
Contract assets	2,467			2,459
Inventories	990			1,219
Income taxes receivable	205			202
Other current assets	400			392
Assets of disposal group held for sale	1,208			—
Total current assets	7,211			6,312
Non-current Assets
Property, plant and equipment	2,032			2,117
Operating lease right-of-use assets	784			837
Goodwill	19,265			20,001
Other intangible assets	8,171			8,458
Deferred income taxes	112			102
Other non-current assets	530			509
Total non-current assets	30,894			32,024
	$	38,105		$	38,336
Liabilities and Equity
Current Liabilities
Short-term debt	$	2		$	3
Accounts payable	1,422			1,261
Contract liabilities	1,138			1,214
Compensation and benefits	329			460
Other accrued items	1,095			790
Income taxes payable	37			24
Current portion of long-term debt, net	896			257
Liabilities of disposal group held for sale	204			—
Total current liabilities	5,123			4,009
Non-current Liabilities
Defined benefit plans	1,744			1,819
Operating lease liabilities	729			781
Long-term debt, net	6,294			6,694
Deferred income taxes	1,402			1,481
Other long-term liabilities	786			808
Total non-current liabilities	10,955			11,583
Equity
Shareholders’ Equity:
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 215,759,497 shares at April 3, 2020 and 218,226,614 shares at January 3, 2020	216			218
Other capital	20,182			20,694
Retained earnings	2,151			2,183
Accumulated other comprehensive loss	(651		)	(508		)
Total shareholders’ equity	21,898			22,587
Noncontrolling interests	129			157
Total equity	22,027			22,744
	$	38,105		$	38,336

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

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

December 28, 2018 June 29, 2018

(In millions, except shares)
Assets
Current Assets
Cash and cash equivalents $ 343
$ 288
Receivables 494
466
Contract assets 829
782
Inventories 425
411
Income taxes receivable 102
174
Other current assets 118
103
Total current assets 2,311
2,224
Non-current Assets
Property, plant and equipment 901
900
Goodwill 5,370
5,372
Other intangible assets 930
989
Non-current deferred income taxes 99
119
Other non-current assets 241
247
Total non-current assets 7,541
7,627
$ 9,852
$ 9,851
Liabilities and Equity
Current Liabilities
Short-term debt $ 103
$ 78
Accounts payable 521
622
Contract liabilities 479
372
Compensation and benefits 128
142
Other accrued items 275
317
Income taxes payable 11
15
Current portion of long-term debt, net 305
304
Total current liabilities 1,822
1,850
Non-current Liabilities
Defined benefit plans 635
714
Long-term debt, net 3,411
3,408
Non-current deferred income taxes 60
79
Other long-term liabilities 512
522
Total non-current liabilities 4,618
4,723
Equity
Shareholders’ Equity:
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 117,774,474 shares at December 28, 2018 and 118,280,120 shares at June 29, 2018 118
118
Other capital 1,681
1,714
Retained earnings 1,824
1,648
Accumulated other comprehensive loss (211 ) (202 )
Total shareholders’ equity 3,412
3,278
$ 9,852
$ 9,851



	Quarter Ended
	April 3, 2020			March 29, 2019

	(In millions)
Operating Activities
Net income	$	194		$	243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	230			64
Share-based compensation	87			37
Qualified pension plan contributions	(2		)	—
Pension and other postretirement benefit plan income	(80		)	(37		)
Impairment of goodwill and other assets	324			—
Deferred income taxes	(35		)	5
(Increase) decrease in:
Accounts receivable	(164		)	41
Contract assets	(110		)	(52		)
Inventories	40			(8		)
Increase (decrease) in:
Accounts payable	253			2
Contract liabilities	(47		)	(13		)
Compensation and benefits	(126		)	48
Income taxes	20			35
Other accrued items	(69		)	26
Other	18			14
Net cash provided by operating activities	533			405
Investing Activities
Net additions of property, plant and equipment	(48		)	(37		)
Other investing activities	(10		)	—
Net cash used in investing activities	(58		)	(37		)
Financing Activities
Net proceeds from borrowings	245			—
Repayments of borrowings	(1		)	(301		)
Proceeds from exercises of employee stock options	33			6
Repurchases of common stock	(700		)	—
Cash dividends	(183		)	(81		)
Distributions to noncontrolling interests	(5		)	—
Tax withholding payments associated with vested share-based awards	(1		)	(4		)
Net cash used in financing activities	(612		)	(380		)
Effect of exchange rate changes on cash and cash equivalents	(24		)	3
Net decrease in cash and cash equivalents	(161		)	(9		)
Cash and cash equivalents, beginning of year	824			343
Cash and cash equivalents, end of quarter	$	663		$	334

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

~~HARRIS CORPORATION~~

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF ~~CASH FLOWS~~EQUITY

(Unaudited)

Two Quarters Ended
December 28, 2018 December 29, 2017

(In millions)
Operating Activities
Net income $ 438
$ 290
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles 58
58
Depreciation and other amortization 71
72
Share-based compensation 70
24
Pension income (68 ) (68 )
(Increase) decrease in:
Accounts receivable (28 ) (14 )
Contract assets (47 ) (84 )
Inventories (14 ) (23 )
Increase (decrease) in:
Accounts payable (101 ) (78 )
Contract liabilities 107
47
Income taxes 76
216
Other (93 ) (67 )
Net cash provided by operating activities 469
373
Investing Activities
Additions of property, plant and equipment (67 ) (43 )
Adjustment to proceeds from sales of businesses, net —
(2 )
Net cash used in investing activities (67 ) (45 )
Financing Activities
Proceeds from borrowings 26
248
Repayments of borrowings (3 ) (363 )
Proceeds from exercises of employee stock options 18
18
Repurchases of common stock (200 ) (150 )
Cash dividends (163 ) (137 )
Other financing activities (20 ) (10 )
Net cash used in financing activities (342 ) (394 )
Effect of exchange rate changes on cash and cash equivalents (5 ) 4
Net increase (decrease) in cash and cash equivalents 55
(62 )
Cash and cash equivalents, beginning of year 288
484
Cash and cash equivalents, end of quarter $ 343
$ 422



	Common Stock			Other Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interests			Total Equity

	(In millions, except per share amounts)
Balance at January 3, 2020	$	218		$	20,694		$	2,183		$	(508	)	$	157		$	22,744
Net income	—			—			217			—			(23		)	194
Other comprehensive loss	—			—			—			(141		)	—			(141		)
Net gain from postretirement obligations and hedging derivatives reclassified to earnings	—			—			—			(2		)	—			(2		)
Shares issued under stock incentive plans	1			32			—			—			—			33
Shares issued under defined contribution plans	—			71			—			—			—			71
Share-based compensation expense	—			16			—			—			—			16
Repurchases and retirement of common stock	(3		)	(631		)	(66		)	—			—			(700		)
Cash dividends ($.85 per share)	—			—			(183		)	—			—			(183		)
Distributions to noncontrolling interests	—			—			—			—			(5		)	(5		)
Balance at April 3, 2020	$	216		$	20,182		$	2,151		$	(651	)	$	129		$	22,027

Balance at December 28, 2018	$	118		$	1,681		$	1,824		$	(211	)	$	—		$	3,412
Net income	—			—			243			—			—			243
Other comprehensive loss	—			—			—			(6		)	—			(6		)
Shares issued under stock incentive plans	—			7			—			—			—			7
Shares issued under defined contribution plans	—			23			—			—			—			23
Share-based compensation expense	—			14			—			—			—			14
Repurchases and retirement of common stock	—			(5		)	—			—			—			(5		)
Cash dividends ($.685 per share)	—			—			(81		)	—			—			(81		)
Balance at March 29, 2019	$	118		$	1,720		$	1,986		$	(217	)	$	—		$	3,607

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

~~HARRIS CORPORATION AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENT OF EQUITY~~

~~(Unaudited)~~

Common
Stock

Other
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total
Equity

(In millions, except per share amounts)
Balance at June 29, 2018 $ 118
$ 1,714
$ 1,648
$ (202 ) $ 3,278
Net income —
—
213
—
213
Shares issued under stock incentive plans 1
15
—
—
16
Shares issued under defined contribution plans —
23
—
—
23
Share-based compensation expense —
14
—
—
14
Repurchases and retirement of common stock (1 ) (118 ) (99 ) —
(218 )
Cash dividends ($.685 per share) —
—
(82 ) —
(82 )
Balance at September 28, 2018 118
1,648
1,680
(202 ) 3,244
Net income —
—
225
—
225
Other comprehensive income —
—
—
(9 ) (9 )
Shares issued under stock incentive plans —
2
—
—
2
Shares issued under defined contribution plans —
17
—
—
17
Share-based compensation expense —
15
—
—
15
Repurchases and retirement of common stock —
(1 ) —
—
(1 )
Cash dividends ($.685 per share) —
—
(81 ) —
(81 )
Balance at December 28, 2018 $ 118
$ 1,681
$ 1,824
$ (211 ) $ 3,412

Balance at June 30, 2017 $ 120
$ 1,741
$ 1,318
$ (276 ) $ 2,903
Net income —
—
159
—
159
Other comprehensive income —
—
—
26
26
Shares issued under stock incentive plans —
14
—
—
14
Share-based compensation expense —
11
—
—
11
Repurchases and retirement of common stock (1 ) (73 ) (48 ) —
(122 )
Forward contract component of accelerated share repurchase —
38
—
—
38
Cash dividends ($.570 per share) —
—
(69 ) —
(69 )
Balance at September 29, 2017 119
1,731
1,360
(250 ) 2,960
Net income —
—
131
—
131
Other comprehensive income —
—
—
(4 ) (4 )
Shares issued under stock incentive plans —
4
—
—
4
Share-based compensation expense —
12
—
—
12
Repurchases and retirement of common stock —
(42 ) (34 ) —
(76 )
Cash dividends ($.570 per share) —
—
(68 ) —
(68 )
Balance at December 29, 2017 $ 119
$ 1,705
$ 1,389
$ (254 ) $ 2,959

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A — Significant Accounting Policies and Recent Accounting Standards

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) include the accounts of ~~Harris Corporation~~L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these Notes to Condensed Consolidated Financial Statements (Unaudited) (these “Notes”), the terms ~~“Harris,~~“L3Harris,” “Company,” “we,” “our” and “us” refer to ~~Harris Corporation~~L3Harris Technologies, Inc. and its consolidated subsidiaries. Intracompany transactions and accounts have been eliminated in consolidation. The accompanying Condensed Consolidated Financial Statements (Unaudited) have been prepared by ~~Harris,~~L3Harris, without an audit, in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations and cash flows for the periods presented therein. The results for the quarter ~~and two quarters~~ ended ~~December 28, 2018~~April 3, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The balance sheet at ~~June 29, 2018~~January 3, 2020 has been derived from our audited financial statements, but does not include all of the information and footnotes required by GAAP for annual financial statements. We provide complete, audited financial statements in our ~~Annual~~Transition Report on Form ~~10-K,~~10-KT for the fiscal transition period from June 29, 2019 to January 3, 2020 (our “Fiscal Transition Period Form 10-KT”), which includes information and footnotes required by the rules and regulations of the SEC. The information included in this Quarterly Report on Form 10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in our ~~Annual Report~~Fiscal Transition Period Form 10-KT.

On October 12, 2018, Harris Corporation, a Delaware corporation (“Harris”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with L3 Technologies, Inc., a Delaware corporation (“L3”), 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 ~~Form 10-K~~June 29, 2019 (the “Closing Date”), the day after Harris’ fiscal 2019 ended and the first day of the fiscal transition period ended January 3, 2020 (the “Fiscal Transition Period”). Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.” (“L3Harris”), and each share of L3 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 approximately 54 percent by Harris shareholders and 46 percent by L3 shareholders immediately following the completion of the L3Harris Merger.

We are accounting for the ~~fiscal year ended~~L3Harris Merger under the acquisition method of accounting. Under the acquisition method of accounting, we are required to measure identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at their fair values as of the Closing Date. The excess of the consideration transferred over those fair values is recorded as goodwill. See Note B — Business Combination in these Notes for additional information related to the L3Harris Merger.

We implemented a new organizational structure effective on June 29, ~~2018 (our “Fiscal 2018 Form 10-K”)~~2019, which resulted in changes to our operating segments, which are also reportable segments and referred to as our business segments. The historical results, discussion and presentation of our business segments as set forth in ~~our Current Report on Form 8-K filed with~~ the ~~SEC on December 13, 2018 (our “Fiscal 2017-2018 Update 8-K”), which updated~~accompanying Condensed Consolidated Financial Statements (Unaudited) and ~~superseded historical fiscal 2018 and fiscal 2017 financial information contained in Item 7, Item 8 and certain other Items in our Fiscal 2018 Form 10-K to~~these Notes reflect the impact of these changes for ~~those two fiscal years~~all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of ~~retrospective application~~income, balance sheets, statements of ~~Accounting Standards Update (“ASU”) 2014-09, Accounting Standards Codification (“ASC”) 606,~~ ~~Revenue~~cash flows or statements of equity resulting from ~~Contracts with Customers (Topic 606)~~these changes.

On September 13, 2019, we completed the sale of the Harris Night Vision business 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 as ~~amended (“ASC 606”),~~set forth in the definitive agreement. The Harris Night Vision business was not included in any of the operating segments in our new organizational structure and ~~ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715): Improving~~ the ~~Presentation~~operating results of ~~Net Periodic Pension Cost~~the Harris Night Vision business through the date of the divestiture are discussed and ~~Net Periodic Postretirement Benefit Cost~~ ~~(“ASU 2017-07”), each~~presented as part of ~~which we adopted effective June 30, 2018. See “Adoption of New Accounting Standards” below~~“Other non-reportable business segments” in this Report.

On February 4, 2020, we entered into a definitive agreement to sell Security & Detection Systems and MacDonald Humfrey Automation solutions (“airport security and automation business”) to Leidos, Inc. for $1 billion in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The airport security and automation business, which is reported as part of our Aviation Systems segment, 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 assets and liabilities of the airport security and automation business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. On May 4, 2020, following the close of the first quarter of fiscal 2020, we completed the sale of the airport security and automation business. We expect to use the net cash proceeds from the sale for general corporate purposes and potential repurchases of shares of our common stock.

On February 19, 2020, we entered into a definitive agreement to sell our Applied Kilovolts and Analytical Instrumentation business, which is reported as part of our Space and Airborne Systems segment, subject to closing conditions as set forth in the definitive agreement. The assets and liabilities of the Applied Kilovolts and Analytical Instrumentation business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. We expect to complete the sale of the Applied Kilovolts and Analytical Instrumentation business in mid-2020.

On March 20, 2020, we entered into a definitive agreement to sell our EOTech business for $42 million, subject to customary purchase price adjustments and customary closing conditions as set forth in the definitive agreement. The EOTech business, which is reported as part of our Communications Systems segment, manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. The assets and liabilities of the EOTech business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. We expect to complete the sale of the EOTech business in mid-2020.

See Note A C — Business Divestitures and Assets Sales in these Notes for ~~additional information.~~more information regarding the divestitures.

Amounts contained in this Report may not always add to totals due to rounding.

~~Reclassifications~~

The classification of certain prior-period amounts has been adjusted in our Condensed Consolidated Financial Statements (Unaudited) to conform with current-period classifications. Reclassifications include certain direct selling and bid and proposal costs from the “Cost of product sales and services” line item to the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited) and in these Notes.

Use of Estimates

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

Significant Accounting Policies Update

There have been no material changes to our significant accounting policies described in our Fiscal Transition Period Form 10-KT, except as described in “Adoption of New Accounting Standards” below.

Adoption of New Accounting Standards

~~As discussed above,~~Effective January 3, 2020, we adopted ~~ASC 606 effective June 30, 2018. This~~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 ~~supersedes nearly all revenue~~replaces the existing impairment model, under which impairment of receivables is recognized when it becomes probable a loss has been incurred, with a model that requires recognition ~~guidance under GAAP~~of expected credit losses over the estimated life of an asset at inception and ~~International Financial Reporting Standards~~requires consideration of a broader range of reasonable and ~~supersedes some cost guidance for construction-type and production-type contracts. The guidance in~~supportable information to inform credit loss estimates. Adopting this standard ~~is principles-based,~~did not have a material impact on our financial condition, results of operations or cash flows.

Note B — Business Combination

On October 12, 2018, Harris entered into the Merger Agreement with L3 and ~~consequently, entities~~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 closing of the L3Harris Merger occurred on June 29, 2019. Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.” and each share of L3 common stock converted into the right to receive 1.30 shares of L3Harris common stock. L3Harris was owned on a fully diluted basis approximately 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.

Following the completion of the L3Harris Merger, we issued 104 million shares of L3Harris common stock to L3 shareholders. The trading price of L3Harris common stock was $189.13 per share as of the Closing Date. In addition to shares of our common stock issued to L3 shareholders, replacement L3Harris share-based awards were issued for certain outstanding L3 share-based awards.

We are accounting for the L3Harris Merger under the acquisition method of accounting. Under the acquisition method of accounting, we are required to ~~use more judgment~~measure identifiable assets acquired, liabilities assumed and ~~make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include~~any noncontrolling interests in the acquiree at their fair values as of the Closing Date.

