L3Harris Technologies Inc.

10/25/2024 | Press release | Distributed by Public on 10/25/2024 07:21

Quarterly Report for Quarter Ending September 27, 2024 (Form 10-Q)

hrs-20240927
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2024
or
☐ 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
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 32919
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (321) 727-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $1.00 per share LHX New York Stock Exchange
Indicate by check mark whether the registrant (1) 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. þYesoNo
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þYesoNo
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.
Large accelerated filer þ Accelerated filer ☐
Non-accelerated filer
¨
Smaller reporting company ☐
Emerging growth company ☐
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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þNo
The number of shares outstanding of the registrant's common stock as of October 18, 2024 was 189,668,364.
L3HARRIS TECHNOLOGIES, INC.
FORM 10-Q
For the Quarter Ended September 27, 2024
TABLE OF CONTENTS
Page No.
Part I. Financial Information:
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Statement of Operationsfor the Quarter and Three Quarters Ended September 27, 2024 and September 29, 2023
3
Condensed Consolidated Statement of Comprehensive Income for the Quarter and Three Quarters Ended September 27, 2024 and September 29, 2023
4
Condensed Consolidated Balance Sheet at September 27, 2024 and December 29, 2023
5
Condensed Consolidated Statement of Cash Flowsfor the Three Quarters Ended September 27, 2024 and September 29, 2023
6
Condensed Consolidated Statement of Equity for the Quarter and Three Quarters Ended September 27, 2024 and September 29, 2023
7
Notes to Condensed Consolidated Financial Statements
8
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
23
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
24
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
35
ITEM 4. Controls and Procedures
35
Part II. Other Information:
ITEM 1. Legal Proceedings
36
ITEM 1A. Risk Factors
36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
36
ITEM 3. Defaults Upon Senior Securities
37
ITEM 4. Mine Safety Disclosures
37
ITEM 5. Other Information
37
ITEM 6. Exhibits
37
Signatures
38
This Quarterly Report on Form 10-Q (this "Report") contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.
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1
Cautionary Statement Regarding Forward-Looking Statements
This Report contains forward-looking statements within the meaning of federal securities laws that involve risks, uncertainties and assumptions that could cause our results to differ materially from such forward-looking statements. Examples include, but are not limited to, statements concerning: our plans, strategies and objectives for future operations; new products, systems, technologies, services or developments; future economic conditions, performance or outlook; future political or budget conditions; the outcome of contingencies or litigation; the potential level of share repurchases, dividends or pension contributions; potential divestitures and the timing thereof; capital expenditures and capital structure; other financial items; and assumptions underlying any of the foregoing. Terminology, such as "believes," "expects," "may," "could," "should," "would," "will," "intends," "plans," "estimates," "anticipates," "projects" and similar words or expressions may also identify forward-looking statements. You should not place undue reliance on forward-looking statements, which reflect our management's current expectations, estimates, projections and assumptions and information currently available to our management as of the date of filing of this Report and are not guarantees of future performance or actual results. Important risks that could cause our results to differ materially from those expressed in or implied by these forward-looking statements or from our historical results include, but are not limited to, risks arising from: our dependence on competitive markets from U.S. Government customers; changes in contract mix; inflation; unilateral contract action by the U.S. Government; uncertain economic conditions; future geo-political events; supply chain disruptions; impact of LHX NeXt costs and savings; indebtedness; defined benefit plan liability and returns; interest rates; pending and contemplated divestitures; and other market factors. These important risks and other disclosures are described more fully in Part I. Item 1A. Risk Factorsin our Fiscal 2023 Form 10-K and in Part II. Item 1A. Risk Factorsof this Report. Forward-looking statements are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1955. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section, and we have no duty and disclaim any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events or developments or otherwise, after the date of filing of this Report or, in the case of any document incorporated by reference, the date of that document.
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended Three Quarters Ended
(In millions, except per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Revenue $ 5,292 $ 4,915 $ 15,802 $ 14,079
Cost of revenue (3,873) (3,608) (11,675) (10,419)
General and administrative expenses (924) (828) (2,778) (2,388)
Operating income 495 479 1,349 1,272
Non-service FAS pension income and other, net(1)
101 80 275 245
Interest expense, net (166) (159) (514) (372)
Income before income taxes 430 400 1,110 1,145
Income taxes (26) (18) (54) (73)
Net income 404 382 1,056 1,072
Noncontrolling interests, net of income taxes (4) 1 (7) (3)
Net income attributable to L3Harris Technologies, Inc. $ 400 $ 383 $ 1,049 $ 1,069
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic $ 2.11 $ 2.02 $ 5.53 $ 5.64
Diluted $ 2.10 $ 2.02 $ 5.50 $ 5.61
Basic weighted-average common shares outstanding 189.6 189.3 189.7 189.6
Diluted weighted-average common shares outstanding 190.5 190.1 190.7 190.6
_______________
(1)"FAS" is defined as Financial Accounting Standards.
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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3
L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Net income $ 404 $ 382 $ 1,056 $ 1,072
Other comprehensive income (loss):
Foreign currency translation income (loss), net of income taxes 43 (45) 22 (10)
Net unrealized income (loss) on hedging derivatives, net of income taxes 5 (3) 2 6
Net unrecognized gains on postretirement obligations, net of income taxes - - 3 -
Other comprehensive income (loss) recognized during the period 48 (48) 27 (4)
Reclassification adjustments for gains included in net income (8) (10) (23) (29)
Other comprehensive income (loss), net of income taxes 40 (58) 4 (33)
Total comprehensive income 444 324 1,060 1,039
Comprehensive (income) loss attributable to noncontrolling interest (4) 1 (7) (3)
Total comprehensive income attributable to L3Harris Technologies, Inc. $ 440 $ 325 $ 1,053 $ 1,036
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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4
L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In millions, except shares) September 27, 2024 December 29, 2023
Assets
Current assets
Cash and cash equivalents $ 539 $ 560
Receivables, net of allowances for collection losses of $20 and $15, respectively
1,042 1,230
Contract assets 3,401 3,196
Inventories, net 1,399 1,472
Income taxes receivable 329 61
Other current assets 462 430
Assets of business held for sale 1,130 1,106
Total current assets 8,302 8,055
Non-current assets
Property, plant and equipment, net 2,795 2,862
Goodwill 20,433 19,979
Intangible assets, net 7,874 8,540
Deferred income taxes 119 91
Other non-current assets 2,366 2,160
Total assets $ 41,889 $ 41,687
Liabilities and equity
Current liabilities
Short-term debt $ 1,177 $ 1,602
Current portion of long-term debt, net 640 363
Accounts payable 2,049 2,106
Contract liabilities 1,878 1,900
Compensation and benefits 402 544
Income taxes payable 35 88
Other current liabilities 1,549 1,129
Liabilities of business held for sale 243 272
Total current liabilities 7,973 8,004
Non-current liabilities
Long-term debt, net 11,093 11,160
Deferred income taxes 885 815
Other long-term liabilities 2,876 2,879
Total liabilities 22,827 22,858
Equity
Shareholders' Equity:
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 189,548,670 and 189,808,581 shares at September 27, 2024 and December 29, 2023, respectively
190 190
Paid-in capital 15,487 15,553
Retained earnings 3,515 3,220
Accumulated other comprehensive loss (194) (198)
Total shareholders' equity 18,998 18,765
Noncontrolling interests 64 64
Total equity 19,062 18,829
Total liabilities and equity $ 41,889 $ 41,687
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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5
L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023
Operating Activities
Net income $ 1,056 $ 1,072
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 963 816
Share-based compensation 76 67
Pension and other postretirement benefit plan income (215) (209)
Share-based matching contributions under defined contribution plans 199 172
Deferred income taxes 220 (277)
(Increase) decrease in:
Receivables, net 163 53
Contract assets (372) (136)
Inventories, net 46 (195)
Other current assets (32) (87)
Increase (decrease) in:
Accounts payable (45) (18)
Contract liabilities (150) 202
Compensation and benefits (145) (55)
Other current liabilities 59 (27)
Income taxes (258) 15
Other operating activities (135) (86)
Net cash provided by operating activities 1,430 1,307
Investing Activities
Net cash paid for acquired businesses - (6,688)
Additions to property, plant and equipment (290) (312)
Proceeds from sales of businesses, net 158 71
Other investing activities (19) (9)
Net cash used in investing activities (151) (6,938)
Financing Activities
Proceeds from borrowings, net of issuance cost 2,826 7,568
Repayments of borrowings (2,609) (3,159)
Change in commercial paper, maturities under 90 days, net 93 1,330
Proceeds from commercial paper, maturities over 90 days 688 701
Repayments of commercial paper, maturities over 90 days (1,205) -
Proceeds from exercises of employee stock options 111 18
Repurchases of common stock (512) (518)
Dividends paid (665) (652)
Other financing activities (36) (34)
Net cash (used in) provided by financing activities (1,309) 5,254
Effect of exchange rate changes on cash and cash equivalents 9 (4)
Net decrease in cash and cash equivalents (21) (381)
Cash and cash equivalents, beginning of period 560 880
Cash and cash equivalents, end of period $ 539 $ 499
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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6
L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
Quarter Ended Three Quarters Ended
(In millions, except per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Common Stock
Beginning balance $ 190 $ 189 $ 190 $ 191
Shares issued under stock incentive plans - - 1 -
Shares issued under defined contribution plans - - 1 1
Repurchases and retirement of common stock - - (2) (3)
Ending balance 190 189 190 189
Paid-in Capital
Beginning balance 15,516 15,391 15,553 15,677
Shares issued under stock incentive plans 48 5 110 18
Shares issued under defined contribution plans 57 51 198 171
Share-based compensation expense 23 22 76 67
Tax withholding payments on share-based awards (1) - (28) (28)
Repurchases and retirement of common stock (156) - (421) (433)
Other - 1 (1) (2)
Ending balance 15,487 15,470 15,487 15,470
Retained Earnings
Beginning balance 3,368 3,111 3,220 2,943
Net income attributable to L3Harris Technologies, Inc. 400 383 1,049 1,069
Repurchases and retirement of common stock (34) - (89) (82)
Cash dividends (220) (216) (665) (652)
Other 1 - - -
Ending balance 3,515 3,278 3,515 3,278
Accumulated Other Comprehensive Loss
Beginning balance (234) (263) (198) (288)
Other comprehensive income (loss), net of income taxes 40 (58) 4 (33)
Ending balance (194) (321) (194) (321)
Noncontrolling Interests
Beginning balance 64 103 64 101
Net income (loss) attributable to noncontrolling interests 4 (1) 7 3
Other (4) (2) (7) (4)
Ending balance 64 100 64 100
Total Equity $ 19,062 $ 18,716 $ 19,062 $ 18,716
Cash dividends per share $ 1.16 $ 1.14 $ 3.48 $ 3.42
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these notes to Condensed Consolidated Financial Statements (these "Notes"), the terms "L3Harris," "Company," "we," "our" and "us" refer to L3Harris Technologies, Inc. and its consolidated subsidiaries. Intercompany transactions and accounts have been eliminated.
