L3Harris Technologies Inc.
10/30/2025 | Press release | Distributed by Public on 10/30/2025 10:19
Quarterly Report for Quarter Ending October 3, 2025 (Form 10-Q)
| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following Management's Discussion and Analysis ("MD&A") is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements and accompanying Notes in this Report (the "Notes"). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2024 Form 10-K. The discussions in this MD&A contain forward-looking statements.
OVERVIEW
We are the Trusted Disruptor in the defense industry. With customers' mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products, systems and services have defense and civil government applications, as well as commercial applications. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 75% for year to date 2025.
U.S. and International Budget Environment
The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the new administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures, and overall macroeconomic conditions.
On March 15, 2025, the President signed into law a full-year Continuing Resolution ("CR") for GFY 2025, funding the government through September 30, 2025, with $893 billion for defense funding, including $851 billion for the U.S. Department of War ("DoW"). This was in line with the 1% increase permitted by the caps under the Fiscal Responsibility Act of 2023 for GFY 2025. Notably, the CR provided funding at the account level, not the program level, allowing federal agencies more discretion with how they prioritized funding for programs.
On May 2, 2025, the White House released a preliminary GFY 2026 budget that included a flat national defense topline of $893 billion (including $849 billion for DoW) and included an additional $119 billion from reconciliation funding in 2026 for a total of approximately $1 trillion. The administration requested $557 billion for non-defense funding, down from $721 billion in GFY 2025, resulting in material funding declines for some agencies, including a $6 billion cut to NASA.
On July 4, 2025, the President signed Congress' reconciliation package which included $155 billion for national defense spending to fund DoW priorities, including priorities closely aligned with L3Harris interests and opportunities, such as Golden Dome, munitions, and shipbuilding, $165 billion for Department of Homeland Security priorities, $12.5 billion for the Federal Aviation Administration ("FAA") for air traffic control modernization efforts and $10 billion for NASA. The administration has stated that it expects departments and agencies will be able to access significant amounts of this additional funding in GFY 2026, specifically noting the expectation that the DoW will access $113 billion in GFY 2026. The reconciliation package also raises the debt ceiling by $5 trillion and enacts key changes to the federal tax code, further discussed under the "U.S. Federal Tax Reform" heading below.
The National Defense Authorization Act ("NDAA") has passed both the House and Senate, but differences must be negotiated including a compromise on the DoW topline. The NDAA provides authorization of appropriations for the DoW, nuclear weapons programs of the Department of Energy, and other defense-related activities. In addition to serving as an authorization of appropriations, the NDAA establishes defense policies and restrictions, and addresses organizational administrative matters related to the DoW. In addition, the House passed the Defense Appropriations bill on July 18, 2025, but the Senate has yet to pass the measure. We look forward to Congress' completion of both measures to ensure timely funding and ensure our programs and priorities are authorized and fully funded.
On October 1, 2025, after Congress failed to reach an agreement on a short-term spending deal or full-year appropriation, the federal government entered a shutdown. The defense industry, including our company, could be impacted if the shutdown becomes prolonged, stemming from slow downs in incremental funding on existing contracts or delays in government payments on invoices. With most civilian government employees furloughed, many critical operations will cease, including article acceptance and new contract awards - not just delaying awards
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that would have been accepted or issued, respectively, during this period, but causing a backlog upon the resumption of normal operations. In some cases, the government could also issue "stop work" orders to cease certain operations. In addition, certain federal administrative functions, such as processing tax returns and issuance of tax refunds, have been suspended, which may delay expected cash inflows. Finally, international business operations are not protected from a U.S. Government shutdown - export notifications and Foreign Military Sales processes will cease, delaying ongoing activities and also resulting in a backlog upon the government's reopening. These factors could have significant near- and long-term consequences for our company, our employees, our suppliers and the defense industry, including delayed cash collections and could have a material adverse effect on results of operations and cash flows.
Internationally, almost all NATO allies have committed to spend 5% of GDP annually over the next decade, with 3.5% on core defense articles and another 1.5% on critical infrastructure, cyber and other key areas.
