L3Harris Technologies Inc.
04/30/2026 | Press release | Distributed by Public on 04/30/2026 12:32
Quarterly Report for Quarter Ending April 3, 2026 (Form 10-Q)
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
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 and accompanying Notes in this Report (the "Notes"). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K. The discussions in this MD&A contain forward-looking statements.
OVERVIEW
We are the Trusted Disruptor in the defense industry. With customers' mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products, systems and services have defense and civil government applications, as well as commercial applications. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 75% for first quarter 2026.
U.S. and International Budget Environment
The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the Administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures, and overall macroeconomic conditions.
On July 4, 2025, the President signed Congress' reconciliation package which included $155 billion for national defense spending to fund DoW priorities. This includes priorities closely aligned with L3Harris interests and opportunities, such as Golden Dome, munitions, and shipbuilding. The reconciliation package also includes approximately $190 billion for Department of Homeland Security, $12.5 billion for the Federal Aviation Administration ("FAA") for air traffic control modernization efforts and $10 billion for NASA. The reconciliation package also raises the debt ceiling by $5 trillion and enacts key changes to the federal tax code.
The U.S. Government fiscal year ("GFY") 2026 Commerce-Justice-Science appropriations bill, which provides funding for NASA and National Oceanic and Atmospheric Administration ("NOAA"), was signed into law on January 23, 2026. The bill provides $6 billion above the Administration's GFY 2026 budget request for NASA and rejects the proposed termination of the Space Launch System ("SLS") and Orion following the Artemis III mission and directs the inclusion of an SLS-based option in any competition for future Artemis launch services. The bill also provides $6 billion for NOAA, an increase of more than $1.5 billion above the Administration's GFY 2026 request.
The final GFY 2026 National Defense Authorization Act ("NDAA") was signed into law in December 2025. The NDAA provides authorization of appropriations for the DoW, nuclear weapons programs of the Department of Energy, and other defense-related activities. In addition to serving as an authorization of appropriations, the NDAA establishes defense policies and restrictions, and addresses organizational administrative matters related to the DoW.
Congress passed the GFY 2026 Defense Appropriations bill on February 3, 2026, providing $859 billion for DoW programs, an increase of 1% or ~$9 billion over the President's Budget Request ("PBR"). In addition, Congress provided just over $22 billion for the FAA via the Transportation-Housing and Urban Development bill, more than $1 billion above the GFY 2025 enacted level. This includes $4 billion in resources for facilities and equipment, nearly $1 billion more than the prior year.
On April 3, 2026, the GFY 2027 PBR was introduced and called for a ~$1.5 trillion topline for national defense programs, comprised of $1.1 billion for the DoW base budget and $350 billion in another reconciliation bill. This total request represents a $441 million increase, or 44%, over the GFY 2026 enacted value. Further, the PBR requested $18.8 billion for NASA, a $5.6 billion or 23% decrease from the 2026 enacted level; $4.5 billion for NOAA, a decrease from $6.1 billion in GFY 2026 enacted; and $22.4 billion for FAA, a moderate increase above the $22.1 billion enacted in GFY 2026.
_____________________________________________________________________
Internationally, almost all NATO allies have committed to spend 5% of GDP annually over the next decade on defense and security-related expenditures, with 3.5% on core defense articles and another 1.5% on critical infrastructure, cyber and other key areas.
The overall defense spending environment, both in the U.S. and internationally, reflects the continued impacts of global conflicts and geopolitical tensions, and changes to U.S. Government or international spending priorities have and could in the future impact our business.
See our U.S. Government funding risks and the discussion of our international business risks within Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K.
Economic Environment
The ongoing uncertainty related to the impacts of inflation, as well as the interest rate environment and ongoing federal deficits could in the future impact U.S. Government spending priorities for our products and services. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K.
We continue to monitor and evaluate the potential impact of current and proposed changes in trade policies and in particular, tariffs. In response to enacted tariffs, we are seeking exemptions, evaluating alternative sources of materials and subcontracted components, as well as engaging in supplier negotiations to help manage cost impacts and are considering price adjustments and other strategies to support profitability. Based on current conditions, we do not expect a material impact on our 2026 results, but will continue to monitor developments and assess potential implications as trade policies evolve.
RESULTS OF OPERATIONS
First quarter 2026 and 2025 include thirteen and twelve weeks, respectively. Outcomes for specific periods, or year-over-year comparisons of results of operations and segment performance should be considered in this context.