The accompanying Condensed Consolidated Financial Statements have been prepared by L3Harris in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the rules and regulations of the U.S. 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 and are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period.
In the opinion of management, these interim financial statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations, cash flows and equity for the periods presented therein. The balance sheet at December 29, 2023 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. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2023 (our "Fiscal 2023 Form 10-K").
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 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 and these Notes. Materially different results can occur as circumstances change and additional information becomes known.
Reclassifications
The classifications of certain prior year amounts have been adjusted in our Condensed Consolidated Financial Statements and these Notes to conform to current year classifications.
Recently Issued Accounting Pronouncements
Information on recently issued accounting pronouncements can be found in our Form 10-Q for the quarter ended March 29, 2024.
NOTE B: EARNINGS PER SHARE ("EPS")
EPS is net income attributable to L3Harris common shareholders divided by either our weighted average number of basic or diluted shares outstanding. Potential dilutive common shares primarily consist of employee stock options and restricted and performance unit awards.
The weighted-average number of common shares outstanding used to compute basic and diluted EPS were as follows:
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Basic weighted-average common shares outstanding 189.6 189.3 189.7 189.6
Impact of dilutive share-based awards 0.9 0.8 1.0 1.0
Diluted weighted-average common shares outstanding 190.5 190.1 190.7 190.6
Diluted EPS excludes the antidilutive impact of 1.0 million and 2.7 million weighted-average share-based awards outstanding for the quarter and three quarters ended September 27, 2024, respectively, and 2.0 million weighted-average share-based awards outstanding for the three quarters ended September 29, 2023.
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8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C: CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets mainly represent 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. Contract assets become receivables as 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.
Contract assets and contract liabilities are summarized below:
(In millions) September 27, 2024 December 29, 2023
Contract assets $ 3,401 $ 3,196
Contract liabilities, current (1,878) (1,900)
Contract liabilities, non-current(1)
(93) (94)
Net contract assets $ 1,430 $ 1,202
_______________
(1)The non-current portion of contract liabilities is included as a component of the "Other long-term liabilities" line item in our Condensed Consolidated Balance Sheet.
There were no significant credit or impairment losses related to our contract assets during the quarter and three quarters ended September 27, 2024 or the quarter and three quarters ended September 29, 2023. Revenue recognized related to contract liabilities that were outstanding at the end of the respective prior fiscal year were $193 million and $1,241 million for the quarter and three quarters ended September 27, 2024, respectively, and $223 million and $1,121 million for the quarter and three quarters ended September 29, 2023, respectively.
NOTE D: INVENTORIES, NET
Inventories, net are summarized below:
(In millions) September 27, 2024 December 29, 2023
Finished products
$ 238 $ 217
Work in process 375 427
Materials and supplies 786 828
Inventories, net
$ 1,399 $ 1,472
NOTE E: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The assignment of goodwill and changes in the carrying amount of goodwill, by business segment, were as follows:
(In millions) SAS IMS CS AR Total
Balance at December 29, 2023
$ 6,110 $ 6,564 $ 4,940 $ 2,365 $ 19,979
Goodwill from AJRD acquisition(1)
- - - 537 537
Impairment of goodwill(2)
(14) - - - (14)
Goodwill decrease from divestitures(2)
(79) - - - (79)
Currency translation adjustments 14 (3) (1) - 10
Balance at September 27, 2024 $ 6,031 $ 6,561 $ 4,939 $ 2,902 $ 20,433
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(1)Represents the effect of measurement period adjustments associated with the acquisition of Aerojet Rocketdyne Holdings, Inc. ("AJRD") during the three quarters ended September 27, 2024. See Note O: Acquisitions and Divestituresin these Notes for further information.
(2)Goodwill allocation and impairment recognized in connection with the Antenna Disposal Group divestiture. See Note O: Acquisitions and Divestitures in these Notes and our Form 10-Q for the quarter ended June 28, 2024for further information related to the Antenna Disposal Group divestiture and associated goodwill allocation and impairment testing, respectively.
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9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At September 27, 2024 and December 29, 2023, accumulated goodwill impairment losses totaled $80 million, $1,126 million and $355 million at our Space & Airborne Systems ("SAS"), Integrated Mission Systems ("IMS") and Communication System ("CS") segments, respectively. There are no accumulated impairments for our Aerojet Rocketdyne ("AR") segment.
Intangible Assets
Intangible assets, net are summarized below:
September 27, 2024 December 29, 2023
(In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Customer relationships
$ 8,852 $ (3,290) $ 5,562 $ 8,892 $ (2,733) $ 6,159
Developed technologies
853 (469) 384 856 (413) 443
Trade names
185 (61) 124 185 (50) 135
Other, including contract backlog
3 (2) 1 4 (4) -
Total finite-lived intangible assets 9,893 (3,822) 6,071 9,937 (3,200) 6,737
Trade name - indefinite-lived 1,803 - 1,803 1,803 - 1,803
Total intangible assets, net $ 11,696 $ (3,822) $ 7,874 $ 11,740 $ (3,200) $ 8,540
For further description of our accounting policies related to intangible assets acquired in the AJRD acquisition, see Note O: Acquisitions and Divestituresin these Notes, and for our accounting policies related to all other intangible assets, see Note 6: Goodwill and Intangible Assetsin our Fiscal 2023 Form 10-K.
Amortization expense for intangible assets was $210 million and $642 million for the quarter and three quarters ended September 27, 2024, respectively, and $208 million and $546 million for the quarter and three quarters ended September 29, 2023, respectively.
Future estimated amortization expense for intangible assets is as follows:
(In millions)
Next 12 months $ 791
Months 13-24 718
Months 25-36 569
Months 37-48 518
Months 49-60 440
Thereafter 3,035
Total $ 6,071
NOTE F: INCOME TAXES
Our effective tax rate ("ETR") was 6.0% and 4.9% for the quarter and three quarters ended September 27, 2024, respectively, and 4.5% and 6.4% for the quarter and three quarters ended September 29, 2023, respectively. The ETR for all periods benefited from research and development ("R&D") credits and tax deductions for foreign derived intangible income ("FDII"), with additional benefits from favorable adjustments recognized upon finalization of our 2023 tax returns in the quarter and three quarters ended September 27, 2024 and favorable resolution of specific audit uncertainties in the three quarters ended September 27, 2024 and the quarter and three quarters ended September 29, 2023.
During the quarter ended September 27, 2024, we completed our 2023 Federal tax return and recorded the associated return-to-provision adjustments. On the 2023 Federal tax return, we requested an automatic tax accounting method change, pursuant to the interim guidance in Section 8 of IRS Notice 2023-63, adjusting our percentage of completion method for tax purposes to include the amortization of research and experimental expenditures, rather than the capitalized amount of such expenditures. This automatic tax accounting method change resulted in an increase to income taxes receivable and an offsetting increase in our deferred income taxes.
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10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE G: DEBT AND CREDIT ARRANGEMENTS
Long-Term Debt
Long-term debt, net is summarized below:
(In millions) September 27, 2024 December 29, 2023
Variable-rate debt:
Term loan, due November 21, 2025 ("Term Loan 2025")
$ - $ 2,250
Fixed-rate debt:
3.95% notes, due May 28, 2024 ("3.95% 2024 Notes")
- 350
3.832% notes, due April 27, 2025 ("3.832% 2025 Notes")
600 600
7.00% debentures, due January 15, 2026
100 100
3.85% notes, due December 15, 2026
550 550
5.40% notes, due January 15, 2027(1)
1,250 1,250
6.35% debentures, due February 1, 2028
26 26
4.40% notes, due June 15, 2028
1,850 1,850
5.05% notes, due June 1, 2029 ("5.05% 2029 Notes")
750 -
2.90% notes, due December 15, 2029
400 400
1.80% notes, due January 15, 2031
650 650
5.25% notes, due June 1, 2031 ("5.25% 2031 Notes")
750 -
5.40% notes, due July 31, 2033(1)
1,500 1,500
5.35% notes, due June 1, 2034 ("5.35% 2034 Notes")
750 -
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
5.60% notes, due July 31, 2053(1)
500 500
5.50% notes, due August 15, 2054 ("5.50% 2054 Notes")
600 -
Total variable and fixed-rate debt 11,476 11,226
Financing lease obligations and other debt 300 300
Long-term debt, including the current portion of long-term debt 11,776 11,526
Plus: unamortized bond premium 41 51
Less: unamortized discounts and issuance costs (84) (54)
Long-term debt, including the current portion of long-term debt, net 11,733 11,523
Less: current portion of long-term debt, net (640) (363)
Total long-term debt, net $ 11,093 $ 11,160
_______________
(1) Collectively, the "AJRD Notes."
Long-Term Debt Issued
On March 13, 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of new long-term fixed-rate debt consisting of the 5.05% 2029 Notes, the 5.25% 2031 Notes, and the 5.35% 2034 Notes. (collectively, the "March Issued 2024 Notes"). The March Issued 2024 Notes were used to repay Term Loan 2025, including related fees and expenses, which had an outstanding balance of $2.25 billion at December 29, 2023.
Interest on the March Issued 2024 Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2024.
On August 2, 2024, we closed the issuance and sale of $600 million aggregate principal amount of the 5.50% 2054 Notes and used the net proceeds to repay borrowings under our commercial paper program ("CP Program").
Interest on the 5.50% 2054 Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2025.
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11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We may, at our option, redeem the March Issued 2024 Notes and the 5.50% 2054 Notes at any time, and from time to time, in whole or in part, at the applicable redemption price, as defined in the respective notes. Both the March Issued 2024 Notes and the 5.50% 2054 Notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness.
We incurred debt issuance costs of $20 million and $7 million for the March Issued 2024 Notes and the 5.50% 2054 Notes, respectively, which are being amortized over the life of each respective note. Such amortization is included as a component of the "Interest expense, net" line item in our Condensed Consolidated Statement of Operations.
Long-Term Debt Repayments
On March 14, 2024, we repaid the entire outstanding $2.25 billion drawn on Term Loan 2025, which at time of repayment had a variable interest rate of 6.7%, with proceeds from the issuance of the March Issued 2024 Notes, which bear fixed interest rates between 5.05% and 5.35%. Additionally, during the quarter ended June 28, 2024, we repaid the $350 million aggregate principal amount of our 3.95% 2024 Notes.
