XML 23 R10.htm IDEA: XBRL DOCUMENT
v3.23.3

ACQUISITIONS, DIVESTITURES AND ASSET SALES | 9 Months Ended
--- | ---
Sep. 29, 2023
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS, DIVESTITURES AND ASSET SALES | NOTE B: ACQUISITIONS, DIVESTITURES AND ASSET SALES Acquisition of Viasat’s TDL On January 3, 2023, we completed the acquisition of TDL for a purchase price of $1.958 billion. The acquisition, which qualified as a business acquisition, enhances our networking capability and provides access to the ubiquitous Link 16 waveform, better positioning us to enable the U.S. Department of Defense (“DoD”) integrated architecture goal in joint all-domain command and control (“JADC2”). On November 22, 2022, we established a $2.25 billion, three-year senior unsecured term loan facility by entering into a Loan Agreement (“Term Loan 2025”) with a syndicate of lenders, in part, to finance the acquisition. See Note H: Debt and Credit Arrangements in these Notes for further information regarding Term Loan 2025. Net assets and results of operations of TDL are reflected in our financial results commencing on January 3, 2023, the acquisition date, and are reported within our Communication Systems (“CS”) segment. We accounted for the acquisition of TDL using the acquisition method of accounting, which required us to measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the acquisition date, with the excess of the consideration transferred over those fair values recorded as goodwill. Our preliminary fair value estimates and assumptions are subject to change as we obtain additional information over the measurement period. As of the acquisition date, the fair value of consideration transferred consisted of the following:
(In millions) | January 3, 2023
Purchase price | $ | 1,958 |
Estimated net working capital and other adjustments | 15 |
Cash consideration paid | 1,973 |
Settlement of preexisting relationship(1) | 1
Fair value of consideration transferred | $ | 1,974 |
_______________ (1)Prior to the acquisition, we had a preexisting relationship with Viasat’s TDL business in the normal course of business. As of the acquisition date, our CS segment had a receivable from Viasat’s TDL business with a fair value of $1 million that was settled in connection with the acquisition. The following table summarizes the preliminary allocation of the fair value of consideration transferred to assets acquired and liabilities assumed as of the acquisition date and the measurement period adjustments recorded since the acquisition date through September 29, 2023:
| January 3, 2023
(In millions) | Preliminary |  | Measurement Period Adjustments, Net 1,2 |  | Preliminary Adjusted
Receivables | $ | 28 |  |  | $ | — |  |  | $ | 28 |
Contract assets | 18 |  |  | 11 |  |  | 29 |
Inventories | 164 |  |  | (10) |  |  | 154 |
Other current assets | 9 |  |  | — |  |  | 9 |
Property, plant and equipment | 50 |  |  | — |  |  | 50 |
Operating lease right-of-use assets | 12 |  |  | — |  |  | 12 |
Goodwill | 1,014 |  |  | 103 |  |  | 1,117 |
Other intangible assets | 850 |  |  | (95) |  |  | 755 |
Deferred income taxes | 33 |  |  | 3 |  |  | 36 |
Other non-current assets | 6 |  |  | (1) |  |  | 5 |
Total assets acquired | $ | 2,184 |  |  | $ | 11 |  |  | $ | 2,195 |
Accounts payable | $ | 20 |  |  | $ | — |  |  | $ | 20 |
Contract liabilities | 28 |  |  | — |  |  | 28 |
Compensation and benefits | 2 |  |  | — |  |  | 2 |
Other accrued items | 119 |  |  | 1 |  |  | 120 |
Operating lease liabilities | 10 |  |  | — |  |  | 10 |
Other long-term liabilities | 31 |  |  | 10 |  |  | 41 |
Total liabilities assumed | $ | 210 |  |  | $ | 11 |  |  | $ | 221 |
Net assets acquired | $ | 1,974 |  |  | $ | — |  |  | $ | 1,974 |
_______________ (1)Fair value adjustments primarily related to refined assumptions in the valuation of customer relationship intangible assets. (2) Assets acquired include $11 million of Contract assets that were reclassified from Inventories to Contract assets to conform TDL’s accounting policies with those of L3Harris, as required under ASC 805. As such, reclassified amounts will not be recognized as revenue in future periods. Our preliminary estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the acquisition date); therefore, these provisional measurements of the assets acquired and liabilities assumed are subject to change. Intangible Assets. All intangible assets acquired in the TDL acquisition are subject to amortization. The preliminary fair value of identifiable intangible assets acquired as of the acquisition date is as follows:
| Total |  | Useful Lives