Consolidated Results of Operations
| First Quarter | |||||||||||
| (Dollars in millions, except per share amounts) | 2026 | 2025 | |||||||||
| Revenue | $ | 5,744 | $ | 5,132 | |||||||
| Cost of revenue | (4,342) | (3,782) | |||||||||
| Gross margin | 1,402 | 1,350 | |||||||||
| General and administrative expenses | (750) | (825) | |||||||||
| Operating Income | 652 | 525 | |||||||||
| Non-service FAS pension income and other, net | 73 | 84 | |||||||||
| Interest expense, net | (136) | (150) | |||||||||
| Income before income taxes | 589 | 459 | |||||||||
| Income taxes | (77) | (73) | |||||||||
| Effective Tax Rate | 13.1 | % | 15.9 | % | |||||||
| Net income | $ | 512 | $ | 386 | |||||||
| Diluted EPS | $ | 2.72 | $ | 2.04 | |||||||
Revenue
Revenue increased $612 million, or 12% reflecting higher revenues across all segments, primarily from higher volumes, driven by new program ramps, including a milestone related to material procurement in support of classified contracts, and increased international deliveries.
See the "Business Segment Results of Operations" discussion below in this MD&A for further information.
Gross Margin
Gross margin increased $52 million, primarily due to higher volumes across all segments and a $39 million favorable change in net EAC adjustments, partially offset by the absence of the CAS disposal group as a result of the March 2025 divestiture.
_____________________________________________________________________
G&A Expenses
The following table presents the components of G&A expenses:
| First Quarter | |||||||||||
| (In millions) | 2026 | 2025 | |||||||||
| Corporate: | |||||||||||
| Amortization of acquisition-related intangibles | $ | (159) | $ | (177) | |||||||
|
LHX NeXt implementation costs(1)
|
- | (35) | |||||||||
|
Acquisition, divestiture and transaction-related expenses(2)
|
(30) | (17) | |||||||||
|
Business divestiture-related losses(3)
|
(10) | (17) | |||||||||
|
Other non-reportable businesses(4)
|
- | (30) | |||||||||
|
Other unallocated corporate items(5)
|
(27) | (27) | |||||||||
| Segment: | |||||||||||
| Company-funded R&D costs | (146) | (111) | |||||||||
| Selling and marketing | (136) | (120) | |||||||||
| Monetization of certain legacy assets | 50 | 5 | |||||||||
|
Other(6)
|
(292) | (296) | |||||||||
|
G&A expenses
|
$ | (750) | $ | (825) | |||||||
_______________
(1)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. See the "Operating Environment, Strategic Priorities and Key Performance Measures" section in the MD&A in our Fiscal 2025 Form 10-K for more detail on our LHX NeXt initiative and implementation costs.
(2)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned MSL public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.
(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in first quarter 2026 and 2025, respectively. See Note N: Divestitures in the Notes for further information.
(4)Includes the CAS disposal group. See Note N: Divestitures in the Notes for further information.
(5)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, eliminations and other.
(6)Includes other segment G&A expenses, primarily payroll and benefits, outside services, facilities and insurance. First quarter 2026 includes a $20 million favorable settlement of a legal matter in CSD.
G&A expenses decreased $75 million, or 9%, primarily due to an increase in gains recognized in connection with the monetization of certain legacy assets, including recognition of a $39 million gain in our MSL segment in 2026, the absence of LHX NeXt implementation costs, as the LHX NeXt implementation phase was completed in fiscal 2025, and the absence of the CAS disposal group expenses. Such impacts were partially offset by an increase in company-funded R&D costs.
Non-service FAS Pension Income and Other, Net
The following table presents the components of non-service FAS pension income and other, net:
| First Quarter | |||||||||||
| (In millions) | 2026 | 2025 | |||||||||
|
Non-service FAS pension income(1)
|
$ | 75 | $ | 90 | |||||||
|
Other, net(2)
|
(2) | (6) | |||||||||
| Non-service FAS pension income and other, net | $ | 73 | $ | 84 | |||||||
_______________
(1)Includes the non-service cost components of net periodic benefit income under our defined benefit plans. See Note H: Retirement Benefits in the Notes for further information.
(2)Primarily includes changes in the market value of our rabbi trust assets, gains and losses on our equity investments in nonconsolidated affiliates and royalty income.
_____________________________________________________________________
Interest Expense, Net
Interest expense, net decreased $14 million primarily due to lower total outstanding debt, which reflects reductions in both long-term debt and average outstanding notes under our CP Program during 2026. See Note G: Debt and Credit Arrangements in the Notes and the "Liquidity and Capital Resources" section below in this MD&A for further information.