Credit Agreements
On January 26, 2024, we established a new $1.5 billion, 364-day senior unsecured revolving credit facility ("2024 Credit Facility") by entering into a 364-day credit agreement maturing no later than January 24, 2025 ("2024 Credit Agreement") with a syndicate of lenders. We may extend the maturity of any loans outstanding under the 2024 Credit Agreement by one year, subject to the satisfaction of certain conditions. The 2024 Credit Agreement replaces the prior $2.4 billion 364-Day Credit Agreement ("2023 Credit Agreement").
At our election, borrowings under the 2024 Credit Agreement, which are designated in U.S. Dollars, bear interest at the sum of the term secured overnight financing rate or the Base Rate (as defined in the 2024 Credit Agreement), plus an applicable margin that varies based on the ratings of our senior unsecured long-term debt securities ("Senior Debt Ratings"). In addition to interest payable on the principal amount of indebtedness outstanding, we are required to pay a quarterly unused commitment fee that varies based on our Senior Debt Ratings.
The 2024 Credit Agreement also contains representations, warranties, covenants and events of default that are substantially similar to the existing Revolving Credit Agreement, dated as of July 29, 2022 ("2022 Credit Agreement") which established a $2.0 billion, five-year senior unsecured revolving credit facility. For a description of the 2022 Credit Agreement and related covenants, see Note 8: Debt and Credit Arrangementsin our Fiscal 2023 Form 10-K.
At September 27, 2024, we had no outstanding borrowings under either our 2024 Credit Agreement or our 2022 Credit Agreement, had available borrowing capacity of $2.3 billion, net of outstanding CP Program borrowings and were in compliancewith all covenants under both aforementioned credit agreements.
See Note 8: Debt and Credit Arrangementsin our Fiscal 2023 Form 10-K for additional information regarding our 2022 Credit Agreement and our 2023 Credit Agreement.
Commercial Paper Program
On January 26, 2024, we lowered the maximum amount available under our CP Program to $3.0 billion from $3.9 billion in accordance with the terms of the CP Program. The CP Program is supported by amounts available under the 2022 Credit Agreement and the 2024 Credit Agreement.
The commercial paper notes are sold at par less a discount representing an interest factor or, if interest bearing, at par, and the maturities vary but may not exceed 397 days from the date of issue. The commercial paper notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness.
At September 27, 2024 and December 29, 2023, we had $1.2 billion and $1.6 billion in outstanding notes under our CP Program, respectively, which is included as a component of the "Short-term debt" line item in our Condensed Consolidated Balance Sheet. The outstanding notes under our CP Program had a weighted-average interest rate of 5.32% and 5.95% at September 27, 2024 and December 29, 2023, respectively.
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12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE H: RETIREMENT BENEFITS
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 benefit ("OPEB") plans:
Quarter Ended
September 27, 2024 September 29, 2023
(In millions) Pension Other Benefits Pension Other Benefits
Net periodic benefit income
Operating
Service cost $ 8 $ - $ 10 $ -
Non-operating
Interest cost 99 3 100 3
Expected return on plan assets (165) (5) (162) (5)
Amortization of net actuarial gain (1) (4) (2) (5)
Amortization of prior service credit (7) - (7) -
Non-service cost periodic benefit income
(74) (6) (71) (7)
Net periodic benefit income $ (66) $ (6) $ (61) $ (7)
Three Quarters Ended
September 27, 2024 September 29, 2023
(In millions) Pension Other Benefits Pension Other Benefits
Net periodic benefit income
Operating
Service cost $ 25 $ 1 $ 22 $ 1
Non-operating
Interest cost 296 8 283 8
Expected return on plan assets (495) (15) (467) (15)
Amortization of net actuarial gain (3) (13) (7) (15)
Amortization of prior service (credit) cost (20) 1 (20) 1
Non-service cost periodic benefit income
(222) (19) (211) (21)
Net periodic benefit income $ (197) $ (18) $ (189) $ (20)
The service cost component of net periodic benefit income is included in the "Cost of revenue" and "General and administrative expenses" line items in our Condensed Consolidated Statement of Operations. The non-service cost components of net periodic benefit income are included in the "Non-service FAS pension income and other, net" line item in our Condensed Consolidated Statement of Operations.
NOTE I: STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATION
At September 27, 2024, we had stock options and other share-based compensation awards outstanding under three shareholder-approved employee stock incentive plans, including our 2024 Equity Incentive Plan, which was approved by our shareholders on April 19, 2024, as well as under other existing employee equity incentive plans assumed by L3Harris (collectively, the "L3Harris SIPs"). Total share-based compensation expense was $23 million and $76 million for the quarter and three quarters ended September 27, 2024, respectively, and $22 million and $67 million for the quarter and three quarters ended September 29, 2023, respectively.
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13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Awards granted to participants under L3Harris SIPs and the weighted-average grant-date fair value per share or unit during the three quarters ended September 27, 2024 and September 29, 2023 were as follows:
Three Quarters Ended
September 27, 2024 September 29, 2023
(In millions, except per share/units amounts) Shares or Units Weighted-Average Grant-Date Fair Value
Per Share or Unit 		Shares or Units Weighted-Average Grant-Date Fair Value
Per Share or Unit
Stock option shares granted(1)
0.4 $ 50.99 0.4 $ 54.63
Restricted stock units granted(2)
0.2 $ 214.00 0.3 $ 200.61
Performance share units granted(3)
0.2 $ 230.09 0.2 $ 223.09
_______________
(1)Other than certain stock options granted in connection with new hires, our stock options generally ratably vest in equal amounts over a three-year period.
(2)Other than certain restricted stock units granted in connection with new hires, our restricted stock units generally cliff vest after three years.
(3)Our performance share units are subject to performance criteria and generally vest after the three-year performance period.
The aggregate number of shares of our common stock issued under L3Harris SIPs, net of shares withheld for tax purposes, was 0.4 million and 1.2 million for the quarter and three quarters ended September 27, 2024, respectively, and was 0.1 million and 0.5 million for the quarter and three quarters ended September 29, 2023, respectively.
See Note 10: Stock Options and Other Share-Based Compensationin our Fiscal 2023 Form 10-K for additional information regarding the L3Harris SIPs.
NOTE J: ACCUMULATED OTHER COMPREHENSIVE LOSS ("AOCL")
At September 27, 2024 and December 29, 2023, AOCL was $194 million and $198 million, respectively. Changes in AOCL, net of tax, consisted of $27 million of other comprehensive income before reclassifications, primarily from currency translation gains, and $23 million of net gains reclassified to earnings, primarily associated with amortization of unrecognized postretirement benefit plan obligations.
At September 29, 2023 and December 30, 2022, AOCL was $321 million and $288 million, respectively. Changes in AOCL, net of tax, consisted of $4 million of other comprehensive loss before reclassifications, primarily from currency translation losses, partially offset by net unrealized gains on hedging derivatives, and $29 million of net gains reclassified to earnings, primarily associated with amortization of unrecognized postretirement benefit plan obligations.
See Note H: Retirement Benefitsin these Notes and Note 9: Retirement Benefitsin our Fiscal 2023 Form 10-K for additional information regarding our postretirement benefit plans.
NOTE K: FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal market (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.
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14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 in our Condensed Consolidated Balance Sheet:
September 27, 2024 December 29, 2023
(In millions) Total Level 1 Total Level 1
Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities $ 121 $ 121 $ 106 $ 106
Investments measured at NAV:
Corporate-owned life insurance 40 37
Total fair value of deferred compensation plan assets $ 161 $ 143
Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds $ 11 $ 11 $ 18 $ 18
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts 338 274
Total fair value of deferred compensation plan liabilities $ 349 $ 292
_______________
(1)Represents diversified assets held in "rabbi trusts" primarily 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.
(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. 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 long-term debt that is not carried at fair value in our Condensed Consolidated Balance Sheet:
September 27, 2024 December 29, 2023
(In millions) Carrying Amount Fair Value Carrying Amount Fair Value
Term Loan 2025(1)
$ - $ - $ 2,250 $ 2,250
All other long-term debt, net (including current portion)(2)
11,733 11,921 9,273 9,199
Long-term debt, including the current portion of long-term debt, net $ 11,733 $ 11,921 $ 11,523 $ 11,449
_______________
(1)The carrying value of Term Loan 2025 approximates fair value due to its variable interest rate.
(2)The fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.
The fair value of our short-term debt approximates the carrying value due to its short-term nature. If measured at fair value, the commercial paper would be classified as level 2 and other short-term debt would be classified as level 3 within the fair value hierarchy. See Note G: Debt and Credit Arrangementsin these Notes and Note 8: Debt and Credit Arrangementsin our Fiscal 2023 Form 10-K for further information regarding our long-term debt and CP Program.
See Note E: Goodwill and Intangible Assets and Note O: Acquisitions and Divestitures in these Notes and Note 13: Acquisitions, Divestitures and Asset Salesin our Fiscal 2023 Form 10-K for additional information regarding fair value measurements associated with acquisitions, divestitures and goodwill.
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15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE L: CHANGES IN ESTIMATES
Many of our contracts utilize 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. At the outset of each contract, we gauge its complexity and associated risks and establish an estimated total cost at completion. Due to the long-term nature of many of these contracts, developing these estimates often requires judgment. 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. As the contracts progress, we may successfully retire risks or complexities and may add additional risks, and we adjust our estimated total cost at completion. For additional discussion of our revenue recognition policies and our EAC process, see "Critical Accounting Estimates" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2023 Form 10-K.
Net EAC adjustments had the following impact to earnings for the periods presented:
Quarter Ended Three Quarters Ended
(In millions, except per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Net EAC adjustments, before income taxes
$ - $ (10) $ 19 $ (97)
Net EAC adjustments, net of income taxes - (8) 15 (73)
Net EAC adjustments, net of income taxes, per diluted share - (0.04) 0.08 (0.38)
Revenue recognized from performance obligations satisfied in prior periods was $48 million and $135 million for the quarter and three quarters ended September 27, 2024, respectively, and $28 million and $97 million for the quarter and three quarters ended September 29, 2023, respectively.
NOTE M: 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 September 27, 2024, our ending backlog was $33.8 billion. We expect to recognize approximately 45% of the revenue associated with this backlog over the next twelve months and an additional 25% over the following twelve months, with the remainder to be recognized thereafter.
NOTE N: RESTRUCTURING AND OTHER EXIT COSTS
From time to time, we record charges for restructuring and other exit activities related to changes in management structure and fundamental reorganizations that affect the nature and focus of operations, such as our LHX NeXt initiative described below. Such charges may include severance benefits 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.