See our U.S. Government funding risks and the discussion of our international business risks within Part I. Item 1A. Risk Factorsin our Fiscal 2024 Form 10-K.
U.S. Federal Tax Reform
In third quarter 2025, OBBBA was enacted, introducing amendments to the U.S. federal income tax code, including permanent reinstatement of immediate expensing for domestic research expenditures, a reduction in the benefit of the R&D credit, restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing international tax provisions. Certain provisions are effective for 2025, the effects of which have been recognized in third quarter 2025 and are reflected in the Condensed Consolidated Financial Statements and these Notes. Certain other provisions are effective in future fiscal years.
Economic Environment
The ongoing uncertainty related to the impacts of inflation, as well as the interest rate environment and ongoing federal deficits could in the future impact U.S. Government spending priorities for our products and services. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factorsin our Fiscal 2024 Form 10-K.
We continue to monitor and evaluate the potential impact of current and proposed changes in trade policies and in particular, tariffs. In response to enacted tariffs, we are seeking exemptions, evaluating alternative sources of materials and subcontracted components, as well as engaging in supplier negotiations to help manage cost impacts and are considering price adjustments and other strategies to support profitability. Based on current conditions, we do not expect a material impact on our 2025 results, but will continue to monitor developments and assess potential implications as trade policies evolve.
For a discussion of trade policy and macroeconomic related risks, see Part II. Item 1A. Risk Factorsin our Form 10-Q for first quarter 2025, which information is incorporated herein by reference, and Part I. Item 1A. Risk Factorsin our Fiscal 2024 Form 10-K.
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RESULTS OF OPERATIONS
Third Quarter 2025 and 2024 include 14 and 13 weeks, respectively, while year to date 2025 and 2024 both include 39 weeks. Outcomes for specific periods, or year-over-year comparisons of results of operations and segment performance should be considered in this context.
Consolidated Results of Operations
| Third Quarter | Year to Date | ||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Products | $ | 4,054 | $ | 3,695 | $ | 11,328 | $ | 10,978 | |||||||||||||||
| Services | 1,605 | 1,597 | 4,889 | 4,824 | |||||||||||||||||||
| Total revenue | 5,659 | 5,292 | 16,217 | 15,802 | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Products | (2,939) | (2,739) | (8,251) | (7,993) | |||||||||||||||||||
| Services | (1,226) | (1,134) | (3,787) | (3,682) | |||||||||||||||||||
| Total cost of revenue | (4,165) | (3,873) | (12,038) | (11,675) | |||||||||||||||||||
| Gross margin | 1,494 | 1,419 | 4,179 | 4,127 | |||||||||||||||||||
| General and administrative expenses | (873) | (924) | (2,462) | (2,778) | |||||||||||||||||||
| Operating Income | 621 | 495 | 1,717 | 1,349 | |||||||||||||||||||
| Non-service FAS pension income and other, net | 98 | 101 | 287 | 275 | |||||||||||||||||||
| Interest expense, net | (152) | (166) | (454) | (514) | |||||||||||||||||||
| Income before income taxes | 567 | 430 | 1,550 | 1,110 | |||||||||||||||||||
| Income taxes | (105) | (26) | (244) | (54) | |||||||||||||||||||
| Effective Tax Rate | 18.5 | % | 6.0 | % | 15.7 | % | 4.9 | % | |||||||||||||||
| Net income | 462 | 404 | 1,306 | 1,056 | |||||||||||||||||||
| Noncontrolling interests, net of income taxes | - | (4) | - | (7) | |||||||||||||||||||
| Net income attributable to L3Harris | $ | 462 | $ | 400 | $ | 1,306 | $ | 1,049 | |||||||||||||||
| Diluted EPS | $ | 2.46 | $ | 2.10 | $ | 6.92 | $ | 5.50 | |||||||||||||||
Revenue
Revenue increased $367 million, or 7%, and $415 million, or 3%, for third quarter and year to date, respectively, due to higher revenues across all our segments, primarily from higher volumes, including new program ramps, and increased international deliveries.
See the "Business Segment Results of Operations" discussion below in this MD&A for further information.
