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ACQUISITIONS AND DIVESTITURES | 3 Months Ended
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Mar. 29, 2024
Business Combination and Asset Acquisition [Abstract] |
ACQUISITIONS AND DIVESTITURES | NOTE O: ACQUISITIONS AND DIVESTITURES Acquisition of AJRD On July 28, 2023, we acquired AJRD, a technology-based engineering and manufacturing company that develops and produces missile solutions and 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% of AJRD for a total net purchase price of $4,715 million. The acquisition was fina nced through the issuance and sale of $3.25 billion aggregate principal amount of new long-term fixed-rate debt consisting of the 5.4% 2027 Notes, the 5.4% 2033 Notes and the 5.6% 2053 Notes (collectively, the “AJRD Notes”) and a draw down under the 2023 Credit Agreement. See Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K 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 AR segment, which is also the AR reporting unit, 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:
| July 28, 2023
(In millions) | Preliminary |  | Measurement Period Adjustments, Net(1) |  | Preliminary Adjusted
Receivables | $ | 156 |  |  | $ | — |  |  | $ | 156 |
Contract assets | 338 |  |  | (69) |  |  | 269 |
Inventories | 14 |  |  | — |  |  | 14 |
Other current assets | 117 |  |  | 19 |  |  | 136 |
Property, plant and equipment | 574 |  |  | 11 |  |  | 585 |
Goodwill | 2,348 |  |  | 125 |  |  | 2,473 |
Other intangible assets | 2,860 |  |  | — |  |  | 2,860 |
Other non-current assets | 609 |  |  | 65 |  |  | 674 |
Total assets acquired | $ | 7,016 |  |  | $ | 151 |  |  | $ | 7,167 |
Current portion of long-term debt, net | $ | 1 |  |  | $ | — |  |  | $ | 1 |
Accounts payable | 145 |  |  | — |  |  | 145 |
Contract liabilities | 310 |  |  | 45 |  |  | 355 |
Compensation and benefits | 116 |  |  | 1 |  |  | 117 |
Income taxes payable | 6 |  |  | (1) |  |  | 5 |
Other accrued items | 278 |  |  | 81 |  |  | 359 |
Long-term debt, net | 41 |  |  | — |  |  | 41 |
Deferred income taxes | 398 |  |  | 82 |  |  | 480 |
Other long-term liabilities | 1,006 |  |  | (57) |  |  | 949 |
Total liabilities assumed | $ | 2,301 |  |  | $ | 151 |  |  | $ | 2,452 |
Fair value of consideration transferred | $ | 4,715 |  |  | $ | — |  |  | $ | 4,715 |
_______________ (1)Fair value adjustments during the measurement period primarily related to EAC updates, refinements to the fair value of fixed assets, as well as an update to the deferred tax liability which was offset by the release of a portion of the uncertain tax position previously booked by AJRD. 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. Our accounting for the acquisition of AJRD 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 finite-lived intangible assets identified in the AJRD acquisition are subject to amortization. The preliminary fair value and weighted-average amortization period of identifiable intangible assets acquired as of the acquisition date is as follows:
| Total |  | Useful Lives
| (In millions) |  | (In Years)
Customer relationships:(1) |  |  |
Backlog | $ | 355 |  |  | 3
Government programs | 2,385 |  |  | 15 - 20
Total customer relationships | 2,740 |  |  |
Trade names | 120 |  |  | 15
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. Forward Loss Provision. We have recorded a preliminary forward loss provision of $124 million 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 $14 million of amortization related to the forward loss provision in the quarter ended March 29, 2024. 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 $115 million, consisting of $34 million and $81 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 $8 million of amortization related to off-market contract liabilities in the quarter ended March 29, 2024. Goodwill. The $2,473 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 E: Goodwill and Other Intangible Assets in these Notes for further information. Financial Results. Revenue and income before income taxes of AR included in our Condensed Consolidated Statement of Operations for the quarter ended March 29, 2024 were $542 million and $72 million, respectively. Unaudited pro forma financial results of the operations acquired with AJRD for the quarter ended March 31, 2023 were $566 million of revenue and $60 million of income before income taxes, which were prepared as if the acquisition was completed on the first day of our fiscal 2023, December 31, 2022. The proforma results include adjustments to remove costs directly attributable to the acquisition, such as transaction-related costs and the impact of purchase price adjustments, and certain 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. Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In connection with the AJRD acquisition, we recorded transaction and integration costs of $28 million for the quarter ended March 29, 2024, which were included in the “General and administrative expenses” line item in our Condensed Consolidated Statement of Operations. Pending Divestiture of CAS Disposal Group During the quarter ended December 29, 2023, we entered into a definitive agreement to sell our CAS Disposal Group for a cash purchase price of $700 million, with additional contingent consideration of up to $100 million, subject to customary purchase price adjustments and closing conditions as set forth in the agreement. As of March 29, 2024, the fair value less costs to sell of the CAS Disposal Group was $891 million, inclusive of consideration related to noncontrolling interest and accumulated other comprehensive income. Income before income taxes for the quarters ended March 31, 2023 and March 29, 2024 were $17 million and $21 million, respectively. The CAS Disposal Group, which is part of our IMS segment, provides integrated aircraft avionics, pilot training and data analytics services for the commercial aviation industry. The transaction is expected to close in fiscal 2024. In connection with the preparation of our financial statements for fiscal 2023, we concluded that goodwill related to the CAS Disposal Group was impaired and we recorded a non-cash impairment charge of $296 million, which is included in the Impairment of goodwill and other assets line item. See Note 6: Goodwill and Intangible Assets in our Fiscal 2023 Form 10-K. Additionally, we recognized a pre-tax loss of $77 million included in the “Asset group and business divestiture-related (losses) gains, net” line item in our Consolidated Statement of Operations in our Fiscal 2023 Form 10-K. The carrying amounts of the assets and liabilities of the CAS Disposal Group is classified as held for sale in our Condensed Consolidated Balance Sheet as of March 29, 2024 were as follows:
(In millions) | March 29, 2024 |  |
Receivables, net | $ | 94 |  |  |
Contract assets | 48 |  |  |
Inventories | 162 |  |  |
Other current assets | 23 |  |  |
Property, plant and equipment, net | 41 |  |  |
Goodwill | 534 |  |  |
Other intangible assets, net | 263 |  |  |
Other non-current assets | 48 |  |  |
Valuation allowance | (77) |  |  |
Total assets held for sale | $ | 1,136 |  |  |
Accounts payable | $ | 93 |  |  |
Contract liabilities | 49 |  |  |
Compensation and benefits | 6 |  |  |
Other accrued items | 34 |  |  |
Other long-term liabilities | 63 |  |  |
Total liabilities held for sale | $ | 245 |  |  |
Fair Value of Businesses and Goodwill Allocation. For purposes of allocating goodwill to the disposal groups that represent a portion of a reporting unit, which is our business segment level or one level below the business segment, 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 E: Goodwill and Other Intangible Assets and Note K: Fair Value Measurements in these Notes for additional information.

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- 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
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