Our preliminary calculation of estimated consideration transferred is summarized below:



(In millions, except exchange ratio and per share amounts)	June 29, 2019
Outstanding shares of L3 common stock as of June 28, 2019	79.63
L3 restricted stock unit awards settled in shares of L3Harris common stock	0.41
L3 performance unit awards settled in shares of L3Harris common stock	0.04
	80.08
Exchange Ratio	1.30
Shares of L3Harris common stock issued for L3 outstanding common stock	104.10
Price per share of L3Harris common stock as of June 28, 2019	$	189.13
Fair value of L3Harris common stock issued for L3 outstanding common stock	$	19,689
Fair value of replacement RSUs attributable to merger consideration	10
Fair value of L3Harris stock options issued for L3 outstanding stock options	101
Withholding tax liability incurred for converted L3 share-based awards	45
Fair value of replacement award consideration	156
Fair value of total consideration	19,845
Less cash acquired	(1,195		)
Total net consideration transferred	$	18,650

Our preliminary measurement of assets acquired, liabilities assumed and noncontrolling interests as of the Closing Date and measurement period adjustments recorded since the Closing Date through April 3, 2020, are as follows:



	Preliminary Fair Value			Measurement Period Adjustments			Adjusted Fair Value
	(In millions)
Receivables	$	849		$	(20	)	$	829
Contract assets	1,708			(56		)	1,652
Inventories	1,056			(74		)	982
Other current assets	517			(26		)	491
Property, plant and equipment	1,176			42			1,218
Operating lease right-of-use assets	704			—			704
Goodwill	15,423			(585		)	14,838
Other intangible assets	6,768			1,206			7,974
Other non-current assets	327			(9		)	318
Total assets acquired	$	28,528		$	478		$	29,006

Accounts payable	$	898		$	(17	)	$	881
Contract liabilities	722			2			724
Other current liabilities	772			199			971
Operating lease liabilities	715			—			715
Defined benefit plans	1,411			—			1,411
Long-term debt, net	3,548			—			3,548
Other long-term liabilities	1,661			290			1,951
Total liabilities assumed	9,727			474			10,201
Net assets acquired	18,801			4			18,805
Noncontrolling interests	(151		)	(4		)	(155		)
Total net consideration transferred	$	18,650		$	—		$	18,650

Due to the timing of the L3Harris Merger relative to its size and complexity, certain aspects of our accounting for the L3Harris Merger remain preliminary, including the acquisition-date fair value of identifiable intangible assets, certain tangible assets, liabilities assumed (including environmental reserves), and tax-related items. Amounts recorded associated with these assets and liabilities are based on preliminary calculations and our estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the Closing Date). As of April 3, 2020, we have completed our determination of the fair value ofconsideration transferred, property, plant and equipment, defined benefit plan liabilities and long-term debt assumed.

Additionally, we acquired certain off-market customer contracts in connection with the L3Harris Merger, and 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 estimated acquisition-date fair value of the off-market components is a net liability of $103 million. We measured the fair value of these components as the present value of the amount by which the terms of the contract ~~price and allocating~~with the ~~transaction price~~customer deviate from the terms that a market participant could have achieved on the Closing Date. The off-market components of these contracts will be recognized as an increase to, ~~separate~~or reduction of, revenue as we incur costs to satisfy the associated performance obligations. ~~The core principle~~We recognized $23 million of ~~this standard is~~revenue in the quarter ended April 3, 2020 for amortization of net off-market contract liabilities (including the cumulative effect of amortization that ~~entities should recognize~~would have been recognized in the Fiscal Transition Period). Future estimated revenue ~~to depict~~from the ~~transfer~~amortization of ~~promised goods or services to customers in an amount that reflects~~net off-market contract liabilities (based on the ~~consideration to which the entity expects~~estimated pattern of cash flows to be ~~entitled~~incurred to satisfy associated performance obligations) is as follows: $28 million in ~~exchange~~the remainder of 2020, $12 million in 2021, $9 million in 2022, $7 million in 2023 and $5 million in 2024.

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 ~~those goods~~tax purposes.

See Note K — Goodwill and ~~services. To help financial statement users better understand~~Other Intangible Assets in these Notes for more information regarding the ~~nature, amount,~~preliminary allocation of goodwill by business segment.

~~timing and potential uncertainty~~The following table provides further detail of the ~~revenue~~fair value and weighted-average amortization period of identified intangible assets acquired by major intangible asset class:



	Weighted Average Amortization Period	Total

	(In years)	(In millions)
Identifiable intangible assets acquired:
Customer relationships (Government)	15	$	4,769
Customer relationships (Commercial)	15	648
Trade names — Divisions	9	123
Developed technology	7	562
Total identifiable intangible assets subject to amortization	14	6,102
Trade names — Corporate	indefinite	1,803
In-process research and development	n/a	69
Total identifiable intangible assets		$	7,974

During the quarter ended April 3, 2020, we recorded $46 million of L3Harris Merger-related charges, consisting of integration and other costs as follows:

$15 million of additional cost of sales related to the fair value step-up in inventory sold; and

$31 million of integration costs, recognized as incurred.

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. Integration costs were recorded in the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited).

Pro Forma Results

The following summary, prepared on a pro forma basis, presents our unaudited consolidated results of operations for the quarter ended March 29, 2019 as if the L3Harris Merger had been completed as of June 30, 2018, the first day of Harris’ fiscal 2019, after including any post-acquisition adjustments directly attributable to the acquisition, such as the sale of Harris’ Night Vision business, and after including the impact of pro forma adjustments such as amortization of 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 combination of Harris and L3 been completed on the assumed date or for the period presented, or which may be realized in the future.



	March 29, 2019

	(In millions)
Revenue from product sales and services — as reported	$	1,728
Revenue from product sales and services — pro forma	$	4,386
Income from continuing operations — as reported	$	243
Income from continuing operations — pro forma	$	400

Note C — Business Divestitures and Assets Sales

Airport security and automation business. On February 4, 2020, we entered into a definitive agreement to sell the airport security and automation business to Leidos, Inc. for $1 billion in cash, ~~flows, this standard requires significantly more interim~~subject to customary purchase price adjustments as set forth in the definitive agreement. The airport security and ~~annual disclosures.~~

~~We adopted~~automation business, which is reported as part of our Aviation Systems segment, provides solutions used by the ~~requirements~~aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other high-security facilities. The assets and liabilities of the ~~new standard using the full retrospective transition method. We opted~~airport security and automation business were classified as held for this transition method because we believe it provides enhanced comparability and transparency across periods. We elected to apply the practical expedient related to backlog disclosures for prior reporting periods and the practical expedient related to evaluating the effects of contract modifications that occurred prior to the earliest period presented. No other transition practical expedients were applied. Retrospective application of this standard resulted in the recognition of a cumulative-effect adjustment of $15 million to reduce the opening balance of retained earnings at July 2, 2016.

This standard also resulted in the establishment of “Contract assets” and “Contract liabilities” line items and the reclassification to these line items of amounts previously presented in the “Receivables,” “Inventories” and “Advance payments and unearned income” line itemssale in our Condensed Consolidated Balance ~~Sheet.~~Sheet (Unaudited) at April 3, 2020. On May 4, 2020, following the close of the first quarter of fiscal 2020, we completed the sale of the airport security and automation business. We expect to use the net cash proceeds from the sale for general corporate purposes and potential repurchases of shares of our common stock.

Because the then pending 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 $588 million of goodwill to the airport security and automation business disposal group on a relative fair value basis during the first quarter of fiscal 2020, when the held for sale criteria were met. The fair value of the airport security and automation business disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses of the reporting unit was determined 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 ~~2: “Accounting Changes or Recent~~1: Significant Accounting ~~Pronouncements”~~Policies in ~~our~~the Notes to Consolidated Financial Statements in our Fiscal ~~2017-2018 Update 8-K~~Transition Period Form 10-KT for additional information regarding the fair value hierarchy.

In conjunction with the allocation of goodwill to the airport security and automation business, we tested goodwill assigned to the disposal group and goodwill allocated to the retained businesses of the reporting unit for impairment and concluded that 0 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 as of April 3, 2020 due to the downturn in the commercial aviation market that resulted from the novel COVID-19 strain of coronavirus (“COVID-19”) pandemic and its impact on global air traffic. See Note K — Goodwill and Other Intangible Assets in these Notes for additional information regarding goodwill impairment charges.

The carrying amounts of the major classes of assets and liabilities of the airport security and automation business classified as held for sale at April 3, 2020 are as follows:



	April 3, 2020

	(In millions)
Receivables	$	75
Contract assets	75
Inventories	136
Other current assets	11
Property, plant and equipment	39
Goodwill	588
Other intangible assets	203
Other assets	19
Assets of disposal group held for sale	$	1,146

Accounts payable	$	82
Contract liabilities	34
Other accrued items	24
Other non-current liabilities	33
Deferred taxes	22
Liabilities of disposal group held for sale	$	195

The airport security and automation business had net income before income taxes of $12 million for the quarter ended April 3, 2020.

EOTech business. On March 20, 2020, we entered into a ~~table summarizing~~definitive agreement to sell our EOTech business for $42 million, subject to customary purchase price adjustments and customary closing conditions as set forth in the ~~effect~~definitive agreement. The EOTech business, which is reported as part of ~~adopting ASC 606 on~~ our ~~previously reported~~Communication Systems segment, manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. The assets and liabilities of the EOTech business were classified as held for sale in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020. We expect to complete the sale of the EOTech business in mid-2020.

Because the pending 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 during the first quarter of fiscal 2020, when the held for sale criteria were met. The fair value of the EOTech business disposal group was determined based on the negotiated selling price, and the fair value of the retained businesses of the reporting unit was determined 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 ~~June 29, 2018. Total net cash provided by operating activities~~internal projections and ~~total net cash provided by or used~~unobservable measurement inputs. See Note 1: “Significant Accounting Policies” in ~~investing activities and financing activities in our previously reported Condensed Consolidated Statements of Cash Flows (Unaudited) were not impacted by our adoption of ASC 606.~~

~~We also adopted ASU 2017-07effective June 30, 2018, as discussed above. This update requires that entities present components of net periodic pension and postretirement benefit costs other than~~ the service cost component (“non-service cost amounts”) separately from the service cost component. We adopted this update retrospectively by recasting each prior period presented, using as our estimation basis for recasting prior periods the amounts disclosed in Note 13: “Pension and Other Postretirement Benefits” in our Notes to Consolidated Financial Statements in our Fiscal ~~2018~~Transition Period Form ~~10-K. Retrospective application~~10-KT for additional information regarding the fair value hierarchy.

In conjunction with the assignment of ~~this update resulted in reclassification~~goodwill to the ~~“Non-operating income” line item~~EOTech business, we tested goodwill assigned to the disposal group and goodwill assigned to the retained businesses of ~~non-service cost~~the reporting unit for impairment and concluded that 0 goodwill impairment existed at the time the held for sale criteria were met.

The carrying amounts ~~that were included~~of the major classes of assets and liabilities of the EOTech business classified as held for sale at April 3, 2020 are as follows:



	April 3, 2020

	(In millions)
Receivables	$	10
Inventories	12
Property, plant and equipment	3
Goodwill	9
Other intangible assets	12
Other assets	2
Assets of disposal group held for sale	$	48

Accounts payable	$	4
Contract liabilities	1
Other accrued items	3
Liabilities of disposal group held for sale	$	8

Applied Kilovolts and Analytical Instrumentation business. On February 19, 2020, we entered into a definitive agreement to sell our Applied Kilovolts and Analytical Instrumentation business, which is reported as part of our Space and Airborne Systems segment, subject to customary closing conditions as set forth in the ~~“Cost~~definitive agreement. The carrying amounts of ~~product sales~~Applied Kilovolts and ~~services”~~Analytical Instrumentation business assets and ~~“Engineering, selling and administrative expenses” line items~~liabilities classified as held for sale in our Condensed Consolidated ~~Statement~~Balance Sheet (Unaudited) at April 3, 2020 were $14 million and $1 million, respectively. We expect to complete the sale transaction of ~~Income (Unaudited) prior~~the Applied Kilovolts and Analytical Instrumentation business in mid-2020.

We assigned $2 million of goodwill to ~~adopting ASU 2017-07.~~

~~The following table summarizes~~ the ~~effect~~Applied Kilovolts and Analytical Instrumentation 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 ~~adopting ASC 606~~our financial statements for the quarter ended April 3, 2020, we concluded that goodwill related to the Applied Kilovolts and ~~ASU 2017-07 on~~Analytical Instrumentation business was impaired and recorded a non-cash impairment charge of $5 million, which is included in the “Impairment of goodwill and other assets” line item in our ~~previously reported~~ Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 3, 2020.

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 ~~two~~allied military and security forces and commercial customers, for $350 million (net cash proceeds of $346 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.

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 business are included in “Other non-reportable business segments” for the quarters ended ~~December~~April 3, 2020 and March 29, ~~2017:~~

Quarter Ended December 29, 2017
Previously Reported Effect of Adopting ASC 606 Effect of Adopting ASU 2017-07 Currently Reported

(In millions, except per share amounts)
Revenue from product sales and services $ 1,535
$ —
$ —
$ 1,535
Cost of product sales and services (987 ) 1
(36 ) (1,022 )
Engineering, selling and administrative expenses (276 ) (5 ) (10 ) (291 )
Non-operating income (loss) (2 ) —
46
44
Interest income 1
—
—
1
Interest expense (42 ) —
—
(42 )
Income from continuing operations before income taxes 229
(4 ) —
225
Income taxes (90 ) (4 ) —
(94 )
Income from continuing operations 139
(8 ) —
131
Discontinued operations, net of income taxes —
—
—
—
Net income $ 139
$ (8 ) $ —
$ 131

Net income per common share
Basic
Continuing operations $ 1.17
$ (0.07 ) $ —
$ 1.10
Discontinued operations —
—
—
—
$ 1.17
$ (0.07 ) $ —
$ 1.10
Diluted
Continuing operations $ 1.15
$ (0.07 ) $ —
$ 1.08
Discontinued operations —
—
—
—
$ 1.15
$ (0.07 ) $ —
$ 1.08

Two Quarters Ended December 29, 2017
Previously Reported Effect of Adopting ASC 606 Effect of Adopting ASU 2017-07 Currently Reported

(In millions, except per share amounts)
Revenue from product sales and services $ 2,948
$ (3 ) $ —
$ 2,945
Cost of product sales and services (1,872 ) 4
(73 ) (1,941 )
Engineering, selling and administrative expenses (532 ) (8 ) (19 ) (559 )
Non-operating income (loss) (2 ) —
92
90
Interest income 1
—
—
1
Interest expense (83 ) —
—
(83 )
Income from continuing operations before income taxes 460
(7 ) —
453
Income taxes (154 ) (3 ) —
(157 )
Income from continuing operations 306
(10 ) —
296
Discontinued operations, net of income taxes (6 ) —
—
(6 )
Net income $ 300
$ (10 ) $ —
$ 290

Net income per common share
Basic
Continuing operations $ 2.57
$ (0.08 ) $ —
$ 2.49
Discontinued operations (0.05 ) (0.01 ) —
(0.06 )
$ 2.52
$ (0.09 ) $ —
$ 2.43
Diluted
Continuing operations $ 2.52
$ (0.08 ) $ —
$ 2.44
Discontinued operations (0.05 ) —
—
(0.05 )
$ 2.47
$ (0.08 ) $ —
$ 2.39

~~The following table presents the effect of adopting ASC 606 on our previously reported Condensed Consolidated Statement of Cash Flows (Unaudited)~~2019 in this Report. Income before income taxes for the ~~two quarters ended December 29, 2017:~~

Two Quarters Ended December 29, 2017
Previously Reported Effect of Adopting ASC 606 Currently Reported

(In millions, except shares)
Net income $ 300
$ (10 ) $ 290
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquisition-related intangibles⁽¹⁾
58
—
58
Depreciation and other amortization⁽¹⁾
72
—
72
Share-based compensation 24
—
24
Pension income (68 ) —
(68 )
(Increase) decrease in:
Accounts receivable (19 ) 5
(14 )
Contract assets —
(84 ) (84 )
Inventories (102 ) 79
(23 )
Increase (decrease) in:
Accounts payable (78 ) —
(78 )
Advance payments and unearned income 38
(38 ) —
Contract liabilities —
47
47
Income taxes 213
3
216
Other (65 ) (2 ) (67 )
Net cash provided by operating activities $ 373
$ —
$ 373

~~_______________~~


~~(1)~~	“Amortization of acquisition-related intangibles” includes amortization of non-Exelis Inc. acquisition-related intangibles, which was previously included in the “Depreciation and amortization” line item in our Condensed Consolidated Statement of Cash Flows (Unaudited) in our Form 10-Q for the quarter ended December 29, 2017.

~~Accounting Standards Issued But Not Yet Effective~~

In February 2016, the Financial Accounting Standards Board issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires, among other things, the recognition of right-of-use assets and liabilities on the balance sheet for most lease arrangements and disclosure of certain information about leasing arrangements. This standard currently allows two transition methods with certain practical expedients available. Companies may elect to use the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements or to initially apply this standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020.

We have developed a project plan to evaluate the impact of this standard and design and implement future processes, tools and controls. The majority of our current lease arrangements are classified as operating leases under existing GAAP lease guidance, and we expect they will continue to be classified as operating leases under the new standard. Although we are continuing to evaluate the impact to our consolidated balance sheet of recognizing right-of-use assets and lease liabilitiesHarris Night Vision business was $6 million for the majority of our current lease obligations, which could be material, we do not expect this standard to have a material impact on our results of operations or cash flows. We have not yet made a decision on the transition method, as this determination is primarily dependent on the completion of our evaluation.quarter ended March 29, 2019.

Note BD — Stock Options and Other Share-Based Compensation

~~During the two quarters ended December 28, 2018,~~As of April 3, 2020, we had options or other share-based compensation outstanding under ~~two~~2 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 Harris Corporation 2015 Equity Incentive Plan (the “2015 EIP”)~~. Grants~~, as well as under employee stock incentive plans of share-based awards after October 23, 2015 were made under our 2015 EIP. We believe that share-based awards more closely align the interests of participants with those of shareholders. Certain share-based awards provide for accelerated vesting if there is a change in control (as defined under our SIPs)L3 assumed by L3Harris (collectively, “L3Harris SIPs”).

The compensation cost related to our share-based awards that was charged against income was ~~$15~~$17 million and ~~$29~~$14 million for the ~~quarter and two~~ quarters ended ~~December 28, 2018, respectively,~~April 3, 2020 and ~~$13 million and $24 million for the quarter and two quarters ended December~~March 29, ~~2017,~~2019, respectively.