Gross Margin
Third Quarter Comparison. Gross margin increased $75 million, primarily due to a $27 million favorable change in net EAC adjustments and higher volumes, primarily in our AR and CS segments. Such increases were partially offset by a $67 million decrease reflecting the absence of the CAS disposal group as a result of the March 2025 divestiture.
Year to Date Comparison. Gross margin increased $52 million primarily due to higher volumes, primarily in our AR and CS segments, partially offset by a $134 million decrease reflecting the absence of the CAS disposal group as a result of the March 2025 divestiture and $33 million unfavorable change in net EAC adjustments.
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G&A Expenses
The following table presents the components of G&A expenses:
| Third Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Amortization of intangibles | $ | (177) | $ | (194) | $ | (531) | $ | (585) | |||||||||||||||
| Company-funded R&D costs | (137) | (135) | (381) | (373) | |||||||||||||||||||
| Selling and marketing | (129) | (112) | (354) | (337) | |||||||||||||||||||
|
LHX NeXt implementation costs(1)
|
(25) | (41) | (99) | (216) | |||||||||||||||||||
| Merger, acquisition, and divestiture-related expenses | (10) | (25) | (40) | (86) | |||||||||||||||||||
| Business divestiture-related losses | - | (29) | (17) | (53) | |||||||||||||||||||
|
Other G&A expenses(2)
|
(395) | (388) | (1,040) | (1,128) | |||||||||||||||||||
| G&A expenses | $ | (873) | $ | (924) | $ | (2,462) | $ | (2,778) | |||||||||||||||
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(1)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. See Note O: Business Segment Informationin the Notes and the "Operating Environment, Strategic Priorities and Key Performance Measures" section in the MD&A in our Fiscal 2024 Form 10-K for more detail on our LHX NeXt initiative and implementation costs.
(2)Includes other segment G&A expenses, primarily payroll and benefits, outside services, facilities, insurance, gains recognized from asset sales, and unallocated corporate items.
Third Quarter Comparison. G&A expenses decreased $51 million, or 6%, primarily due to the absence of a $29 million business divestiture-related loss associated with the then pending CAS disposal group divestiture in third quarter 2024, decreases in amortization of intangibles, LHX NeXt implementation costs, and merger, acquisition, and divestiture-related expenses, and an increase in gains recognized in connection with the monetization of certain legacy end-of-life assets, including recognition of a $19 million gain in our SAS segment in 2025. Such impacts were partially offset by a $17 million increase in selling and marketing expenses and an increase in other G&A expenses.
Year to Date Comparison. G&A expenses decreased $316 million, or 11%, primarily due to lower LHX NeXt implementation costs of $117 million, including lower third-party consulting and employee severance of $67 million and $29 million, respectively, decreases in amortization of intangibles and merger, acquisition and divestiture-related expenses, and an increase in gains recognized in connection with the monetization of certain legacy end-of-life assets, including recognition of a $75 million gain in our IMS segment in 2025, partially offset by an increase in other G&A expenses.
Non-service FAS Pension Income and Other, net
Non-service FAS pension income and other, net decreased $3 million and increased $12 million for third quarter and year to date, respectively, reflecting changes in the non-service cost components of net periodic benefit income under our defined benefit plans, as included in Note H: Retirement Benefitsin the Notes, and changes in other non-operating income and expenses, primarily changes in the market value of our rabbi trust assets, as included in Note K: Fair Value Measurements in the Notes.
Interest Expense, net
Interest expense, net decreased $14 million and $60 million for third quarter and year to date, respectively, primarily due to lower average outstanding notes under our CP Program during 2025. See Note G: Debt and Credit Arrangementsin the Notes and the "Liquidity and Capital Resources" section below in this MD&A for further information.
Income Taxes
During interim periods, we estimate our global annual ETR and apply that rate to 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 annual ETR, there are a number of items that are instead required to be recorded in the interim period in which they occur; such as certain changes in uncertain tax positions, the accrual of interest and penalties, changes in tax laws or rates, and other items as prescribed by GAAP. As a result, there may be quarterly fluctuations in our ETR and the results for the interim periods are not necessarily indicative of the results to be expected for the full year or future periods.