Income Taxes
During interim periods, we estimate our global annual ETR and apply that rate to ordinary income in order to compute the income tax provision. Although most items will be considered part of the annual ETR, there are a number of items that are instead required to be recorded in the interim period in which they occur; such as certain changes in uncertain tax positions, the accrual of interest and penalties, changes in tax laws or rates, and other items as prescribed by GAAP. As a result, there may be quarterly fluctuations in our ETR and the results for the interim periods are not necessarily indicative of the results to be expected for the full year or future periods.
Our ETR was 13.1% and 15.9% for first quarter 2026 and 2025, respectively. First quarter 2026 ETR decreased compared to first quarter 2025, primarily due to higher deductions associated with FDII from exporting products and services, the favorable resolution of audit matters and favorable impact of excess tax benefits from share based-compensation, partially offset by unfavorable return-to-provision adjustments, while first quarter 2025 ETR included an unfavorable impact from the CAS disposal group divestiture.
Diluted EPS
Diluted EPS increased 33% primarily due to higher net income from the combined effects of reasons noted in the sections above.
Business Segment Results of Operations
See Note O: Business Segment Information in the Notes for a description of the sectors in each segment.
SMS Segment
| First Quarter | |||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | ||||||||||||||
| Revenue | $ | 2,990 | $ | 2,411 | 24 | % | |||||||||||
| Operating income | 313 | 238 | 32 | % | |||||||||||||
|
Operating margin
|
10.5 | % | 9.9 | % | |||||||||||||
| Ending contractual backlog | $ | 21,113 | $ | 14,564 | |||||||||||||
SMS revenue increased primarily due to higher revenues of $420 million in ISR associated with a milestone related to material procurement in support of classified contracts and ramp on classified and international missionized aircraft programs, $65 million in Space Systems from higher volumes on Space Development Agency ("SDA") Tracking Tranche 3 and classified space programs, $59 million in Mission Networks from higher FAA volume, $57 million in Maritime from higher volume on international programs associated with program timing, partially offset by lower revenue of $24 million in Intel and Cyber from lower classified program volume.
SMS operating income increased primarily due to higher volume and improved program performance, partially offset by a shift in mix reflecting higher volume in lower margin programs associated with program timing.
_____________________________________________________________________
CSD Segment
| First Quarter | |||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | ||||||||||||||
| Revenue | $ | 1,855 | $ | 1,809 | 3 | % | |||||||||||
| Operating income | 465 | 443 | 5 | % | |||||||||||||
| Operating margin | 25.1 | % | 24.5 | % | |||||||||||||
| Ending contractual backlog | $ | 9,136 | $ | 9,419 | |||||||||||||
CSD revenue increased primarily due to higher revenues of $21 million in Integrated Vision Solutions from higher volumes, $18 million in Mission Critical Communications associated with increased international deliveries for our software-defined resilient communications equipment, and $16 million in Spectrum Superiority from program ramps, including the Next Generation Jammer Electronic Warfare program, partially offset by $13 million in Targeting and Sensor Systems from lower volumes.
CSD operating income increased primarily due to higher margin product mix and a $20 million favorable settlement of a legal matter, partially offset by a $17 million increase in R&D costs and higher selling and marketing expenses.
MSL Segment
| First Quarter | |||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | % Inc/(Dec) | ||||||||||||||
| Revenue | $ | 990 | $ | 840 | 18 | % | |||||||||||
| Operating income | 124 | 96 | 29 | % | |||||||||||||
|
Operating margin
|
12.5 | % | 11.4 | % | |||||||||||||
| Ending contractual backlog | $ | 10,453 | $ | 9,212 | |||||||||||||
MSL revenue increased primarily due to higher revenues of $84 million in Missile Propulsion from increased production volumes on key missile and munitions programs and $28 million and $21 million in Space Propulsion and Power Systems and Advanced Effects, respectively, from higher volumes and new program ramps.
MSL operating income increased primarily due to higher volumes and a gain of $39 million recognized in connection with the monetization of certain legacy assets aligned with our transformation and value creation priorities, partially offset by a $31 million unfavorable EAC adjustment on a legacy domestic naval sensor program.
Unallocated Corporate Items and Other, Net
| First Quarter | |||||||||||
| (In millions) | 2026 | 2025 | |||||||||
|
Amortization of acquisition-related intangibles(1)
|
$ | (173) | $ | (194) | |||||||
|
LHX NeXt implementation costs(2)
|
- | (35) | |||||||||
|
Business divestiture-related losses(3)
|
(10) | (17) | |||||||||
|
Acquisition, divestiture and transaction-related expenses(4)
|
(30) | (17) | |||||||||
|
Other unallocated corporate items(5)
|
(37) | (12) | |||||||||
| Unallocated corporate items | (250) | (275) | |||||||||
|
Other non-reportable businesses(6)
|
- | 23 | |||||||||
| Unallocated corporate items and other, net | $ | (250) | $ | (252) | |||||||
______________
(1)Includes amortization of intangible assets acquired in connection with business combinations. Because our acquisitions benefit the entire Company, the amortization was not allocated to any segment.