LHX NeXt Initiative. LHX NeXt is our initiative to reduce cost and transform our systems and processes to increase agility and competitiveness, as discussed in more detail under the "Operating Environment, Strategic Priorities and Key Performance Measures" section in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2023 Form 10-K.
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16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Changes to our liabilities for restructuring and other exit costs during the three quarters ended September 27, 2024 were as follows:
(In millions) Employee Severance Related Costs
Balance at December 29, 2023(1)
$ 4
Additional provisions(2)
69
Payments (64)
Total changes 5
Balance at September 27, 2024(1)
$ 9
_______________
(1)Our liabilities, which we expect will be paid in the next twelve months, are included in the "Compensation and benefits" line item in our Condensed Consolidated Balance Sheet.
(2)Included as a component of the "General and administrative expenses" line item in our Condensed Consolidated Statement of Operations.
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 financed through the issuance and sale of the AJRD Notes and a draw down under the 2023 Credit Agreement. See Note 8: Debt and Credit Arrangementsin 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, except for certain assets and liabilities recorded at 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.
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
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17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgement related to estimates. Our preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as we obtained additional information during the measurement period. We completed our accounting for the acquisition during the quarter ended September 27, 2024. 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 adjustments recognized during the measurement period:
(In millions)
Preliminary as of July 28, 2023
Measurement Period Adjustments, Net(1)
Final as of September 27, 2024
Receivables $ 156 $ - $ 156
Contract assets 338 (137) 201
Inventories, net 14 - 14
Income taxes receivable 3 2 5
Other current assets 114 19 133
Property, plant and equipment 574 10 584
Goodwill 2,348 554 2,902
Intangible assets 2,860 - 2,860
Other non-current assets 609 66 675
Total assets acquired $ 7,016 $ 514 $ 7,530
Current portion of long-term debt, net $ 1 $ - $ 1
Accounts payable 145 - 145
Contract liabilities 310 152 462
Compensation and benefits 116 1 117
Income taxes payable 6 (3) 3
Other current liabilities 278 390 668
Long-term debt, net 41 - 41
Deferred income taxes 398 (52) 346
Other long-term liabilities 1,006 26 1,032
Total liabilities assumed $ 2,301 $ 514 $ 2,815
Fair value of consideration transferred $ 4,715 $ - $ 4,715
_______________
(1)Fair value adjustments during the measurement period primarily related to EAC updates for circumstances existing at the acquisition date, including updates to the forward loss provision and off-market customer contract reserve described below, refinements to the fair value of fixed assets, as well as corresponding adjustments to the deferred tax liability account which was partially offset by the release of a portion of the uncertain tax position previously recorded by AJRD.
Intangible Assets. All finite-lived intangible assets identified in the AJRD acquisition are subject to amortization. The fair value and weighted-average amortization period of identifiable intangible assets acquired as of the acquisition date are as follows:
Total Useful Lives
(In millions) (In Years)
Customer relationships:
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
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
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18
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 forward loss provision of $363 million which was included in the "Other current liabilities" line item in our Condensed Consolidated Balance Sheet. Since the completion of the acquisition of AJRD, we have undertaken significant operational efforts to further understand the root cause of identified preexisting manufacturing and supply chain challenges resulting in delivery delays, primarily related to certain Missile Solutions programs. We have identified operational activities necessary to remedy these challenges and inefficiencies and the incremental costs required as compared to its initial estimates and actual costs incurred. The incremental forward loss provisions relate to the increased cost estimates of labor and material to remedy the underlying preexisting technical and supply chain challenges. These cost increases impacted both cost-plus and fixed-price contracts in proportions that are consistent with the ratio of the overall AJRD revenue by contract type. The forward loss provisions will be recognized as a reduction to cost of sales as we incur actual costs associated with these estimates in satisfying the associated performance obligations. There will be no net impact on our Condensed Consolidated Statement of Operations. We recognized $46 million and $107 million of amortization related to the forward loss provision in the quarter and three quarters ended September 27, 2024, respectively.
Off-market Customer Contracts. We have identified certain customer contractual obligations as of the acquisition date with economic returns that are higher or lower than could be realized in market transactions and have recorded assets or liabilities for the acquisition date fair value of the off-market components. The acquisition date fair value of the off-market components is a net liability of $183 million, consisting of $48 million and $135 million included in the "Other current liabilities" 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). Additional provisions to off-market customer contracts relate to labor and material cost increases primarily associated with supply chain and manufacturing challenges and inefficiencies. These cost increases impacted both cost-plus and fixed-price contracts in proportions that are consistent with the ratio of the overall AJRD revenue by contract type. 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 $12 million and $42 million of amortization related to off-market contract liabilities in the quarter and three quarters ended September 27, 2024, respectively.
Goodwill. The $2,902 million of goodwill recognized is attributable to AJRD's market presence as one of the two primary providers of advanced propulsion and power systems for nearly every major U.S. government space and missile program, the assembled workforce and established operating infrastructure. The acquired goodwill is not tax deductible. See Note E: Goodwill and Intangible Assetsin these Notes for further information.
Financial Results. See Note P: Business Segment Informationin these Notes for the AR segment financial results for the quarter andthree quarters ended September 27, 2024.
Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred and are included in the "General and administrative expenses" line item in our Condensed Consolidated Statement of Operations. In connection with the AJRD acquisition, we recorded transaction and integration costs of $19 million and $63 million for the quarter and three quarters ended September 27, 2024, respectively, and $45 million and $67 million for the quarter and three quarters ended September 29, 2023, respectively.
Pending Divestiture of Commercial Aviation Solutions ("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 September 27, 2024, the fair value less remaining estimated costs to sell of the CAS Disposal Group was $887 million, inclusive of consideration related to noncontrolling interest and accumulated other comprehensive income. Income before income taxes attributable to L3Harris Technologies, Inc. for the quarter and three quarters ended September 27, 2024 was $31 million and $87 million, respectively, and for the quarter and three quarters ended September 29, 2023 was $6 million and $43 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,
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19
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
which is included in the "Impairment of goodwill and other assets" line item in our Consolidated Statement of Operations in our Fiscal 2023 Form 10-K. See Note 6: Goodwill and Intangible Assetsin 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.
During the quarter and three quarters ended September 27, 2024, we recorded an additional valuation allowance due to an increase in the carrying value of the disposal group, and additional remaining estimated costs to sell which resulted in additional pre-tax losses of $29 million and of $44 million, respectively, inclusive of amounts attributable to noncontrolling interest. The pre-tax losses and the amount attributable to noncontrolling interest, after tax, are included in the "General and administrative expenses" and "Noncontrolling interests, net of income taxes" line items, respectively, in our Condensed Consolidated Statement of Operations for the quarter and three quarters ended September 27, 2024.
The carrying amounts of assets and liabilities of the CAS Disposal Group classified as held for sale in our Condensed Consolidated Balance Sheet were as follows:
(In millions) September 27, 2024 December 29, 2023
Receivables, net $ 96 $ 80
Contract assets 60 43
Inventories, net 158 145
Other current assets 22 33
Property, plant and equipment, net 48 41
Goodwill 536 534
Intangible assets, net 264 263
Other non-current assets 49 40
Valuation allowance (103) (73)
Total assets held for sale $ 1,130 $ 1,106
Current portion of long-term debt $ 1 $ -
Accounts payable 88 111
Contract liabilities 43 48
Compensation and benefits 7 11
Other current liabilities 38 38
Long-term debt, net 3 -
Other long-term liabilities 63 64
Total liabilities held for sale $ 243 $ 272
Divestiture of Antenna Disposal Group
On May 31, 2024, we completed the divestiture of our Antenna Disposal Group, which provides a variety of airborne and ground-based antennas and test equipment, to Kanders & Company, Inc. for net cash proceeds of $166 million (after selling costs and purchase price adjustments) and a $25 million note receivable, included in the Other non-current assets line item in our Condensed Consolidated Balance Sheet at September 27, 2024.
The carrying amounts of assets and liabilities included in the Antenna Disposal Group sale on May 31, 2024 were $265 million and $65 million, respectively. During the quarter ended June 28, 2024, $93 million of goodwill was assigned to the Antenna Disposal Group on a relative fair value basis. In connection with the preparation of our financial statements for the quarter ended June 28, 2024, we tested goodwill assigned to the Antenna Disposal Group and goodwill assigned to the retained businesses of the SAS reporting unit for impairment and concluded that goodwill related to the Antenna Disposal Group was impaired. As a result, we recorded a non-cash charge for impairment of $14 million included in the "General and administrative expenses" line item in our Condensed Consolidated Statement of Operations for the three quarters ended September 27, 2024.
In connection with the sale, we recognized a pre-tax loss of $9 million included in the "General and administrative expenses" line item in our Condensed Consolidated Statement of Operations for the three quarters ended September 27, 2024. The operating results of the Antenna Disposal Group were reported in our SAS segment through the date of divestiture.
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20
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 "General and administrative expenses" line item in our Consolidated Statement of Operations for the fiscal year ended December 29, 2023 in our Fiscal 2023 Form 10-K. 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.
Fair Value of Businesses
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 K: Fair Value Measurementsin these Notes for additional information.
NOTE P: BUSINESS SEGMENT INFORMATION
We structure our operations primarily around the products, systems and services we sell and the markets we serve and report our financial results in the following four reportable segments:
•SAS: including satellite space payloads, sensors and full-mission solutions; classified intelligence and cyber; avionics; electronic warfare systems; and mission networks for FAA mission-critical safety of flight;
•IMS: including multi-mission intelligence, surveillance and reconnaissance ("ISR") systems; passive sensing and targeting; electronic attack platforms; autonomy; power and communications; networks; sensors; and the CAS Disposal Group, which includes aviation products and pilot training operations, see Note O: Acquisitions and Divestitures;
•CS: including tactical communications with global communications solutions; broadband communications; integrated vision solutions; and public safety radios, system applications and equipment; and
•AR: including missile solutions with propulsion technologies for strategic defense, missile defense, and hypersonic and tactical systems; and space propulsion and power systems for national security space and exploration missions.