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Third Quarter Comparison.Our ETR was 18.5% and 6.0% for third quarter 2025 and 2024, respectively. The increase in ETR for third quarter 2025 was primarily due to the enactment of OBBBA and the CAS disposal group divestiture, representing unfavorable impacts of 7.4% and 3.7%, respectively. Our ETR for both periods benefited from favorable impacts of R&D credits, tax deductions for FDII and adjustments recognized upon finalization of our tax returns.
Year to Date Comparison. Our ETR was 15.7% and 4.9% for year to date 2025 and 2024, respectively. The increase in ETR for year to date 2025 was primarily due to the enactment of OBBBA, the CAS disposal group divestiture, and a state legislative change that required us to establish a valuation allowance on state R&D credit carryforwards, representing unfavorable impacts of 3.9%, 3.5% and 2.1%, respectively. Our ETR for both periods benefited from favorable impacts of R&D credits, favorable resolution of audit uncertainties, tax deductions for FDII and adjustments recognized upon finalization of our tax returns.
Diluted EPS
Diluted EPS increased 17% and 26% for third quarter and year to date, respectively, primarily due to higher net income from the combined effects of reasons noted in the sections above.
Business Segment Results of Operations
CS Segment
As of October 3, 2025, CS contractual backlog was $7.1 billion.
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,462 | $ | 1,382 | 6 | % | $ | 4,190 | $ | 4,022 | 4 | % | |||||||||||||||||||||||
| Operating income | 382 | 359 | 6 | % | 1,063 | 998 | 7 | % | |||||||||||||||||||||||||||
| Operating margin | 26.1 | % | 26.0 | % | 25.4 | % | 24.8 | % | |||||||||||||||||||||||||||
Third Quarter Comparison.CS revenue increased primarily due to higher revenues of $49 million in Broadband Communications, reflecting higher international volume and program ramp on Next Generation Jammer, our flagship Electronic Warfare tactical jamming pod, and $45 million in Tactical Communications associated with increased international deliveries for our software-defined resilient communications equipment, partially offset by lower DoW demand.
CS operating income increased primarily due to LHX NeXt driven cost savings, partially offset by unfavorable mix associated with a proprietary waveform license sale in 2024.
Year to Date Comparison. CS revenue increased primarily due to higher revenue of $152 million in Tactical Communications associated with increased international deliveries for our software-defined resilient communications equipment and $31 million in Broadband Communications from program ramps, including Next Generation Jammer, partially offset by lower revenue of $20 million in PSPC from lower volume.
CS operating income increased primarily due to LHX NeXt driven cost savings, partially offset by unfavorable mix associated with a proprietary waveform license sale in 2024, and the absence of a $15 million net favorable settlement of legal matters that occurred in 2024.
IMS Segment
As of October 3, 2025, IMS contractual backlog was $10.1 billion.
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,700 | $ | 1,608 | 6 | % | $ | 4,914 | $ | 4,906 | - | % | |||||||||||||||||||||||
| Operating income | 204 | 204 | - | % | 621 | 589 | 5 | % | |||||||||||||||||||||||||||
|
Operating margin
|
12.0 | % | 12.7 | % | 12.6 | % | 12.0 | % | |||||||||||||||||||||||||||
Third Quarter Comparison. IMS revenue increased primarily due to higher revenues of $210 million in ISR from multiple classified programs ramping and $38 million in Maritime from new program ramp, partially offset by lower revenue of $158 million from the CAS disposal group divestiture in first quarter 2025.
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IMS operating income remained consistent and operating margin decreased, primarily due to a $35 million decrease from the CAS disposal group divestiture in first quarter 2025 partially offset by higher volumes and favorable performance.
Year to Date Comparison. IMS revenue was flat primarily due to higher revenues of $236 million in ISR from multiple classified programs ramping, $30 million in Maritime from new program ramp, and $27 million in Targeting and Sensor Systems from higher commercially priced revenue, offset by lower revenue of $296 million from the CAS disposal group divestiture in first quarter 2025.