The aggregate number of shares of our common stock that we issued under the terms of ~~our~~L3Harris SIPs, net of shares withheld for tax purposes, was 450,183 and ~~inclusive of both continuing and discontinued operations, was 45,739 and 449,692~~147,176 for the ~~quarter and two~~ quarters ended ~~December 28, 2018, respectively,~~April 3, 2020 and ~~67,717 and 398,932 for the quarter and two quarters ended December~~March 29, ~~2017,~~2019, respectively.

Awards granted to participants under ~~our 2015 EIP~~L3Harris SIPs during the quarter ended ~~December 28, 2018~~April 3, 2020 consisted of ~~3,538~~206,366 restricted ~~shares and restricted units. There were no~~stock units, 583,200 stock options orand 203,606 performance ~~units granted during the quarter ended December 28, 2018. Awards granted to participants under our 2015 EIP during the two quarters ended December 28, 2018 consisted of 270,963~~ stock ~~options, 92,758 restricted shares and restricted units and 135,629 performance~~ units. The fair value as of the grant date of each stock option award was determined using the Black-Scholes-Merton option-pricing model and the following assumptions: expected dividend yield of ~~1.61~~1.55 percent; expected volatility of ~~19.87~~22.74 percent; risk-free interest rates averaging ~~2.72~~0.89 percent; and expected term of ~~5.03~~5.04 years. The fair value as of the grant date of each restricted ~~share award and restricted~~stock unit ~~award~~ was based on the closing price of our common stock on the grant date. The fair value as of the grant date of each performance stock unit award was determined based on the fair value from a multifactor Monte Carlo valuation model that simulates our stock price and total shareholder return (“TSR”) relative to companies in our TSR peer ~~group, less a discount to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting.~~group.

Note CE — 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 ~~“Cost of product sales and services” and~~ “Engineering, selling and administrative expenses” line ~~items~~item in our Condensed Consolidated Statement of Income (Unaudited).

InL3Harris Merger-Related Restructuring Costs

During the ~~fourth~~ quarter ended April 3, 2020, we did not record any restructuring charges in connection with the L3Harris Merger. At April 3, 2020, we had recorded liabilities of ~~fiscal 2018,~~$38 million associated with previous L3Harris Merger-related restructuring actions, of which substantially all will be paid in the next twelve months.

Other Restructuring and Exit Costs

Prior to the L3Harris Merger, we recorded a $5 million charge for consolidation of certain Exelis Inc. (collectively with its subsidiaries, “Exelis”) facilities initiated in fiscal 2017. This charge is included as a component of the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income in our Fiscal 2017-2018 Update 8-K. We had liabilities of $18 million and $27 million at December 28, 2018 and June 29, 2018, respectively, associated with this integration activity and with previous restructuring actions. The majority of the remaining liabilities at December 28, 2018 representfor lease obligations associated with exited facilities with remaining terms of ~~five~~three years or ~~less.~~less, of which $7 million remained outstanding at April 3, 2020.

During the quarter ended April 3, 2020, we recorded $3 million of restructuring charges for workforce reductions (including severance and other employee-related exit costs) within our Aviation Systems business segment associated with the COVID-19-related downturn in the Commercial Aviation Solutions sector and its impact on customer operations. The corresponding $3 million liability remained outstanding at April 3, 2020.

Our liabilities for restructuring and other exit costs are included in the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet (Unaudited). Changes to our liabilities for restructuring and other exit costs during the quarter ended April 3, 2020 were as follows:



	Employee severance-related costs			Facilities consolidation and other exit costs		Total

	(In millions)
Balance at January 3, 2020	$	58		$	7	$	65
Additional provisions	3			—		3
Payments	(20		)	—		(20		)
Balance at April 3, 2020	$	41		$	7	$	48

Note DF — Accumulated Other Comprehensive ~~Loss~~Income (Loss) (“AOCI”)

The components of ~~accumulated other comprehensive loss~~AOCI are summarized below:



	Foreign currency translation			Net unrealized (losses) gains on hedging derivatives			Unrecognized postretirement obligations			Total AOCI

	(In millions)
Balance at January 3, 2020	$	(81	)	$	(55	)	$	(372	)	$	(508	)
Other comprehensive loss, before income taxes	(67		)	(98		)	(1		)	(166		)
Income taxes	—			25			—			25
Other comprehensive loss	(67		)	(73		)	(1		)	(141		)
Amounts reclassified to earnings from AOCI, before income taxes	—			3			(5		)	(2		)
Income taxes	—			(1		)	1			—
Amounts reclassified to earnings from AOCI	—			2			(4		)	(2		)
Balance at April 3, 2020	$	(148	)	$	(126	)	$	(377	)	$	(651	)

Balance at December 28, 2018	$	(107	)	$	(19	)	$	(85	)	$	(211	)
Other comprehensive income (loss), before income taxes	3			(11		)	(2		)	(10		)
Income taxes	—			3			1			4
Other comprehensive income (loss)	3			(8		)	(1		)	(6		)
Balance at March 29, 2019	$	(104	)	$	(27	)	$	(86	)	$	(217	)

December 28, 2018 June 29, 2018

(In millions)
Foreign currency translation, net of income taxes of $2 million at December 28, 2018 and June 29, 2018 $ (107 ) $ (99 )
Net unrealized loss on hedging derivatives, net of income taxes of $6 million and $7 million at December 28, 2018 and June 29, 2018, respectively (19 ) (20 )
Unrecognized postretirement obligations, net of income taxes of $30 million at December 28, 2018 and June 29, 2018 (85 ) (83 )
$ (211 ) $ (202 )

Accumulated other comprehensive loss at June 29, 2018 reflects a reclassification to retained earnings of $35 million in stranded tax effects as a result of our adoption of an accounting standards update, including $30 million from “Unrecognized postretirement obligations, net of income taxes,” $4 million from “Net unrealized loss on hedging derivatives, net of income taxes” and $1 million from “Foreign currency translation, net of income taxes.” See Note 2: “Accounting Changes or Recent

~~Accounting Pronouncements” in our Fiscal 2017-2018 Update 8-K for additional information regarding this accounting standards update.~~

Note EG — Receivables

Receivables are summarized below:



	April 3, 2020			January 3, 2020

	(In millions)
Accounts receivable	$	1,312		$	1,228
Less allowance for credit losses	(34		)	(12		)
	$	1,278		$	1,216

December 28, 2018 June 29, 2018

(In millions)
Accounts receivable $ 497
$ 468
Less allowances for collection losses (3 ) (2 )
$ 494
$ 466
In the quarter ended April 3, 2020, we recorded a $10 million charge to our provision for doubtful accounts at our Aviation Systems business segment to reflect an increase in expected credit losses associated with the COVID-19-related downturn in the Commercial Aviation Solutions sector and its impact on customer operations.

We have a receivables sale agreement (“RSA”) with a third-party financial institution that permits us to sell, on a non-recourse basis, up to ~~$50~~$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~~institution and which we account for as sales ~~accounting under ASC 860,~~ ~~Transfers and Servicing, and, accordingly, are derecognized~~of receivables with sale proceeds included in net cash from ~~our Condensed Consolidated Balance Sheet (Unaudited) at the time of sale.~~operating activities. Outstanding accounts receivable sold pursuant to the RSA were not material at ~~December 28, 2018 and June 29, 2018. Impairment losses related to receivables from contracts with customers were not material during the quarter~~April 3, 2020 or ~~two quarters ended December 28, 2018 or the quarter or two quarters ended December 29, 2017.~~January 3, 2020.

Note FH — Contract Assets and Contract Liabilities

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 associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. ~~The increase in contract~~

Contract assets and liabilities in the ~~two quarters~~quarter ended ~~December 28, 2018 was primarily due~~April 3, 2020 were impacted by reclassifications to ~~an increase~~assets and liabilities of disposal group held for sale, a decrease in the receipt of advance payments, ~~and~~ the timing of contractual billing ~~milestones. Changes~~milestones and the impairment loss described below. See Note C — Business Divestitures and Assets Sales in ~~contract~~the Notes for additional information regarding assets and ~~contract~~ liabilities ~~balances during the quarter and two quarters ended December 28, 2018 were not materially impacted by any factors other than those described above.~~held for sale.

Contract assets and contract liabilities are summarized below:


	December 28, 2018			June 29, 2018			April 3, 2020			January 3, 2020

	(In millions)						(In millions)
Contract assets	$	829		$	782		$	2,467		$	2,459
Contract liabilities, current	(479		)	(372		)	(1,138		)	(1,214		)
Contract liabilities, non-current⁽¹⁾	(7		)	(7		)	(74		)	(87		)
Net contract assets	$	343		$	403		$	1,255		$	1,158

_______________


(1)	~~Represents the~~The non-current portion of ~~deferred revenue associated with extended product warranties, which~~contract liabilities is included as a component of the “Other long-term liabilities” line item in our Condensed Consolidated Balance Sheet (Unaudited).

The components of contract assets are summarized below:



	April 3, 2020			January 3, 2020

	(In millions)
Unbilled contract receivables, gross	$	3,781		$	3,690
Progress payments and advances	(1,314		)	(1,231		)
	$	2,467		$	2,459

December 28, 2018 June 29, 2018

(In millions)
Unbilled contract receivables, gross $ 946
$ 881
Progress payments (117 ) (99 )
$ 829
$ 782

We recorded impairment losses of $13 million at our Aviation Systems segment to reflect an increase in expected credit losses associated with the COVID-19-related downturn in the Commercial Aviation Solutions sector and its impact on customer operations. Impairment losses related to our contract assets were not material ~~during~~for the ~~two quarters~~quarter ended ~~December 28, 2018 and December~~March 29, ~~2017.~~2019. For the quarter ~~and two quarters~~ ended ~~December 28, 2018,~~April 3, 2020, we recognized as revenue $484 million of ~~$49~~contract liabilities that were outstanding at January 3, 2020. For the quarter ended March 29, 2019, we recognized as revenue $52 million ~~and $207 million, respectively, related to~~of contract liabilities that were outstanding at June 29, 2018. ~~For the quarter and two quarters ended December 29, 2017, we recognized revenue of $53 million and $163 million, respectively, related to contract liabilities that were outstanding at June 30, 2017.~~

Note GI — Inventories

Inventories are summarized below:



	April 3, 2020		January 3, 2020

	(In millions)
Finished products	$	197	$	216
Work in process	307		386
Raw materials and supplies	486		617
	$	990	$	1,219

December 28, 2018 June 29, 2018

(In millions)
Finished products $ 69
$ 91
Work in process 128
121
Raw materials and supplies 228
199
$ 425
$ 411

Note HJ — Property, Plant and Equipment

Property, plant and equipment are summarized below:



	April 3, 2020			January 3, 2020

	(In millions)
Land	$	90		$	90
Software capitalized for internal use	333			287
Buildings	1,044			1,073
Machinery and equipment	2,120			2,194
	3,587			3,644
Less accumulated depreciation and amortization	(1,555		)	(1,527		)
	$	2,032		$	2,117

December 28, 2018 June 29, 2018

(In millions)
Land $ 43
$ 43
Software capitalized for internal use 171
171
Buildings 625
620
Machinery and equipment 1,394
1,349
2,233
2,183
Less accumulated depreciation and amortization (1,332 ) (1,283 )
$ 901
$ 900

Depreciation and amortization expense related to property, plant and equipment was ~~$33~~$76 million and ~~$68~~$34 million for the ~~quarter and two~~ quarters ended ~~December 28, 2018, respectively,~~April 3, 2020 and ~~$36 million~~March 29, 2019, respectively.

Note K — Goodwill and ~~$73 million~~Other Intangible Assets

Goodwill. As discussed in Note V — Business Segment Information in these Notes, after the completion of the L3Harris Merger, we adjusted our segment reporting to reflect our new organizational structure effective for the quarter ended September

27, 2019. Because our accounting for the L3Harris Merger is still preliminary, we assigned goodwill acquired on a provisional basis. Immediately before and ~~two quarters~~after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new segment reporting structure and determined that 0 impairment existed.

The assignment of goodwill by business segment, and changes in the carrying amount of goodwill for the quarter ended ~~December~~April 3, 2020, were as follows:



	Integrated Mission Systems			Space and Airborne Systems			Communication Systems			Aviation Systems			Total

	(In millions)
Balance at January 3, 2020	$	5,768		$	5,131		$	4,243		$	4,859		$	20,001
Decrease from reclassification to assets of disposal group held for sale⁽¹⁾	—			(2		)	(9		)	(588		)	(599		)
Impairment of goodwill	—			(5		)	—			(296		)	(301		)
Currency translation adjustments	(2		)	(9		)	(3		)	(10		)	(24		)
Other (including adjustments to previously estimated fair value of assets acquired and liabilities assumed)	22			55			38			73			188
Balance at April 3, 2020	$	5,788		$	5,170		$	4,269		$	4,038		$	19,265

_______________


(1)	During the quarter ended April 3, 2020, we assigned $599 million of goodwill to “Assets of disposal groups held for sale” in our Condensed Consolidated Balance Sheet (Unaudited) associated with 3 pending divestitures. See Note C — Business Divestitures and Assets Sales in these Notes for additional information.

Impairment of Goodwill. 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 the COVID-19 pandemic and its impact on global air traffic and customer operations, which resulted in a decrease in the fiscal 2020 outlook for the reporting unit. Consequently, in connection with the preparation of our financial statements for the quarter ended April 3, 2020, we performed an interim goodwill 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. 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 a non-cash impairment charge of $296 million (including $28 million attributable to noncontrolling interests) in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the quarter ended April 3, 2020. The goodwill impairment charge is primarily not deductible for tax purposes.

Identifiable 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 a customer relationship is determined, as of the date of acquisition of such relationship, 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 relationship over its estimated life, including the probability of expected future contract renewals and sales, less a contributory asset charge, all of which is discounted to present value. We assess the recoverability of the carrying value of our finite-lived 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 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 interim test of goodwill related to our Commercial Aviation Solutions reporting unit, we also performed a recoverability test 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 eventual disposition of the asset group to its carrying value and concluded that the long-lived assets of our Commercial Aviation Solutions reporting unit were not impaired as of April 3, 2020.

Intangible assets are summarized below:



	April 3, 2020						January 3, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)
Customer relationships	$	6,454	$	769	$	5,685	$	6,518	$	653	$	5,865
Developed technologies	689		194		495		768		183		585
Trade names	139		36		103		165		35		130
Other	32		16		16		10		4		6
Total intangible assets subject to amortization	7,314		1,015		6,299		7,461		875		6,586
In process research and development	69		—		69		69		—		69
L3 trade name	1,803		—		1,803		1,803		—		1,803
Total intangibles assets	$	9,186	$	1,015	$	8,171	$	9,333	$	875	$	8,458

For the quarter ended April 3, 2020, amortization expense related to intangible assets was $158 million and primarily related to the L3Harris Merger. For the quarter ended March 29, ~~2017, respectively.~~2019, amortization expense related to intangible assets was $29 million and primarily related to our acquisition of Exelis Inc. in the fourth quarter of fiscal 2015.

Future estimated amortization expense for intangible assets is as follows:



	(In millions)
Year 1	$	554
Year 2	622
Year 3	604
Year 4	580
Year 5	551
Thereafter	3,388
Total	$	6,299

Note IL — Accrued Warranties

~~Changes in our~~Our liability for standard product warranties ~~which~~ is included as a component of the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet (Unaudited),. Changes in our liability for standard product warranties during the ~~two quarters~~quarter ended ~~December 28, 2018~~April 3, 2020 were as follows:



	(In millions)
Balance at January 3, 2020	$	112
Adjustments to previously estimated fair value of warranty liabilities assumed	19
Decrease from reclassification to liabilities of disposal group held for sale	(8		)
Accruals for product warranties issued during the period	17
Settlements made during the period	(21		)
Other, including foreign currency translation adjustments	(2		)
Balance at April 3, 2020	$	117

(In millions)
Balance at June 29, 2018 $ 24
Warranty provision for sales 9
Settlements (6 )
Balance at December 28, 2018 $ 27

Note M — Debt

Long-term debt is summarized below:



	April 3, 2020			January 3, 2020

	(In millions)
Variable-rate debt:
Floating rate notes, due April 30, 2020	$	250		$	250
Floating rate notes, due March 10, 2023	250			—
Total variable-rate debt	500			250
Fixed-rate debt:
4.95% notes, due February 15, 2021	650			650
3.85% notes, due June 15, 2023	800			800
3.95% notes, due May 28, 2024	350			350
3.832% notes, due April 27, 2025	600			600
7.0% debentures, due January 15, 2026	100			100
3.85% notes, due December 15, 2026	550			550
6.35% debentures, due February 1, 2028	26			26
4.40% notes, due June 15, 2028	1,850			1,850
2.900% notes, due December 15, 2029	400			400
4.854% notes, due April 27, 2035	400			400
6.15% notes, due December 15, 2040	300			300
5.054% notes, due April 27, 2045	500			500
Other	48			49
Total fixed-rate debt	6,574			6,575
Total debt	7,074			6,825
Plus: unamortized bond premium	145			154
Less: unamortized discounts and issuance costs	(29		)	(28		)
Total debt, net	7,190			6,951
Less: current portion of long-term debt, net	(896		)	(257		)
Total long-term debt, net	$	6,294		$	6,694

For additional information on our long-term debt, see Note 14: “Debt” in the Notes to Consolidated Financial Statements in our Fiscal Transition Period Form 10-KT.

Long-Term Debt Issued in the Quarter Ended April 3, 2020

On March 13, 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 rate 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. Following the end of the quarter, we used the net proceeds from the sale of the Floating Rate Notes 2023, together with cash on hand, to repay at maturity the aggregate principal amount of our Floating Rate Notes due April 30, 2020 and for general corporate purposes.

Debt Exchange

In connection with the L3Harris Merger, on July 2, 2019, we settled our previously announced 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.