Business Segment Financial Information
Segment revenue, segment operating income and a reconciliation of segment operating income to total income before income taxes were as follows:
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Revenue
SAS $ 1,683 $ 1,686 $ 5,141 $ 5,056
IMS 1,671 1,568 5,069 5,003
CS 1,382 1,255 4,022 3,707
AR 596 455 1,719 455
Corporate eliminations (40) (49) (149) (142)
Total revenue $ 5,292 $ 4,915 $ 15,802 $ 14,079
Income before Income Taxes
Operating income:
SAS
$ 195 $ 210 $ 626 $ 565
IMS
204 187 600 534
CS 359 282 998 873
AR 75 56 222 56
Total segment 833 735 2,446 2,028
Total unallocated corporate expenses (338) (256) (1,097) (756)
Total operating income 495 479 1,349 1,272
Non-service FAS pension income and other, net 101 80 275 245
Interest expense, net (166) (159) (514) (372)
Income before income taxes $ 430 $ 400 $ 1,110 $ 1,145
Unallocated Corporate Expenses. Total unallocated corporate expenses include corporate items such as a portion of management and administration, legal, environmental, compensation, retiree benefits, other corporate expenses and eliminations and the FAS/Cost Accounting Standards ("CAS") operating adjustment. Total unallocated corporate expenses also include the portion of corporate costs not included in management's evaluation of segment operating performance, such as amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; asset group and business divestiture-related (losses) gains, net and any related impairment of goodwill; impairment of other assets; LHX NeXt implementation costs; and other items.
FAS/CAS Operating Adjustment. In accordance with CAS, we allocate a portion of pension and OPEB plan costs to our U.S. Government contracts. However, our Condensed Consolidated Financial Statements require pension and OPEB plan income or expense to be calculated in accordance with FAS requirements under GAAP. The "FAS/CAS operating adjustment" line item in the table below represents the difference between the service cost component of net periodic benefit income under our pension and OPEB plans and total CAS pension and OPEB cost.
The table below is a reconciliation of the FAS/CAS operating adjustment:
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
FAS pension service cost $ (8) $ (10) $ (26) $ (23)
Less: CAS pension cost (15) (37) (46) (95)
FAS/CAS operating adjustment $ 7 $ 27 $ 20 $ 72
Disaggregation of Revenue
We disaggregate revenue for all four business segments by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Quarter Ended
September 27, 2024 September 29, 2023
(In millions) SAS IMS CS AR SAS IMS CS AR
Revenue By Customer Relationship
Prime contractor $ 1,008 $ 1,051 $ 977 $ 149 $ 1,081 $ 962 $ 866 $ 113
Subcontractor(1)
663 609 388 447 592 585 374 342
Intersegment 12 11 17 - 13 21 15 -
Total segment $ 1,683 $ 1,671 $ 1,382 $ 596 $ 1,686 $ 1,568 $ 1,255 $ 455
Revenue By Contract Type
Fixed-price(2)
$ 1,012 $ 1,258 $ 1,146 $ 361 $ 1,039 $ 1,164 $ 1,047 $ 272
Cost-reimbursable 659 402 219 235 634 383 193 183
Intersegment 12 11 17 - 13 21 15 -
Total segment $ 1,683 $ 1,671 $ 1,382 $ 596 $ 1,686 $ 1,568 $ 1,255 $ 455
Revenue By Geographical Region
United States $ 1,484 $ 1,217 $ 975 $ 584 $ 1,478 $ 1,141 $ 874 $ 443
International 187 443 390 12 195 406 366 12
Intersegment 12 11 17 - 13 21 15 -
Total segment $ 1,683 $ 1,671 $ 1,382 $ 596 $ 1,686 $ 1,568 $ 1,255 $ 455
Three Quarters Ended
September 27, 2024 September 29, 2023
(In millions) SAS IMS CS AR SAS IMS CS AR
Revenue By Customer Relationship
Prime contractor $ 3,192 $ 3,214 $ 2,805 $ 457 $ 3,175 $ 3,243 $ 2,471 $ 113
Subcontractor(1)
1,909 1,799 1,164 1,262 1,845 1,694 1,196 342
Intersegment 40 56 53 - 36 66 40 -
Total segment $ 5,141 $ 5,069 $ 4,022 $ 1,719 $ 5,056 $ 5,003 $ 3,707 $ 455
Revenue By Contract Type
Fixed-price(2)
$ 3,192 $ 3,876 $ 3,329 $ 1,007 $ 3,160 $ 3,767 $ 3,127 $ 272
Cost-reimbursable 1,909 1,137 640 712 1,860 1,170 540 183
Intersegment 40 56 53 - 36 66 40 -
Total segment $ 5,141 $ 5,069 $ 4,022 $ 1,719 $ 5,056 $ 5,003 $ 3,707 $ 455
Revenue By Geographical Region
United States $ 4,479 $ 3,683 $ 2,786 $ 1,682 $ 4,407 $ 3,679 $ 2,499 $ 443
International 622 1,330 1,183 37 613 1,258 1,168 12
Intersegment 40 56 53 - 36 66 40 -
Total segment $ 5,141 $ 5,069 $ 4,022 $ 1,719 $ 5,056 $ 5,003 $ 3,707 $ 455
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(1) Our subcontractor revenues includes products and services to contractors whose customers are the end user.
(2) Includes revenue derived from time-and-materials contracts.
Assets by Business Segment
Total assets by business segment were as follows:
(In millions) September 27, 2024 December 29, 2023
SAS $ 8,836 $ 9,085
IMS 10,932 10,631
CS 6,952 7,084
AR 4,540 4,208
Corporate(1)
10,629 10,679
Total Assets $ 41,889 $ 41,687
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(1)Identifiable intangible assets acquired in connection with business combinations were recorded as corporate assets because they benefited the entire Company. Identifiable intangible asset balances recorded as corporate assets were $7.9 billion and $8.5 billion at September 27, 2024 and December 29, 2023, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment, real estate held for development and leasing, as well as any assets of businesses held for sale.
NOTE Q: LEGAL PROCEEDINGS AND CONTINGENCIES
In the ordinary course of business, we are routinely defendants in, parties to or otherwise subject to many pending and threatened legal actions, claims, disputes, arbitration and other legal proceedings incident to our business, 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 employment 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 arbitration 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 September 27, 2024, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us was not material. We cannot at this time estimate the reasonably possible loss or range of loss in excess of our accrual due to the inherent uncertainties and speculative nature of contested proceedings. Although it is not feasible to predict the outcome of these matters with certainty, based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence at September 27, 2024 are reserved against or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.
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, including AJRD, are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites, including sites owned by us and third-party 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 several 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 us or companies we acquired being identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the "Superfund Act"), the Resource Conservation Recovery Act and/or equivalent state and international laws, and in some instances, our liability and proportionate share of costs that may be shared among other PRPs have not been determined largely due to uncertainties as to the nature and extent of site conditions and our involvement.
Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and regulations for identified sites was $654 million as of September 27, 2024. The current portion of our estimated environmental liability is included in the "Other current liabilities" line item and the non-current portion is included in the "Other long-term liabilities" line item in our Condensed Consolidated Balance Sheet. Some of these environmental costs are eligible for future recovery in the pricing of our products and services to the U.S.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
government and under existing third party agreements. We consider the recovery probable based on U.S. government contracting regulations and existing third-party agreements. As of September 27, 2024, we had an asset for the recoverable portion of these reserves of $468 million. The current and non-current portion of the recoverable costs are included as a component of the "Other current assets" and "Other non-current assets" line items, respectively, in our Condensed Consolidated Balance Sheet.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of L3Harris Technologies, Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of L3Harris Technologies, Inc. and subsidiaries (the Company) as of September 27, 2024, the related condensed consolidated statements of operations, comprehensive income, and equity for the quarter and three quarters ended September 27, 2024 and September 29, 2023, the condensed consolidated statements of cash flows for the three quarters ended September 27, 2024 and September 29, 2023, 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 December 29, 2023, the related consolidated statements of operations, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February 16, 2024, 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 December 29, 2023, 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 are required to be independent with respect to the 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
October 25, 2024
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ITEM 2. 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 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 Operationsin our Fiscal 2023 Form 10-K. Except for the historical information contained herein, 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 and services have defense and civil government applications, as well as commercial applications.
U.S. and International Budget Environment
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 77% for the three quarters ended September 27, 2024.
On March 9, 2024, the President signed the first tranche of U.S. Government fiscal year ("GFY") 2024 appropriations funding bills into law, which funded six government agencies, including funding for the National Aeronautics and Space Administration, the National Oceanic and Atmospheric Administration, and the Federal Aviation Administration, through the remainder of GFY 2024 which ended on September 30, 2024. A second funding bill, signed into law on March 23, 2024, funded all remaining agencies, including the U.S. Department of Defense ("DoD"), through the remainder of GFY 2024. The bill provides approximately $844 billion in funding for DoD. This was in line with our expectations for 3% growth for defense over GFY 2023 levels and in line with the first year of the Fiscal Responsibility Act of 2023 ("FRA") caps.
On March 11, 2024, the President's Budget Request ("PBR") for GFY 2025 was released. The DoD requested $850 billion, a 1% topline increase consistent with the FRA caps.
On April 24, 2024, the President signed into law a supplemental GFY 2024 appropriations package that includes $67 billion in funding for key DoD programs, bringing the DoD funding for GFY 2024 to $911 billion.
Congress has not yet reached a final agreement on GFY2025 funding. A short-term Continuing Resolution ("CR") was enacted on September 26, 2024 that will fund the U.S. Government until December 20, 2024.
While operating under a CR, government agencies are allocated a portion of GFY 2024 enacted funds, and DoD is prohibited from starting new programs. The 2024 election cycle complicates the budget outlook. The outcome of the election in November will determine which political party has the majority in the House and Senate, which has implications, including potential delays in Congress' ability to complete GFY 2025 appropriations bills during the lame duck session, making another CR highly likely. If Congress does not enact all 12 GFY 2025 appropriations bills by April 30, 2025, a 1% automatic sequestration cut will go into effect as mandated by the FRA.
Further complicating the budget outlook is the need to raise the debt ceiling in 2025. Congressional inaction may lead to a default and potentially create economic instability.
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 Factorsin our Fiscal 2023 Form 10-K.
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Economic Environment
The macroeconomic environment continues to evolve, which has impacted our business and may continue to impact our future results. The ongoing uncertainty related to the impacts of inflation, as well as the interest rate environment and ongoing federal deficits, which raises the cost of borrowing for the federal government, could in the future impact U.S. Government spending priorities for our products. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factorsin our Fiscal 2023 Form 10-K.