(2)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. For further information on our LHX NeXt initiative and implementation costs see the "General and Administrative Expenses" discussion above in this MD&A. The implementation phase of LHX NeXt was completed in fiscal 2025.
(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in first quarter 2026 and 2025, respectively. See Note N: Divestitures in the Notes for further information.
(4)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned MSL public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.
(5)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, corporate eliminations and other.
_____________________________________________________________________
(6)Includes the CAS disposal group. See Note N: Divestitures in the Notes for further information.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
As of April 3, 2026, we had cash and cash equivalents of $590 million, of which $329 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.
CP Program. As of April 3, 2026, we had $350 million in outstanding notes under our CP Program. Our CP Program serves as a source of short-term financing under which we may issue unsecured commercial paper notes supported by amounts available under our $2.5 billion 2025 Five-Year Credit Agreement, discussed below. From time to time, we use borrowings under the CP Program for general corporate purposes, including funding acquisitions, repaying debt, paying dividends, and repurchasing our common stock. See the "Financing Activities" discussion below in this MD&A for further information about our CP Program.
Credit Facilities. As of April 3, 2026, we had no outstanding borrowings under our 2025 Five-Year Credit Facility, had available borrowing capacity of $2.2 billion, net of outstanding notes under our CP Program, and were in compliance with all covenants. Our previous $500 million 2025 364-Day Credit Agreement matured on February 17, 2026 and our CP Program capacity was reduced accordingly.
See Note G: Debt and Credit Arrangements in the Notes for further information regarding our credit facilities.
Cash Flows
The following table provides a summary of our cash flow information:
|
First Quarter
|
|||||||||||
| (In millions) | 2026 | 2025 | |||||||||
| Cash and cash equivalents, beginning of period | $ | 1,069 | $ | 615 | |||||||
| Operating Activities: | |||||||||||
| Net income | 512 | 386 | |||||||||
| Non-cash adjustments | 414 | 215 | |||||||||
| Changes in working capital | (634) | (739) | |||||||||
| Other, net | (387) | 96 | |||||||||
| Net cash used in operating activities | (95) | (42) | |||||||||
| Net cash (used in) provided by investing activities | (97) | 744 | |||||||||
| Net cash used in financing activities | (284) | (805) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3) | 5 | |||||||||
| Net decrease in cash and cash equivalents | (479) | (98) | |||||||||
| Cash and cash equivalents, end of period | $ | 590 | $ | 517 | |||||||
Operating Activities. The $53 million increase in net cash used in operating activities for 2026 compared with 2025 was primarily due to timing of tax planning strategies and a settlement of a procurement contract matter, partially offset by an increase in net income and $105 million less cash used to fund working capital, largely driven by timing of billing and collection activity. The net cash used in operating activities in first quarter is consistent with our historical pattern, whereby operating cash flows are typically lowest in the first quarter due to timing of our business cycles and expenditure activities.
Investing Activities. The $841 million change in net cash used in investing activities for 2026 compared with net cash provided by investing activities for 2025 was primarily due to a $831 million decrease in proceeds from sale of businesses, net of cash divested, reflecting the March 2025 CAS disposal group divestiture.
Financing Activities. The $521 million decrease in net cash used in financing activities for 2026 compared with 2025 was primarily due to a $273 million decrease in cash used to repurchase common stock and a $330 million increase in net issuances of commercial paper, partially offset by an increase in repayments of long-term debt of $101 million. Our primary financing activities are further discussed below.
Common Stock Repurchases. On January 28, 2021 and October 21, 2022, we announced that our Board approved share repurchase authorizations under our repurchase program of $6.0 billion and $3.0 billion, respectively. The $6.0 billion program was fully utilized during the first quarter 2025.
_____________________________________________________________________
During first quarter 2026, we used $296 million of cash to repurchase 0.8 million shares of our common stock under our share repurchase program. As of April 3, 2026, we had $1.9 billion of remaining unused authorizations under our repurchase program. During first quarter 2025, we used $569 million of cash to repurchase 2.7 million shares of our common stock under our share repurchase program.
See "Liquidity and Capital Resources" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K and Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Report for further information regarding common stock repurchases.
Long-term debt. On January 14, 2026, we repaid the entire outstanding $100 million 7.00% 2026 Debentures with cash on hand.