~~We also sell extended product warranties~~



	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

	(In millions)
4.95% notes due February 15, 2021 (“4.95% 2021 Notes”)	$	650	$	501	$	149
3.85% notes due June 15, 2023 (“3.85% 2023 Notes”)	800		741		59
3.95% notes due May 28, 2024 (“3.95% 2024 Notes”)	350		326		24
3.85% notes due December 15, 2026 (“3.85% 2026 Notes”)	550		535		15
4.40% notes due June 15, 2028 (“4.40% 2028 Notes”)	1,000		918		82
Total	$	3,350	$	3,021	$	329

On March 31, 2020, we commenced offers to eligible holders (“Exchange Offers”) to exchange any and ~~recognize revenue~~all outstanding notes issued by L3Harris as set forth in the table above (the “Original Notes”), which were previously issued pursuant to an exemption from ~~these arrangements over~~ the ~~warranty period. Costs of warranty services under these arrangements are recognized as incurred and are included as a component~~registration requirements of the ~~“Contract liabilities”~~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”).

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 notes previously issued by L3 in connection with the L3Harris Merger.

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 ~~“Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet (Unaudited). Deferred revenue associated with extended product warranties was $16 million~~the transfer restrictions, registration rights and related additional 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 ~~December 28, 2018~~5:00 p.m., New York City time, on May 1, 2020. On May 5, 2020, we settled the Exchange Offers and ~~June 29, 2018.~~issued Exchange Notes for validly tendered Original Notes.

Note JN — Postretirement Benefit Plans

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



	Quarter Ended April 3, 2020
	Pension			Other Benefits

	(In millions)
Net periodic benefit income
Service cost	$	16		$	—
Interest cost	69			2
Expected return on plan assets	(158		)	(5		)
Amortization of net actuarial loss	2			—
Amortization of prior service credit	(7		)	—
Contractual termination benefits⁽¹⁾	1			—
Net periodic benefit income	$	(77	)	$	(3	)

Quarter Ended December 28, 2018 Two Quarters Ended December 28, 2018
Pension Other Benefits Pension Other Benefits

(In millions)
Net periodic benefit income
Service cost $ 9
$ —
$ 18
$ —
Interest cost 53
2
105
4
Expected return on plan assets (96 ) (4 ) (191 ) (8 )
Amortization of net actuarial gain —
(1 ) —
(3 )
Total net periodic benefit income $ (34 ) $ (3 ) $ (68 ) $ (7 )
_______________


(1)	Contractual termination benefits related to facility rationalization as part of restructuring activities in connection with the L3Harris Merger integration. See Note E — Restructuring and Other Exit Costs in these Notes for additional information regarding restructuring activities.



	Quarter Ended March 29, 2019
	Pension			Other Benefits

	(In millions)
Net periodic benefit income
Service cost	$	9		$	1
Interest cost	52			2
Expected return on plan assets	(95		)	(4		)
Amortization of net actuarial gain	—			(2		)
Net periodic benefit income	$	(34	)	$	(3	)

Quarter Ended December 29, 2017 Two Quarters Ended December 29, 2017
Pension Other Benefits Pension Other Benefits

(In millions)
Net periodic benefit income
Service cost $ 9
$ 1
$ 19
$ 1
Interest cost 49
2
97
4
Expected return on plan assets (92 ) (4 ) (184 ) (8 )
Amortization of net actuarial gain —
(1 ) —
(1 )
Total net periodic benefit income $ (34 ) $ (2 ) $ (68 ) $ (4 )

The service cost component of net periodic benefit income is included in the “Cost of product sales and services” and “Engineering, selling and administrative expenses” line items in our Condensed Consolidated Statement of Income (Unaudited). The non-service cost components of net periodic ~~pension~~benefit income are included in the “Non-operating income” line item in our Condensed Consolidated Statement of Income (Unaudited), except for contractual termination benefits which are included in restructuring in the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited).

We made a ~~$300~~$302 million voluntary contribution to our U.S. qualified defined benefit pension plans induring the ~~third~~ quarter ~~of fiscal 2018.~~ended September 27, 2019. As a result of this voluntary contribution, as well as ~~a $400~~$700 million of voluntary ~~contribution~~contributions made ~~during~~in fiscal 2018 and 2017, we made no0 contributions to our U.S. qualified defined benefit pension plans during the quarter ~~and two quarters~~ ended ~~December 28, 2018,~~April 3, 2020, and we currently anticipate making ~~no contributions to our~~ ~~U.S. qualified defined benefit pension plans~~ ~~and minor contributions to a non-U.S. pension plan during the remainder of fiscal 2019. We made~~no0 contributions to our U.S. qualified defined benefit pension plans during the remainder of fiscal 2020 and minor contributions to our non-U.S. pension plans during the remainder of fiscal 2020. During the quarter ~~and two quarters~~ ended ~~December~~March 29, ~~2017.~~

~~The U.S. Salaried Retirement Plan (“U.S. SRP”), a~~2019, we made 0 contributions to our U.S. qualified ~~pension plan, is our largest~~ defined benefit pension ~~plan, with assets valued at $4.6 billion~~plans and a projected benefit obligation of $5.2 billion as of June 29, 2018. Effective December 31, 2016, accruals under the U.S. SRP benefit formula were frozen for all employees and replaced with a 1% cash balance benefit formula for certain employees who were not highly compensated on December 31, 2016.minor contributions to our non-U.S. pension plans.

Note KO — Income From Continuing Operations Per Share

The computations of income from continuing operations per common share attributable to L3Harris common shareholders are as follows:



	Quarter Ended
	April 3, 2020		March 29, 2019

	(In millions, except per share amounts)
Income from continuing operations	$	218	$	243
Adjustments for participating securities outstanding	—		(1		)
Income from continuing operations used in per basic and diluted common share calculations (A)	$	218	$	242

Basic weighted average common shares outstanding (B)	217.3		117.9
Impact of dilutive share-based awards	2.0		2.4
Diluted weighted average common shares outstanding (C)	219.3		120.3
Income from continuing operations per basic common share (A)/(B)	$	1.00	$	2.06
Income from continuing operations per diluted common share (A)/(C)	$	0.99	$	2.02

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 December 28, 2018 December 29, 2017

(In millions, except per share amounts)
Income from continuing operations $ 225
$ 131
$ 441
$ 296
Adjustments for participating securities outstanding —
(1 ) (1 ) (1 )
Income from continuing operations used in per basic and diluted common share calculations (A) $ 225
$ 130
$ 440
$ 295

Basic weighted average common shares outstanding (B) 117.7
118.5
117.8
118.8
Impact of dilutive share-based awards 2.3
2.4
2.5
2.3
Diluted weighted average common shares outstanding (C) 120.0
120.9
120.3
121.1
Income from continuing operations per basic common share (A)/(B) $ 1.91
$ 1.10
$ 3.74
$ 2.49
Income from continuing operations per diluted common share (A)/(C) $ 1.88
$ 1.08
$ 3.66
$ 2.44

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~~anti-dilutive impact of ~~399,243~~963,402 and ~~279,705~~265,652 weighted average share-based awards outstanding for the ~~quarter and two~~ quarters ended ~~December 28, 2018, respectively,~~April 3, 2020 and ~~222 and 81,496 weighted average share-based awards outstanding for the quarter and two quarters ended December~~March 29, ~~2017,~~2019, respectively.

Note LP — Non-Operating Income

The components of non-operating income were as follows:



	Quarter Ended
	April 3, 2020			March 29, 2019
	(In millions)
Pension adjustment⁽¹⁾	$	97		$	47
Other	(2		)	(1		)
	$	95		$	46

_______________


(1)	Pension adjustment recorded as “Non-operating income” in our Condensed Consolidated Statement of Income (Unaudited) represents the non-service component of net periodic pension and postretirement benefit costs, which includes interest cost, expected return on plan assets, amortization of net actuarial gain and effect of curtailments or settlements.

Note Q — Income Taxes

On December 22, 2017, H.R.1, also known as the “Tax Cuts and Jobs Act,” was signed into U.S. law (“Tax Act”). 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.

~~Effective Tax Rate~~

Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was ~~17.0~~11.8 percent in the quarter ended ~~December 28, 2018~~April 3, 2020 compared with ~~41.8~~14.1 percent in the quarter ended ~~December~~March 29, ~~2017.~~2019. In the quarter ended ~~December 28, 2018,~~April 3, 2020, our effective tax rate benefited from a reduction in the deferred tax liability maintained on the basis differences related to the unremitted foreign earnings and an increase in the research and development (“R&D”) credit, partially offset by an unfavorable impact of the differences in GAAP and tax accounting related to investments. In the quarter ended December 29, 2017, our effective tax rate was impacted by a $58 million ($.48 per diluted share) write-down of existing net deferred tax asset balances based on the lower tax rate and other tax law changes from the Tax Act, a $26 million ($.21 per diluted share) benefit from the impact of our lower fiscal 2018 tax rate, a $22 million ($.18 per diluted share) favorable impact of releasing provisions for uncertain tax positions and the favorable impact of differences in GAAP and tax accounting related to investments.

Our effective tax rate was 16.5 percent in the two quarters ended December 28, 2018 compared with 34.7 percent in the two quarters ended December 29, 2017. In addition to the items noted above for the quarters ended December 28, 2018 and December 29, 2017, our effective tax rate for the two quarters ended December 28, 2018 and December 29, 2017 benefited from the favorable impact of excess tax benefits related to equity-based ~~compensation.~~

~~Tax Law Changes~~

~~During~~compensation, research and development (“R&D”) credits and the favorable impact of audit settlements, partially offset by a valuation allowance increase on international credits and the unfavorable impact of non-deductible goodwill impairment charges. In the quarter ended ~~December 28, 2018, 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 Fiscal 2017-2018 Update 8-K.~~

The Tax Act provides for a one-time transition tax on our post-1986 earnings and profits of foreign subsidiaries (“foreign E&P”) that was previously deferred from U.S. income tax expense. We have determined that we do not owe any one-time transition tax.

We have also completed our evaluation of the U.S. federal corporate income tax impacts of the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income provisions of the Tax Act, and our tax expense includes the impact of these provisions as a period cost inMarch 29, 2019, our effective tax ~~rate.~~

~~Because of~~rate benefited from the ~~potential~~favorable impact of ~~deficit allocations on~~excess tax benefits related to equity-based compensation and from favorable adjustments recorded upon the filing of our Federal tax basis for netted foreign E&P, we are maintaining a deferred tax liability of approximately $19 million in respect of potential cumulative tax basis differences of $88 million. Other than this deferred tax liability, we have not provided for additional income taxes on any remaining undistributed foreign E&P not subject to the transition tax, or any outside tax basis differences inherent in our foreign subsidiaries, because all other amounts continue to be reinvested indefinitely.returns.

Note MR — Fair Value Measurements

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

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

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

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

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

The following table presents assets and liabilities measured at fair value on a recurring basis (at least annually) at ~~December 28, 2018~~April 3, 2020 and ~~June 29, 2018:~~January 3, 2020:


	December 28, 2018				June 29, 2018				April 3, 2020						January 3, 2020
	Total		Level 1		Total		Level 1		Total		Level 1		Level 2		Total		Level 1		Level 2

	(In millions)								(In millions)
Assets
Deferred compensation plan assets:⁽¹⁾
Equity and fixed income securities	$	46	$	46	$	46	$	46	$	49	$	49	$	—	$	58	$	58	$	—
Investments measured at NAV:
Equity and fixed income funds	56				63
Corporate-owned life insurance	27				27				27						29
Total investments measured at NAV	83				90
Total fair value of deferred compensation plan assets	$	129			$	136			$	76	$	49	$	—	$	87	$	58	$	—
Derivatives (foreign currency forward contracts)									11		—		11		10		—		10
Total assets measured at fair value									$	87	$	49	$	11	$	97	$	58	$	10

Liabilities
Deferred compensation plan liabilities:⁽²⁾
Equity securities and mutual funds	$	20	$	20	$	38	$	38	$	2	$	2	$	—	$	2	$	2	$	—
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts	132				111				61						69
Total fair value of deferred compensation plan liabilities	$	152			$	149			$	63	$	2	$	—	$	71	$	2	$	—
Derivatives (foreign currency forward contracts)									27		—		27		8		—		8
Derivatives (treasury lock contracts)									135		—		135		56		—		56
Total liabilities measured at fair value									$	225	$	2	$	162	$	135	$	2	$	64

_______________


(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 Condensed Consolidated Balance Sheet (Unaudited) 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 Condensed Consolidated Balance Sheet (Unaudited). Under these plans, participants designate investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

The following table presents the carrying amounts and estimated fair values of our significant financial instruments that were not measured at fair value (carrying amounts of other financial instruments not listed in the table below approximate fair value due to the short-term nature of those items):

December 28, 2018 June 29, 2018

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

(In millions)
Long-term debt (including current portion)⁽¹⁾
$ 3,716
$ 3,800
$ 3,712
$ 3,848



	April 3, 2020				January 3, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(In millions)
Long-term debt (including current portion)⁽¹⁾	$	7,190	$	7,485	$	6,951	$	7,536

_______________


(1)	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.

See Note C — Business Divestitures and Assets Sales and Note K — Goodwill and Other Intangible Assets in these Notes for information regarding fair value measurements associated with goodwill.

Note NS — 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 Condensed Consolidated Balance Sheet (Unaudited) at fair value. We do not hold or issue derivatives for speculative trading purposes.

At December 28, 2018, we had two open foreign currency forward contracts with an aggregate notional amount of $5 million, one of which had a notional amount of $4 million and was classified as a fair value hedge, and the other had a notional amount of $1 million and was classified as a cash flow hedge. This compares with open foreign currency forward contracts with an aggregate notional amount of $39 million at June 29, 2018, of which $4 million were classified as fair value hedges and $35 million were classified as cash flow hedges. At December 28, 2018, contract expiration dates ranged from 3 days to approximately 3 months with a weighted average contract life of 2 months.

Exchange-Rate Risk — Fair Value Hedges

~~We use~~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 Condensed Consolidated Statement of Income (Unaudited). ~~At December 28, 2018,~~

As of April 3, 2020, we had an0 outstanding foreign currency forward ~~contract denominated in the Canadian Dollar~~contracts to hedge ~~a certain~~ balance sheet ~~item.~~items. The net gains or losses on foreign currency forward contracts designated as fair value hedges were not material in the quarter ~~or two quarters~~ ended ~~December 28, 2018~~April 3, 2020 or in the quarter ~~or two quarters~~ ended ~~December~~March 29, ~~2017.~~2019. In addition, no0 amounts were recognized in earnings in the quarter ~~or two quarters~~ ended ~~December 28, 2018~~April 3, 2020 or in the quarter ~~or two quarters~~ ended ~~December~~March 29, ~~2017~~2019 related to hedged firm commitments that no longer qualify as fair value hedges.

Exchange-Rate Risk — Cash Flow Hedges

WeTo 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 ~~have hedged~~hedge U.S. Dollar payments to suppliers to maintain our anticipated profit margins in our international operations. ~~At December 28, 2018, we had an outstanding~~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. Gains and losses in AOCI 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 Condensed Consolidated Statement of Cash Flows (Unaudited) as the cash flows of the related hedged items. Notional amounts are used to measure the volume of foreign currency forward ~~contract~~contracts and do not represent exposure to foreign currency losses. At April 3, 2020, we had open foreign currency forward contracts with an aggregate notional amount of $561 million denominated in ~~the~~Canadian Dollars, British Pounds, Euro, New Zealand Dollars and Australian Dollars to hedge a certain forecasted ~~transaction.~~ transactions.

At April 3, 2020, our foreign currency forward contracts had maturities through 2024.

The table below presents the fair values of our derivatives designated as foreign currency hedging instruments in our Condensed Consolidated Balance Sheet (Unaudited) at April 3, 2020 and January 3, 2020:



	April 3, 2020		January 3, 2020

	(In millions)
Derivatives designated as hedging instruments:
Foreign currency forward contracts⁽¹⁾
Other current assets	$	8	$	8
Other non-current assets	3		2
Other accrued items	21		6
Other long-term liabilities	6		2

_______________


(1)	See Note R — Fair Value Measurements in these Notes for a description of the fair value hierarchy related to our foreign currency forward contracts.

During the quarter ended April 3, 2020, we recognized a net unrealized loss of $16 million before income taxes in other comprehensive loss from foreign currency derivatives designated as cash flow hedges. During the quarter ended March 29, 2019, the net unrealized gain or loss recognized in other comprehensive income from foreign currency derivatives designated as cash flow hedges was not material.

During the quarters ended April 3, 2020 and March 29, 2019, the net gain or loss reclassified from AOCI into earnings from foreign currency derivatives designated as cash flow hedges was not material. Gains and losses from foreign currency derivatives designated as cash flow hedges are included in the line item in our Condensed Consolidated Statement of Income (Unaudited) associated with the hedged transaction, with the exception of any losses resulting from discontinued cash flow hedges, which are included in “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Income (Unaudited).

At April 3, 2020, the estimated amount of existing losses to be reclassified into earnings within the next twelve months was $12 million before income taxes.

Interest-Rate Risk — Cash Flow Hedges

At April 3, 2020, we had 2 treasury lock agreements (“treasury locks”) with third-party financial institution counterparties with a combined notional amount of $650 million. These treasury locks were initiated in January 2019 (and assumed by us in connection with the L3Harris Merger) 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 long-term fixed-rate notes (“New Notes”) to redeem or repay at maturity the entire $650 million outstanding principal amount of our 4.95% Notes due February 15, 2021 (“4.95% 2021 Notes”).

We designated these treasury locks as cash flow hedges against fluctuations in interest payments on the New Notes due to changes in the benchmark interest rate prior to issuance, which we expect to occur before the date of maturity of the 4.95% 2021 Notes. If the benchmark interest rate increases during the period of the agreement, the treasury locks position becomes an asset and we receive a cash payment from the counterparty when we terminate the treasury locks upon issuance of the New Notes. Conversely, if the benchmark interest rate decreases, the treasury locks position becomes a liability and we will make a cash payment to the counterparty when we terminate the treasury locks upon issuance of the New Notes. The fair value of the treasury locks is measured using a pricing model that utilizes observable market data such as the benchmark interest rate. See Note R — Fair Value Measurements in these Notes for additional information.