IMS operating income increased primarily due to a $75 million gain recognized in second quarter 2025 in connection with monetization of legacy end-of-life assets, aligned with our transformation and value creation priorities, favorable mix impact from higher airborne electro-optical sensors volume and LHX NeXt driven cost savings. Such increases were partially offset by a $67 million decrease from the CAS disposal group divestiture in first quarter 2025 and a $25 million unfavorable EAC adjustment in second quarter 2025 from the resolution of a contract matter related to lower utilization on the Canadian Maritime Helicopter Program as it nears completion.
SAS Segment
As of October 3, 2025, SAS contractual backlog was $10.8 billion.
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,809 | $ | 1,683 | 7 | % | $ | 5,207 | $ | 5,141 | 1 | % | |||||||||||||||||||||||
| Operating income | 218 | 195 | 12 | % | 614 | 626 | (2) | % | |||||||||||||||||||||||||||
|
Operating margin
|
12.1 | % | 11.6 | % | 11.8 | % | 12.2 | % | |||||||||||||||||||||||||||
Third Quarter Comparison. SAS revenue increased primarily due to higher revenues of $103 million in Mission Networks from higher FAA volume and $45 million in Airborne Combat Systems from higher volume, partially offset by lower revenues of $49 million in Intel & Cyber from lower classified program volume.
SAS operating income increased primarily due to a gain of $19 million recognized in connection with the monetization of legacy end-of-life assets aligned with our transformation and value creation priorities, lower net unfavorable EAC adjustments mainly associated with classified development programs in Space Systems and LHX NeXt driven cost savings, partially offset by unfavorable mix.
Year to Date Comparison. SAS revenue increased primarily due to higher revenue of $291 million in Mission Networks from higher FAA volume, partially offset by lower revenues of $154 million in Space Systems from lower volume associated with program timing and the impact of negative EAC adjustments from challenges on certain classified development programs, $70 million in Intel & Cyber from lower classified program volume and $69 million in Airborne Combat Systems, reflecting a $76 million decrease from the May 2024 Antenna disposal group divestiture.
SAS operating income decreased primarily due to $68 million of unfavorable EAC adjustments, from program execution challenges on certain classified development programs in Space Systems, and unfavorable mix, partially offset by gains of $38 million recognized in connection with the monetization of legacy end-of-life assets aligned with our transformation and value creation priorities, and LHX NeXt driven cost savings.
AR Segment
As of October 3, 2025, AR contractual backlog was $8.3 billion.
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 755 | $ | 669 | 13 | % | $ | 2,082 | $ | 1,886 | 10 | % | |||||||||||||||||||||||
| Operating income | 96 | 76 | 26 | % | 265 | 234 | 13 | % | |||||||||||||||||||||||||||
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Operating margin
|
12.7 | % | 11.4 | % | 12.7 | % | 12.4 | % | |||||||||||||||||||||||||||
Third Quarter Comparison.AR revenue increased primarily due to higher revenues of $43 million in Missile Solutions from increased production volume on key missile and munitions programs and new program ramp and $32 million in Space Propulsion & Power Solutions from higher volume.
AR operating income increased primarily due to higher volume, improved performance, and LHX NeXt driven cost savings.
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Year to Date Comparison. AR revenue increased primarily due to higher revenue of $162 million in Missile Solutions from increased production volume on key missile and munitions programs and new program ramp.
AR operating income increased primarily due to higher volume, improved performance, and LHX NeXt driven cost savings.
Product and Service Analysis
Revenue
The following table presents revenue from products and services by segment, net of intersegment eliminations:
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Products | Services | Products | Services | Products | Services | Products | Services | |||||||||||||||||||||||||||||||||||||||
| CS | $ | 1,242 | $ | 202 | $ | 1,096 | $ | 269 | $ | 3,555 | $ | 588 | $ | 3,165 | $ | 804 | |||||||||||||||||||||||||||||||
| IMS | 1,075 | 604 | 959 | 634 | 2,962 | 1,896 | 2,956 | 1,911 | |||||||||||||||||||||||||||||||||||||||
| SAS | 1,170 | 619 | 1,173 | 498 | 3,292 | 1,865 | 3,572 | 1,529 | |||||||||||||||||||||||||||||||||||||||
| AR | 567 | 180 | 467 | 196 | 1,519 | 540 | 1,285 | 580 | |||||||||||||||||||||||||||||||||||||||
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Total
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$ | 4,054 | $ | 1,605 | $ | 3,695 | $ | 1,597 | $ | 11,328 | $ | 4,889 | $ | 10,978 | $ | 4,824 | |||||||||||||||||||||||||||||||
Third Quarter Comparison. Products revenue increased $359 million, or 10%, due to higher products revenues of $146 million, $116 million, and $100 million in our CS, IMS, and AR segments, respectively.