RESULTS OF OPERATIONS
Consolidated Results of Operations
Quarter Ended Three Quarters Ended
(Dollars in millions, except per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Revenue $ 5,292 $ 4,915 $ 15,802 $ 14,079
Cost of revenue (3,873) (3,608) (11,675) (10,419)
% of total revenue 73 % 73 % 74 % 74 %
Gross margin 1,419 1,307 4,127 3,660
% of total revenue 26.8 % 26.6 % 26.1 % 26.0 %
General and administrative expenses (924) (828) (2,778) (2,388)
% of total revenue 17 % 17 % 18 % 17 %
Operating Income 495 479 1,349 1,272
Non-service FAS pension income and other, net 101 80 275 245
Interest expense, net (166) (159) (514) (372)
Income before income taxes 430 400 1,110 1,145
Income taxes (26) (18) (54) (73)
Effective Tax Rate 6.0 % 4.5 % 4.9 % 6.4 %
Net income 404 382 1,056 1,072
Noncontrolling interests, net of income taxes (4) 1 (7) (3)
Net income attributable to L3Harris Technologies, Inc. 400 383 1,049 1,069
Diluted EPS $ 2.10 $ 2.02 $ 5.50 $ 5.61
Revenue and Gross Margin
Quarter Ended Comparison. Revenue increased 8% for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher revenue of $141 million in our AR segment from a full quarter of revenue, rather than a partial quarter of revenue for the quarter ended September 29, 2023 following the July 28, 2023 acquisition of AJRD ("the AR Partial Quarter") and higher revenues of $127 million and $103 million in our CS and IMS segments, respectively.
Gross margin increased, largely due to the increase in revenue, while gross margin as a percentage of revenue remained flat for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023.
Three Quarters Ended Comparison. Revenue increased 12% for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher revenue of $1,264 million in our AR segment from the acquisition of AJRD, in addition to higher revenues of $315 million, $85 million and $66 million in our CS, SAS and IMS segments, respectively.
Gross margin increased, largely due to the increase in revenue, while gross margin as a percentage of revenue remained relatively flat for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023.
See the "Segment Product and Service Analysis" and "Discussion of Business Segment Results of Operations" discussion below in this MD&A for further information.
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Segment Product and Service Analysis
The following tables present revenue and cost of revenue from products and services by segment for the quarters ended September 27, 2024 and September 29, 2023:
Quarter Ended September 27, 2024
(In millions) SAS IMS CS AR Eliminations Total
Revenue
Products $ 1,173 $ 1,026 $ 1,096 $ 400 $ - $ 3,695
Services 498 634 269 196 - 1,597
Intersegment 12 11 17 - (40) -
Total $ 1,683 $ 1,671 $ 1,382 $ 596 $ (40) $ 5,292
Cost of revenue
Products $ 928 $ 793 $ 697 $ 310 $ 11 $ 2,739
Services 385 457 144 157 (9) 1,134
Intersegment 12 11 17 - (40) -
Total $ 1,325 $ 1,261 $ 858 $ 467 $ (38) $ 3,873
Quarter Ended September 29, 2023
(In millions) SAS IMS CS AR Eliminations Total
Revenue
Products $ 1,183 $ 907 $ 985 $ 322 $ - $ 3,397
Services 490 640 255 133 - 1,518
Intersegment 13 21 15 - (49) -
Total $ 1,686 $ 1,568 $ 1,255 $ 455 $ (49) $ 4,915
Cost of revenue
Products $ 894 $ 676 $ 595 $ 249 $ 7 $ 2,421
Services 394 489 202 116 (14) 1,187
Intersegment 13 21 15 - (49) -
Total $ 1,301 $ 1,186 $ 812 $ 365 $ (56) $ 3,608
Quarter Ended Comparison. Products revenue increased $298 million for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher products revenues of $119 million and $111 million in our IMS and CS segments, respectively, and $78 million in our AR segment from the AR Partial Quarter.
Cost of products revenue increased $318 million for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher cost of products revenues of $117 million and $102 million in our IMS and CS segments, respectively, and $61 million in our AR segment from the AR Partial Quarter .
Services revenue increased $79 million for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher services revenue of $63 million in our AR segment from the AR Partial Quarter.
Cost of services revenue decreased $53 million for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to lower cost of services revenues of $58 million and $32 million in our CS and IMS segments, respectively, partially offset by higher cost of services revenue of $41 million in our AR segment from the AR Partial Quarter.
See the "Discussion of Business Segment Results of Operations" discussion below in this MD&A for further information.
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The following tables present revenue and cost of revenue from products and services by segment for the three quarters ended September 27, 2024 and September 29, 2023:
Three Quarters Ended September 27, 2024
(In millions) SAS IMS CS AR Eliminations Total
Revenue
Products $ 3,572 $ 3,102 $ 3,165 $ 1,139 $ - $ 10,978
Services 1,529 1,911 804 580 - 4,824
Intersegment 40 56 53 - (149) -
Total $ 5,141 $ 5,069 $ 4,022 $ 1,719 $ (149) $ 15,802
Cost of revenue
Products $ 2,765 $ 2,410 $ 1,911 $ 867 $ 40 $ 7,993
Services 1,215 1,417 607 454 (11) 3,682
Intersegment 40 56 53 - (149) -
Total $ 4,020 $ 3,883 $ 2,571 $ 1,321 $ (120) $ 11,675
Three Quarters Ended September 29, 2023
(In millions) SAS IMS CS AR Eliminations Total
Revenue
Products $ 3,597 $ 3,039 $ 2,951 $ 322 $ - $ 9,909
Services 1,423 1,898 716 133 - 4,170
Intersegment 36 66 40 - (142) -
Total $ 5,056 $ 5,003 $ 3,707 $ 455 $ (142) $ 14,079
Cost of revenue
Products $ 2,777 $ 2,305 $ 1,759 $ 249 $ 72 $ 7,162
Services 1,150 1,464 558 116 (31) 3,257
Intersegment 36 66 40 - (142) -
Total $ 3,963 $ 3,835 $ 2,357 $ 365 $ (101) $ 10,419
Three Quarters Ended Comparison. Products revenue increased $1,069 million for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher products revenues of $817 million in our AR segment from the acquisition of AJRD, in addition to $214 million and $63 million in our CS and IMS segments, respectively.
Cost of products revenue increased $831 million for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher cost of products revenues of $618 million in our AR segment from the acquisition of AJRD, in addition to $152 million and $105 million in our CS and IMS segments, respectively.
Services revenue increased $654 million for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher services revenues of $447 million in our AR segment from the acquisition of AJRD, in addition to $106 million and $88 million in our SAS and CS segments, respectively.
Cost of services revenue increased $425 million for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher cost of services revenues of $338 million in our AR segment from the acquisition of AJRD, in addition to $65 million and $49 million in our SAS and CS segments, respectively.
See the "Discussion of Business Segment Results of Operations" discussion below in this MD&A for further information.
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General and Administrative ("G&A") Expenses
G&A expenses were as follows:
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Amortization of acquisition-related intangibles $ (194) $ (185) $ (585) $ (477)
LHX NeXt implementation costs(1)
(41) (33) (216) (68)
Merger, acquisition, and divestiture-related expenses (25) (56) (86) (144)
Business divestiture-related (losses) gains, net(2)
(29) - (53) 26
Impairment of goodwill and other assets - - (14) (30)
Company-funded R&D costs (135) (125) (373) (356)
Selling and marketing (112) (121) (337) (341)
Other G&A expenses(3)
(388) (308) (1,114) (998)
Total G&A expenses $ (924) $ (828) $ (2,778) $ (2,388)
_______________
(1)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental information technology ("IT") expenses for implementation of new systems. For more detail on our LHX NeXt initiative and implementation costs, see Note N: Restructuring and Other Exit Costsin the Notes and the "Operating Environment, Strategic Priorities and Key Performance Measures" section in the MD&A in our Fiscal 2023 Form 10-K.
(2)See Note O: Acquisitions and Divestituresin the Notes.
(3)Includes other segment G&A expenses such as payroll and benefits, outside services, facilities, insurance and other expenses and unallocated corporate expenses including a portion of management and administration, legal, environmental, compensation, retiree benefits and includes other corporate G&A expenses and eliminations.
Quarter Ended Comparison. G&A expenses increased $96 million for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due an $80 million increase in other G&A expenses, driven by a $26 million change in the fair value of our deferred compensation plan liabilities and $14 million of other G&A expenses in our AR segment due to the AR Partial Quarter in 2023. Additionally, G&A expenses increased from business divestiture-related losses in the quarter ended September 27, 2024. Such increases were partially offset by a decrease in merger, acquisition, and divestiture-related expenses.
Three Quarters Ended Comparison. G&A expenses increased $390 million for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to increases in LHX NeXt implementation costs, including $56 million related to employee severance charges and $92 million for third-party consulting expenses, incremental IT expenses for implementation of new systems and other costs. G&A expenses also increased from higher amortization of acquisition-related intangibles and a change in business divestiture-related losses, partially offset by a decrease in merger, acquisition, and divestiture-related expenses. Additionally, other G&A expenses increased $116 million from the inclusion of $100 million of other G&A expenses in our AR segment and $84 million in corporate other G&A expenses, primarily from a $23 million change in the fair value of our deferred compensation plan liabilities and a $15 million increase in a legal reserve, partially offset by decreases in other G&A expenses of $29 million, $20 million and $19 million in our SAS, CS and IMS segments, respectively, primarily from LHX NeXt driven cost savings.
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Non-service FAS Pension Income and Other, net
Non-service FAS pension income and other, net was as follows:
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Non-service FAS pension income(1)
$ 80 $ 78 $ 241 $ 232
Other, net(2)
21 2 34 13
Non-service FAS pension income and other, net $ 101 $ 80 $ 275 $ 245
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(1)Includes interest cost, expected return on plan assets, amortization of net actuarial gain, and amortization of prior service (credit) cost components of net periodic benefit income under our pension and OPEB plans. See Note H: Retirement Benefits in the Notes for more information on the composition of non-service FAS pension income.
(2)Other, net 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. For the quarter and three quarters ended September 27, 2024, includes $14 million of income net of related expenses from a domain name sale.
Interest Expense, net
Interest expense, net, increased for the quarter and three quarters ended September 27, 2024 compared with the quarter and three quarters ended September 29, 2023 primarily due to the issuance and sale of the March Issued 2024 Notes, AJRD Notes in July 2023 and higher average outstanding notes under our CP Program during the three quarters ended September 27, 2024, partially offset by repayment of Term Loan 2025 in March 2024. See Note G: Debt and Credit Arrangementsin the Notes for further information.
Income Taxes
During interim periods, we estimate our worldwide forecasted full-year effective tax rate and apply that rate to year-to-date ordinary income in order to compute the year-to-date income tax provision. Although most items will be considered part of the forecasted full-year effective tax rate, 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 effective tax rate 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 effective tax rate ("ETR") was 6.0% and 4.9% for the quarter and three quarters ended September 27, 2024, respectively, and 4.5% and 6.4% for the quarter and three quarters ended September 29, 2023, respectively. The ETR for all periods benefited from R&D credits and tax deductions for FDII, with additional benefits from favorable adjustments recognized upon finalization of our 2023 tax returns in the quarter and three quarters ended September 27, 2024 and favorable resolution of specific audit uncertainties in the three quarters ended September 27, 2024 and the quarter and three quarters ended September 29, 2023.