At April 3, 2020, the combined fair value of these treasury locks was a liability of $135 million, which is included in the “Other expenses and accruals” line item in our Condensed Consolidated Balance Sheet (Unaudited). The unrealized after-tax loss associated with these treasury locks included in the “Accumulated other comprehensive loss” line item in our Condensed Consolidated Balance Sheet (Unaudited) was $75 million and $16 million at April 3, 2020 and January 3, 2020, respectively.

Net gains or losses from cash flow hedges recognized in earnings ~~or recorded in other comprehensive income, including gains or losses related to hedge ineffectiveness,~~ were not material infor the ~~quarter or two~~ quarters ended ~~December 28, 2018~~April 3, 2020 or ~~in the quarter or two quarters ended December~~March 29, ~~2017.~~2019.

Note OT — Changes in Estimates

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~~as well as 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 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 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 resulting from changes in estimates ~~impacted~~increased our operating income ~~favorably~~ by $2$103 million ($~~.02~~78 million after-tax or $.35 per diluted share) and ~~unfavorably~~increased our operating income by $1$6 million ~~for the quarter and two quarters ended December 28, 2018, respectively, and unfavorably by $16 million~~ ($114 million after-tax or ~~$.09 per diluted share) and $11 million ($8 million after-tax or $.06~~$.03 per diluted share) for the ~~quarter and two~~ quarters ended ~~December~~April 3, 2020 and March 29, ~~2017,~~2019, respectively. Revenue recognized from performance obligations satisfied in prior periods was $9$136 million and ~~$16~~$18 million for the ~~quarter and two~~ quarters ended ~~December 28, 2018, respectively,~~April 3, 2020 and ~~$16 million and $30 million for the quarter and two quarters ended December~~March 29, ~~2017,~~2019, respectively.

~~Income Taxes~~

~~See~~ ~~Note L — Income Taxes~~ ~~in these Notes for changes in estimates disclosures associated with our accounting for income taxes.~~

Note PU — Backlog

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

At ~~December 28, 2018,~~April 3, 2020, our ending backlog was ~~$8.0~~$20.4 billion. We expect to recognize approximately ~~half~~50 percent of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next three years. At January 3, 2020, our ending backlog was $20.6 billion, at which time we expected to recognize approximately 60 percent of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next three years.

Note QV — Business Segment Information

We adjusted our segment reporting due to the L3Harris Merger to reflect our new organizational structure announced July 1, 2019. We structure our operations primarily around the products ~~systems~~ and services we sell and the markets we serve, and effective June 29, 2019, we report the financial results of our ~~continuing~~ operations in the following ~~three reportable~~4 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; avionics; and electronic warfare;

Communication Systems, ~~serving markets in tactical communications and defense products,~~ including tactical ~~ground~~communications; broadband communications; integrated vision solutions; and ~~airborne radio communications solutions~~public safety; and ~~night vision technology,~~

Aviation Systems, including defense aviation products; security, detection and ~~in public safety networks;~~

Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”) solutions for defense and classified customers and mission-critical communication systems for civilother commercial aviation products; commercial and military ~~aviation~~pilot training; and ~~other customers; and~~

mission networks for air traffic management.

Space and Intelligence Systems, providing 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.

~~As discussed in more detail in~~ ~~Note A — Significant Accounting Policies and Recent Accounting Standards~~ in these Notes and in Note 1: “Significant Accounting Policies” and Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K, effective June 30, 2018, we adopted ASC 606 and ASU 2017-07 using the full retrospective method. The historical results, discussion and presentation of our business segments as set forth in ~~our Condensed Consolidated Financial Statements (Unaudited) and these Notes~~this Report reflect the impact of ~~our adoption of ASC 606 and ASU 2017-07~~these adjustments for all periods ~~presented~~presented. 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 noted in ~~order to present all segment information~~ Note C — Business Divestitures and Assets Sales and elsewhere in these Notes, on ~~a comparable basis.~~ May 4, 2020, following the close of the first quarter of fiscal 2020, we completed the sale of the airport security and automation business, which provided security and detection products, among others, as part of our Aviation Systems segment.

The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in ~~our~~the Notes to Consolidated Financial Statements in our Fiscal ~~2017-2018 Update 8-K.~~

Transition Period Form 10-KT. We evaluate each segment’s performance based on ~~segment~~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~~may recognize a profit that is eliminated. The “Corporate eliminations” line item in the table below represents the elimination of intersegment sales. ~~The “Unallocated corporate expense and corporate eliminations” line item in the table below represents the portion of~~

~~corporate~~Corporate expenses ~~not~~are allocated to our ~~business~~operating segments ~~and the elimination of intersegment profits.~~using an allocation methodology prescribed by U.S. Government regulations for government contractors. The “Pension adjustment” line item in the table below 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 Condensed Consolidated Statement of Income (Unaudited) ~~as a result of our adoption of ASU 2017-07 as discussed in~~ ~~Note A — Significant Accounting Policies and Recent Accounting Standards~~ ~~in these Notes.~~. The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets and amortization of net actuarial ~~gain.~~gain or loss.

Segment revenue, segment operating income (loss) and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:



	Quarter Ended
	April 3, 2020			March 29, 2019

	(In millions)
Revenue
Integrated Mission Systems	$	1,370		$	14
Space and Airborne Systems	1,192			956
Communication Systems	1,094			580
Aviation Systems	1,011			144
Other non-reportable business segments⁽¹⁾	—			35
Corporate eliminations	(41		)	(1		)
	$	4,626		$	1,728
Income From Continuing Operations Before Income Taxes
Segment Operating Income (Loss):
Integrated Mission Systems	$	201		$	3
Space and Airborne Systems	221			174
Communication Systems	250			167
Aviation Systems	(177		)	17
Other non-reportable business segments⁽¹⁾	—			6
Unallocated corporate expenses⁽²⁾	(33		)	—
L3Harris Merger-related transaction and integration expenses	(31		)	(16		)
Amortization of acquisition-related intangibles⁽³⁾	(145		)	(25		)
Pension adjustment	(97		)	(47		)
Non-operating income	95			46
Net interest expense	(63		)	(42		)
Total	$	221		$	283

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 December 28, 2018 December 29, 2017

(In millions)
Revenue
Communication Systems $ 540
$ 492
$ 1,009
$ 898
Electronic Systems 617
582
1,206
1,123
Space and Intelligence Systems 513
462
1,001
928
Corporate eliminations (4 ) (1 ) (8 ) (4 )
$ 1,666
$ 1,535
$ 3,208
$ 2,945
Income From Continuing Operations Before Income Taxes
Segment Operating Income:
Communication Systems $ 162
$ 145
$ 302
$ 260
Electronic Systems 117
97
232
206
Space and Intelligence Systems 92
80
178
167
Unallocated corporate expense and corporate eliminations⁽¹⁾
(58 ) (54 ) (99 ) (96 )
Pension adjustment (46 ) (46 ) (93 ) (92 )
Non-operating income 47
44
94
90
Net interest expense (43 ) (41 ) (86 ) (82 )
$ 271
$ 225
$ 528
$ 453

_______________


(1)	~~Unallocated corporate expense~~ Includes the operating results of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note C — Business Divestitures and ~~corporate eliminations included:~~Assets Sales in these Notes for more information.

(2)

Includes: (i) ~~$13~~$15 million of ~~L3 Technologies, Inc. (“L3”) merger-related transaction~~additional cost of sales related to the fair value step-up in inventory sold (see Note B — Business Combination in these Notes for more information); (ii) a $5 million non-cash goodwill impairment charge related to the pending divestiture of our Applied Kilovolts and ~~integration costs~~Analytical Instrumentation business; and (iii) $3 million of divestiture expenses for the quarter ~~and two quarters~~ ended ~~December 28, 2018; (ii)~~April 3, 2020.

(3)

Includes $120 million of amortization of identifiable intangible assets acquired as a ~~$12 million adjustment~~result of the L3Harris Merger for ~~deferred compensation in~~ the quarter ended April 3, 2020 and ~~two quarters ended December 29, 2017 and (iii) $26 million and $51~~$25 million of expense in the quarter and two quarters ended December 28, 2018, respectively, compared with $25 million and $50 million of expense in the quarter and two quarters ended December 29, 2017, respectively, for amortization of identifiable intangible assets acquired as a result of our acquisition of ~~Exelis.~~Exelis Inc. for each of the quarters ended April 3, 2020 and March 29, 2019. Because the L3Harris Merger and the acquisition of Exelis Inc. benefited the entire Company as opposed to any individual segment, the amortization of identifiable intangible assets acquired ~~in the Exelis acquisition~~ was ~~recorded as unallocated corporate expense. Corporate eliminations of intersegment profits were~~ not ~~material in the quarter or two quarters ended December 28, 2018 or the quarter or two quarters ended December 29, 2017.~~allocated to any segment.

Disaggregation of Revenue

~~Communication~~Integrated Mission Systems: Communication Systems operates principally on a “commercial” market-driven business model through which the business segment provides ready-to-ship commercial off-the-shelf products to customers in the U.S. and internationally. Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when the product is received and accepted by the customer. We disaggregate Communication Systems revenue by geographical region, as we believe this category best depicts how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 December 28, 2018 December 29, 2017

(In millions)
Revenue By Geographical Region
United States $ 299
$ 276
$ 558
$ 484
International 241
216
451
414
$ 540
$ 492
$ 1,009
$ 898

~~Electronic Systems:~~ ~~Electronic~~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. We disaggregate ~~Electronic~~Integrated Mission Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of ~~Electronic~~Integrated Mission Systems revenue and cash flows are affected by economic factors:


	Quarter Ended				Two Quarters Ended				Quarter Ended
	December 28, 2018		December 29, 2017		December 28, 2018		December 29, 2017		April 3, 2020		March 29, 2019

	(In millions)								(In millions)
Revenue By Customer Relationship
Prime contractor	$	399	$	410	$	793	$	808	$	949	$	8
Subcontractor	218		172		413		315		421		6
	$	617	$	582	$	1,206	$	1,123	$	1,370	$	14
Revenue By Contract Type
Fixed-price⁽¹⁾	$	508	$	463	$	986	$	885	$	1,025	$	14
Cost-reimbursable	109		119		220		238		345		—
	$	617	$	582	$	1,206	$	1,123	$	1,370	$	14
Revenue By Geographical Region
United States	$	486	$	464	$	964	$	890	$	1,105	$	9
International	131		118		242		233		265		5
	$	617	$	582	$	1,206	$	1,123	$	1,370	$	14

_______________


~~(1)~~	(1) Includes revenue derived from time-and-materials contracts.

Space and ~~Intelligence~~Airborne Systems:Space and ~~Intelligence~~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. We disaggregate Space and ~~Intelligence~~Airborne Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Space and ~~Intelligence~~Airborne Systems revenue

and cash flows are affected by economic factors:



	Quarter Ended
	April 3, 2020		March 29, 2019

	(In millions)
Revenue By Customer Relationship
Prime contractor	$	658	$	572
Subcontractor	534		384
	$	1,192	$	956
Revenue By Contract Type
Fixed-price⁽¹⁾	$	670	$	531
Cost-reimbursable	522		425
	$	1,192	$	956
Revenue By Geographical Region
United States	$	1,003	$	846
International	189		110
	$	1,192	$	956

_______________

(1) Includes revenue derived from time-and-materials contracts.

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. We disaggregate Communication Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:


	Quarter Ended				Two Quarters Ended				Quarter Ended
	December 28, 2018		December 29, 2017		December 28, 2018		December 29, 2017		April 3, 2020		March 29, 2019

	(In millions)								(In millions)
Revenue By Customer Relationship(1)
Prime contractor	$	362	$	329	$	714	$	663	$	740
Subcontractor	151		133		287		265		354
	$	513	$	462	$	1,001	$	928	$	1,094
Revenue By Contract Type(1)
Fixed-price⁽¹⁾⁽²⁾	$	188	$	120	$	360	$	243	$	918
Cost-reimbursable	325		342		641		685		176
	$	513	$	462	$	1,001	$	928	$	1,094
Revenue By Geographical Region
Revenue by Geographical Region
United States	$	500	$	446	$	976	$	898	$	834	$	347
International	13		16		25		30		260		233
	$	513	$	462	$	1,001	$	928	$	1,094	$	580

~~_______________~~______________


~~(1)~~	~~Includes revenue derived from time-and-materials contracts.~~

(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.

(2) Includes revenue derived from time-and-materials contracts.

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. We disaggregate Aviation Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Aviation Systems revenue and cash flows are affected by economic factors:



	Quarter Ended
	April 3, 2020		March 29, 2019

	(In millions)
Revenue By Customer Relationship
Prime contractor	$	664	$	140
Subcontractor	347		4
	$	1,011	$	144
Revenue By Contract Type
Fixed-price⁽¹⁾	$	841	$	122
Cost-reimbursable	170		22
	$	1,011	$	144
Revenue By Geographical Region
United States	$	749	$	143
International	262		1
	$	1,011	$	144

______________

(1) Includes revenue derived from time-and-materials contracts.

Total assets by business segment are summarized below:


	December 28, 2018		June 29, 2018		April 3, 2020		January 3, 2020

	(In millions)				(In millions)
Total Assets
Integrated Mission Systems					$	7,999	$	7,896
Space and Airborne Systems					6,948		6,829
Communication Systems	$	1,578	$	1,567	5,928		5,930
Electronic Systems	4,196		4,174
Space and Intelligence Systems	2,242		2,193
Aviation Systems					7,423		7,569
Corporate⁽¹⁾	1,836		1,917		9,807		10,112
	$	9,852	$	9,851	$	38,105	$	38,336

_______________

(1)

Identifiable intangible assets acquired in connection with the L3Harris Merger in the quarter ended September 27, 2019 and our acquisition of Exelis Inc. in ~~the fourth quarter of~~ fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segment. ~~Exelis identifiable~~Identifiable intangible asset balances recorded as Corporate assets were ~~$923 million~~approximately $8.2 billion and ~~$974 million~~$8.5 billion at ~~December 28, 2018~~April 3, 2020 and ~~June 29, 2018,~~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 and ~~buildings~~liabilities from discontinued operations and ~~equipment.~~divestitures. See Note C — Business Divestitures and Assets Sales in these Notes for additional information.

Note RW — 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 ~~December 28, 2018,~~April 3, 2020, 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, ~~which~~that are considered probable of being rendered against us in litigation or arbitration in existence at ~~December 28, 2018~~April 3, 2020 are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

~~Merger Litigation~~

~~In connection with our pending merger with L3 (see~~ ~~Note S — Pending Merger~~ in these Notes for additional information), two putative class action lawsuits and one individual lawsuit were filed against L3 and its directors (together, the “L3 Parties”) in the U.S. District Court for the Southern District of New York between December 19, 2018 and January 15, 2019, and a third putative class action lawsuit, ~~Kent v. L3 Technologies, Inc., et al~~., was filed against the L3 Parties and Harris Corporation and its wholly owned subsidiary, Leopard Merger Sub Inc. (Harris Corporation and Leopard Merger Sub Inc., the “Harris Parties”), in the U.S. District Court for the District of Delaware on January 4, 2019. The complaints in the lawsuits contain substantially similar allegations contending, among other things, that the registration statement on Form S-4 in support of the pending merger misstates or fails to disclose certain allegedly material information in violation of federal securities laws. The complaint in the ~~Kent~~ lawsuit further alleges that the Harris Parties are liable for these violations as “controlling persons” of L3 within the meaning of federal securities laws. The complaints in all four lawsuits generally seek injunctive relief enjoining the merger, damages and costs, among other remedies. Additional lawsuits in connection with the merger may be filed in the future. Although the ultimate resolution of these lawsuits cannot be predicted with certainty, and an adverse ruling in any such lawsuit may cause the merger to be delayed or not to be completed, which could cause us not to realize some or all of the anticipated benefits of the merger, we believe that these lawsuits are without merit and intend to defend vigorously against them and any other lawsuits challenging the pending merger. Therefore, at this time, we do not believe the ultimate resolution of these lawsuits will have a material adverse effect on us or the merger.

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 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 (the “DOJ”), Environment and Natural Resources Division, notified several potentially responsible parties, including Exelis Inc., 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 Inc., 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 ~~December 28, 2018~~April 3, 2020 are reserved against, covered by insurance or would not have a material adverse effect on our financial condition, results of operations or cash flows.

Note SX — ~~Pending Merger~~Subsequent Events

Airport security and automation business divestiture

On ~~October 14, 2018,~~May 4, 2020, we ~~announced that on October 12, 2018, we entered into an Agreement~~completed the sale of the airport security and ~~Plan~~automation business for net cash proceeds of ~~Merger (the “Merger Agreement”), with L3~~approximately $1 billion, before estimated transaction expenses and ~~Leopard Merger Sub Inc., our wholly owned subsidiary (“Merger Sub”), pursuant to which we~~estimated adjustments in respect of net cash and ~~L3 have agreed to combine in an all-stock merger of equals. Under the terms~~working capital, and subject to ~~the conditions~~post-closing finalization of those adjustments as set forth in the ~~Merger Agreement, L3 shareholders will receive a fixed exchange ratio~~definitive sale agreement. We expect to use the net cash proceeds from the sale for general corporate purposes and potential repurchases of ~~1.30~~ shares of ~~Harris~~our common ~~stock for each share of L3 common~~ stock. ~~Upon closing~~

Debt exchange

As described in more detail in Note M — Debt in these Notes, the Exchange Offers (to exchange any or all New L3Harris Notes that had been issued pursuant to an exemption from the registration requirements of the transactions contemplated by the Merger Agreement, Harris Corporation will be re-named “L3 Harris Technologies, Inc.” and Merger Sub will merge with and into L3, with L3 being the surviving corporation and becoming a wholly-owned subsidiarySecurities Act for an equal principal amount of L3 Harris Technologies, Inc., which will be owned on a fully diluted basis approximately 54 percent by Harris shareholders and 46 percent by L3 shareholders. Upon closing, the merger will be accounted for using the acquisition method of accounting, and Harris will be treated as the accounting acquirer. The Merger Agreement has been unanimously approved by the Board of Directors of each company.