As of April 3, 2026, we had $11.0 billion of outstanding total long-term debt, which includes the current portion of long-term debt of $1,816 million. The current portion primarily consists of the $550 million 3.85% 2026 Notes and $1,250 million 5.40% 2027 Notes.
CP Program. During first quarter 2026, our CP Program had a maximum outstanding balance of $880 million and a daily average outstanding balance of $454 million. During first quarter 2025, our CP Program had a maximum outstanding balance of $1.8 billion and daily average outstanding balance of $1.3 billion.
Dividends. On January 23, 2026, we announced that our Board increased the quarterly per share cash dividend rate on our common stock to $1.25 from $1.20, the 25th consecutive annual dividend increase. During first quarter 2026 and 2025, we paid $238 million and $228 million in dividends, respectively. See Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our Fiscal 2025 Form 10-K for further information regarding our dividends.
Cash Requirements
Except for the level of indebtedness under our CP Program, there were no material changes to our cash requirements or commercial commitments as disclosed in our Fiscal 2025 Form 10-K. Further information about our credit facilities and CP Program can be found in "Capital Resources" in this MD&A and Note G: Debt and Credit Arrangements in the Notes.
Defined Benefit Plan Contributions. As of April 3, 2026, we had net defined benefit plan assets of $1.2 billion, the majority of which pertain to our U.S. qualified defined benefit pension plans. We intend to contribute annually no less than the required minimum funding thresholds to these pension plans and do not expect to make material contributions in fiscal 2026. Future required contributions will depend primarily on the actual return on plan assets and the discount rate used to measure the benefit obligation at the end of each year.
We expect to continue evaluating opportunities to strategically manage our pension obligations, including the potential for additional pension de-risking transactions in the future, subject to market conditions and plan funding levels. These actions align with our long-term strategy to reduce exposure to pension volatility while maintaining financial flexibility.
See Note 9: Retirement Benefits in our Fiscal 2025 Form 10-K and Note H: Retirement Benefits in the Notes for further information regarding our defined benefit plans.
Liquidity Assessment
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term. Although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties, and the state of global commerce and general political and global financial uncertainty. See the "U.S. and International Budget Environment" discussion above in this MD&A and Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K for more information on budget uncertainties.
Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, availability under our senior unsecured credit facility and our CP Program, and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures, dividend payments, repurchases under our share repurchase program, and repayments of our debt securities at maturity for the next 12 months and the reasonably foreseeable future thereafter. Our capital expenditures for fiscal 2026 are expected to be approximately $600 million. See "Cash Requirements" in this MD&A and "Capital Resources", "Cash Requirements" and "Commercial Commitments" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K, for further information regarding our cash requirements.
_____________________________________________________________________
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the critical accounting estimates disclosed in "Critical Accounting Estimates" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Form 10-K, except for, as set forth below.
Goodwill
We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected.
Fiscal 2026 Impairment Tests. Effective in fiscal 2026, we streamlined our business segments from four segments to three segments, more closely aligning common capabilities and business models. As a result of the segment reorganization, we realigned our goodwill reporting units from seven to five reporting units, which are our operating segments or one level below the operating segment. Following the realignment, our reporting units are organized as follows: SMS in our SMS segment, Non-Spectrum and Spectrum in our CSD segment, AE and PS in our MSL segment.
The revised reporting unit structure was established through the creation of the new AE reporting unit and reassignment of the three former IMS segment reporting units, TSS+DE, ISR and Maritime. The AE reporting unit was formed by combining two businesses from the former SAS reporting unit and two businesses from the former TSS+DE reporting unit. The remaining businesses from the former TSS+DE reporting unit were aggregated into the former Non-Broadband reporting unit, which was renamed the Non-Spectrum reporting unit; and two businesses from the former SAS reporting unit were aggregated with the former Broadband reporting unit, which was renamed the Spectrum reporting unit. The businesses from the ISR and Maritime reporting units were aggregated with the other businesses in the SMS reporting unit, formerly the SAS reporting unit.
In connection with the realignments, goodwill was allocated to the businesses that moved between reporting units on a relative fair value basis utilizing a combination of income and market approaches. We performed quantitative impairment assessments under our former and new reporting unit structure to assess the impact before and after realignments. These assessments indicated no impairments existed either before or after the realignments.
See Note E: Goodwill and Intangible Assets in the Notes for further information.
At-risk Goodwill. As a result of our quantitative impairment assessments performed under our former and new reporting structure, our reporting units all had clearances above 40%.
Impact of Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements that became effective during first quarter 2026 that have had a material impact on our Condensed Consolidated Financial Statements.
L3Harris Technologies Inc. published this content on April 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 30, 2026 at 18:33 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]