Diluted EPS
Quarter Ended Comparison. Diluted EPS increased 4% for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher net income from the combined effects of reasons noted in the sections above, notably an increase in gross margin, partially offset by an increase in G&A expenses.
Three Quarters Ended Comparison. Diluted EPS decreased 2% for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to lower net income, from the combined effects of reasons noted in the sections above, notably increases in G&A expenses and interest expense, net, partially offset by an increase in gross margin.
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Discussion of Business Segment Results of Operations
SAS Segment
Quarter Ended Three Quarters Ended
September 27, 2024 September 29, 2023 % Inc/(Dec) September 27, 2024 September 29, 2023 % Inc/(Dec)
Revenue $ 1,683 $ 1,686 - % $ 5,141 $ 5,056 2 %
Operating income 195 210 (7) % 626 565 11 %
Operating income as a percentage of revenue ("operating margin")
11.6 % 12.5 % 12.2 % 11.2 %
Quarter Ended Comparison. SAS segment revenue remained flat for the quarter ended September 27, 2024 primarily due to higher revenues of $49 million in Intel and Cyber from classified program growth and $18 million in Mission Networks, which is our FAA mission-critical safety of flight business, from higher volumes, offset by lower revenues in Advanced Combat Systems of $42 million from the divestiture of the Antenna Disposal Group and $15 million from lower F-35 related volumes as TR-3 development ramps down as well as $25 million in Space Systems primarily due to a non-recurring license sale during the quarter ended September 29, 2023 and challenges on classified development programs leading to slowed growth during the quarter ended September 27, 2024.
SAS segment operating income decreased for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to a non-recurring license sale during the quarter ended September 29, 2023 and challenges on classified development programs in Space Systems, partially offset by growth in both Intel and Cyber and Mission Networks and LHX NeXt driven cost savings realized during the quarter ended September 27, 2024.
Three Quarters Ended Comparison. SAS segment revenue increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher revenues of $114 million and $55 million in Intel and Cyber and Space Systems, respectively, from program growth and $40 million in Mission Networks from higher volumes, partially offset by lower revenues in Advanced Combat Systems of $71 million from lower volumes and $60 million from the divestiture of the Antenna Disposal Group.
SAS segment operating income increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to a $27 million non-cash charge for impairment of other assets, partially offset by a non-recurring license sale both of which occurred during the three quarters ended September 29, 2023, in addition to growth in Space Systems and LHX NeXt driven cost savings realized during the three quarters ended September 27, 2024.
IMS Segment
Quarter Ended Three Quarters Ended
(Dollars in millions) September 27, 2024 September 29, 2023 % Inc/(Dec) September 27, 2024 September 29, 2023 % Inc/(Dec)
Revenue $ 1,671 $ 1,568 7 % $ 5,069 $ 5,003 1 %
Operating income 204 187 9 % 600 534 12 %
Operating margin
12.2 % 11.9 % 11.8 % 10.7 %
Quarter Ended Comparison. IMS segment revenue increased for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher revenues of $47 million in Commercial Aviation from higher volume, $32 million in Defense Electronics from higher demand for advanced electronics for space and munitions programs and $31 million in ISR from higher aircraft missionization volume.
IMS segment operating income increased for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher volume and favorable mix in CAS, improved program performance across the segment and LHX NeXt driven cost savings realized during the quarter ended September 27, 2024, partially offset by unfavorable mix impact within ISR.
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Three Quarters Ended Comparison. IMS segment revenue increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher revenues of $40 million in Defense Electronics from higher demand for advanced electronics for space and munitions programs, $32 million in Maritime from material volume on classified programs and $31 million in Global Optical Systems from higher commercial revenue on airborne sensors, partially offset by lower revenue of $32 million in ISR from lower aircraft procurement.
IMS segment operating income increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to a $45 million increase from improved program performance during the three quarters ended September 27, 2024, a $12 million non-cash charge for impairment of other assets related to facility closures and restructuring of a customer contract during the three quarters ended September 29, 2023 and LHX NeXt driven cost savings realized during the three quarters ended September 27, 2024.
CS Segment
Quarter Ended Three Quarters Ended
(Dollars in millions) September 27, 2024 September 29, 2023 % Inc/(Dec) September 27, 2024 September 29, 2023 % Inc/(Dec)
Revenue $ 1,382 $ 1,255 10 % $ 4,022 $ 3,707 8 %
Operating income 359 282 27 % 998 873 14 %
Operating margin
26.0 % 22.5 % 24.8 % 23.6 %
Quarter Ended Comparison. CS segment revenue increased 10% for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher revenues of $71 million in Tactical Communications and $31 million in Integrated Vision Solutions associated with increased demand for our resilient communication equipment, related waveforms, and night vision devices and $27 million in Broadband Communications from higher volumes.
CS segment operating income increased for the quarter ended September 27, 2024 compared with the quarter ended September 29, 2023 primarily due to higher volumes, favorable high margin international mix, proprietary waveform license sales and LHX NeXt driven cost savings realized during the quarter ended September 27, 2024.
Three Quarters Ended Comparison. CS segment revenue increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher revenues of $146 million in Tactical Communications and $83 million in Integrated Vision Solutions associated with increased domestic and international demand for our resilient communication equipment, related waveforms, and night vision devices and $88 million in Broadband Communications from higher volumes.
CS segment operating income increased for the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 primarily due to higher volumes and LHX NeXt driven cost savings realized during the three quarters ended September 27, 2024, partially offset by a decrease from unfavorable mix of higher DoD sales in Tactical Communication during the three quarters ended September 27, 2024.
AR Segment
Quarter Ended Three Quarters Ended
(Dollars in millions) September 27, 2024 September 29, 2023 % Inc/(Dec) September 27, 2024 September 29, 2023 % Inc/(Dec)
Revenue $ 596 $ 455 31 % $ 1,719 $ 455 *
Operating income 75 56 34 % 222 56 *
Operating margin
12.6 % 12.3 % 12.9 % 12.3 %
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* Not meaningful
AR segment revenue increased for the quarter and three quarters ended September 27, 2024 compared with the quarter and three quarters ended September 29, 2023 primarily due to the AR Partial Quarter in 2023.
AR segment operating income increased for the quarter and three quarters ended September 27, 2024 compared with the quarter and three quarters ended September 29, 2023 primarily due to the AR Partial Quarter in 2023.
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Unallocated Corporate Expenses
Quarter Ended Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023
Unallocated corporate department (expense) income, net(1)
$ (40) $ 14 $ (106) $ (27)
Amortization of acquisition-related intangibles(2)
(210) (208) (642) (546)
Additional cost of revenue related to the fair value step-up in inventory sold - - - (30)
Merger, acquisition, and divestiture-related expenses (25) (56) (86) (144)
Asset group and business divestiture-related losses, net(3)
(29) - (53) 26
Impairment of goodwill and other assets(4)
- - (14) (39)
LHX NeXt implementation costs(5)
(41) (33) (216) (68)
FAS/CAS operating adjustment(6)
7 27 20 72
Total unallocated corporate expenses $ (338) $ (256) $ (1,097) $ (756)
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(1)Includes corporate items such as a portion of management and administration, legal, environmental, compensation, retiree benefits, other corporate expenses and eliminations. For the quarter and three quarters ended September 27, 2024, includes expense of $19 million and $42 million, respectively, from changes in the fair value of our deferred compensation plan liabilities. Additionally, for the three quarters ended September 27, 2024, includes expense of $15 million associated with an increase in legal reserve. For the quarter and three quarters ended September 29, 2023, includes income of $7 million and expense of $19 million, respectively, from changes in the fair value of our deferred compensation plan liabilities.
(2)Includes amortization of identifiable intangible assets acquired in connection with business combinations. Because our acquisitions benefited the entire Company, the amortization of identifiable intangible assets acquired was not allocated to any segment.
(3)See Note O: Acquisitions and Divestituresin the Notes for further information.
(4)For the three quarters ended September 27, 2024, includes a non-cash charge for impairment of goodwill related to our Antenna Disposal Group divestiture. See Note O: Acquisitions and Divestitures and Note E: Goodwill and Intangible Assetsin the Notes for further information related to the Antenna Disposal Group. For the three quarters ended September 29, 2023, includes a $21 million non-cash charge for impairment of in-process R&D associated with a facility closure and an $18 million non-cash charge for impairment of a customer contract.
(5)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems. For further information on our LHX NeXt initiative and implementation costs see Note N: Restructuring and Other Exit Costsin the Notes and the "General and Administrative Expenses" discussion above in this MD&A.
(6)Represents the difference between the service cost component of net periodic benefit income under our pension and OPEB plans and total CAS pension and OPEB cost. See Note P: Business Segment Informationin the Notes for additional information regarding the FAS/CAS operating adjustment.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES
Cash Flows
Three Quarters Ended
(In millions) September 27, 2024 September 29, 2023
Cash and cash equivalents, beginning of period $ 560 $ 880
Operating Activities:
Net income 1,056 1,072
Non-cash adjustments 1,243 569
Changes in working capital (358) (94)
Other, net (511) (240)
Net cash provided by operating activities 1,430 1,307
Net cash used in investing activities (151) (6,938)
Net cash (used in) provided by financing activities (1,309) 5,254
Effect of exchange rate changes on cash and cash equivalents 9 (4)
Net decrease in cash and cash equivalents (21) (381)
Cash and cash equivalents, end of period $ 539 $ 499
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Net cash provided by operating activities: The $123 million increase in net cash provided by operating activities in the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 was primarily due to decreases in transaction costs related to the AJRD acquisition, partially offset by $264 million more cash used to fund net working capital (i.e., receivables, contract assets, inventories, accounts payable and contract liabilities), primarily due to timing.
Net cash used in investing activities: The $6,787 million decrease in net cash used in investing activities in the three quarters ended September 27, 2024 compared with the three quarters ended September 29, 2023 was primarily due to the $6,688 million cash used for the acquisitions of Viasat, Inc.'s Tactical Data Links and AJRD, in addition to an $87 million increase in net cash proceeds from sale of businesses during the three quarters ended September 27, 2024.
Net cash (used in) provided by financing activities: The $6,563 million change in net cash used in financing activities in the three quarters ended September 27, 2024 compared with net cash provided by financing activities in the three quarters ended September 29, 2023 was primarily due to decreases in net proceeds from borrowings and net proceeds from issuance of commercial paper of $4,742 million and $2,455 million, respectively, partially offset by the decrease in repayments of borrowings of $550 million and the increase in proceeds from exercises of employee stock options of $93 million. See Note G: Debt and Credit Arrangementsin the Notes for further information.
Cash and Cash Equivalents
At September 27, 2024, we had cash and cash equivalents of $539 million, of which $263 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.