The consummation of the merger is subject to the satisfaction or waiver of certain conditions, including, among others, approval by the shareholders of each company and the expiration or earlier termination of any applicable waiting period, and the receipt of approvals under domestic and certain foreign antitrust and competition laws, including the expiration of the waiting periodnew notes registered under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In connection with the proposed merger, we and L3 each filed a Notification and Report Form under the HSR Act (an “HSR Notification”) with the U.S. Federal Trade Commission and the DOJ on November 9, 2018. We voluntarily withdrew our HSR Notification effective as of December 10, 2018 and re-filed our HSR Notification on December 11, 2018. As part of the DOJ’s review of the merger, we and L3 each received on January 10, 2019 a request for additional information and documentary materials (the “Second Request”) from the DOJ, which extends the waiting period under the HSR Act until 30 days after both we and L3 have complied with the Second Request or such later time as the parties may agree with the DOJ, unless the waiting period is terminated earlier. We and L3 continue to work cooperatively with the DOJ on its review of the merger. As part of the regulatory process, we are moving proactively to explore the possible sale of our Night Vision business within our Communication Systems segment. The assets and liabilities of our Night Vision business were classified as held for use in our Condensed Consolidated Balance Sheet (Unaudited)Securities Act) expired at December 28, 2018 and will continue to be so classified unless the held for sale criteria are met, which has not occurred as of the date of this Report, because our Board of Directors has not approved commitment to any plan of sale. We and L3 continue to expect the merger to close in the previously announced time frame of mid-calendar year 2019, although we can give no assurances regarding the timing or occurrence of closing.

~~L3 is a prime contractor in intelligence, surveillance and reconnaissance (“ISR”) systems, aircraft sustainment (including modifications and fleet management of special mission aircraft)~~5:00 p.m., ~~simulation and training, night vision and image intensification equipment and security and detection systems headquartered in~~ New York ~~New York. L3 is also a provider of a broad range of communication, electronic~~City time, on May 1, 2020.

On May 5, 2020, we settled the Exchange Offers and sensor systems used on military, homeland security and commercial platforms. L3 employs approximately 31,000 employees and its customers include the U.S. Department of Defense and its prime contractors, U.S. government intelligence agencies, the U.S. Department of Homeland Security, foreign governments and domestic and commercial customers. L3 generated calendar 2018 revenue of approximately $10 billion.issued Exchange Notes for validly tendered Original Notes.

The foregoing description of the Merger Agreement and the transactions contemplated thereby is not complete and is subject to, and qualified in its entirety by reference to, the Agreement and Plan of Merger, dated as of October 12, 2018, by and among L3, us, and Merger Sub, a copy of which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on October 16, 2018.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of ~~Harris Corporation~~L3Harris Technologies, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of ~~Harris Corporation~~L3Harris Technologies, Inc. (the Company) as of ~~December 28, 2018,~~April 3, 2020, the related condensed consolidated statements of income, comprehensive income, cash flows and equity for the ~~quarter and two~~ quarters ended ~~December 28, 2018~~April 3, 2020 and ~~December~~March 29, ~~2017, the condensed consolidated statements of cash flows for the two quarters ended December 28, 2018 and December 29, 2017,~~2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of ~~June 29, 2018,~~January 3, 2020, the related consolidated statements of income, comprehensive income, cash flows and equity for the ~~year~~two quarters then ended, and the related notes ~~and financial statement schedule~~ (not presented herein); and in our report dated August 27, 2018, except for the retrospective changes for revenue and periodic pension and postretirement benefit costs described in Note 2 and the subsequent event described in Note 25 as to which the date is December 13, 2018,March 3, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of ~~June 29, 2018,~~January 3, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and required to be independent with respect to the ~~company~~Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Orlando, Florida

~~January 30, 2019~~May 7, 2020

Item 2. 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. 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 Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes appearing elsewhere in this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-KT for the Fiscal ~~2017-2018 Update 8-K.~~Transition Period from June 29, 2019 to January 3, 2020 (our “Fiscal Transition Period Form 10-KT”). 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.”

COVID-19

In March 2020, the widespread outbreak of the novel COVID-19 strain of coronavirus (“COVID-19”) was recognized as a pandemic by the World Health Organization (“WHO”) and declared a national emergency by the U.S. Government. The COVID-19 pandemic and attempts to contain it, such as mandatory closures, “shelter-in-place” orders and travel restrictions, have caused significant disruptions and adverse effects on U.S. and global economies, including impacts to supply chains, customer demand, international trade and capital markets. In response, we have increased our focus on keeping our employees safe while continuing to strive to meet customer commitments and support suppliers. For example, we have instituted work-from-home (for employees who are able to work remotely) and social distancing arrangements; canceled travel and external events; worked to procure personal protective equipment (“PPE”); initiated health screening procedures at higher-risk facilities; staggered work shifts, redesigned work stations and implemented stringent cleaning protocols, particularly for production facilities; maintained an active dialog with key suppliers and developed plans to mitigate supply chain risks; and shifted the timing of share repurchases, which bolsters liquidity in support of employees, suppliers and customers during the pandemic. 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 announce that we will accelerate more than $100 million in payments to small business suppliers in 45 states.

Although we believe that the large percentage of our revenue, earnings and cash flows 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 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 the COVID-19 pandemic. 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 Commercial Aviation Solutions sector within our Aviation Systems segment. As a result, we have temporarily closed some of our flight training facilities in Europe and several other locations and also have recognized $330 million of charges for impairment of goodwill and other assets and other COVID-19-related impacts in the first quarter of 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 actions taken by the U.S. Government, state and local government officials and international governments, and consequences thereof, and global air traffic demand, all of which are uncertain and unpredictable.

The impact of COVID-19 may also exacerbate other risks discussed in Item 1A. “Risk Factors” of our Fiscal Transition Period Form 10-KT, 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-19 on the Company, see Part II, Item 1A. “Risk Factors” in this Report.

The following is a list of the remaining sections of this MD&A, together with our perspective on their contents, which we hope will assist in reading these pages:

~~Results of Operations~~


•	Results of Operations— an analysis of our consolidated results of operations and the results in each of our business segments, to the extent the segment results are helpful to an understanding of our business as a whole, for the periods presented in our Condensed Consolidated Financial Statements (Unaudited).


•	Liquidity, Capital Resources and Financial Strategies — an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations.


•	Critical Accounting Policies and Estimates— information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for us, and their potential impact on our financial condition, results of operations and cash flows.


•	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.

As discussed in Note V — Business Segment Information in the Notes, 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. The historical results, discussion and presentation of our business segments toas set forth in this MD&A reflect the ~~extent the segment results are helpful to an understanding~~impact of ~~our business as a whole,~~these changes for ~~the~~all periods presented in order to present segment information on a comparable basis. There is no impact on our ~~Condensed Consolidated Financial Statements (Unaudited).~~

~~Liquidity, Capital Resources and Financial Strategies~~ ~~— an analysis~~previously reported consolidated statements of income, balance sheets, statements of cash flows ~~funding~~or statements of ~~pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations.~~

~~Critical Accounting Policies and Estimates~~ — information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for us, and their potential impact on our financial condition, results of operations and cash flows.

~~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~~equity resulting from ~~our historical results or our current expectations or projections.~~

these changes.

We report the financial results of our continuing operations in the following ~~three~~four segments, which are also referred to as

our business segments:

Integrated Mission Systems, including multi-mission intelligence, surveillance and reconnaissance 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; avionics; and electronic warfare;

Aviation Systems, including defense aviation products; security, detection and ~~in public safety networks;~~

~~Electronic Systems, providing electronic warfare, avionics, and C4ISR solutions for defense and classified customers and mission-critical communication systems for civil~~other commercial aviation products; commercial and military pilot training; and mission networks for air traffic management.

On February 4, 2020, we entered into a definitive agreement to sell Security & Detection Systems and MacDonald Humfrey Automation solutions (“airport security and automation business”) to Leidos, Inc. for $1 billion in cash, subject to customary purchase price adjustments as set forth in the definitive agreement. The sale transaction is conditioned on customary closing conditions, including satisfaction of regulatory requirements. The airport security and automation business, which is reported as part of our Aviation Systems segment, provides solutions used by the aviation and transportation industries, regulatory and customs authorities, government and law enforcement agencies and commercial and other ~~customers;~~high-security facilities. We completed the sale of the airport security and automation business on May 4, 2020 and expect to use the proceeds from the sale for general corporate expenses and for potential repurchases of shares of our common stock.

On March 20, 2020, we entered into a definitive agreement to sell our EOTech business for $42 million, subject to customary purchase price adjustments and customary closing conditions as set forth in the definitive agreement. The EOTech business, which is reported as part of our Communications Systems segment, manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. We expect to complete the sale of the EOTech business in mid-2020.

On February 19, 2020, we entered into a definitive agreement to sell our Applied Kilovolts and Analytical Instrumentation business, which is reported as part of our Space and ~~Intelligence~~Airborne Systems ~~providing intelligence, space protection, geospatial,~~segment, subject to customary closing conditions as set forth in the definitive agreement. We expect to complete ~~Earth observation, universe exploration, PNT,~~the sale of the Applied Kilovolts 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.~~

Analytical Instrumentation business in mid-2020.

As described in more detail in ~~the~~ ~~Adoption of New Accounting Standards~~ ~~section in~~ Note AC — ~~Significant Accounting Policies~~Business Divestitures and ~~Recent Accounting Standards~~Assets Salesin the Notes, ~~effective June 30, 2018, we adopted ASC 606, a new revenue recognition standard that supersedes nearly all revenue recognition guidance under GAAP~~the assets and ~~International Financial Reporting Standards~~liabilities of the airport security and ~~supersedes some cost guidance~~automation, EOTech and the Applied Kilovolts and Analytical Instrumentation businesses were classified as held for construction-type and production-type contracts. Effective June 30, 2018, we also adopted ASU 2017-07, which changed the presentation of components of net periodic pension and postretirement benefit costs other than the service cost componentsale in our Condensed Consolidated ~~Statement~~Balance Sheet (Unaudited) as of Income (Unaudited). Our historical results, discussion and presentation as set forth in our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes and this MD&A reflect the impact of the adoption of these new standards for all periods presented in order to present all information on a comparable basis.

~~As described in more detail in~~ ~~Note S — Pending Merger~~ ~~in the Notes, we entered into the Merger Agreement with L3 and Merger Sub on October 12, 2018, pursuant to which we and L3 have agreed to combine in an all-stock merger of equals.~~April 3, 2020.

Amounts contained in this Report may not always add to totals due to rounding.

RESULTS OF OPERATIONS

~~Highlights~~

~~Operations~~As discussed further in Note A — Significant Accounting Policies and Recent Accounting Standards in the Notes, we completed the L3Harris Merger on June 29, 2019. Because of the L3Harris Merger, the quarter ended April 3, 2020 reflects the results of the combined company, while the quarter ended March 29, 2019 reflects 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 the ~~second~~ quarter ended April 3, 2020 and quarter ended March 29, 2019 generally are not comparable. Therefore, to assist with a discussion of ~~fiscal~~the April 3, 2020 and March 29, 2019 consolidated results of operations 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).

Highlights

Consolidated operating results for the quarter ended April 3, 2020, in each case compared with the ~~second~~ quarter ended March 29, 2019 on both an “as reported” basis (reflecting the results of ~~fiscal 2018,~~only Harris operating businesses for the prior period) and a “pro forma” basis (also reflecting the results of L3 operating businesses for the prior period), included:

Consolidated — as reported

Revenue increased 9168 percent to ~~$1.67~~$4.6 billion from ~~$1.54~~$1.7 billion;

Gross margin increased 11125 percent to ~~$571~~$1,328 million from ~~$513~~$589 million;

Income from continuing operations ~~increased 72~~decreased 20 percent to ~~$225~~$195 million from ~~$131~~$243 million; and

Income from continuing operations per diluted common share ~~increased~~74attributable to L3Harris Technologies, Inc. common shareholders decreased 51 percent to ~~$1.88~~$0.99 from ~~$1.08;~~

$2.02.

~~Communication Systems revenue~~Consolidated — pro forma

Revenue increased 105 percent to ~~$540~~$4.6 billion from $4.4 billion;

Gross margin increased 5 percent to $1,328 million from ~~$492 million and operating income increased 12~~$1,267 million;

Income from continuing operations decreased 51 percent to ~~$162~~$195 million from ~~$145~~$400 million; and

~~Electronic Systems revenue increased 6~~Income from continuing operations per diluted common share attributable to L3Harris Technologies, Inc. common shareholders decreased 43 percent to ~~$617 million~~$0.99 from ~~$582 million and operating income increased 21 percent to $117 million from $97 million;~~$1.75.

~~Space and Intelligence Systems revenue increased 11 percent to $513 million from $462 million and operating income increased 15 percent to $92 million from $80 million; and~~

~~Net cash provided by operating activities increased 26 percent to $469 million from $373 million.~~

Consolidated Results of Operations



	Quarter Ended
	April 3, 2020			March 29, 2019			% Inc/(Dec)		March 29, 2019			% Inc/(Dec)

	As Reported								Pro Forma
	(Dollars in millions, except per share amounts)
Revenue:
Integrated Mission Systems	$	1,370		$	14		*		$	1,362		1	%
Space and Airborne Systems	1,192			956			25	%	1,112			7	%
Communication Systems	1,094			580			89	%	1,041			5	%
Aviation Systems	1,011			144			*		914			11	%
Other non-reportable business segments	—			35			(100	)%	—			*
Corporate eliminations	(41		)	(1		)	*		(43		)	(5	)%
Total revenue	4,626			1,728			168	%	4,386			5	%
Cost of product sales and services	(3,298		)	(1,139		)	190	%	(3,119		)	6	%
Gross margin	1,328			589			125	%	1,267			5	%
% of total revenue	29		%	34		%			29		%
Engineering, selling and administrative expenses	(815		)	(310		)	163	%	(799		)	2	%
% of total revenue	18		%	18		%			18		%
Impairment of goodwill and other assets	(324		)	—			*		—			*
Non-operating income	95			46			107	%	55			73	%
Net interest expense	(63		)	(42		)	50	%	(67		)	(6	)%
Income from continuing operations before income taxes	221			283			(22	)%	456			(52	)%
Income taxes	(26		)	(40		)	(35	)%	(56		)	(54	)%
Effective tax rate	12		%	14		%			12		%
Income from continuing operations	195			243			(20	)%	400			(51	)%
Noncontrolling interests, net of income taxes	23			—			*		(6		)	(483	)%
Income from continuing operations attributable to L3Harris Technologies, Inc. common shareholders	$	218		$	243		(10	)%	$	394		(45	)%
% of total revenue	5		%	14		%			9		%
Income from continuing operations per diluted common share attributable to L3Harris Technologies, Inc. common shareholders	$	0.99		$	2.02		(51	)%	$	1.75		(43	)%

_______________

* Not meaningful

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 % Inc/(Dec) December 28, 2018 December 29, 2017 % Inc/(Dec)

(Dollars in millions, except per share amounts)
Revenue:
Communication Systems $ 540
$ 492
10 % $ 1,009
$ 898
12 %
Electronic Systems 617
582
6 % 1,206
1,123
7 %
Space and Intelligence Systems 513
462
11 % 1,001
928
8 %
Corporate eliminations (4 ) (1 ) *
(8 ) (4 ) *
Total revenue 1,666
1,535
9 % 3,208
2,945
9 %
Cost of product sales and services (1,095 ) (1,022 ) 7 % (2,105 ) (1,941 ) 8 %
Gross margin 571
513
11 % 1,103
1,004
10 %
% of total revenue 34 % 33 % 34 % 34 %
Engineering, selling and administrative expenses (304 ) (291 ) 4 % (583 ) (559 ) 4 %
% of total revenue 18 % 19 % 18 % 19 %
Non-operating income 47
44
7 % 94
90
4 %
Net interest expense (43 ) (41 ) 5 % (86 ) (82 ) 5 %
Income from continuing operations before income taxes 271
225
20 % 528
453
17 %
Income taxes (46 ) (94 ) (51 )% (87 ) (157 ) (45 )%
Effective tax rate 17 % 42 % 16 % 35 %
Income from continuing operations $ 225
$ 131
72 % $ 441
$ 296
49 %
% of total revenue 14 % 9 % 14 % 10 %
Income from continuing operations per diluted common share $ 1.88
$ 1.08
74 % $ 3.66
$ 2.44
50 %
* Not meaningful

As Reported

Revenue

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The increase in revenue infor the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with the ~~second~~ quarter ended March 29, 2019 was primarily due to the inclusion of ~~fiscal 2018~~$2.9 billion of revenue (net of intercompany sales eliminations) from L3 operations in operating results for the quarter ended April 3, 2020 and organic revenue growth in all four business segments.

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

Gross Margin

The increase in gross margin for the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 was primarily due to the inclusion of L3 operations in operating results for the quarter ended April 3, 2020. The decrease in gross margin as a percentage of revenue (“gross margin percentage”) for the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 was primarily due to a mix of program revenue and product sales with relatively lower gross margin percentage, $17 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger in the quarter ended April 3, 2020 and $15 million of additional cost of sales related to the fair value step-up in inventory sold in the quarter ended April 3, 2020, partially offset by productivity and integration savings.

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

Engineering, Selling and Administrative Expenses

The increase in Engineering, Selling and Administrative (“ESA”) expenses and comparability of ESA expense as a percentage of total revenue (“ESA percentage”) for the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 were primarily due to the inclusion of L3 operations in operating results, as well as $103 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger and additional charges for integration and other costs associated with the L3Harris Merger in the quarter ended April 3, 2020, partially offset by productivity and integration savings.

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

Impairment of goodwill and other assets

Impairment of goodwill and other assets for the quarter ended April 3, 2020 included a $296 million non-cash goodwill impairment charge and $23 million of charges to write-down accounts receivable and contract assets in our Commercial Aviation Solutions sector due to the COVID-19-related downturn in the commercial aviation market and its impact on customer operations as well as a $5 million non-cash goodwill impairment charge recorded in connection with the pending divestiture of our Applied Kilovolts and Analytical Instrumentation business.