Services revenue increased $8 million, or 1%, due to higher services revenue of $121 million in our SAS segment, partially offset by lower services revenues of $67 million, $30 million, and $16 million in our CS, IMS, and AR segments, respectively.
Year to Date Comparison. Products revenue increased $350 million, or 3%, due to higher products revenues of $390 million and $234 million in our CS and AR segments, respectively, offset by lower products revenue of $280 million in our SAS segment.
Services revenue increased $65 million, or 1%, primarily due to higher services revenue of $336 million in our SAS segment, partially offset by lower services revenues of $216 million, $40 million, and $15 million in our CS, AR, and IMS segments, respectively.
Cost of Revenue
The following table presents cost of revenue from products and services by segment, net of intersegment eliminations:
| Third Quarter | Year to Date | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Products | Services | Products | Services | Products | Services | Products | Services | |||||||||||||||||||||||||||||||||||||||
| CS | $ | (746) | $ | (147) | $ | (697) | $ | (144) | $ | (2,141) | $ | (449) | $ | (1,911) | $ | (607) | |||||||||||||||||||||||||||||||
| IMS | (834) | (453) | (731) | (457) | (2,292) | (1,460) | (2,287) | (1,417) | |||||||||||||||||||||||||||||||||||||||
| SAS | (919) | (486) | (928) | (385) | (2,599) | (1,463) | (2,765) | (1,215) | |||||||||||||||||||||||||||||||||||||||
| AR | (438) | (143) | (371) | (157) | (1,182) | (422) | (990) | (454) | |||||||||||||||||||||||||||||||||||||||
| Corporate | (2) | 3 | (12) | 9 | (37) | 7 | (40) | 11 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | (2,939) | $ | (1,226) | $ | (2,739) | $ | (1,134) | $ | (8,251) | $ | (3,787) | $ | (7,993) | $ | (3,682) | |||||||||||||||||||||||||||||||
Third Quarter Comparison. Cost of products revenue increased $200 million, or 7%, primarily due to higher cost of products revenues of $103 million, $67 million, and $49 million in our IMS, AR, and CS segments, respectively.
Cost of services revenue increased $92 million, or 8%, primarily due to higher cost of services revenue of $101 million in our SAS segment, partially offset by higher cost of services revenue of $14 million in our AR segment.
Year to Date Comparison. Cost of products revenue increased $258 million, or 3%, primarily due to higher cost of products revenues of $230 million and $192 million in our CS and AR segments, respectively, partially offset by lower cost of products revenue of $166 million in our SAS segment.
Cost of services revenue increased $105 million, or 3%, primarily due to higher cost of services revenues of $248 million and $43 million in our SAS and IMS segments, respectively, partially offset by lower cost of services revenues of $158 million and $32 million in our CS and AR segments, respectively.
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Unallocated Corporate Items
| Third Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Amortization of intangibles | $ | (192) | $ | (210) | $ | (579) | $ | (642) | |||||||||||||||
| Merger, acquisition, and divestiture-related expenses | (10) | (25) | (40) | (86) | |||||||||||||||||||
|
Business divestiture-related losses and impairment of goodwill
|
- | (29) | (17) | (67) | |||||||||||||||||||
|
LHX NeXt implementation costs
|
(25) | (41) | (99) | (216) | |||||||||||||||||||
|
Other unallocated corporate items
|
(52) | (34) | (111) | (87) | |||||||||||||||||||
| Unallocated corporate items | $ | (279) | $ | (339) | $ | (846) | $ | (1,098) | |||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
As of October 3, 2025, we had cash and cash equivalents of $339 million, of which $293 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.