Capital Structure and Resources
Described below are significant changes to our credit arrangements and debt during the three quarters ended September 27, 2024.
Credit Agreements
On January 26, 2024, we replaced the 2023 Credit Agreement with the 2024 Credit Agreement. At September 27, 2024, we had no outstanding borrowings under either our 2024 Credit Agreement or our 2022 Credit Agreement, and had available borrowing capacity of $2.3 billion, net of outstanding CP Program borrowings, and were in compliance with all covenants under both aforementioned credit agreements.
CP Program
Under the CP Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.0 billion. Subject to notice and certain other requirements of the CP Program, we may increase the aggregate amount available for issuance up to $3.5 billion. From time to time, we use borrowings under the CP Program for general corporate purposes, including the funding of acquisitions, debt repayment, dividend payments and repurchases of our common stock.
During the three quarters ended September 27, 2024, we had a maximum outstanding balance of $2.8 billion and a daily average outstanding balance of $2.3 billion under our CP Program. We expect balances under the CP Program to remain elevated as compared to historical norms through fiscal 2025. For further information about our Credit Agreements and CP Program, see Note G: Debt and Credit Arrangementsin the Notes.
Debt
At September 27, 2024, we had $11.7 billion of outstanding long-term debt, net, including the current portion of long-term debt, net and financing lease obligations, the majority of which we incurred in connection with merger and acquisition activity.
During the three quarters ended September 27, 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of the March Issued 2024 Notes and used the proceeds to repay the entire outstanding $2.25 billion drawn on Term Loan 2025. Additionally, we repaid the $350 million aggregate principal amount of our 3.95% 2024 Notes and closed the issuance and sale of $600 million aggregate principal amount of the 5.50% 2054 Notes. We used net proceeds from the 5.50% 2054 Notes to repay borrowings under our CP Program and intend to use such proceeds to repay the 3.832% 2025 Notes upon maturity. For further information about our long-term debt, see Note G: Debt and Credit Arrangementsin the Notes and Note 8: Debt and Credit Arrangementsin our Fiscal 2023 Form 10-K.
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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 twelve 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. See Part I. Item 1A. Risk Factorsin our Fiscal 2023 Form 10-K.
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 facilities 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 and repayments of our debt securities at maturity for the next twelve months and the reasonably foreseeable future thereafter.
Our total additions of property, plant and equipment net of proceeds from the sale of property, plant and equipment for fiscal 2024 are expected to be approximately 2% of revenue. Other than operating expenses, cash uses for fiscal 2024 are expected to consist primarily of additions of property, plant and equipment, dividend payments, debt repayments, LHX NeXt implementation costs and repurchases under our share repurchase program. See "Capital Structure and Resources" and "Material Cash Requirements and Commercial Commitments" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2023 Form 10-K for further information regarding our cash requirements.
Funding of Pension Plans
With respect to our U.S. qualified defined benefit pension plans, we intend to contribute annually no less than the required minimum funding thresholds. We do not expect to make material contributions to these plans in fiscal 2024.
Future required contributions primarily will depend on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory required minimum contributions could be material. We had net defined benefit plan assets of $291 million as of September 27, 2024. See Note 9: Retirement Benefitsin our Fiscal 2023 Form 10-K and Note H: Retirement Benefitsin the Notes for further information regarding our pension plans.
Common Stock Repurchases
During the three quarters ended September 27, 2024, we used $512 million to repurchase 2.3 million shares of our common stock under our share repurchase program at an average price per share of $220.18, including commissions of $0.02 per share. During the three quarters ended September 27, 2024, $28 million in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares repurchased by us are cancelled and retired.
At September 27, 2024, we had a remaining unused authorization under our repurchase program of $3.4 billion. See "Liquidity, Capital Resources and Financial Strategies" in our Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K and Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceedsof this Report for further information regarding common stock repurchases.
Dividends
On February 23, 2024, we announced that our Board of Directors ("Board")increased the quarterly per share cash dividend rate on our common stock from $1.14 to $1.16, commencing with the dividend declared by our Board for the first quarter of fiscal 2024, for an annualized per share cash dividend rate of $4.64. See Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securitiesin our Fiscal 2023 Form 10-K for further information regarding our dividends.
Material Cash Requirements and Commercial Commitments
The amounts disclosed in our Fiscal 2023 Form 10-K include our material cash requirements and commercial commitments. Except for the level of indebtedness under our CP Program, the issuance of the 5.50% 2054 Notes and the establishment of our new 2024 Credit Facility, there were no material changes to our material cash requirements from contractual cash obligations to repay debt, to purchase goods and services or to make payments under operating leases or our commercial commitments; or in our contingent liabilities on outstanding surety bonds, standby letters of credit agreements or other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers
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or to obtain insurance policies with our insurance carriers as disclosed in our Fiscal 2023 Form 10-K. Further information about our Credit Agreements and CP Program can be found in "Capital Structure and Resources" in this MD&A and Note G: Debt and Credit Arrangementsin the Notes.
There can be no assurance that our business will continue to generate cash flows at current levels or that the cost or availability of future borrowings, if any, under our CP Program, credit facilities, or in the debt markets will not be impacted by any potential future credit or capital markets disruptions. If we are unable to maintain cash balances, generate cash flow from operations, borrow under our CP Program or increase the aggregate amount available under our CP Program or our credit facilities sufficient to service our obligations, we may be required to reduce capital expenditures, reduce or terminate our share repurchases, obtain additional financing or sell assets. Our ability to make principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions affecting the defense, government and other markets we serve and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.
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 Operationsin our Fiscal 2023 Form 10-K, except, 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 2024 Impairment Tests.Information on interim impairment tests can be found in our Form 10-Q for the quarter ended March 29, 2024. These assessments indicated no impairment existed.
Impact of Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements which became effective during the three quarters ended September 27, 2024 that have had a material impact on our Condensed Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates and market return fluctuations on our defined benefit plans. Other than the debt refinanced and the issuance of the new debt as discussed in the Liquidity and Capital Resources section of Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations above, there were no material changes during the three quarters ended September 27, 2024, with respect to the information appearing in Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Riskin our Fiscal 2023 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of September 27, 2024, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"). Based on this work and other evaluation procedures, our management, including our CEO and CFO, has concluded that as of September 27, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control
As part of our acquisition of AJRD, we are in the process of incorporating our controls and procedures with respect to AJRD's operations, and we will include internal controls with respect to AJRD's operations in our assessment of the effectiveness of our internal control over financial reporting ("ICFR") as of the end of fiscal 2024. Other than changes related to incorporating our controls and procedures with respect to AJRD operations, there have been no changes in our ICFR that occurred during the quarter ended September 27, 2024 that have materially affected, or are reasonably likely to materially affect, our ICFR.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note Q: Legal Proceedings and Contingenciesin the Notes for discussion regarding material legal proceedings and contingencies. Except as set forth in such discussion, there have been no material developments in legal proceedings as reported in Part I. Item 3. Legal Proceedingsin our Fiscal 2023 Form 10-K.
ITEM 1A. RISK FACTORS.
Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, cash flows and equity as set forth in Part I. Item 1A. Risk Factorsin our Fiscal 2023 Form 10-K. There have been no material changes to the risk factors disclosed in our Fiscal 2023 Form 10-K. We may disclose changes to our risk factors or disclose additional risk factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material also may adversely impact our business, financial condition, results of operations, cash flows and equity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to repurchases by us of our common stock during the quarter ended September 27, 2024:
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)
($ in millions)
Month No. 1
(June 29, 2024 - July 26, 2024)
Repurchase program(1)
359,300 $ 231.20 359,300 $ 3,529
Employee transactions(2)
273 $ 230.72 - -
Month No. 2
(July 27, 2024 - August 23, 2024)
Repurchase program(1)
424,935 $ 227.72 424,935 $ 3,432
Employee transactions(2)
3,910 $ 229.73 - -
Month No. 3
(August 24, 2024 - September 27, 2024)
Repurchase program(1)
45,000 $ 225.10 45,000 $ 3,422
Employee transactions(2)
2,965 $ 232.25 - -
Total 836,383 829,235 $ 3,422
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* Periods represent our fiscal months.
(1) On October 21, 2022, we announced that our Board approved a $3.0 billion share repurchase authorization under our share repurchase program that was in addition to the remaining unused authorization of $1.5 billion at that time.
(2) Represents shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance share units or restricted stock units that vested during the quarter. Our stock incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs.
Sales of Unregistered Equity Securities
During the quarter ended September 27, 2024, we did not issue or sell any unregistered equity securities.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Securities Trading Plans of Directors and Executive Officers
We require all executive officers and directors to effect purchase and sale transactions in L3Harris securities pursuant to a trading plan (each, a "10b5-1 Plan") intended to satisfy the requirements of Rule 10b5-1 under the Exchange Act ("Rule 10b5-1"). We limit executive officers to a single 10b5-1 Plan in effect at any time, subject to limited exceptions in accordance with Rule 10b5-1.
The following table includes the material terms (other than with respect to the price) of each 10b5-1 Plan adopted or terminated by our executive officers and directors during the quarter ended September 27, 2024:
Name and title
Date of adoption of 10b5-1 Plan(1)
Scheduled expiration date of 10b5-1 Plan(2)
Aggregate number of shares of common stock to be purchased or sold(3)
Christopher E. KubasikChair and CEO
July 29, 2024 December 30, 2024
Up to 56,624 shares underlying options expiring in 2027
Ross NiebergallPresident, AR
September 12, 2024 January 31, 2025
Up to 14,517 shares, including 3,250 shares underlying options expiring in 2027
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(1) Transactions under each Rule 10b5-1 Plan commence no earlier than 90 days after adoption, or such later date as required by Rule 10b5-1.
(2) Each Rule 10b5-1 Plan may expire on such earlier date as all transactions are completed.
(3) Each Rule 10b5-1 Plan provides for shares to be sold on multiple predetermined dates.
ITEM 6. EXHIBITS.
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC
(10.1)Amendment Number 3 to the L3Harris Technologies, Inc. Retirement Savings Plan (Amended and Restated Effective January 1, 2024), dated July 24, 2024.
(10.2)Amendment Number 4 to the L3Harris Technologies, Inc. Retirement Savings Plan (Amended and Restated Effective January 1, 2024), dated September 4, 2024.
(15) Letter Regarding Unaudited Interim Financial Information.
(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) The financial information from L3Harris Technologies, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2024 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Statement of Operations, (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 Condensed Consolidated Financial Statements.
(104) Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
L3HARRIS TECHNOLOGIES, INC.
(Registrant)
Date: October 25, 2024 By: /s/ KENNETH L. BEDINGFIELD
Kenneth L. Bedingfield
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
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