See Note C — Business Divestitures and Assets Sales,Note G — Receivables, Note H — Contract Assets and Contract Liabilities and Note K — Goodwill and Other Intangible Assets in the Notes for further information.

Non-Operating Income

The increase in non-operating income in the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 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.

See Note P — Non-Operating Income and Note N — Postretirement Benefit Plans in the Notes for further information.

Net Interest Expense

The increase in net interest expense in the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 was 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. See Note M — Debt in the Notes and Note 14: “Debt” in the Notes to Consolidated Financial Statements in our Fiscal Transition Period Form 10-KT for further information.

Income Taxes

Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was 11.8 percent for the quarter ended April 3, 2020 compared with 14.1 percent for the quarter ended March 29, 2019. Our effective tax rate for the quarter ended April 3, 2020 benefited from the favorable impact of excess tax benefits related to equity-based compensation, research and development (“R&D”) credits and the favorable impact of audit settlements, partially offset by a valuation allowance increase on international credits and the unfavorable impact of non-deductible goodwill impairment charges. Our effective tax rate for the quarter ended March 29, 2019 benefited from the favorable impact of excess tax benefits related to equity-based compensation and from favorable adjustments recorded upon the filing of our Federal tax returns.

Income From Continuing Operations

The decrease in income from continuing operations for the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 was primarily due to the non-cash charges for impairment of goodwill and other assets in the quarter ended April 3, 2020 as well as the combined effects of the other reasons noted above in this “As Reported” discussion regarding the quarters ended April 3, 2020 and March 29, 2019.

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

The decrease in income from continuing operations per diluted common share attributable to L3Harris common shareholders for the quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 was primarily due to lower income from continuing operations, as discussed above, and an increase in diluted weighted average common shares outstanding as a result of approximately 104 million shares issued in connection with the L3Harris Merger.

See “Common Stock Repurchases” below in this MD&A for information regarding our share repurchase program.

Pro Forma

Revenue

The increase in revenue for the quarter ended April 3, 2020 compared with pro forma revenue for the quarter ended March 29, 2019 was primarily due to higher revenue in all ~~three of our~~four business segments.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ The increase in revenue in the first two quarters of fiscal 2019 compared with the first two quarters of fiscal 2018 was due to the same reasons as noted above regarding the second quarters of fiscal 2019 and 2018.

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

Gross Margin

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The increase in gross margin in the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with pro forma gross margin for the ~~second~~ quarter ~~of fiscal 2018~~ended March 29, 2019 was primarily due to ~~higher revenue in all three of our segments~~productivity and ~~operational efficiencies.~~

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ ~~The increase in gross~~integration savings, partially offset by a less favorable program mix. Gross margin percentage in the ~~first two quarters of fiscal 2019 compared~~quarter ended April 3, 2020 was comparable with the ~~first two quarters of fiscal 2018 was primarily due to higher revenue in all three of our segments.~~

~~See “Discussion of Business Segment Results of Operations” below in this MD&A for further information.~~quarter ended March 29, 2019.

Engineering, Selling and Administrative Expenses

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The increase in engineering, selling and administrative (“ESA”) expenses in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 was primarily due to a $12 million adjustment for deferred compensation in the second quarter of fiscal 2018, more than offset by higher investment in R&D, higher bid and proposal costs and $13 million of L3 merger-related transaction and integration costs. The decrease in ESA expenses as a percentage of total revenue (“ESA percentage”) in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 was primarily due to management of expenses on higher revenue.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ The increase in ESA expenses in the quarter ended April 3, 2020 compared with pro forma ESA expense for the quarter ended March 29, 2019 was primarily due to $6 million of additional charges for integration and ~~decrease~~other costs associated with the L3Harris Merger, $3 million of divestiture expenses and $3 million of COVID-19-related charges in the quarter ended April 3, 2020. ESA percentage in the ~~first two quarters of fiscal 2019 compared~~quarter ended April 3, 2020 was comparable with the ~~first two quarters~~quarter ended March 29, 2019.

Impairment of ~~fiscal 2018 were primarily~~goodwill and other assets

Impairment of goodwill and other assets for the quarter ended April 3, 2020 included a $296 million non-cash goodwill impairment charge and $23 million of charges to write-down accounts receivable and contract assets in our Commercial Aviation Solutions sector due to the ~~same reasons~~COVID-19-related downturn in the commercial aviation market and its impact on customer operations as ~~noted above regarding~~well as a $5 million non-cash goodwill impairment charge recorded in connection with the ~~second quarters~~pending divestiture of ~~fiscal 2019~~our Applied Kilovolts and ~~2018.~~Analytical Instrumentation business.

See ~~“Discussion of~~Note C — Business ~~Segment Results of Operations” below~~ Divestitures and Assets Sales and Note K — Goodwill and Other Intangible Assets in ~~this MD&A~~the Notes for further information.

Non-Operating Income

~~Second Quarter 2019 Compared With Second Quarter 2018:~~The ~~slight~~ increase in non-operating income infor the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with pro forma non-operating income for the ~~second~~ quarter ~~of fiscal 2018~~ended March 29, 2019 was primarily due ~~to a debt extinguishment loss recognized in the second quarter of fiscal 2018.~~

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ The slight increase in non-operating income in the first two quarters of fiscal 2019 compared with the first two quarters of fiscal 2018 was primarily due to the same reason as noted above regarding the second quarters of fiscal 2019 and 2018 and an increase in the non-service cost components of pension and other postretirement benefit plan income.

~~See~~ ~~Note A — Significant Accounting Policies and Recent Accounting Standards~~ Net Interest Expense

The decrease in net interest expense for the ~~Notes~~quarter ended April 3, 2020 compared with pro forma net interest expense for the quarter ended March 29, 2019 reflects amortization of the increase to L3’s long-term debt based on a $172 million fair value adjustment.

See “Supplemental Unaudited Pro Forma Condensed Combined Income Statement Information” below in this MD&A for further information.

Income Taxes

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ Our effective tax rate (income taxes as a percentage of income from continuing operations before income taxes) was ~~17.0~~11.8 percent infor the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with ~~41.8~~a 12.3 percent in the second quarter of fiscal 2018. In the second quarter of fiscal 2019, our effective tax rate benefited from a reduction in the deferred tax liability maintained on the basis differences related to the unremitted foreign earnings and an increase in the R&D credit, partially offset by an unfavorable impact of the differences in GAAP and tax accounting related to investments. In the second quarter of fiscal 2018, our effective tax rate was impacted by a $58 million write-down of existing net deferred tax asset balances due to the enactment of lower U.S. statutory corporate income tax rates and other law changes from the Tax Act, a $26 million benefit from the impact of our lower fiscal 2018 tax rate, a $22 million favorable impact of releasing provisions for uncertain tax positions and the favorable impact of differences in GAAP and tax accounting related to investments.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ Our effective tax rate was 16.5 percent in the first two quarters of fiscal 2019 compared with 34.7 percent in the first two quarters of fiscal 2018. In addition to the items noted above for the second quarters of fiscal 2019 and 2018, ourpro forma effective tax rate for the ~~first two quarters of fiscal 2019 and 2018~~quarter ended March 29, 2019. Our effective tax rate for the quarter ended April 3, 2020 benefited from the favorable impact of excess tax benefits related to equity-based ~~compensation.~~compensation, R&D credits and the favorable impact of audit settlements, partially offset by a valuation allowance increase on international credits and the unfavorable impact of non-deductible goodwill impairment charges.

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 quarter ended March 29, 2019.

Income From Continuing Operations

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The ~~increase~~decrease in income from continuing operations infor the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with pro forma income from continuing operations for the ~~second~~ quarter ~~of fiscal 2018~~ended March 29, 2019 was primarily due to the non-cash charges for impairment of goodwill and other assets in the quarter ended April 3, 2020 as well as the combined effects of the reasons noted above in this ~~“Consolidated Results of Operations”~~“Pro Forma” discussion regarding the ~~second~~ quarters ~~of fiscal 2019~~ended April 3, 2020 and ~~2018.~~

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ The increase in income from continuing operations in the first two quarters of fiscal 2019 compared with the first two quarters of fiscal 2018 was primarily due to the combined effects of the reasons noted above in this “Consolidated Results of Operations” discussion regarding the first two quarters of fiscal 2019 and 2018.March 29, 2019.

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

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The ~~increase~~decrease in income from continuing operations per diluted common share inattributable to L3Harris common shareholders for the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with the second quarter of fiscal 2018 was primarily due to higher income from continuing operations and fewer diluted weighted average common shares outstanding due to repurchases of shares of common stock under our repurchase program during the last two quarters of fiscal 2018 and first quarter of fiscal 2019.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ ~~The increase in~~pro forma income from continuing operations per diluted common share infor the ~~first two quarters of fiscal~~quarter ended March 29, 2019 ~~compared with the first two quarters of fiscal 2018~~ was primarily due to ~~higher~~lower income from continuing ~~operations.~~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 since the L3Harris Merger.

~~See “Common Stock Repurchases” below~~

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 quarter ended March 29, 2019 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 ~~further information.~~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 Condensed Consolidated Financial Statements (Unaudited) and the Notes appearing elsewhere in this Report.



Unaudited Pro Forma Condensed Combined Statement of Income
For the quarter ended March 29, 2019
	Historical Harris			Historical L3			Pro Forma Adjustments			Note References	Pro Forma Combined

	(In millions, except per share amounts)
Revenue from product sales and services	$	1,728		$	2,700		$	(7	)	a	$	4,386
							(35		)	b
Cost of product sales and services	(1,139		)	(2,007		)	7			a	(3,119		)
							24			b
							(4		)	c
Engineering, selling and administrative expenses	(310		)	(382		)	5			b	(799		)
							(103		)	c
							9			d
							(2		)	e
							2			f
							(18		)	j
Merger, acquisition and divestiture related expenses	—			(18		)	18			j	—
Non-operating income	46			—			9			j	55
Interest and other income, net	—			4			9			g	—
							(13		)	j
Interest income	1			—			4			j	5
Interest expense	(43		)	(37		)	1			h	(72		)
							7			i
Income from continuing operations before income taxes	283			260			(87		)		456
Income taxes	(40		)	(37		)	21			k	(56		)
Income from continuing operations	243			223			(66		)		400
Noncontrolling interest, net of income taxes	—			(6		)	—				(6		)
Income from continuing operations attributable to common shareholders	$	243		$	217		$	(66	)		$	394

Income from continuing operations per basic common share attributable to common shareholders	$	2.06									$	1.77
Income from continuing operations per diluted common share attributable to common shareholders	$	2.02									$	1.75
Basic weighted average common shares outstanding	117.9						104.1			l	222.0
Diluted weighted average common shares outstanding	120.3						104.6			l	224.9

Notes:


a.	Reflects the elimination of intercompany balances and transactions between L3 and Harris.


b.	Reflects the sale of the Harris Night Vision business.


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 quarter ended March 29, 2019. Assumptions and details are as follows:



	Weighted Average Amortization Period	Fair Value		Quarter ended March 29, 2019

	(In years)	(In millions)
Identifiable Intangible Assets Acquired:
Customer relationships	15	$	5,417	$	100
Trade names — Divisions	9	123		3
Adjustment to engineering, selling and administrative expenses				103
Developed technology	7	562		16
Less: L3 historical amortization				(12		)
Adjustment to cost of product sales and services				4
Total net adjustment to amortization expense				$	107


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, which were reclassified to engineering, selling and administrative expenses; and


2.	Interest and other income, net, which was reclassified to interest income.

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 approximately 24 percent for the quarter ended March 29, 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 L3 common stock, L3 restricted stock units and L3 performance stock units. Diluted shares also include the dilutive impact of L3Harris stock options issued for L3 stock options calculated using the treasury stock method.

Discussion of Business Segment Results of Operations

~~Communication~~Integrated Mission Systems ~~Segment~~


																	Quarter Ended
	Quarter Ended								Two Quarters Ended								April 3, 2020			March 29, 2019			% Inc/(Dec)	March 29, 2019			% Inc/(Dec)
	December 28, 2018			December 29, 2017			% Inc/(Dec)		December 28, 2018			December 29, 2017			% Inc/(Dec)
																	As Reported							Pro Forma
	(Dollars in millions)																(Dollars in millions)
Revenue	$	540		$	492		10	%	$	1,009		$	898		12	%	$	1,370		$	14		*	$	1,362		1	%
Cost of product sales and services	(285		)	(255		)	12	%	(527		)	(460		)	15	%
Gross margin	255			237			8	%	482			438			10	%
% of revenue	47		%	48		%			48		%	49		%
ESA expenses	(93		)	(92		)	1	%	(180		)	(178		)	1	%
% of revenue	17		%	19		%			18		%	20		%
Segment operating income	$	162		$	145		12	%	$	302		$	260		16	%	$	201		$	3		*	$	165		22	%
% of revenue	30		%	29		%			30		%	29		%			15		%	21		%		12		%

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ __________

*Not meaningful

As Reported

The ~~increase~~changes in segment revenue, in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 was due to $32 million of higher revenue from Tactical Communications, reflecting strong international demand (primarily in the Asia-Pacific and European regions) and U.S. Department of Defense modernization demand, and higher revenue in Public Safety and Professional Communications and Night Vision.

The increase in segment gross margin and slight decrease in segment gross margin as a percentage of revenue (“gross margin percentage”) in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 primarily reflected higher volume and operational efficiencies, partially offset by program and product mix. The slight increase in segment ESA expenses and decrease in segment ESA percentage in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 reflected increased investment in R&D and management of expenses on higher revenue.

~~The increases in segment~~ operating income and ~~segment~~ operating income as a percentage of revenue (“operating margin percentage”) in the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with the ~~second~~ quarter ended March 29, 2019 were primarily due to the inclusion of ~~fiscal 2018 reflected~~L3 operations in segment operating results for the ~~combined effects~~quarter ended April 3, 2020. Because the Integrated Mission Systems segment is almost entirely comprised of ~~the items discussed above regarding this segment.~~L3 businesses, comparison to prior year segment operating metrics is not meaningful.

Pro Forma

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ The increase in segment revenue in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters of fiscal 2018~~quarter ended March 29, 2019 was primarily due to ~~$70~~$19 million ~~higher revenue from Tactical Communications and~~of higher revenue in ~~Public Safety and Professional Communications and Night Vision.~~

~~The increase~~Maritime, reflecting a ramp in ~~segment gross margin, decrease~~classified programs, partially offset by lower revenue in segment gross margin percentage, increase in segment ESA expenses and decrease in segment ESA percentage for the first two quarters of fiscal 2019 compared with the first two quarters of fiscal 2018 were due to the same reasons as noted above regarding this segment for the second quarters of fiscal 2019 and 2018.Electro Optical.

The increases in segment operating income and operating margin percentage in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters~~quarter ended March 29, 2019 were primarily driven by productivity and integration savings and higher pension income, partially offset by a mix of ~~fiscal 2018 reflected~~program revenue with relatively lower operating margin percentage.

Space and Airborne Systems



	Quarter Ended
	April 3, 2020			March 29, 2019			% Inc/(Dec)		March 29, 2019			% Inc/(Dec)

	As Reported								Pro Forma
	(Dollars in millions)
Revenue	$	1,192		$	956		25	%	$	1,112		7	%
Segment operating income	$	221		$	174		27	%	$	198		12	%
% of revenue	19		%	18		%			18		%

As Reported

The increases in segment revenue, operating income and operating margin percentage in the ~~combined effects~~quarter ended April 3, 2020 compared with the quarter ended March 29, 2019 were primarily due to the inclusion of L3 operations in segment operating results during the ~~items discussed above~~quarter ended April 3, 2020 as well as the same reasons as noted below regarding this segment ~~for the first two quarters of fiscal 2019 and 2018.~~on a pro forma basis.

~~Electronic Systems Segment~~Pro Forma

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 % Inc/(Dec) December 28, 2018 December 29, 2017 % Inc/(Dec)

(Dollars in millions)
Revenue $ 617
$ 582
6 % $ 1,206
$ 1,123
7 %
Cost of product sales and services (430 ) (417 ) 3 % (835 ) (783 ) 7 %
Gross margin 187
165
13 % 371
340
9 %
% of revenue 30 % 28 % 31 % 30 %
ESA expenses (70 ) (68 ) 3 % (139 ) (134 ) 4 %
% of revenue 11 % 12 % 12 % 12 %
Segment operating income $ 117
$ 97
21 % $ 232
$ 206
13 %
% of revenue 19 % 17 % 19 % 18 %

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ The increase in segment revenue in the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with the ~~second~~ quarter ~~of fiscal 2018~~ended March 29, 2019 was primarily due to ~~$38~~$92 million of higher revenue ~~from~~in Mission Avionics driven by a production ramp and increased content on the F-35 ~~production in Avionics~~platform and $28 million higher revenue from growth on classified programs in ~~Electronic Warfare from the F/A-18, F-16~~Intel and ~~rotary platforms,~~Cyber, partially offset by ~~$17 million~~ lower revenue ~~from~~in Space due to delayed ramp of a follow on U.S. Air Force space domain awareness program following the ~~timing~~wind down of the ~~transition of the United Arab Emirates integrated battle management system program from a start-up to a full capability phase.~~

The increases in segment gross margin and segment gross margin percentage in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 were primarily due to an adjustment for growth in EAC costs on a mission networks infrastructure development program in the second quarter of fiscal 2018 and higher segment revenue in the second quarter of fiscal 2019. The increase in segment ESA expenses in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 was primarily due to increased investment in R&D. The decrease in segment ESA percentage in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 was primarily due to management of expenses on higher revenue.predecessor program.