CP Program.As of October 3, 2025, we had $725 million in outstanding notes under our CP Program. Our CP Program serves as a source of short-term financing under which we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.0 billion, supported by amounts available under our credit facilities, discussed below. From time to time, we use borrowings under the CP Program for general corporate purposes, including funding acquisitions, repaying debt, paying dividends, and repurchasing our common stock. See the "Financing Activities" discussion below in this MD&A for further information about our CP Program.
Credit Facilities. As of October 3, 2025, we had no outstanding borrowings under our credit facilities, had available borrowing capacity of $2.3 billion, net of outstanding notes under our CP Program, and were in compliance with all covenants.
2025 Five-Year Credit Facility.On February 18, 2025, we established a new $2.5 billion, five-year senior unsecured revolving credit facility by entering into the 2025 Five-Year Credit Agreement. The 2025 Five-Year Credit Agreement replaced the prior $2.0 billion 2022 Credit Agreement.
2025 364-Day Credit Facility. On February 18, 2025, we established a new $500 million 364-day senior unsecured revolving credit facility by entering into the 2025 364-Day Credit Agreement. The 2025 364-Day Credit Agreement replaced the prior $1.5 billion 2024 Credit Agreement, which matured on January 24, 2025.
SeeNote G: Debt and Credit Arrangementsin the Notes for further information regarding our credit facilities.
Cash Flows
The following table provides a summary of our cash flow information:
| Year to Date | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Cash and cash equivalents, beginning of period | $ | 615 | $ | 560 | |||||||
| Operating Activities: | |||||||||||
| Net income | 1,306 | 1,056 | |||||||||
| Non-cash adjustments | 1,131 | 1,243 | |||||||||
| Changes in working capital | (877) | (358) | |||||||||
| Other, net | (416) | (511) | |||||||||
| Net cash provided by operating activities | 1,144 | 1,430 | |||||||||
| Net cash provided by (used in) investing activities | 537 | (151) | |||||||||
| Net cash used in financing activities | (1,975) | (1,309) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 18 | 9 | |||||||||
| Net decrease in cash and cash equivalents | (276) | (21) | |||||||||
| Cash and cash equivalents, end of period | $ | 339 | $ | 539 | |||||||
Operating Activities. The $286 million decrease in net cash provided by operating activities for year to date 2025 compared with year to date 2024 was primarily due to $519 million more cash used to fund working capital,
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largely driven by timing of billing and collection activity and cash used for settlement of a longstanding legal matter, partially offset by an increase in net income.
Investing Activities. The $688 million change in net cash provided by investing activities for year to date 2025 compared with net cash used in investing activities for year to date 2024 was primarily due to a $673 million increase in proceeds from sale of businesses, net of cash divested, and a $24 million decrease in capital expenditures. The increase in proceeds from sale of businesses, net of cash divested, reflects the March 2025 CAS disposal group divestiture, partially offset by the May 2024 Antenna disposal group divestiture.
Financing Activities. The $666 million increase in net cash used in financing activities for year to date 2025 compared with year to date 2024 was primarily due to increases in repayments of long-term debt, net of issuances, and cash used to repurchase common stock of $831 million and $486 million, respectively, partially offset by a $634 million decrease in net repayments of commercial paper. Our primary financing activities are further discussed below.
Common Stock Repurchases. On January 28, 2021 and October 21, 2022, we announced that our Board of Directors ("Board") approved share repurchase authorizations under our repurchase program of $6.0 billion, which was fully utilized in first quarter 2025, and $3.0 billion, respectively. During year to date 2025, we used $998 million of cash to repurchase 4.5 million shares of our common stock under our share repurchase program. As of October 3, 2025, we had $2.4 billion of remaining unused authorization under our repurchase program.
During year to date 2024, we used $512 million of cash to repurchase 2.3 million shares of our common stock under our share repurchase program.
See "Liquidity and Capital Resources" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2024 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.
Long-term debt.During year to date 2025, we repaid the entire outstanding $600 million of our 3.832% 2025 Notes with proceeds from the issuance and sale of the $600 million 5.50% 2054 Notes in fiscal 2024.
