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BUSINESS COMBINATION | 12 Months Ended
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Dec. 31, 2021
Business Combinations [Abstract] |
BUSINESS COMBINATION | NOTE 4: BUSINESS COMBINATION On October 12, 2018, Harris Corporation, a Delaware corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with L3 Technologies, Inc., a Delaware corporation, and Leopard Merger Sub Inc., a Delaware corporation and a newly formed, direct wholly-owned subsidiary of Harris (“Merger Sub”), pursuant to which Harris and L3 agreed to combine their respective businesses in an all-stock merger, at the closing of which Merger Sub would merge with and into L3, with L3 continuing as the surviving corporation and a direct wholly-owned subsidiary of Harris (the “L3Harris Merger”). The closing of the L3Harris Merger occurred on June 29, 2019 (“Closing Date”), the first day of our Fiscal Transition Period. Upon completion of the L3Harris Merger, Harris was renamed “L3Harris Technologies, Inc.” and each share of L3 common stock converted into the right to receive 1.30 shares (“Exchange Ratio”) of L3Harris common stock. Shares of L3Harris common stock, which previously traded under ticker symbol “HRS” on the New York Stock Exchange prior to completion of the L3Harris Merger, are traded under ticker symbol “LHX” following completion of the L3Harris Merger. L3Harris was owned on a fully diluted basis 54 percent by Harris shareholders and 46 percent by L3 shareholders immediately following the completion of the L3Harris Merger. L3 was a prime contractor in intelligence, surveillance and reconnaissance (“ISR”) systems, aircraft sustainment (including modifications and fleet management of special mission aircraft), simulation and training, night vision and image intensification equipment and security and detection systems. L3 also was a leading provider of a broad range of communication, electronic and sensor systems used on military, homeland security and commercial platforms. L3 employed approximately 31,000 employees and its customers included the U.S. Department of Defense and its prime contractors, the U.S. Intelligence Community, the U.S. Department of Homeland Security, foreign governments and domestic and foreign commercial customers. L3 generated calendar 2018 revenue of approximately $10 billion. In connection with completion of the L3Harris Merger, we issued to L3 shareholders 104 million shares of L3Harris common stock, the trading price of which was $189.13 per share as of the Closing Date. In addition, we issued L3Harris share-based awards in replacement of certain outstanding L3 share-based awards held by employees. We accounted for the L3Harris Merger under the acquisition method of accounting, which required us to measure identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree at their fair values as of the Closing Date, with the excess of the consideration transferred over those fair values recorded as goodwill. Our calculation of consideration transferred is as follows:
(In millions, except exchange ratio and per share amounts) | June 29, 2019
Outstanding shares of L3 common stock as of June 28, 2019 | 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 restricted stock units attributable to merger consideration | 10 |
Fair value of L3Harris stock options issued to replace 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 fair value estimates and assumptions to measure the assets acquired, liabilities assumed and noncontrolling interests in L3 were subject to change as we obtained additional information during the measurement period. We completed our accounting for the L3Harris Merger during the quarter ended July 3, 2020. The following table summarizes the initial fair value amounts recognized during the quarter ended September 27, 2019 for each major class of assets acquired or liabilities assumed and noncontrolling interests, as well as adjustments during the measurement period:
(In millions) | Preliminary Fair Value as of September 27, 2019 |  | Measurement Period Adjustments |  | Adjusted Fair Value as of July 3, 2020
Receivables | $ | 849 |  |  | $ | (20) |  |  | $ | 829 |
Contract assets | 1,708 |  |  | (57) |  |  | 1,651 |
Inventories | 1,056 |  |  | (73) |  |  | 983 |
Other current assets | 517 |  |  | (16) |  |  | 501 |
Property, plant and equipment | 1,176 |  |  | 43 |  |  | 1,219 |
Operating lease right-of-use assets | 704 |  |  | 108 |  |  | 812 |
Goodwill | 15,423 |  |  | (841) |  |  | 14,582 |
Other intangible assets | 6,768 |  |  | 1,690 |  |  | 8,458 |
Other non-current assets | 327 |  |  | (13) |  |  | 314 |
Total assets acquired | $ | 28,528 |  |  | $ | 821 |  |  | $ | 29,349 |
Accounts payable | $ | 898 |  |  | $ | (13) |  |  | $ | 885 |
Contract liabilities | 722 |  |  | 4 |  |  | 726 |
Other current liabilities | 772 |  |  | 301 |  |  | 1,073 |
Operating lease liabilities | 715 |  |  | 45 |  |  | 760 |
Defined benefit plans | 1,411 |  |  | — |  |  | 1,411 |
Long-term debt, net | 3,548 |  |  | — |  |  | 3,548 |
Other long-term liabilities | 1,661 |  |  | 480 |  |  | 2,141 |
Total liabilities assumed | 9,727 |  |  | 817 |  |  | 10,544 |
Net assets acquired | 18,801 |  |  | 4 |  |  | 18,805 |
Noncontrolling interests | (151) |  |  | (4) |  |  | (155) |
Total net consideration transferred | $ | 18,650 |  |  | $ | — |  |  | $ | 18,650 |