The increases in segment operating income and ~~segment~~ operating margin percentage in the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with the ~~second~~ quarter ~~of fiscal 2018 reflected the combined effects of the items discussed above regarding this segment.~~ended March 29, 2019 were primarily due to productivity and integration savings.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~

Communication Systems



	Quarter Ended
	April 3, 2020			March 29, 2019			% Inc/(Dec)		March 29, 2019			% Inc/(Dec)

	As Reported								Pro Forma
	(Dollars in millions)
Revenue	$	1,094		$	580		89	%	$	1,041		5	%
Segment operating income	$	250		$	167		50	%	$	226		11	%
% of revenue	23		%	29		%			22		%

As Reported

The increase in segment revenue in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters of fiscal 2018~~quarter ended March 29, 2019 was primarily due to ~~higher~~the inclusion of L3 operations in segment operating results during the quarter ended April 3, 2020 and the same reasons as noted below regarding revenue in Avionics from increased F-35 production, and in Electronic Warfare from the F/A-18, F-16 and rotary platforms, partially offset by $28 million lower revenue from the timing of the transition of the United Arab Emirates integrated battle management system program fromfor this segment on a ~~start-up to a full capability phase.~~pro forma basis.

The ~~increases~~increase in segment ~~gross margin~~operating income and ~~gross margin~~decrease in segment operating income percentage in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters of fiscal 2018~~quarter ended March 29, 2019 were primarily due to the ~~same reasons as noted above regarding this segment for the second quarters~~inclusion of ~~fiscal 2019 and 2018. The increases~~L3 operations in segment ~~ESA expenses~~operating results during the quarter ended April 3, 2020 and ~~comparability~~mix of ~~segment ESA percentage~~product sales and program revenue with a relatively lower operating margin percentage.

Pro Forma

The increase in revenue in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters of fiscal 2018 were~~quarter ended March 29, 2019 was primarily due to $51 million of higher Tactical Communications revenue, reflecting increased ~~investment~~U.S. DoD modernization demand and lower sales volume for international tactical radios, partially offset by lower revenue in ~~R&D and higher bid and proposal costs.~~Public Safety.

The increases in segment operating income and ~~segment~~ operating margin percentage in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters~~quarter ended March 29, 2019 were primarily due to higher volume and productivity and integration savings, partially offset by a mix of ~~fiscal 2018 reflected~~product sales and program revenue with a relatively lower operating margin percentage.

Additional Information on Known Trends and Uncertainties

We expect revenue and operating income in the ~~combined effects~~Public Safety sector will be adversely impacted by the COVID-19-related pressures on state and local government municipality customers, including reduced staffing, limited remote work technology capabilities, significant reductions in near-term tax revenues and competing budget priorities. We currently expect revenue in our Public Safety sector to decrease by approximately $50 million in calendar year 2020 compared with calendar year 2019; however, the ultimate extent of the ~~items discussed above regarding this segment for the first two quarters of fiscal 2019~~COVID-19-related impact to our Public Safety sector remains uncertain and ~~2018.~~unpredictable.

Aviation Systems



	Quarter Ended
	April 3, 2020			March 29, 2019			% Inc/(Dec)	March 29, 2019		% Inc/(Dec)

	As Reported							Pro Forma
	(Dollars in millions)
Revenue	$	1,011		$	144		*	914		11	%
Segment operating income (loss)	$	(177	)	$	17		*	105		*
% of revenue	(18		)%	12		%		11	%

__________

*Not meaningful

~~Space and Intelligence Systems Segment~~

As Reported

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 % Inc/(Dec) December 28, 2018 December 29, 2017 % Inc/(Dec)

(Dollars in millions)
Revenue $ 513
$ 462
11 % $ 1,001
$ 928
8 %
Cost of product sales and services (347 ) (315 ) 10 % (676 ) (629 ) 7 %
Gross margin 166
147
13 % 325
299
9 %
% of revenue 32 % 32 % 32 % 32 %
ESA expenses (74 ) (67 ) 10 % (147 ) (132 ) 11 %
% of revenue 14 % 15 % 15 % 14 %
Segment operating income $ 92
$ 80
15 % $ 178
$ 167
7 %
% of revenue 18 % 17 % 18 % 18 %

The ~~increase in~~ segment ~~gross margin~~operating loss in the ~~second~~ quarter ~~of fiscal 2019~~ended April 3, 2020 compared with segment operating income in the ~~second~~ quarter ~~of fiscal 2018~~ended March 29, 2019 was primarily due to ~~higher segment revenue. Segment gross margin percentage~~$324 million of impairment of goodwill and other assets and other charges recorded in the ~~second~~ quarter ~~of fiscal 2019 was comparable with~~ended April 3, 2020 related to the ~~second quarter of fiscal 2018. The increase in segment ESA expenses~~Commercial Aviation Solutions sector due to the downturn in the ~~second quarter~~commercial aviation market and its impact on customer operations, partially offset by the inclusion of fiscal 2019 compared with the second quarter of fiscal 2018 was primarily due to increased investment in R&D and higher selling costs. Segment ESA percentage decreased in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018 due to management of expenses on higher revenue.

~~The increases~~L3 operations in segment operating ~~income~~results (principally Defense Aviation Products and ~~segment operating margin percentage~~Military Training operations) in the ~~second~~ quarter ~~of fiscal 2019 compared with the second quarter of fiscal 2018 reflected the combined effects of the items discussed above regarding this segment.~~ended April 3, 2020.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ Pro Forma

The increase in segment revenue in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the ~~first two quarters of fiscal 2018~~quarter ended March 29, 2019 was primarily due to ~~$91~~$51 million of higher revenue ~~from classified programs, partially offset by lower~~in Defense Aviation Products and $36 million of higher revenue ~~from environmental programs.~~in Mission Networks.

The ~~increase in~~ segment ~~gross margin~~operating loss in the ~~first two quarters of fiscal 2019~~quarter ended April 3, 2020 compared with the first two quarters of fiscal 2018 was primarily due to higher segment revenue. Segment gross margin percentage in the first two quarters of fiscal 2019 was comparable with the first two quarters of fiscal 2018. The increases in segment ESA expenses and ESA percentage in the first two quarters of fiscal 2019 compared with the first two quarters of fiscal 2018 were primarily due to increased investment in R&D and higher selling costs.

~~The increase in~~ segment operating income in the ~~first two quarters of fiscal~~quarter ended March 29, 2019 compared with the first two quarters of fiscal 2018 and comparability of segment operating margin percentage reflected the combined effects of the items discussed above regarding this segment for the first two quarters of fiscal 2019 and 2018.

~~Unallocated Corporate Expense~~

Quarter Ended Two Quarters Ended
December 28, 2018 December 29, 2017 % Inc/(Dec) December 28, 2018 December 29, 2017 % Inc/(Dec)

(Dollars in millions)
Unallocated corporate expense and corporate eliminations $ 32
$ 29
10 % $ 48
$ 46
4 %
Amortization of intangible assets from Exelis acquisition 26
25
4 % 51
50
2 %

~~Second Quarter 2019 Compared With Second Quarter 2018:~~ ~~The increase in unallocated corporate expense in the second quarter of fiscal 2019 compared with the second quarter of fiscal 2018~~ was primarily due ~~to $13~~$324 million of ~~L3 merger-related~~

~~transaction~~impairment of goodwill and ~~integration costs~~other assets and ~~the timing of~~ other ~~expense accruals~~charges recorded in the ~~second~~ quarter ~~of fiscal 2019,~~ended April 3, 2020 related to the Commercial Aviation Solutions sector due to the downturn in the commercial aviation market and its impact on customer operations, partially offset by ~~a $12~~productivity and integration savings, higher pension income and higher volume.

Additional Information on Known Trends and Uncertainties

Revenue and operating income from our Commercial Aviation Solutions sector are expected to decline for the remainder of fiscal 2020 due to decreased commercial training and commercial avionics sales volume, reflecting the COVID-19 pandemic and its impact on global air traffic and customer operations. We currently expect revenue in our Commercial Aviation Solutions sector to decrease by approximately $300 million ~~adjustment for deferred compensation~~in calendar year 2020 compared with calendar year 2019; however, the ultimate extent of the COVID-19-related impact to our Commercial Aviation Solutions sector remains uncertain. In addition, the sale of our airport security and automation businesses on May 4, 2020, will decrease segment revenue and operating income in calendar year 2020 compared with calendar year 2019. Revenue from the airport security and automation businesses in the ~~second~~ quarter ~~of fiscal 2018.~~ended April 3, 2020 was approximately $120 million.

~~First Two Quarters 2019 Compared With First Two Quarters 2018:~~ ~~The increase in unallocated~~Unallocated Corporate Expense



	Quarter Ended
	April 3, 2020			March 29, 2019			% Inc/(Dec)		March 29, 2019			% Inc/(Dec)

	As Reported								Pro Forma
	(Dollars in millions)
Unallocated corporate expenses	$	(33	)	$	—		*		$	—		*
L3Harris Merger-related transaction and integration expenses	(31		)	(16		)	94	%	(25		)	24	%
Amortization of acquisition-related intangibles	(145		)	(25		)	480	%	(145		)	—	%

Unallocated corporate expense in the first ~~two quarters~~quarter of fiscal ~~2019 compared with the first two quarters~~2020 included $15 million of ~~fiscal 2018 was primarily due~~additional cost of sales related to the ~~same reasons as noted above regarding~~fair value step-up in inventory sold, a $5 million non-cash goodwill impairment charge related to the ~~second quarters~~pending divestiture of ~~fiscal 2019~~our Applied Kilovolts and ~~2018.~~Analytical Instrumentation business and $3 million of divestiture expenses.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

Cash Flows


	Two Quarters Ended						Quarter Ended
	December 28, 2018			December 29, 2017			April 3, 2020			March 29, 2019

	(In millions)						(In millions)
Net cash provided by operating activities	$	469		$	373		$	533		$	405
Net cash used in investing activities	(67		)	(45		)	(58		)	(37		)
Net cash used in financing activities	(342		)	(394		)	(612		)	(380		)
Effect of exchange rate changes on cash and cash equivalents	(5		)	4			(24		)	3
Net increase (decrease) in cash and cash equivalents	55			(62		)
Net decrease in cash and cash equivalents							(161		)	(9		)
Cash and cash equivalents, beginning of year	288			484			824			343
Cash and cash equivalents, end of quarter	$	343		$	422
Cash and cash equivalents, end of period							$	663		$	334



	Quarter Ended December 29, 2017
	Previously Reported			Effect of Adopting ASC 606			Effect of Adopting ASU 2017-07			Currently Reported

	(In millions, except per share amounts)
Revenue from product sales and services	$	1,535		$	—		$	—		$	1,535
Cost of product sales and services	(987		)	1			(36		)	(1,022		)
Engineering, selling and administrative expenses	(276		)	(5		)	(10		)	(291		)
Non-operating income (loss)	(2		)	—			46			44
Interest income	1			—			—			1
Interest expense	(42		)	—			—			(42		)
Income from continuing operations before income taxes	229			(4		)	—			225
Income taxes	(90		)	(4		)	—			(94		)
Income from continuing operations	139			(8		)	—			131
Discontinued operations, net of income taxes	—			—			—			—
Net income	$	139		$	(8	)	$	—		$	131

Net income per common share
Basic
Continuing operations	$	1.17		$	(0.07	)	$	—		$	1.10
Discontinued operations	—			—			—			—
	$	1.17		$	(0.07	)	$	—		$	1.10
Diluted
Continuing operations	$	1.15		$	(0.07	)	$	—		$	1.08
Discontinued operations	—			—			—			—
	$	1.15		$	(0.07	)	$	—		$	1.08



	Two Quarters Ended December 29, 2017
	Previously Reported			Effect of Adopting ASC 606			Effect of Adopting ASU 2017-07			Currently Reported

	(In millions, except per share amounts)
Revenue from product sales and services	$	2,948		$	(3	)	$	—		$	2,945
Cost of product sales and services	(1,872		)	4			(73		)	(1,941		)
Engineering, selling and administrative expenses	(532		)	(8		)	(19		)	(559		)
Non-operating income (loss)	(2		)	—			92			90
Interest income	1			—			—			1
Interest expense	(83		)	—			—			(83		)
Income from continuing operations before income taxes	460			(7		)	—			453
Income taxes	(154		)	(3		)	—			(157		)
Income from continuing operations	306			(10		)	—			296
Discontinued operations, net of income taxes	(6		)	—			—			(6		)
Net income	$	300		$	(10	)	$	—		$	290

Net income per common share
Basic
Continuing operations	$	2.57		$	(0.08	)	$	—		$	2.49
Discontinued operations	(0.05		)	(0.01		)	—			(0.06		)
	$	2.52		$	(0.09	)	$	—		$	2.43
Diluted
Continuing operations	$	2.52		$	(0.08	)	$	—		$	2.44
Discontinued operations	(0.05		)	—			—			(0.05		)
	$	2.47		$	(0.08	)	$	—		$	2.39



	(In millions)
Balance at June 29, 2018	$	24
Warranty provision for sales	9
Settlements	(6		)
Balance at December 28, 2018	$	27



	Quarter Ended December 28, 2018						Two Quarters Ended December 28, 2018
	Pension			Other Benefits			Pension			Other Benefits

	(In millions)
Net periodic benefit income
Service cost	$	9		$	—		$	18		$	—
Interest cost	53			2			105			4
Expected return on plan assets	(96		)	(4		)	(191		)	(8		)
Amortization of net actuarial gain	—			(1		)	—			(3		)
Total net periodic benefit income	$	(34	)	$	(3	)	$	(68	)	$	(7	)


Period*	Period*	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (1)	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1)		Period*	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ⁽¹⁾	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs ⁽¹⁾
Month No. 1	Month No. 1							Month No. 1
(September 29, 2018-October 26, 2018)
(January 4, 2020 - January 31, 2020)								(January 4, 2020 - January 31, 2020)
Repurchase program⁽¹⁾	Repurchase program⁽¹⁾	—	—		—	$	501,279,637	Repurchase program⁽¹⁾	—	—		—	$	2,500,113,105
Employee transactions⁽²⁾	Employee transactions⁽²⁾	1,973	$	165.57	—	—		Employee transactions⁽²⁾	4,337	$	220.13	—	—
Month No. 2	Month No. 2							Month No. 2
(October 27, 2018-November 23, 2018)
(February 1, 2020 - February 28, 2020)								(February 1, 2020 - February 28, 2020)
Repurchase program⁽¹⁾	Repurchase program⁽¹⁾	—	—		—	$	501,279,637	Repurchase program⁽¹⁾	1,927,359	$	223.92	1,927,359	$	2,068,540,227
Employee transactions⁽²⁾	Employee transactions⁽²⁾	9,443	$	147.96	—	—		Employee transactions⁽²⁾	5,379	$	225.58	—	—
Month No. 3	Month No. 3							Month No. 3
(November 24, 2018-December 28, 2018)
(February 29, 2020 - April 3, 2020)								(February 29, 2020 - April 3, 2020)
Repurchase program⁽¹⁾	Repurchase program⁽¹⁾	—	—		—	$	501,279,637	Repurchase program⁽¹⁾	1,350,200	$	198.74	1,350,200	$	1,800,204,462
Employee transactions⁽²⁾	Employee transactions⁽²⁾	6,580	$	137.86	—	—		Employee transactions⁽²⁾	2,292	$	182.40	—	—
Total	Total	17,996			—	$	501,279,637	Total	3,289,567			3,277,559	$	1,800,204,462



(~~2.1~~	)	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 the Company’s Current Report on Form 8-K filed with the SEC on October 16, 2018. (Commission File Number 1-3863)
(3	)	(a) Restated Certificate of Incorporation of ~~Harris Corporation~~L3Harris Technologies, Inc. (1995), as ~~amended, incorporated herein by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2012. (Commission File Number 1-3863)~~amended.
		(b) Amended and Restated By-Laws of ~~Harris Corporation, as amended and restated effective August 25, 2018,~~L3Harris Technologies, Inc., incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~August 30, 2018.~~April 7, 2020. (Commission File Number 1-3863)
(1010.1	)	Employment Agreement Amendment, dated October 12, 2018,L3Harris Technologies, Inc. Executive Change in Control Severance Plan, effective as of March 1, 2020, incorporated herein by ~~and between Harris Corporation and William M. Brown.~~reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020 (Commission File Number 1-3863).
(1210.2	)	~~Computation~~L3Harris Technologies, Inc. Severance Pay Plan, effective as of ~~Ratio~~March 1, 2020, incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2020 (Commission File Number 1-3863).*
(10.3	)	L3Harris Technologies, Inc. Restricted Unit Award Agreement Terms and Conditions (as of ~~Earnings~~February 5, 2020).*
(10.4	)	L3Harris Technologies, Inc. Performance Unit Award Agreement Terms and Conditions (as of February 28, 2020).*
(10.5	)	L3Harris Technologies, Inc. Stock Option Award Agreement Terms and Conditions (as of February 28, 2020).*
(10.6	)	Amendment One to ~~Fixed Charges.~~the L3Harris Retirement Savings Plan (amended and restated as of January 1, 2020), dated February 19, 2020 and effective February 1, 2020.*
(10.7	)	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.*
(15	)	Letter Regarding Unaudited Interim Financial Information.
(21	)	Subsidiaries of the Registrant.
(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.INS)~~(101)		The financial information from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2020 formatted in Inline XBRL ~~Instance Document.~~(Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Statement of Income, (ii) the Condensed Consolidated Statement of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheet, (iv) the Condensed Consolidated Statement of Cash Flows, (v) the Condensed Consolidated Statement of Equity, and (vi) the Notes to the Condensed Consolidated Financial Statements.
~~(101.SCH)~~(104)		Cover Page Interactive Data File formatted in Inline XBRL ~~Taxonomy Extension Schema Document.~~
~~(101.CAL)~~		~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~(101.LAB)~~		~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~(101.PRE)~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~
~~(101.DEF)~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~and contained in Exhibit 101.




	~~HARRIS CORPORATION~~L3HARRIS TECHNOLOGIES, INC.
	(Registrant)

Date: ~~January 30, 2019~~May 7, 2020	By:	/s/ ~~Rahul Ghai~~Jesus Malave Jr.
		~~Rahul Ghai~~Jesus Malave Jr.
		Senior Vice President and Chief Financial Officer
		(principal financial officer and duly authorized officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company