During year to date 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of long-term fixed-rate debt consisting of 5.05% notes, due June 2029, 5.25% notes, due June 2031 and 5.35% notes, due June 2034 and used the proceeds to repay the entire outstanding $2.25 billion, variable rate-term loan facility utilized to finance the fiscal 2023 acquisition of Tactical Data Links. Additionally, we closed the issuance and sale of the $600 million 5.50% 2054 Notes and repaid the $350 million of our 3.950% notes, due May 28, 2024.
As of October 3, 2025, we had $11.0 billion of outstanding long-term debt, net of current portion of $120 million. The current portion primarily consists of the $100 million 7.00% debentures, due January 15, 2026.
CP Program.During year to date 2025, our CP Program had a maximum outstanding balance of $1.8 billion and a daily average outstanding balance of $1.3 billion. During year to date 2024, our CP Program had a maximum outstanding balance of $2.8 billion and daily average outstanding balance of $2.3 billion. While we continue to expect balances under the CP Program to remain elevated as compared to historical norms through fiscal 2025, we expect to utilize cash from operations to lower the outstanding balance by the end of fiscal 2025.
Dividends.On February 28, 2025, we announced that our Board increased the quarterly per share cash dividend rate on our common stock to $1.20 from $1.16, the 24th consecutive annual dividend increase. During year to date 2025 and 2024, we paid $678 million and $665 million in dividends, respectively. See Part II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securitiesin our Fiscal 2024 Form 10-K for further information regarding our dividends.
Cash Requirements
Except for the level of indebtedness under our CP Program and the establishment of the new 2025 Five-Year Credit Agreement and the new 2025 364-Day Credit Facility, there were no material changes to our cash requirements or commercial commitments as disclosed in our Fiscal 2024 Form 10-K. Further information about our credit facilities and CP Program can be found in "Capital Resources" in this MD&A and Note G: Debt and Credit Arrangementsin the Notes.
Defined Benefit Plan Contributions. As of October 3, 2025, we had net defined benefit plan assets of $933 million, the majority of which pertain to our U.S. qualified defined benefit pension plans. We intend to contribute annually no less than the required minimum funding thresholds to these pension plans and do not expect to make material contributions in fiscal 2025. Future required contributions will depend primarily on the actual return on plan assets and the discount rate used to measure the benefit obligation at the end of each year.
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We expect to continue evaluating opportunities to strategically manage our pension obligations, including the potential for additional pension de-risking transactions in the future, subject to market conditions and plan funding levels. These actions align with our long-term strategy to reduce exposure to pension volatility while maintaining financial flexibility.
See Note 9: Retirement Benefitsin our Fiscal 2024 Form 10-K and Note H: Retirement Benefitsin the Notes for further information regarding our defined benefit plans.
Liquidity Assessment
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term, although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties, including the ongoing government shutdown, and the state of global commerce and general political and global financial uncertainty. We continue to monitor the potential effects of the ongoing government shutdown, which, if prolonged, could adversely affect our cash flows. See the "U.S. and International Budget Environment" discussion above in this MD&A and Part I. Item 1A. Risk Factorsin our Fiscal 2024 Form 10-K for more information on budget uncertainties.
Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, availability under our senior unsecured credit 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, dividend payments, repurchases under our share repurchase program, and repayments of our debt securities at maturity for the next 12 months and the reasonably foreseeable future thereafter. Our capital expenditures for fiscal 2025 are expected to be approximately 2% of revenue. See "Cash Requirements" in this MD&A and "Capital Resources", "Cash Requirements" and "Commercial Commitments" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2024 Form 10-K, for further information regarding our cash requirements.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the critical accounting estimates disclosed in "Critical Accounting Estimates" in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsin our Fiscal 2024 Form 10-K, except for, as set forth below.
Goodwill
We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected.
Fiscal 2025 Impairment Tests. Information on interim impairment tests can be found in "Critical Accounting Estimates- Fiscal 2025 Impairment Tests" in Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-Q for first quarter 2025, which information is incorporated herein by reference. These assessments indicated no impairment existed.
Impact of Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements that became effective during year to date 2025 that have had a material impact on our Condensed Consolidated Financial Statements.
L3Harris Technologies Inc. published this content on October 30, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on October 30, 2025 at 16:19 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]