| (In millions) |  | (In Years)
Developed technology | $ | 349 |  |  | 17
Customer relationships:(1) |  |  |
Backlog | 83 |  |  | 2
Government programs | 323 |  |  | 16
Total customer relationships | 406 |  |  |
Total identifiable intangible assets acquired | $ | 755 |  |  |
_______________ (1)TDL had backlog and government programs intangible assets that we classified as customer relationships. We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgment related to estimations. The use of different estimates could produce different results. The fair value of intangible assets is estimated using the relief from royalty method for the acquired developed technology and the multi-period excess earnings method for the acquired customer relationships. Both of these level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, royalty rates related to the developed technology intangible assets, revenue growth attributable to the intangible assets and remaining useful lives. The fair value of inventory was estimated using the replacement cost approach and comparative sales method, which require estimates of replacement cost for raw materials and estimates of expected sales price less costs to complete and dispose of the inventory, plus a profit margin for efforts incurred for the work in progress and finished goods. Forward Loss Provision. We have recorded a preliminary forward loss provision of $86 million in connection with certain acquired contracts, which was included in the “Other accrued items” line item in our Condensed Consolidated Balance Sheet. The forward loss provisions will be recognized as a reduction to cost of sales as we incur costs to satisfy the associated performance obligations. There will be no net impact on our Condensed Consolidated Statement of Operations. We recognized $15 million and $29 million for amortization of the forward loss provision during the quarter and three quarters ended September 29, 2023, respectively. Off-market Customer Contracts. We have identified certain contractual obligations with customers with economic returns that are higher or lower than could be realized in market transactions as of the acquisition date and have recorded liabilities for the preliminary acquisition date fair value of the off-market components. The preliminary acquisition date fair value of the off-market components is a net liability of $64 million, consisting of $33 million and $31 million included in the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet, respectively, and excludes any amounts already recognized in forward loss provisions (see discussion in the preceding paragraph). We measured the fair value of these components as the amount by which the terms of the contract with the customer deviates from the terms that a market participant could have achieved at the acquisition date. The off-market components of these contracts will be recognized as an increase to revenue as we incur costs to satisfy the associated performance obligations. We recognized $7 million and $22 million for amortization of off-market contract liabilities during the quarter and three quarters ended September 29, 2023, respectively. Future estimated revenue from the amortization of off-market contract liabilities (based on the estimated pattern of cash flows to be incurred to satisfy associated performance obligations) is $11 million in the remainder of 2023, $22 million in 2024 and immaterial amounts thereafter. Goodwill. The $1.117 billion of goodwill recognized is attributable to the assembled workforce, in addition to synergies expected to be realized through integration with existing CS segment businesses and growth opportunities in the space domain. The acquired goodwill is tax deductible. See Note G: Goodwill and Other Intangible Assets in these Notes for further information. Financial Results. The following table includes revenue and income before income taxes of TDL included in our Condensed Consolidated Statement of Operations for the quarter ended September 29, 2023 and for the acquisition date through September 29, 2023 and the comparable periods of calendar year 2022. The comparable period results do not include any integration synergies or accounting conformity adjustments and are not necessarily indicative of our results of operations that actually would have been obtained had the acquisition of TDL been completed for the period presented, or which may be realized in the future.