Additionally, we acquired certain off-market customer contracts in connection with the L3Harris Merger, and we have recorded liabilities as well as separate identifiable intangible assets for the acquisition-date fair value of the off-market components of these customer contracts. In aggregate, the acquisition-date fair value of the off-market components was a net liability of $139 million. We measured the fair value of these components as the present value of the amount by which the terms of the contract with the customer deviated from the terms that a market participant could have achieved at the Closing Date. The off-market components of these contracts will be recognized as an increase to, or reduction of, revenue as we incur costs to satisfy the associated performance obligations. We recognized $20 million, $58 million and $13 million of revenue in fiscal 2021, fiscal 2020 and the Fiscal Transition Period, respectively, for amortization of net off-market contract liabilities. Fiscal 2020 also included the cumulative effect of amortization that would have been recognized in the Fiscal Transition Period. Future estimated revenue from the amortization of net off-market contract liabilities (based on the estimated pattern of cash flows to be incurred to satisfy associated performance obligations) is as follows: $15 million in 2022, $10 million in 2023 and $23 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 tax purposes. See Note 9: Goodwill in these Notes for more information regarding the allocation of goodwill by business segment. The following table provides further detail of the fair value and weighted-average amortization period of identified intangible assets acquired by major intangible asset class:
| Weighted Average Amortization Period |  | Total
| (In years) |  | (In millions)
Identifiable intangible assets acquired: |  |  |
Customer relationships — government | 14 |  | $ | 5,082 |
Customer relationships — commercial | 15 |  | 860 |
Contract backlog | 3 |  | 19 |
Trade names — divisions | 9 |  | 123 |
Developed technologies | 7 |  | 550 |
Total identifiable intangible assets subject to amortization | 13 |  | 6,634 |
Trade names — corporate | indefinite |  | 1,803 |
In-process research and development | N/A |  | 21 |
Total identifiable intangible assets |  |  | $ | 8,458 |
L3Harris Merger-related charges were as follows:
| Fiscal Years Ended |  | Two Quarters Ended |  | Fiscal Year Ended
(In millions) | December 31, 2021 |  | January 1, 2021 |  | January 3, 2020 |  | June 28, 2019
Equity award acceleration charges, recognized upon change in control | $ | — |  |  | $ | — |  |  | $ | 70 |  |  | $ | — |
Transaction costs, recognized as incurred | — |  |  | — |  |  | 83 |  |  | 31 |
Additional cost of sales related to the fair value step-up in inventory sold | — |  |  | 31 |  |  | 142 |  |  | — |
Restructuring charges, recognized as incurred | — |  |  | 10 |  |  | 117 |  |  | — |
Facility consolidation costs | — |  |  | — |  |  | 48 |  |  | — |
Integration costs, recognized as incurred | 128 |  |  | 130 |  |  | 72 |  |  | 34 |
Total L3Harris Merger-related charges | $ | 128 |  |  | $ | 171 |  |  | $ | 532 |  |  | $ | 65 |
Because the L3Harris Merger benefited the entire Company as opposed to any individual business segment, the above costs were not allocated to any business segment. Most of the costs above were recorded in the “Engineering, selling and administrative expenses” line item in our Consolidated Statement of Income, except for additional cost of sales related to the fair value step-up in inventory sold, which is included in the “Cost of product sales and services” line item in our Consolidated Statement of Income and facility consolidation costs, the majority of which is included in the “Impairment of goodwill and other assets” line item in our Consolidated Statement of Income. Pro Forma Results The following unaudited consolidated pro forma results of operations for the four quarters ended January 3, 2020 combines reported results for the two quarters ended January 3, 2020 with the pro forma results for the two quarters ended June 28, 2019. The pro forma results for the two quarters ended June 28, 2019 were prepared on a pro forma basis, as if the L3Harris Merger had been completed on June 30, 2018, the first day of Harris’ fiscal 2019, after including any post-merger adjustments directly attributable to the L3Harris Merger, such as the sale of the Harris Night Vision business, and after including the impact of adjustments such as amortization of identifiable intangible assets, as well as the related income tax effects. This pro forma presentation does not include any impact of transaction synergies. The pro forma results are not necessarily indicative of our results of operations that actually would have been obtained had the L3Harris Merger been completed on the assumed date or for the period presented, or which may be realized in the future.
| Four Quarters Ended |  | Two Quarters Ended
(In millions) | January 3, 2020 |  | December 28, 2018
Revenue from product sales and services — as reported | $ | 12,856 |  |  | $ | 3,208 |
Revenue from product sales and services — pro forma | 18,097 |  |  | 8,404 |
Income from continuing operations — as reported | 1,347 |  |  | 441 |
Income from continuing operations — pro forma | 1,652 |  |  | 760 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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