| Quarter Ended |  | Three Quarters Ended
(In millions) | September 29, 2023 |  | September 30, 2022 |  | September 29, 2023 |  | September 30, 2022
Revenue | $ | 97 |  |  | $ | 105 |  |  | $ | 261 |  |  | $ | 290 |
Income before income taxes | 38 |  |  | 30 |  |  | 86 |  |  | 55 |
Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the TDL acquisition, we recorded transaction and integration costs of $10 million and $64 million for the quarter and three quarters ended September 29, 2023, respectively, which were included in the Engineering, selling and administrative expenses line item in our Condensed Consolidated Statement of Operations. Acquisition of AJRD On July 28, 2023 we acquired AJRD, a technology-based engineering and manufacturing company that develops and produces missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions. The acquisition provides us access to a new market. We acquired 100 percent of AJRD for a total net purchase price of $4.715 billion. The acquisition was fina nced through the issuance and sale of $3.25 billion aggregate principal amount of new long-term fixed-rate debt and draw down under the 2023 Credit Agreement. See Note H: Debt and Credit Arrangements in these Notes for further information regarding the financing of the AJRD acquisition. Net assets and results of operations of AJRD are reflected in our financial results commencing on July 28, 2023, the acquisition date, and are reported in our newly created AR segment and corporate headquarters. We accounted for the acquisition of AJRD using the acquisition method of accounting, which required us to measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the acquisition date, with the excess of the consideration transferred over those fair values recorded as goodwill. Our preliminary fair value estimates and assumptions are subject to change as we obtain additional information over the measurement period and our measurement of certain assets and contingencies, such as intangible assets, property, plant and equipment, real estate held for development and leasing, loss contracts, environmental matters and related deferred tax impacts remain preliminary for completion of the related valuations. As of the acquisition date, the fair value of consideration transferred consisted of the following:
(In millions) | July 28, 2023
Cash consideration paid for AJRD outstanding common stock & equity awards | $ | 4,748 |
AJRD debt settled by L3Harris | 257 |
Cash consideration paid | 5,005 |
Less cash acquired | (290) |
Fair value of consideration transferred | $ | 4,715 |
The following table summarizes the preliminary allocation of the fair value of consideration transferred to assets acquired and liabilities assumed as of the acquisition date:
(In millions) | July 28, 2023
Receivables | $ | 156 |  |  |  |  |
Contract assets | 338 |  |  |  |  |
Inventories | 14 |  |  |  |  |
Income taxes receivable | 3 |  |  |  |  |
Other current assets | 114 |  |  |  |  |
Property, plant and equipment | 574 |  |  |  |  |
Operating lease right-of-use assets | 51 |  |  |  |  |
Goodwill | 2,348 |  |  |  |  |
Other intangible assets | 2,860 |  |  |  |  |
Recoverable environmental remediation costs | 383 |  |  |  |  |
Other non-current assets | 175 |  |  |  |  |
Total assets acquired | $ | 7,016 |  |  |  |  |
Accounts payable | 145 |  |  |  |  |
Contract liabilities | 310 |  |  |  |  |
Compensation and benefits | 116 |  |  |  |  |
Income taxes payable | 6 |  |  |  |  |
Current portion of long-term debt, net | 1 |  |  |  |  |
Other accrued items | 278 |  |  |  |  |
Defined benefit plans | 223 |  |  |  |  |
Operating lease liabilities | 40 |  |  |  |  |
Long-term debt, net | 41 |  |  |  |  |
Deferred income taxes | 398 |  |  |  |  |
Reserves for environmental remediation costs | 417 |  |  |  |  |
Other long-term liabilities | 326 |  |  |  |  |
Total liabilities assumed | $ | 2,301 |  |  |  |  |
Fair value of consideration transferred | $ | 4,715 |  |  |  |  |
We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgment related to estimates. Due to the timing of the AJRD acquisition, our accounting for the acquisition remains preliminary. Amounts recorded associated with these assets and liabilities are based on preliminary calculations and estimates. Our preliminary estimates and assumptions are subject to change as we obtain additional information during the measurement period (up to one year from the acquisition date). Any potential adjustments made could be material in relation to the preliminary values presented above. Intangible Assets. All intangible assets acquired in the AJRD acquisition are subject to amortization. The preliminary fair value of identifiable intangible assets acquired as of the acquisition date is as follows:
| Total |  | Useful Lives
| (In millions) |  | (In Years)
Trade names | $ | 120 |  |  | 10 - 20
Customer relationships:(1) |  |  |
Backlog | 360 |  |  | 3 - 4
Government programs | 2,380 |  |  | 15 - 25
Total customer relationships | 2,740 |  |  |
Total identifiable intangible assets acquired | $ | 2,860 |  |  |
_______________ (1)AJRD had backlog and government programs intangible assets that we classified as customer relationships. The fair value of intangible assets is estimated using the relief from royalty method for the acquired trade names and the multi-period excess earnings method for the acquired customer relationships. Both of these level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, royalty rates related to the trade names intangible assets, revenue growth attributable to the intangible assets and remaining useful lives. Reserves for Environmental Remediation Costs and Recoverable Environmental Remediation Costs. See Note P: Legal Proceedings and Contingencies in these Notes for additional information. Forward Loss Provision. We have recorded a preliminary forward loss provision of $37 million which was included in ”Other accrued items” line item in our Condensed Consolidated Balance Sheet. The forward loss provisions will be recognized as a reduction to cost of sales as we incur costs to satisfy the associated performance obligations. There will be no net impact on our Condensed Consolidated Statement of Operations. We recognized $4 million from amortization of the forward loss provision for the acquisition date through September 29, 2023. Off-market Customer Contracts. We have identified certain contractual obligations with customers with economic returns that are higher or lower than could be realized in market transactions as of the acquisition date and have recorded liabilities for the preliminary acquisition date fair value of the off-market components. The preliminary acquisition date fair value of the off-market components is a net liability of $53 million, consisting of $26 million and $27 million included in the “Other accrued items” and “Other long-term liabilities” line items in our Condensed Consolidated Balance Sheet, respectively, and excludes any amounts already recognized in forward loss provisions (see discussion in the preceding paragraph). We measured the fair value of these components as the amount by which the terms of the contract with the customer deviates from the terms that a market participant could have achieved at the acquisition date. The off-market components of these contracts will be recognized as an increase to revenue as we incur costs to satisfy the associated performance obligations. We recognized $4 million from amortization of off-market contract liabilities during the period from the acquisition date through September 29, 2023. Goodwill. The $2,348 million of goodwill recognized is attributable to AJRD’s market presence as the provider of advanced propulsion and power systems for nearly every major U.S. space and missile program, the assembled workforce and established operating infrastructure. The acquired goodwill is not tax deductible. See Note G: Goodwill and Other Intangible Assets in these Notes for further information. Financial Results. Revenue and income before income taxes of AJRD included in our Condensed Consolidated Statement of Operations for the acquisition date through September 29, 2023 was $455 million and $56 million, respectively. The following table presents unaudited pro forma financial results of the operations acquired with AJRD. The pro forma results for the three quarters ended September 29, 2023 were prepared as if the acquisition was completed on the first day of our fiscal 2023, December 31, 2022, and include adjustments to remove costs directly attributable to the acquisition, such as transaction-related costs and the impact of purchase price adjustments, and corporate expenses such as pension, interest, and amortization. The pro forma results for the three quarters ended September 30, 2022 were prepared as if the acquisition was completed on the first day of our fiscal 2022, January 1, 2022, and include adjustments to remove corporate expenses such as pension, interest, and amortization. The pro forma results do not include any integration synergies and are not necessarily indicative of our results of operations that actually would have been obtained had the acquisition of AJRD been completed for the period presented, or which may be realized in the future.
|  |  | Three Quarters Ended
(In millions) |  |  |  |  | September 29, 2023 |  | September 30, 2022
Revenue |  |  |  |  | $ | 1,740 |  |  | $ | 1,589 |
Income before income taxes |  |  |  |  | 156 |  |  | 180 |
Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the AJRD acquisition, we recorded transaction and integration costs of $45 million and $67 million for the quarter and three quarters ended September 29, 2023, respectively, which were included in the “Engineering, selling and administrative expenses” line item in our Condensed Consolidated Statement of Operations. Divestiture of Visual Information Solutions (“VIS”) On April 6, 2023, we completed the sale of VIS for a sale price of $70 million and recognized a pre-tax gain of $26 million included in the “Sale of asset group and business divestiture-related gains, net” line item in our Condensed Consolidated Statement of Operations for the quarter and three quarters ended September 29, 2023, respectively. After selling costs and purchase price adjustments, the net cash proceeds for the sale of VIS were $71 million. The operating results of VIS were reported in the SAS segment through the date of divestiture. The carrying amounts of the assets and liabilities of VIS were classified as held for sale in our Condensed Consolidated Balance Sheet as of December 30, 2022. Completed Divestiture and Asset Sale for the Three Quarters Ended September 30, 2022 During the three quarters ended September 30, 2022, we completed one business divestiture and one asset sale from our IMS segment for combined net cash proceeds of $23 million and recognized a pre-tax gain of $8 million associated with the asset sale included in the “Sale of asset group and business divestiture-related gains, net” line item in our Condensed Consolidated Statement of Operations for the quarter and three quarters ended September 30, 2022. Fair Value of Businesses and Goodwill Allocation. For purposes of allocating goodwill to the disposal groups that represent a portion of a reporting unit, we determine the fair value of each disposal group based on the respective negotiated selling price, and the fair value of the retained businesses of the respective reporting unit based on a combination of market-based and income based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions and projected discounted cash flows. These fair value determinations are categorized as Level 3 in the fair value hierarchy due to their use of internal projections and unobservable measurement inputs. See Note G: Goodwill and Other Intangible Assets and Note L: Fair Value Measurements in these Notes for additional information.

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationAndAssetAcquisitionAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
Name: | us-gaap_MergersAcquisitionsAndDispositionsDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration