L3HARRIS TECHNOLOGIES, INC. /DE/
LHX 10-K Fiscal year ended Jan. 3, 2025
L3HARRIS TECHNOLOGIES, INC. /DE/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 3
, 2025
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______________ to ______________
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Commission File Number
1-3863
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (
321
)
727-9100
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☑ No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐
No
☑
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.
Yes
☑ No
☐
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).
Yes
☑ No
☐
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.
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☑
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Accelerated filer
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☐
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
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The aggregate market value of the voting common equity held by non-affiliates of the registrant at
June 28, 2024
was
$
42,471,412,123
(based on the quoted closing sale price per share of the stock on the New York Stock Exchange). For purposes of this calculation, the registrant
has assumed that its directors and executive officers as of
June 28, 2024
are affiliates.
The number of shares outstanding of the registrant’s common stock as of
February 7, 2025
was
188,313,839
.
Documents Incorporated by Reference:
2025
, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended
January 3, 2025
, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described therein.
L3HARRIS TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 3, 2025
TABLE OF CONTENTS
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Page No.
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Part I:
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ITEM 1. Business
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ITEM 1A. Risk Factors
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ITEM 1B. Unresolved Staff Comments
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ITEM 1C. Cybersecurity
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ITEM 2. Properties
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ITEM 3. Legal Proceedings
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ITEM 4. Mine Safety Disclosures
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Information about our
Executive Officers
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Part II:
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Purchases of Equity Securities
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ITEM 6. [Reserved]
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Operations
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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
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ITEM 8. Financial Statements and Supplementary Data
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Disclosure
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ITEM 9A. Controls and Procedures
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ITEM 9B. Other Information
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ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
.......................
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Part III
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ITEM 10. Directors, Executive Officers and Corporate Governance
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ITEM 11. Executive Compensation
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Stockholder Matters
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ITEM 14. Principal Accounting Fees and Services
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Part IV:
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ITEM 15. Exhibits, Financial Statement Schedules
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ITEM 16. Form 10-K Summary
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Signatures
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_____________________________________________________________________
1
PART I
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ITEM 1.
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BUSINESS.
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General
L3Harris Technologies, Inc. is the Trusted Disruptor for the defense industry.
With customers’ mission-critical
needs in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in
the interest of global 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.
Our fiscal year ends on the Friday nearest December 31. The fiscal year ended
January 3, 2025
(“
fiscal 2024
”)
included 53 weeks and fiscal years ended
December 29, 2023
(“
fiscal 2023
”) and
December 30, 2022
(“
fiscal
2022
”) included 52 weeks. Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and
“L3Harris” as used in this Report mean L3Harris Technologies, Inc. and its subsidiaries.
Description of Business Segments
We structure our operations primarily around the products, systems and services we sell and the markets we
serve, and we report our financial results
in
four operating segments, which are also our reportable segments or
business segments. From time to time, we acquire or divest businesses and strategically realign businesses within
and across our business segments to optimize existing capabilities and enhance the efficiency with which we
develop and deliver our products and services.
Our business segments provide a wide-range of products, systems
and services to various customers and are described below.
For financial information with respect to our business
segments, see
Note 14: Business Segments
in the Notes
.
Space & Airborne Systems (“
SAS
”).
Supplies
f
ull
mission solutions as a prime and subsystem integrator in the
space, airborne and cyber domains. We provide top-tier capabilities in the design, development, integration,
production and sustainment of weapons systems for national security, civil government and international customers
in the following business sectors:
Space Systems:
Intelligence, surveillance and reconnaissance (“
ISR
”); position, navigation and timing; weather
and climate monitoring; missile defense and ground-based space surveillance networks.
Intel & Cyber:
Situational awareness, optical networks and advanced wireless solutions for classified intelligence
and defense customers.
Mission Networks:
Communications and networking solutions for air traffic management.
Airborne Combat
Systems
:
Sensors, processors, hardened electronics,
unmanned aircraft systems,
precision
weapons, infrared search and tracking, distributed aperture systems and precision pointing, weapons release
systems; antennas for aircraft platforms; and threat warning and countermeasures for airborne, ground and
maritime platforms.
Integrated Mission Systems (“
IMS
”).
Delivers differentiated mission capabilities and prime systems integration
to support intelligence, reconnaissance and surveillance (ISR), passive sensing and targeting, electronic attack,
autonomy, power and communications, networks and sensors. IMS specializes in system design, development,
integration, production, modernization and sustainment for national security and international customers in the
following business sectors:
ISR:
Airborne passive sensing and targeting, mission systems development, integration and life-cycle
management for strategic reconnaissance, national command and control, tactical surveillance, electronic attack,
agile strike, mobility, and classified platforms.
Maritime:
Power, electrical, imaging, communication and sensor systems for naval platforms; integrated
autonomous vessels for surface and undersea operations; fleet management; in-service support; missionization
prototyping; and naval integration.
Global Optical Systems:
Multi-domain, multi-spectral electro-optical and infrared (EO/IR) sensor systems
supporting ISR and target acquisition missions; manufacturing of specialty laser and filter glass materials, laser
range finders, target designators and transmitters; and highly scalable autonomous solutions. On January 4, 2025,
we realigned our software solutions business from the ISR sector into Global Optical Solutions and renamed the
sector Targeting & Sensor Systems.
_____________________________________________________________________
2
Defense Electronics
:
Space communications and space flight avionics;
360-degree visible/midwave IR passive
surveillance; f
uzing, navigation and range-testing solutions; and precision electronic components.
Commercial Aviation Solutions
:
Integrated aircraft avionics, pilot training and data analytics services for the
commercial aviation industry. At
January 3, 2025
,
Commercial Aviation Solutions (“
CAS disposal group
”) was
classified as held for sale in our
Consolidated Balance Sheet
. See
Note 13: Acquisitions and Divestitures
in the
Notes
for further information.
Communication Systems (“
CS
”).
Enables warfighters across all domains with solutions critical to mission
success even in the most contested environments. We are a leading provider of resilient communication solutions
for the U.S. Department of Defense (“
DoD
”), international, federal, and state agency customers in the following
business sectors:
Tactical Communications:
Design, manufacture and sustainment of resilient and interoperable secure
communication solutions that include tactical radios, software, waveforms, satellite terminals and end-to-end
battlefield systems.
Broadband Communications:
Design, manufacture and sustainment of resilient and secure communication
solutions that include ISR and tactical data links, software and integrated broadband networks.
Integrated Vision Solutions
: Design, manufacture and sustainment of a full suite of helmet-mounted integrated
night vision goggles with leading-edge image intensifier tubes and weapon-mounted sights, aiming lasers, and range
finders.
Public Safety and Professional Communications:
State-of-the-art
communication equipment, systems and
applications for federal agencies, state and local government first responders, utilities and transit agencies.
Aerojet Rocketdyne (“
AR
”)
.
Provides
propulsion, power and armament products and systems to U.S.
Government, including the
DoD
, National Aeronautics and Space Administration ("
NASA
") and major aerospace and
defense prime contractors in the following business sectors:
Missile Solutions:
Propulsion technologies and armament systems for strategic defense, missile defense,
hypersonic and tactical systems.
Space Propulsion and Power Systems:
Premier propulsion and power systems for national security, space and
exploration missions.
International Business
In
fiscal 2024
, revenue from products and services
where the end consumer is located outside the U.S.,
including foreign military sales funded through the U.S. Government, whether directly or through prime contractors,
was
$4.4 billion
(
21%
of our revenue) and came from a large number of countries with no single foreign country
accounting for more than
5%
of our total revenue. For financial information regarding our domestic and international
operations, including long-lived assets, see
Note 14: Business Segments
in the Notes.
The majority of our international marketing activities are conducted through subsidiaries that operate in the
Europe, Middle East and Africa (“
EMEA
”) and Asia-Pacific (“
APAC
”) regions and Canada. We also have established
international marketing organizations and several regional sales offices
.
Competitive Conditions and Trends in Market Demand
We operate in highly-competitive markets that are sensitive to technological advances. Some of our competitors
in each of our markets are larger than we are and can maintain higher levels of expenditures for research and
development (“
R&D
”). We concentrate on the opportunities that we believe are compatible with our resources,
overall technological capabilities and objectives. We also collaborate with innovative partners, such as our strategic
partnerships with
Palantir
Technologies and Shield Capital to develop new capabilities to meet the demands of our
customers. Such collaboration is required by modern market dynamics where competing in our markets requires the
ability to fuse hardware, software and
artificial intelligence (“
AI
”)
.
Principal
competitive factors are product and
system quality and reliability; technological capabilities; service; past performance; ability to develop and
implement complex, integrated solutions; ability to meet delivery schedules; and cost-effectiveness. We frequently
“partner” or are involved in subcontracting and teaming relationships with companies that are, from time to time,
competitors on other programs.
We compete domestically and internationally against large defense companies;
principally BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman,
RTX,
Thales and
non-
traditional defense contractors.
For further discussion of trends in market demand, see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
of
this R
ep
ort.
_____________________________________________________________________
3
Backlog
Company-wide total backlog was
$34.2 billion
and
$32.7 billion
at
January 3, 2025
and
December 29, 2023
,
respectively
. We expect to recognize approximately
45%
of the revenue associated with Company-wide total
backlog by the end of fiscal
2025
and approximately
75%
of the revenue associated with Company-wide total
backlog by the end of fiscal
2026
, with the remainder to be recognized thereafter. See
Note 1: Significant Accounting
Policies
in the Notes for additional information regarding Company-wide total backlog.
R&D
We conduct R&D activities
using our own funds (company-funded R&D) and under contractual arrangements
(customer-funded R&D)
.
See
Note 1: Significant Accounting Policies
in the Notes for further information on company-
funded R&D.
Intellectual Property
We own a large portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights
and other intellectual property and we routinely apply for new patents, trademarks and copyrights. We also license
intellectual property to and from third parties
.
With regard to certain patents, the U.S. Government has an
irrevocable, non-exclusive, royalty-free license, pursuant to which the U.S. Government may use or authorize others
to use the inventions covered by such patents. Pursuant to similar arrangements, the U.S. Government may consent
to our use of inventions covered by patents owned by other persons. Numerous trademarks used on or in connection
with our products are also considered to be valuable assets.
Government Regulations
Our company is subject to various federal, state, local and international laws and regulations relating to the
development, manufacture, sale and distribution of our products and services, and it is our policy to comply with the
applicable laws in each jurisdiction in which we conduct business. Regulations include, but are not limited to, those
related to import and export controls, corruption, bribery, the protection of the environment, government
procurement, competition, product safety, workplace health and safety, employment, labor and data privacy. The
following describes significant regulations that may impact our businesses. For further discussion of risks relating to
government regulations, see “Item 1A. Risk Factors” of this Report.
Government Contracts.
In
fiscal 2024
, 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
76%
and no other customer accounted for more than
5%
of our revenue.
Additional information regarding customers for each of our segments is provided under “Item 1. Business —
Description of Business Segments” of this Report.
Cost-type contracts.
Our U.S. Government cost-reimbursable contracts provide for the reimbursement of
allowable costs plus payment of a fee and fall into three basic types: (i) cost-plus fixed-fee contracts, which provide
for payment of a fixed fee irrespective of the final cost of performance; (ii) cost-plus incentive-fee contracts, which
provide for payment of a fee that may increase or decrease, within specified limits, based on actual results
compared with contractual targets relating to factors such as cost, performance and delivery schedule; and (iii) cost-
plus award-fee contracts, which provide for payment of an award fee determined at the customer’s discretion based
on our performance against pre-established performance criteria. Under our U.S. Government cost-reimbursable
contracts, we are reimbursed periodically for allowable costs and are paid a portion of the fee based on contract
progress. Some costs ar
e
partially or wholly unallowable for reimbursement by statute or regulation. Examples
include certain merger and acquisition
costs
, lobbying costs, charitable contributions,
interest expense, financing
costs
and certain litigation defense costs.
Fixed-price contracts.
Our U.S. Government fixed-price contracts are either firm fixed-price contracts or fixed-
price incentive contracts. Under our U.S. Government firm fixed-price contracts, we agree to perform a specific
scope of work or sell a specific product for a fixed price and, as a result, benefit from cost savings or carry the
burden of cost overruns. Under our U.S. Government fixed-price incentive contracts, we share with the
U.S. Government both savings accrued for performance at less than target cost as well as costs incurred in excess of
target cost up to
a negotiated ceiling price,
which is higher than the target cost, but carry the entire burden of costs
exceeding the negotiated ceiling price. Under such incentive contracts, profit may also be adjusted up or down
depending on whether specified performance objectives are met. Under our U.S. Government firm fixed-price and
fixed-price incentive contracts, we generally receive either milestone payments totaling
100%
of the contract price
or monthly progress payments in amounts equaling
80%
of
costs incurred
under the contract. The remaining
amounts, including profits or incentive fees, are billed upon delivery and final acceptance of end items and
deliverables under the contract.
_____________________________________________________________________
4
Our production contracts are mainly fixed-price contracts and development contracts are generally cost-
reimbursable contracts, although we have some fixed-price development contracts.
Time-and-material contracts
are considered fixed-price contracts as they specify a fixed hourly rate for each labor hour charged.
For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors,” “Item 3.
Legal Proceedings” and “Item 7. M
anagement’s Discussion and Analysis of Financial Condition and Results of
Operations”
of this Report.
Environmental.
Our operations are subject to and affected by U.S. federal, state, local and foreign laws and
regulations relating to the protection of the environment. We have
incurred and,
based on currently available
information, we expect to continue to incur capital and operating costs to comply with existing and pending
environmental laws and regulations. See “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report and
Note 1: Significant Accounting Policies
and
Note 15: Legal Proceedings, Commitments and Contingencies
in the Notes.
Materials, Suppliers and Seasonality
Because of the diversity of our products and services, as well as the wide geographic dispersion of our facilities,
we use numerous sources for the wide array of materials, such as electronic components, printed circuit boards,
metals and plastics needed for our operations and products. We depend on suppliers and subcontractors for a large
number of components and subsystems. We also rely on a limited number of certified microelectronics component
suppliers for our products. We have experienced component shortages from vendors as a result of the global
pandemic, natural disasters, or the shifting regulatory landscape. These events or regulations may cause a spike in
demand for certain electronic components resulting in industry-wide supply chain disruptions. For further
discussion of risks relating to subcontractors and suppliers, see “Item 1A. Risk Factors” of this Report.
We do not consider any material portion of our business to be seasonal. Various factors can affect the
distribution of our revenue between accounting periods, including the timing of contract awards and the timing and
availability of U.S. Government funding, as well as the timing of product deliveries and customer acceptance.
Human Capital and Sustainability
Our success depends on our skilled workforce. Attracting, developing, motivating and retaining highly-skilled
people, particularly those with technical, engineering and science backgrounds,
and in many cases, security
clearances,
is critical to our ability to execute our strategic priorities. We use human capital measures to set goals
and monitor performance in several areas, including health and safety and talent.
Additional information regarding our human capital strategy and sustainability goals are available in our
2024
Sustainability Report which
we expect to be published in fiscal
2025
on our company website. Information on our
website, including our
2024
Sustainability Report, is not incorporated by reference into this Report.
Workforce Demographics.
We had approximately
47,000
employees at
January 3, 2025
, including
approximately
18,000
engineers and scientists. Of our total employees,
89%
were
located in the U.S. As of
January 3, 2025
, approximately
2,600
, or
6%
, of our U.S. employees were covered by various collective bargaining
agreements, which we expect will be renegotiated as they expire, as we historically have done without significant
disruption to operating activities.
Health and Safety.
We prioritize the safety of our employees through maintaining a proactive safety culture and
implementing programs designed to eliminate workplace incidents, risks and hazards. Throughout the year, we
review and monitor our performance closely to reduce Occupational Safety and Health Administration reportable
incidents
.
Talent Strategy.
We are focused on ensuring we maintain a balanced talent portfolio. Attracting new
perspectives, ideas and capabilities, recognizing and rewarding performance, offering professional development and
career growth opportunities, and providing an engaging employee experience that retains talent are strategic
priorities. We strive to attract employees in all stages of their careers.
We hired approximately
4,500
new employees in
fiscal 2024
. We offer competitive salaries and comprehensive
benefit packages, including health care, retirement planning and employer retirement contributions, educational
assistance, child and elder back-up care, paid parental leave, and a discretionary paid time off program.
Sustainability
.
During
fiscal 2024
,
we updated our environmental sustainability goals: by 2030 we plan to
reduce our Scope 1 and Scope 2 greenhouse gas (“
GHG
”) emissions by 60%, water usage by 20%, solid waste by
10% from 2021 levels and source 40% of our electricity from renewable sources.
_____________________________________________________________________
5
Available Information
Our principal executive offices are located at 1025 West NASA Boulevard, Melbourne, Florida 32919. Our
website address is
https://www.l3harris.com
.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-
K and amendments to such reports are available free of charge on our website
https://www.l3harris.com/investors
,
as soon as reasonably practicable after these re
ports are electronically filed with or furnished to the U.S. Securities
and Exchange Commission (“
SEC
”). We also will provide the reports in electronic or paper form, free of charge, upon
written request. Our website and the information posted thereon are not incorporated into this Report or any current
or other periodic report that we file with or furnish to the SEC.
Cautionary Statement Regarding Forward-Looking Statements
This Report, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that
may not materialize or prove correct, which could cause our results to differ materially from those expressed in or
implied by such forward-looking statements. All statements other than statements of historical fact are statements
that could be deemed forward-looking statements, including, but 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 conditions; the outcome of contingencies or
litigation; environmental remediation cost estimates; the potential level of share repurchases, dividends or pension
contributions; potential acquisitions or divestitures; the integration of our acquisitions; the value of contract awards
and programs; expected revenue; expected cash flows or capital expenditures; our beliefs or expectations;
activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the
future; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by their use
of forward-looking terminology, such as “believes,” “expects,” “may,” “could,” “should,” “would,” “will,” “intends,”
“plans,” “estimates,” “anticipates,” “projects” and similar words or expressions. You should not place undue
reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of filing
of this Report and are not guarantees of future performance or actual results. Factors that might cause our results to
differ materially from those expressed in or implied by these forward-looking statements, from our current
expectations or projections or from our historical results include, but are not limited to, those discussed in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” most notably those listed
in the following section of this Report. All forward-looking statements are qualified by, and should be read in
conjunction with, those risk factors. Forward-looking statements are made in reliance on the safe harbor provisions
of Section 27A of the Securities Act of 1933, as amended (the “
Securities Act
”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “
Exchange Act
”), and are made as of the date of filing of this Report, and we
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.
|
ITEM 1A.
|
RISK FACTORS.
|
Our business, financial condition, results of operations, cash flows and equity are subject to, and could be
materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below,
any one of which could cause our actual results to vary materially from recent results or our anticipated future
results.
Macroeconomic, Industry and Governmental Risks
We depend on winning business in competitive markets from U.S. Government customers for a significant
portion of our revenue.
We are highly dependent on revenue from U.S. Government customers, primarily defense-
related programs with the DoD and other government agencies
.
The market for sales to U.S. Government customers is highly competitive and the U.S. Government may
choose
to use other contractors as part of competitive bidding processes
or otherwise. The U.S. Government has
increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including
multi-vendor indefinite-delivery, indefinite-quantity (“
IDIQ
”), government-wide acquisition contracts, General
Services Administration Schedules and other multi-award contracts, which has resulted in greater competition and
increased pricing pressure. Some of our competitors have greater financial resources than we do and may have
more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some
areas. We may not be able to continue to win competitively awarded contracts or to obtain task orders under multi-
award contracts. Further, competitive bidding processes involve significant cost and managerial time to prepare bids
_____________________________________________________________________
6
and proposals for contracts and the risk that we may fail to accurately estimate the resources and costs required to
fulfill any contract awarded to us.
We may choose not to bid in certain competitive bidding processes, which would
result in the potential loss of opportunities.
Additionally, bid protests from unsuccessful bidders can result in
significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or
challenging contracts awarded to us.
A reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an
adverse impact on our business, financial condition, results of operations, cash flows and equity.
We expect
changes in policy positions and spending priorities from the new Administration. Our U.S. Government programs
must compete with programs managed by other government contractors and with other policy imperatives for
consideration for limited resources and for uncertain levels of funding during the budget and appropriations process.
Although multi-year contracts may be authorized and appropriated in connection with major procurements,
Congress generally appropriates funds on a U.S. Government fiscal year (“
GFY
”) basis. Procurement funds are
typically disbursed over the course of one to three years. Consequently, programs often initially receive only partial
funding, and additional funds are obligated only as Congress authorizes further appropriations.
We cannot predict the extent to which total funding and/or funding for individual programs will be changed as
part of the annual appropriations process ultimately approved by Congress and the President or in separate
supplemental appropriations or continuing resolutions, as applicable. Budget and appropriations decisions made by
the U.S. Government are outside of our control and may have long-term consequences for our business. U.S.
Government spending priorities and levels remain uncertain and difficult to predict, especially with a new
administration, and are affected by numerous factors, including
the
U.S. Government’s budget deficit and the
national debt. A change in U.S. Government spending priorities or an increase in non-procurement spending at the
expense of our programs, or a reduction in total U.S. Government spending on an absolute or inflation-adjusted
basis, could have material adverse consequences on our current or future business.
If Congre
ss does not enact a full-year GFY 2025 appropriations bill, the U.S. Government may not be able to
fulfill its funding obligations, and there could be significant disruption to all discretionary programs and
corresponding impacts on the entire defense industry, which could adversely affect our business, results of
operations, financial condition and cash flow. Any inability of the U.S. Government to complete its budget process
for any GFY and resulting operation on funding levels equivalent to its prior fiscal year pursuant to a Continuing
Resolution (“
CR
”) or shut down, also could have material adverse consequences on our current or future business.
For more information see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations - U.S. and International Budget Environment” of this Report.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-type and
time-and-material type contracts. Fixed-price contracts, particularly for development programs, could subject us to
losses from cost overruns or inflation
.
In
fiscal 2024
,
73%
of our revenue was derived from fixed-price contracts
that allow us to benefit from cost savings, but subject us to the risk of potential cost overruns, including due to
greater than anticipated or a sustained period of increased inflation or unexpected delays because we assume all of
the cost burden. If our initial estimates are incorrect, we can lose money (or make more or less money than
estimated) on these contracts. Fixed-price U.S. Government contracts can expose us to potentially large losses
because the U.S. Government can hold us responsible for completing a project or, in limited circumstances, paying
the entire cost of its replacement by another provider.
Contracts for development programs include complex design and technical requirements and are generally
contracted on a cost-reimbursable basis, however, some existing development programs are contracted on a fixed-
price basis or include cost-type contracting for the development phase with fixed-price production options. Because
many of these contracts involve new technologies and applications and can last for years, unforeseen events, such
as technological difficulties, increases in the price of materials, a significant increase in or a sustained period of
increased inflation, problems with our suppliers, labor market conditions and cost overruns, can result in less
favorable economics or even l
osses
over-time (which, especially in the case of sharp and significant sustained
inflation, could happen quickly and have long lasting impacts).
Furthermore, if we do not meet contract deadlines or
specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or
liquidated damages or suffer losses if the customer exercises its right to terminate. S
ome of our contracts have
provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we
may not realize their full benefits. Cost overruns would adversely impact our results of operations, which are
dependent on our ability to maximize our earnings from our contracts, and the potential risk would be greater if our
contracts shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts, as
opposed to cost-
type
and time-and-material contracts.
_____________________________________________________________________
7
To the extent feasible, we have consistently followed the practice of contractually adjusting our prices to reflect
the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and
services and in some cases seeking the inclusion of adjustment clauses to incorporate certain cost adjustments in
fixed-price contracts for unexpected inflation. However, our fixed-price contracts could subject us to losses in the
event of cost overruns or a significant increase in or a sustained period of increased inflation if these measures are
not effective.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of
operations, cash flows and equity.
The application or impact of regulations, unilateral government action, termination or negative audit findings
for one or more of our contracts could have an adverse impact on our business, financial condition, results of
operations, cash flows and equity.
U.S. Government contracts are generally subject to U.S. Government oversight
audits, which could result in adjustments to our contract costs. Any costs found to be improperly allocated to a
specific contract will not be reimbursed, and such costs already reimbursed must be refunded. We have recorded
contract revenue based on costs we expect to realize upon final audit. However, we do not know the outcome of any
future audits and adjustments, and we may be required to materially reduce our revenue or profits upon completion
and final negotiation of audits. Negative audit findings could also result in termination of a contract, forfeiture of
profits, suspension of payments, fines or suspension or debarment from U.S. Government contracting or
subcontracting for a period of time.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part,
without prior notice at the U.S. Government’s convenience upon payment only for work done and commitments
made at the time of termination. For some contracts, we are a subcontractor and the U.S. Government could
terminate the prime contractor for convenience without regard for our performance as a subcontractor. We may be
unable to secure new contracts to offset revenue or backlog lost as a result of any termination of our
U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and
payment under our U.S. Government contracts, the loss of one or more large contracts could have an adverse impact
on our business, financial condition, results of operations, cash flows and equity.
From time to time, we may begin performance of a U.S. Government contract under an undefinitized contract
action with a not-to-exceed price before the terms, specifications or price are
agreed to between the parties. In
these arrangements, the U.S. Government has the ability to unilaterally definitize the contract if a mutual agreement
regarding terms, specifications and price cannot be reached. These uncertainties or loss of negotiating leverage
associated with long delays could have a material adverse impact on our business, financial condition, results of
operations, cash flows and equity.
Our U.S. Government business also is subject to specific procurement regulations and a variety of
socioeconomic and other requirements that, although customary in U.S. Government contracts, increase our
performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which
could have an adverse effect on our business, financial condition, results of operations, cash flows and equity. In
addition, the U.S. Government has and may continue to implement initiatives focused on efficiencies, affordability
and cost growth and other changes to its procurement practices. These initiatives and changes to procurement
practices may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect
whether and how we pursue opportunities to provide our products and services to the U.S. Government, including
the terms and conditions under which we do so, which may have an adverse impact on our business, financial
condition, results of operations, cash flows and equity.
Failure to comply with applicable regulations and requirements could lead to fines, penalties, repayments or
compensatory or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting
for a period of time. The termination of a U.S. Government contract or relationship as a result of any of these acts
would have an adverse impact on our operations and could have an adverse effect on our standing and eligibility for
future U.S. Government contracts.
We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to
estimate growth in our markets and, as a result, future income and expenditures.
We participate in U.S. and
international markets that are subject to uncertain economic conditions. In particular, U.S. federal, state and local
government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous
factors. In addition, certain of our non-U.S. customers, including in the Middle East and other oil or natural gas-
producing countries, could be impacted
by weakness or volatility in oil or natural gas prices, or negative
expectations about future prices or volatility, which could adversely affect
demand for our products, systems,
services or technologies. As a result of that uncertainty, it is difficult to develop accurate estimates of the level of
_____________________________________________________________________
8
growth in the markets we serve. Because those estimates underpin all components of our budgeting and
forecasting, our estimates or guidance for future revenue, income and expenditures may be inaccurate, and we may
make significant investments and expenditures but never realize the anticipated benefits.
We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in
which we operate, our ability to insure against risks, our operations or our profitability.
Ongoing instability and
current conflicts in global markets, including in the Ukraine and Eastern Europe, the Middle East and Asia, and the
potential for other conflicts and future terrorist activities
and
geo-political events throughout the world, including
new or increased economic and
trade sanctions, including tariffs,
have created and may continue to create economic
and political uncertainties and impacts that could have a material adverse effect on our business, operations and
profitability. These types of matters cause uncertainty in financial and insurance markets and may significantly
increase the political, economic and social instability in the geographic areas in which we operate.
Unfavorable credit conditions in financial markets outside of the U.S. could adversely affect the ability of our
international customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders
for our products and services or impact the ability of our customers to make payments. These matters also may
cause us to experience increased costs, such as for insurance coverage and performance bonds (or for them to be
unavailable altogether), as well as difficulty with financing our operating, investing or financing (or refinancing)
activities.
We are subject to government investigations, which could have a material adverse effect on our business,
financial condition, results of operations, cash flows and equity.
U.S. Government contractors are subject to
extensive legal and regulatory requirements, including International Traffic in Arms Regulations (“
ITAR
”) and U.S.
Foreign Corrupt Practices Act
(“
FCPA
”)
, and from time to time agencies of the U.S. Government investigate whether
we have been and are operating in accordance with these requirements. Under U.S. Government regulations, an
indictment
of L3Harris
by a federal grand jury, or an administrative finding against us as to our present responsibility
to be a U.S. Government contractor or subcontractor, could result in us being suspended for a period of time from
eligibility for awards of new government contracts or task orders or in a loss of export privileges, which could have a
material adverse effect on our business, financial condition, results of operations, cash flows and equity. A
conviction, or an administrative finding against us that satisfies the requisite level of seriousness, could result in
debarment from contracting with the U.S. Government for a specific term, which could have a material adverse
effect on our business, financial condition, results of operations, cash flows and equity.
We derive a significant portion of our revenue from international operations and are subject to the risks of doing
business internationally.
We are dependent on sales to customers outside the U.S
.
We expect that international
revenue will continue to account for a significant portion of our total revenue.
Also
, a portion of our international
revenue is from, and a portion of our business activity is being conducted with or in, less-developed countries and
sometimes countries with unstable governments, or in areas of military conflict or at military installations. Other
risks of doing business internationally include:
•
Laws, regulations and policies of foreign governments relating to investments and operations;
•
Unforeseen changes in export controls and other trade regulations;
•
Changes in regulatory requirements, including business or operating license requirements, currency
exchange controls or embargoes;
•
Uncertainties and restrictions concerning the availability of funding, credit or guarantees;
•
Risk of non-payment or delayed payment by non-U.S. customers;
•
Contractual obligations to non-U.S. customers that may include specific in-country purchases, investments,
manufacturing agreements or financial or other support obligations, known as offset obligations, that may
extend for years, require teaming with local companies and result in significant penalties if not satisfied;
•
Issues related to involving international dealers, distributors, sales representatives and consultants;
•
Difficulties of managing a geographically dispersed organization and culturally diverse workforces, including
compliance with local laws and practices;
•
Fluctuations of currency, currency revaluations, difficulties with repatriating cash generated or held abroad
in a tax-efficient manner and changes in tax laws;
•
Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional
requirements for onerous contract terms;
•
Changes in government, economic and political policies, political or civil unrest, acts of terrorism, threats of
international boycotts, U.S. anti-boycott legislation or sanctions against U.S. defense companies; and
•
Increased risk of an incident resulting in damage or destruction to our facilities or products or resulting in
injury or loss of life to our employees, subcontractors or other third parties.
_____________________________________________________________________
9
Business and Operational Risks
We depend on our subcontractors and
suppliers,
and failures in or disruptions to our supply chain could cause
our products and or services to be produced or delivered in an untimely or unsatisfactory manner.
Our ability to
manufacture and deliver products and services to our customers requires our U.S. and non-U.S. subcontractors and
suppliers to provide a variety of materials, components, subsystems and services. In some instances, we depend
upon a single supplier for components, which adds risk because that supplier may at times be unable to meet our
needs and because we may have little negotiating leverage with sole-source suppliers. Identifying and qualifying
dual and second-source suppliers can be difficult, time consuming and may result in increased costs. Any inability to
timely develop cost-effective alternative sources of supply could materially impact our ability to manufacture and
deliver products and services to our customers.
In addition, we are required to procure certain materials and components, including certain microelectronic
components, from U.S. Government-approved supply sources. Certain heightened regulatory requirements that may
apply to these sources can further limit the subcontractors and suppliers we may utilize. Legislation, regulatory
changes or other governmental actions, including product certification or stewardship requirements, sourcing
restrictions, tariffs,
embargoes
, product authenticity, cybersecurity regulation, and environmental standards (e.g.,
greenhouse gas emission limitations) may all impact our subcontractors and suppliers, and there continues to be
uncertainty about actions that may be implemented by the new Administration.
From time to time, our subcontractors and suppliers experience financial and operational difficulties outside of
our direct control, which may impact their ability to deliver the materials, components, subsystems and services we
need.
In recent years, global supply chains, including ours, have experienced significant disruption from material
availability and supplier performance, as well as extended lead times, pricing volatility, inflationary pressures and
labor issues. We and our subcontractors and suppliers have also experienced difficulties in the timely procurement
of necessary materials and components, including microelectronics. Current geopolitical conditions, including
sanctions and other trade restrictive activities and strained inter-country relations, have contributed to issues
procuring necessary materials and components. For example, some materials and components in our supply chain
have previously been sourced from areas now under sanctions or other trade restrictions,
such as specialty metals
from Russia and certain equipment from China
, or are currently sourced from areas which are at risk of sanctions or
other trade restrictive actions, not just by the United States but by other nations or groups, such as the European
Union.
While we continuously work to implement supply chain resiliency
initiatives
, we cannot guarantee the success of
any of these efforts. Material supply disruptions may still occur in the future, leading to untimely delivery or
unsatisfactory quality of products and services, and potentially adversely affecting our business, operational results,
financial condition and cash flow.
We must attract and retain key employees, and any failure to do so could harm us.
Our future success depends
to a significant degree upon the continued contributions of our management and our ability to attract and retain
highly-qualified management and technical personnel, including engineers and employees who have U.S.
Government security clearances, particularly clearances of top secret and above. To the extent that the demand for
qualified personnel exceeds supply in certain areas, we
could
experience higher labor, recruiting or training costs in
order to attract and retain such employees. Failure to attract and retain such personnel would damage our future
prospects and could adversely affect our ability to succeed in our human capital goals and priorities, as well as
negatively impact our business and operating results.
We could be negatively impacted by a security breach of our
Information Technology (“IT”)
networks and
related systems
.
We face the risk of a security breach, whether through cyber-attack on our IT infrastructure, insider
threat, or threats to the physical security of our facilities and employees or other significant disruption of our IT
networks and related systems or those of our suppliers or subcontractors. The risk of a security breach or disruption,
particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber
terrorists, is persistent. The volume, intensity and sophistication of threats from around the world remains elevated.
These risks may increase as
AI
capabilities improve.
As a government contractor with access to national security or other sensitive government information, we face
a heightened risk of a security breach or disruption from threats to gain unauthorized access to our and our
customers’ proprietary information on our IT networks and related systems, our classified networks, and to the IT
networks and related systems that we operate, maintain and secure for certain of our customers. We have
implemented various measures to manage the risk of a security breach or disruption. See “Item 1C. Cybersecurity"
in this Report for further discussion of
our
risk management and strategy related to cybersecurity threats.
_____________________________________________________________________
10
Our efforts and measures have not been entirely effective in the case of every cyber security incident, but no
incident has had a material negative impact on us to date. Even the most well-protected information, networks,
systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-
attacks and cyber intrusions, or disruptions will occur in the future, and because the techniques used in such
attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases
are designed not to be detected and, in fact, may not be detected. In some cases, the resources of foreign
governments may be behind such attacks due to the nature of our business and the industries in which we operate.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security controls or other
preventative measures and future cyber security incidents may have a material negative impact on us. A security
breach or other significant disruption involving these types of information and IT networks and related systems
could:
•
Disrupt proper functioning of these networks and systems and, therefore, our operations and/or those of
certain of our customers;
•
Result in unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary,
confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including
trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful
purposes and outcomes;
•
Compromise national security and other sensitive government functions;
•
Require significant management attention and resources to remedy damages that result;
•
Result in costs which exceed our insurance coverage and/or indemnification arrangements;
•
Subject us to claims for contract breach, damages, credits, penalties or termination; and
•
Damage our reputation with our customers and the general public.
We must also rely on the safeguards of varying levels put in place by customers, suppliers, vendors,
subcontractors or other third parties to minimize the impact of cyber threats, other security threats or business
disruptions.
These third parties may have varying levels of cybersecurity expertise and safeguards.
Our commercial
arrangements with these third parties include processes designed to require that the third parties and their
employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential,
personal and proprietary information. However, we remain at risk of a data breach due to the intentional or
unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection
processes, which may not be as sophisticated as ours, or a cyber-attack on a third party’s information network and
systems.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of
operations, cash flows and equity, reputation, ability to protect data, assets, and intellectual property, maintenance
of customer and vendor relationships, competitive posture, and could lead to litigation or regulatory investigations
or actions.
Our future success will depend on our ability to develop new products and services that achieve market
acceptance in our current and future markets.
Our businesses are characterized by rapidly changing technologies
and evolving industry standards. To remain competitive, we need to continue to design, develop, manufacture,
assemble, test, market and support new products
and
services, which will require the investment of significant
financial resources in new technologies suc
h as
AI
.
We have allocated funds for such investments th
rough customer-funded and internal R&D,
strategic alliances
and other teaming arrangements, but we may not be able to successfully identify new opportunities and may not
have the necessary resources to develop new products and services in a timely or cost-effective manner.
Furthermore, we cannot be sure that these expenditures ultimately will lead to the timely development of new
products and services. Due to the design complexity of some of our products and services, we may experience
delays in completing development
and introducing new products and services or incorporating new technologies
into our existing products and services in
the
future. Any delays could result in increased costs of development or
divert resources from other projects.
In addition, the markets for our products and services may not develop as we currently anticipate, we may not
be as successful in newly identified markets as anticipated, and joint ventures, partnerships, strategic alliances or
other teaming arrangements we may enter into to pursue developing new products and services may not be
successful. Our competitors may incorporate
AI
technologies into their products or services more quickly or more
successfully than us, which could impair our ability to compete. Furthermore, competitors may develop competing
products and services or incorporate new technologies into
our
existing products and services that either gain
market acceptance in advance of our products and services or cause our existing products and services or
_____________________________________________________________________
11
technologies to become non-competitive or obsolete, which could adversely affect our results of operations and
harm our business.
We have significant operations in locations that could be materially and adversely impacted in the event of a
natural disaster or other significant disruption.
Our corporate headquarters and significant business operations are
located in Florida, which is subject to the risk of major hurricanes. Our worldwide operations and operations of our
suppliers and customers could be subject to natural disasters (including those as a result of climate change) or other
significant disruptions, including hurricanes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other
extreme weather conditions, epidemics, pandemics, acts of terrorism, power shortages and blackouts,
telecommunications failures and other natural and man-made disasters or disruptions. In the event of such a natural
disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of
our suppliers, subcontractors, distributors, resellers or customers, including inability of employees to work;
destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses, delay or
decrease orders and revenue from our customers and have a material adverse effect on the continuity of our
business and our business, financial condition, results of operations, cash flows and equity.
Risk of the release, unplanned ignition, explosion, or improper handling of dangerous materials used in our
business could disrupt our operations and adversely affect our financial
results
.
Our business operations are
subject to risk in connection with the handling, production, and disposition of potentially
explosive and ignitable
energetic materials and other dangerous chemicals, including motors and other materials used in rocket propulsion.
The handling, production, transport, and disposition of hazardous materials could result in incidents that temporarily
shut down or otherwise disrupt our manufacturing operations and could cause production delays. A release of these
chemicals or an unplanned ignition or explosion could result in death or significant injuries to employees and others.
Material property damage to us or third parties could also occur.
The use of these products in applications by our customers could also result in liability if an explosion,
unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic
materials, including but not limited to, regulations governing hazardous substances and hazardous waste. The
failure to properly store and ultimately dispose of such materials could create significant liability and/or result in
regulatory sanctions. Any release, unplanned ignition or explosion could expose us to adverse publicity or liability for
damages or cause production delays, any of which could have a material adverse effect on our business, financial
condition, results of operations, cash flows and equity.
Failure to achieve the expected results of LHX NeXt could adversely affect our future financial condition and
results of operations.
In fiscal 2023, we announced LHX NeXt, a targeted three-year program designed to enhance
organizational agility and performance by leveraging our scale and relationships across segments to drive
operational efficiency and competitiveness for the enterprise.
We have seen significant progress on LHX NeXt in
fiscal 2024, however, there can be no assurances that such progress will continue in fiscal 2025, that the initiatives
that are part of LHX NeXt will achieve their desired results or that costs savings achieved as a result of LHX NeXt will
impact our results of operations on the time frame or in the manner we currently expect.
Financial Risks
Changes in estimates we use in accounting for many of our programs could adversely affect our future financial
condition and results of operations.
Accounting for our contracts requires judgment relative to assessing risks,
including estimating contract revenue and costs and assumptions for schedule and technical issues. Due to the size
and nature of many of our contracts, the estimation of total revenue and cost at completion is complicated and
subject to many variables. For example, we must make assumptions regarding: (i) the nature and complexity of the
work to be performed; (ii) subcontractors’ and suppliers’ expected performance; (iii) availability and costs of labor,
materials, components subsystems and services (including expected increases in wages and prices); (iv) the length
of time to complete the contract; (v) the allocation of transaction price to one or more performance obligations
based on the products and services promised to the customer; (vi) incentives or penalties related to performance on
contracts in estimating revenue and profit rates, and recording them when there is sufficient information for us to
assess anticipated performance; and (vii) estimates of award fees in estimating revenue and profit rates based on
actual and anticipated awards.
Our profitability can be adversely affected when estimated contract costs
increase
from our initial estimates,
especially without comparable increases in revenue. There are many reasons estimated contract costs can increase,
including: (i) supply chain disruptions, inflation and labor issues; (ii) design or other development challenges; and (iii)
program execution challenges (including from technical or quality issues and other performance concerns).
However, because of the significance of the judgments and the difficulties inherent in estimating future costs, we
cannot guarantee that estimated revenues and contract costs will not change in the future. Any cost growth or
_____________________________________________________________________
12
changes in estimated contract revenues and costs may adversely affect results of operations and financial condition.
For additional information regarding our critical accounting estimates applicable to our accounting for our contracts,
see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical
Accounting Estimates” of this Report.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded
defined benefit plans liability may materially adversely affect our financial and operating activities or our ability to
incur additional debt.
A substantial portion of our retired employee population and a portion of our current
employee population are covered by defined benefit pension and other postretirement defined benefit plans
(collectively, “
defined benefit plans
”). At
January 3, 2025
, we ha
d
$11.8 billion
in aggregate principal amount of
outstanding fixed-rate debt, which reflects our total long-term debt, including current portion but excluding finance
leases, and
$205 million
of unfun
ded defined benefit plan liabilities. Our ability to make payments on and to
refinance our current or future indebtedness, and our ability to make contributions to our unfunded defined benefit
plans liability, will depend on our ability to generate cash from operations, financings and investments, which may
be subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control.
While our outstanding long-term debt is all fixed rate and
our
repayment schedule is known, the
costs and
returns related to
our defined benefit plans are variable. Accordingly, our defined benefit plan liabilities could
increase, which could require us to make significant funding contributions to our defined benefit plans and affect
cash flows in future periods.
If we are not able to repay or refinance our debt as it becomes due or make contributions to our unfunded
defined benefit plans liability, we may be forced to divest businesses, sell assets or take other disadvantageous
actions, including reducing financing for working capital, capital expenditures and general corporate purposes;
reducing our cash dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow
from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand
competitive pressures and to react to changes in the defense technology industry could be impaired. The lenders
who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of
any of our other debt.
Legal, Tax and Regulatory Risks
Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of
operations and cash flows.
We are subject to income taxes in the U.S. and numerous international jurisdictions.
There are transactions and calculations in the ordinary course of business where the application of tax law may be
uncertain, require significant judgment or be subject to differing interpretations. Our worldwide income tax provision
may be adversely affected by a number of factors, which include:
•
Changes in domestic or international tax laws or the interpretation of such tax laws;
•
The jurisdictions in which profits are determined to be earned and taxed;
•
Adjustments to estimated taxes upon finalization of various tax returns;
•
Increases in expenses not fully deductible for tax purposes, including impairment of goodwill or other long-
term assets acquired
in connection with mergers or acquisitions
;
•
Changes in available tax credits;
•
Changes in share-based compensation expense;
•
Changes in the valuation of our deferred tax assets and liabilities; and
•
The resolution of issues arising from tax audits with various tax authorities.
Any significant increase in our future effective tax rates,
or timing of deductions, credits, or payments,
could
adversely impact our
results of operations and cash flow
for future periods.
We may not be successful in obtaining the necessary export licenses and Congress may prevent proposed sales
to certain foreign governments.
We must first obtain export and other licenses and authorizations from various
U.S. Government agencies before we are permitted to sell certain products and technologies outside of the U.S. For
example, the U.S. Department of State must notify Congress at least 15 to 60 days, depending on the size and
location of the proposed sale, prior to authorizing certain sales of defense equipment and services to foreign
governments. During that time, Congress may take action to block the proposed sale. We may be unsuccessful in
obtaining necessary licenses or authorizations or Congress may prevent or delay certain sales.
Our ability to obtain necessary licenses and authorizations timely or at all is subject to risks and uncertainties,
including changing U.S. Government policies or laws or delays in Congressional action due to geopolitical and other
factors. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely
_____________________________________________________________________
13
manner, our sales relating to those approvals may be reversed, prevented or delayed, and any significant
impairment of our ability to sell products or technologies outside of the U.S. could negatively impact our business,
financial condition, results of operations, cash flows and equity.
Environmental
issues could have a material adverse effect on our business, financial condition, results of
operations, cash flows and equity.
Our operations are subject to various U.S. federal, state and local, as well as
certain foreign, environmental laws and regulations within the countries in which we operate relating to the
discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used
in our operations. Our real estate assets in particular are subject to various risks, including that our reserves for
estimated future environmental obligations may prove to be insufficient, we may be unable to complete
environmental remediation or, we may be unable to have state and federal environmental
restrictions
lifted.
Compliance with current and future environmental laws and regulations may require significant operating and
capital costs. Environmental laws and regulations may institute substantial fines and criminal sanctions as well as
facility shutdowns to address violations and may require the installation of costly pollution control equipment or
operational changes to limit emissions or discharges. Our suppliers may face similar business interruptions and
incur additional costs that may increase the price of materials needed for manufacturing. We also incur, and expect
to continue to incur, costs to comply with current environmental laws and regulations related to remediation of
conditions in the environment. In addition, if violations of environmental laws result in us, or in one or more of our
operations, being identified as an excluded party in the U.S. Government’s System for Award Management, then we
or one or more of our operations would become ineligible to receive certain contracts, subcontracts and other
benefits from the federal government or to perform work under a government contract or subcontract. Generally,
such ineligibility would continue until the basis for the listing has been appropriately addressed.
If our responses to new or evolving legal and regulatory requirements or other sustainability concerns are
unsuccessful or perceived as inadequate for the U.S. or our international markets, we also may suffer damage to our
reputation, which could adversely affect our business.
Developments such as the adoption of new environmental
laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and
regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental
impacts, our inability to recover costs associated with any such developments under previously priced contracts or
financial insolvency of other responsible parties could have a material adverse effect on our business, financial
condition, results of operations, cash flows and equity.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or
business partners.
We have implemented compliance controls, training, policies and procedures designed to
prevent and detect reckless or criminal acts from being committed by our employees, agents or business partners
that would violate the laws of the jurisdictions in which we operate, including laws governing payments to
government officials, such as the FCPA, the protection of export-controlled or classified information, such as ITAR,
false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy
and the terms of our contracts.
We cannot ensure, however, that our controls, training, policies and procedures will prevent or detect all such
reckless or criminal acts, and we have been adversely impacted by such acts in the past. If not prevented, such acts
could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and
debarment by the U.S. Government and could have a material adverse effect on our business, results of operations
and reputation. In addition, misconduct involving data security lapses resulting in the compromise of personal
information or the improper use of our customers’ sensitive or classified information could result in remediation
costs, regulatory sanctions against us and serious harm to our reputation and could adversely impact our ability to
continue to contract with the U.S. Government.
The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an
adverse decision in any such matter could have a material adverse effect on our financial condition, results of
operations, cash flows and
equity
.
The size, nature and complexity of our business make us susceptible to
investigations, claims, disputes, enforcement actions, litigation and other legal proceedings, particularly those
involving governments. From time to time, we are defendants in a number of litigation matters and are involved in a
number of arbitration matters. These actions may divert financial and management resources that would otherwise
be used to benefit our operations. The results of these or new matters may be unfavorable to us. Although we
maintain insurance policies, they may not be adequate to protect us from all material judgments and expenses
related to current or future claims and may not cover the conduct that is the subject of the litigation or arbitration.
Desired levels of insurance may not be available in the future at economical prices or at all. In addition, the results of
litigation or arbitration can be difficult to predict, including litigation involving jury trials. Accordingly, our current
_____________________________________________________________________
14
judgment as to the likelihood of our loss (or our current estimate as to the potential range of loss, if applicable) with
respect to any particular litigation or arbitration matter may be wrong. A significant judgment or arbitration award
against us arising out of any of our current or future litigation or arbitration matters could have a material adverse
effect on our business, financial condition, results of operations, cash flows and equity.
We may become subject to intellectual property infringement claims, and third parties may infringe upon our
intellectual property rights.
Many of the markets we serve are characterized by vigorous protection and pursuit of
intellectual property rights, which often has resulted in protracted and expensive litigation. Our competitive position
in the market depends in part on our ability to ensure that our intellectual property is protected, that our intellectual
property rights are not diluted or subject to misuse, and that we are able to license certain third-party intellectual
property on reasonable terms. Third parties have claimed in the past, and may claim in the future, that we are
infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have
infringed directly or indirectly upon those intellectual property rights. Claims of infringement might also require us to
enter into costly royalty or license agreements. Our patents and other intellectual property may be challenged,
invalidated, misappropriated or circumvented by third parties. Moreover, we may not be able to obtain royalty or
license agreements on terms acceptable to us, or at all.
We also may be subject to significant damages or injunctions against development and sale of certain of our
products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a
combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing
arrangements to establish and protect our intellectual property rights. In addition, the laws concerning intellectual
property vary among nations and the protection provided to our intellectual property by the laws and courts of
foreign nations may differ from those of the U.S. If we fail to successfully protect and enforce these rights, our
competitive position could suffer. Our pending patent and trademark registration applications may not be allowed,
or competitors may challenge the validity or scope of our patents or trademark registrations. We may be required to
spend significant resources to monitor and enforce our intellectual property rights. Litigation to determine the scope
of intellectual property rights, even if ultimately successful, could be costly and could divert management’s
attention away from other aspects of our business. We may not be able to detect infringement, and our competitive
position may be harmed before we do so. In addition, competitors may design around our technology or develop
competing technologies.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by
insurance or indemnity.
We are exposed to liabilities that are unique to the products and services we provide. A
significant portion of our business relates to designing, developing and manufacturing advanced defense, technology
and communications systems and products. New technologies associated with these systems and products may be
untested or unproven. Components of certain defense systems and products we develop are inherently dangerous.
Failures of satellites, missile systems, air traffic control systems, electronic warfare systems, space superiority
systems, command, control, computers, communications, cyber, ISR, homeland security applications and aircraft
have the potential to cause loss of life and extensive property damage. Other examples of unforeseen problems that
could result, either directly or indirectly, in the loss of life or property or otherwise negatively affect revenue and
profitability include loss on launch of spacecraft, premature failure of products that cannot be accessed for repair or
replacement, problems with quality and workmanship, country of origin, delivery of subcontractor components or
services and unplanned degradation of product performance. In addition, problems and delays in development or
delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve
assumptions or materials and components could prevent us from achieving contractual requirements. In many
circumstances, we may receive indemnification from the U.S. Government. We generally do not receive
indemnification from foreign governments. Although we maintain insurance for certain risks, including certain
cybersecurity exposures, the amount of our insurance coverage may not be adequate to cover all claims or liabilities,
and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain
insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in
excess of U.S. Government indemnity and our insurance coverage would harm our financial condition, results of
operations, cash flows and equity. Other factors that may affect revenue and profits include loss of follow-on work,
and, in the case of certain contracts, liquidated damages, penalties and repayment to the customer of contract cost
and fee payments we previously received. Moreover, any accident or incident for which we are liable, even if fully
insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for
us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.
Strategic Transactions and Investments Risks
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and
uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and
_____________________________________________________________________
15
equity.
Strategic mergers, acquisitions and divestitures we have made in the past and may make in the future
present significant risks and uncertainties that could adversely affect our business, financial condition, results of
operations, cash flows and equity, which include:
•
Difficulty in identifying and evaluating potential mergers and acquisitions, including the risk that our due
diligence does not identify or fully assess valuation issues, potential liabilities or other merger or acquisition
risks;
•
Difficulty, delays and expense in integrating newly merged or acquired businesses and operations, including
combining product and service offerings, and in entering into new markets in which we are not experienced,
in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures,
and the risk that we encounter significant unanticipated costs or other problems associated with integration;
•
Differences in business backgrounds, corporate cultures and management philosophies that may delay
successful integration;
•
Difficulty, delays and expense in consolidating and rationalizing IT infrastructure, which may include
multiple legacy systems from various mergers and acquisitions and integrating software code;
•
Challenges in achieving strategic objectives, cost savings and other expected benefits;
•
Risk that our markets do not evolve as anticipated and that the strategic mergers, acquisitions and
divestitures do not prove to be those needed to be successful in those markets;
•
Risk that we assume or retain, or that companies we have merged with or acquired have assumed or
retained or otherwise become subject to, significant liabilities that exceed the limitations of any applicable
indemnification provisions or the financial resources of any indemnifying parties;
•
Risk that indemnification related to businesses divested or spun off that we may be required to provide or
otherwise bear may be significant and could negatively impact our business;
•
Risk that mergers, acquisitions, divestitures, spin offs and other strategic transactions fail to qualify for the
intended tax treatment for U.S. federal income tax purposes and the possibility that the full tax benefits
anticipated to result from such transactions may not be realized;
•
Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including
non-competition arrangements applicable to certain of our business lines, or within expected timeframes;
•
Potential loss of key employees or customers of the businesses acquired or to be divested; and
•
Risk of diverting the attention of senior management from our existing operations.
Changes
in future business or other market conditions could cause business investments and/or recorded
goodwill or other intangible assets to become impaired, resulting in substantial losses and write-downs that would
materially adversely affect our results of operations and financial condition.
A significant portion of our assets
consist of goodwill and other intangible assets, primarily recorded as the result of acquisitions. Assumptions and
judgments in determining initial acquisition price may subsequently prove to have been inaccurate and unforeseen
issues could arise, which could adversely affect the anticipated returns or which are otherwise not recoverable as an
adjustment to the purchase price. We evaluate the recoverability of recorded goodwill annually, as well as when we
change reporting units (either as a result of a reorganization or as the result of divestiture activity) and when events
or circumstances indicate there may be an impairment. If an impairment exists, we record the charge in the period
of determination. Because of the significance of our goodwill and other intangible assets, any future impairment of
these assets could have a material adverse effect on our results of operations and financial condition. For additional
information on our accounting policies related to impairment of goodwill, see our discussion under “Critical
Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Report and
Note 1: Significant Accounting Policies
and
Note 6: Goodwill and Intangible Assets
in
the Notes.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS.
|
Not applicable.
|
ITEM 1C.
|
CYBERSECURITY.
|
process, administered by management with input from each business segment and function,
continuously
monitors
Chief Information Officer (“
CIO
”), who has extensive experience leading information technology for global
_____________________________________________________________________
16
organizations across aerospace, defense and industrials, and works directly with our Chief Executive Officer (“
CEO
”)
oversees the internal cybersecurity organization of more than 100 full-time employees headed by our
Chief
Information Security Officer
(our
“
Cybersecurity Team
”).
Risks related to cybersecurity threats are reflected in an enterprise risk “heat map,” along with other material
risks identified through the ERM process, and any mitigation plans developed to manage such risks are reported to
our Board of Directors (“
Board
”). The “heat map” includes risks related to cybersecurity threats to L3Harris and our
customers, suppliers, vendors, subcontractors or other third parties, and the possibility of a data breach of our
confidential, personal and proprietary information through a cybersecurity incident impacting L3Harris or any third
party.
To actively manage cybersecurity risks identified as part of the ERM process or otherwise and to manage
emerging cybersecurity threats in real time, management has implemented an ISO 27001 certified Information
Security Management System. Our Cybersecurity Team operates a Security Operations Center that continuously
monitors activity, frequently scans applications and systems for vulnerabilities to risk from cybersecurity threats and
creates action plans to address and track identified cybersecurity threats until they have been remediated. Activities
and cybersecurity incidents are reported to our CIO, who briefs senior management, including our CEO, as
well as
the Innovation and Cyber Committee and the Audit Committee of our Board (respectively, the “Innovation and
Cyber
Committee
” and the “
Audit Committee
”), as appropriate.
Our Cybersecurity Team also routinely engages with third
example, we are members of the DoD Defense Industrial Base Collaborative Information Sharing Environment, the
National Defense Information Sharing and Analysis Center, and the National Security Agency Enduring Security
Framework. These organizations share real-time cybersecurity threat information and best practices in protecting,
detecting and recovering from cybersecurity threats.
We are committed to safeguarding against both internal and external security threats through a robust
counterintelligence and insider threat program that utilizes cutting-edge data analytics and machine learning. As a
defense contractor, we are subject to the Department of Defense's cybersecurity regulations, including the Defense
Federal Acquisition Regulation Supplement, ensuring the protection of Controlled Unclassified Information and
prompt reporting of cybersecurity incidents. Our practices have been rigorously assessed by the Defense Contract
Management Agency to meet the Level 2 Cybersecurity Maturity Model Certification requirements, reflecting our
dedication to maintaining stringent security controls.
To mitigate cybersecurity risks introduced from our supply chain, we have a dedicated Cybersecurity - Supply
Chain Risk Management team. This team assesses new suppliers against best cybersecurity practices, ensures
cybersecurity regulations are contractually flowed down and coordinates mitigation actions across the company if a
supplier is impacted by a cybersecurity incident. The Supply Chain Risk Management team utilizes industry
monitoring services to identify potential supply chain incidents and
works
closely with our Cybersecurity Team to
understand the latest threats affecting our industry.
Additionally, as part of our processes to manage risks related to a breach in our information systems,
management requires employees to take annual cybersecurity training and shares regular awareness updates
regarding cybersecurity threats. Our Cybersecurity Team regularly tests employees throughout the year to assess
the effectiveness of the cybersecurity training. We also periodically conduct penetration testing of our network, hold
tabletop exercises of cyber incidents, and undertake cybersecurity assessments led by Internal Audit to improve
our
risk mitigation and assist in the determination of a potential material impact caused by a cybersecurity incident.
have not materially affected our business strategy, results of operations or financial condition, we could be
negatively impacted by a cybersecurity breach, through cyber-attack, cyber intrusion, insider threats, supply chain
incidents, or otherwise, or other significant disruption of our IT networks and related systems or of those we operate
to cybersecurity threats.
_____________________________________________________________________
17
Governance
policies governing the processes by which our CEO and senior management assess our exposure to risk, including
Information Security Officer and other members of senior management on cybersecurity threats and related matters
The Innovation and Cyber Committee reviews our cybersecurity risk across the enterprise at least annually,
including IT, supply chain and products and our cybersecurity strategy framework and operational posture. The
Innovation and Cyber Committee also reviews our IT, data security and other systems, processes, policies,
procedures and controls at least annually to (a) identify, assess, monitor and mitigate cybersecurity risks; (b) identify
measures to protect and safeguard against cybersecurity threats and breaches of confidential information and data
and IT infrastructure and our other assets or assets of our customers or other third parties in our possession or
custody; (c) support the response and management of cybersecurity threats and data breach incidents; and (d) aid in
compliance with legal and regulatory requirements governing cybersecurity or data security reporting requirements.
recommendations to the Board and management with respect to risks from cybersecurity threats and other matters
as it deems necessary or appropriate.
|
ITEM 2.
|
PROPERTIES.
|
As of
January 3, 2025
, we operated approximately
250
locations in the U.S., Canada, EMEA, and APAC,
consisting of approximatel
y
27 million
square feet of manufacturing, administrative, R&D, warehousing, engineering
and office space, of which we owned approximately
12 million
square feet and leased approximately
15 million
square feet. As of
January 3, 2025
, we had major operations at the following locations:
SAS
— Palm Bay, Melbourne and Malabar, Florida; Rochester and Amityville, New York; Clifton, New Jersey; Van
Nuys and San Diego California; Colorado Springs, Colorado; Fort Wayne, Indiana; Herndon, Virginia; Wilmington,
Massachusetts; and Alpharetta, Georgia.
IMS
— Greenville, Waco, Rockwall and Plano, Texas; Mirabel and Waterdown, Canada; Camden, New Jersey;
Anaheim, California; Mason and Cincinnati, Ohio; Tulsa, Oklahoma; Salt Lake City, Utah; Philadelphia, Pennsylvania;
Crawley, United Kingdom; and Grand Rapids, Michigan.
CS
— Rochester, New York; Salt Lake City, Utah; Londonderry, New Hampshire; Lynchburg, Virginia; Tempe,
Arizona; Carlsbad, California; Farnborough, United Kingdom; Brisbane, Australia; Melbourne, Sunrise, Florida;
and
A
bu Dhabi, United Arab Emirates
.
AR
— Camden, Arkansas; Chatsworth, California; Huntsville, Alabama; West Palm Beach, Florida; Orange,
Virginia; Redmond, Washington; Orlando, Florida; and Hancock County, Mississippi.
Corporate
— Melbourne, Florida; and Arlington, VA.
Our facilities are suitable and adequate for their intended purposes, are well-maintained, are generally in regular
use and have capacities adequate for current and projected needs. We will, from time to time, acquire additional
facilities, expand existing facilities and dispose of existing facilities or parts thereof, as management deems
necessary. See
Note 5: Property, Plant and Equipment, Net
and
Note 11: Leases
in the Notes for more information on
our owned properties and our lease obligations, respectively.
|
ITEM 3.
|
LEGAL PROCEEDINGS.
|
See
Note 15: Legal Proceedings, Commitments and Contingencies
included in our Notes for information relating
to our legal proceedings.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES.
|
Not applicable.
_____________________________________________________________________
18
INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
Our executive officers as of
February 14, 2025
, are listed below, along with their ages on that date, position held
with us and principal occupation and business experience during at least the past five years.
|
Name
|
Age
|
Position
|
Held Since
|
Recent Business Experience
|
|
Kenneth L. Bedingfield
|
52
|
Chief Financial Officer
(“
CFO
”) and President,
AR
(1)
|
December 2023
|
CEO, Epirus, Inc. (“Epirus”) (2022-2023);
President and Chief Operating Officer,
Epirus (2022); CFO, Epirus (2020-2022);
CFO, Northrop Grumman Corporation
(“Northrop Grumman”) (2015-2020),
Aerospace Sector CFO, Northrop
Grumman (2013-2015)
|
|
John P. Cantillon
|
58
|
Vice President (“
VP
”),
Principal Accounting
Officer
|
May 2024
|
VP, Assistant Controller (2023-2024); VP
of Finance Manufacturing Operations,
Pratt & Whitney (2023); VP and
Controller, Pratt & Whitney (2020-2023)
|
|
Christoph T. Feddersen
|
53
|
VP, General Counsel &
Secretary
|
August 2024
|
VP, General Counsel of L3Harris SAS
(2024); VP and General Counsel, Collins
Aerospace Systems (2018-2023)
|
|
Christopher E. Kubasik
|
63
|
Chair and CEO
|
June 2022
|
Vice Chair and CEO (2021); Vice Chair,
President and Chief Operating Officer
(2019-2021); Chairman, CEO and
President, L3 Technologies, Inc. (“L3”)
(2018-2019)
|
|
Samir B. Mehta
|
52
|
President, CS
|
January 2023
|
President of Advanced Structures, Collins
Aerospace (2018-2022); President,
Aftermarket (2017-2018)
|
|
Melanie Rakita
|
47
|
VP and Chief Human
Resources Officer
|
April 2023
|
VP, Human Resources for L3Harris IMS
(2023), SAS (2019-2023), and Legacy
Harris Corporation Electronic Systems
(2018-2019)
|
|
Jonathan P. Rambeau
|
52
|
President, IMS
|
October 2022
|
VP and General Manager, Integrated
Warfare Systems and Sensors of the
Rotary and Mission Systems business,
Lockheed Martin (2020-2022); VP and
General Manager, C6ISR, Rotary and
Mission Systems, Lockheed Martin
(2016-2020)
|
|
Edward J. Zoiss
|
60
|
President, SAS
|
June 2019
|
President, Legacy Harris Corporation
Electronic Systems (2015-2019)
|
_______________
(1) Following the retirement of Ross Niebergall on February 3, 2025,
Kenneth
Bedingfield assumed the additional role of President, AR.
There is no family relationship between any of our executive officers or directors. All of our executive officers are
elected annually and serve at the pleasure of our Board.
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
|
Market Information
Our common stock, par value $1.00 per share, is listed and traded on the New York Stock Exchange (“
NYSE
”),
under the ticker symbol “LHX.” According to the records of our transfer agent, as of
February 7, 2025
, there were
9,165
holders of record of our common stock.
_____________________________________________________________________
19
Dividends
During
fiscal 2024
,
2023
and
2022
, w
e paid quarterly per share cash dividends on our common stock of
$1.16
,
$1.14
and
$1.12
,
respectively.
We currently expect to continue paying cash dividends in the near future, but we can
give no assurances concerning payment of future dividends or future dividend increases.
The declaration of
dividends by our Board and the amount thereof will depend on a number of factors, including our financial condition,
capital requirements, cash flows, results of operations, future business prospects and other factors our Board may
deem relevant.
Stock Performance Graph
The following graph provides a five year comparison of cumulative total shareholder return (“
TSR
”), assuming
reinvestment of all dividends and an initial investment of
$100
at the close of business on
January 3, 2020
, in
L3Harris common stock, the Standard & Poor’s 500 Composite Stock Index (“
S&P 500
”) and the Standard & Poor’s
500 Aerospace & Defense Index (“
S&P 500 Aerospace & Defense
”):
FIVE
YEAR COMPARISON OF CUMULATIVE TSR
(1)
_______________
(1) This performance graph is not deemed to be filed with the SEC or subject to the liabilities of Section 18 of the Exchange Act, and should not be
deemed to be incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act.
Recent Sales of Unregistered Securities
During
fiscal 2024
, we did not issue or sell any unregistered securities.
_____________________________________________________________________
20
Issuer Purchases of Equity Securities
The following table sets forth information with respect to repurchases by us of our common stock during the
fiscal quarter ended
January 3, 2025
:
|
Period*
|
Total number of
shares purchased
|
Average price
paid per share
|
Total number of
shares purchased
as part of publicly
announced plans
or programs
(1)
|
Maximum approximate
dollar value
of shares that may
yet be purchased under
the plans or programs
(1)
($ in millions)
|
|||
|
Month No. 1
|
|
|
|
|
|||
|
(September 28, 2024 - November 1, 2024)
|
|||||||
|
Repurchase program
(1)
|
—
|
$
—
|
—
|
$3,422
|
|||
|
Employee transactions
(2)
|
2,042
|
$
243.33
|
—
|
—
|
|||
|
Month No. 2
|
|||||||
|
(November 2, 2024 - November 29, 2024)
|
|||||||
|
Repurchase program
(1)
|
60,000
|
$
227.72
|
60,000
|
$3,407
|
|||
|
Employee transactions
(2)
|
5,294
|
$
245.69
|
—
|
—
|
|||
|
Month No. 3
|
|||||||
|
(November 30, 2024 - January 3, 2025)
|
|||||||
|
Repurchase program
(1)
|
115,000
|
$
225.10
|
115,000
|
$3,381
|
|||
|
Employee transactions
(2)
|
1,412
|
$
239.47
|
—
|
—
|
|||
|
Total
|
183,748
|
175,000
|
$3,381
|
_______________
*
Periods represent our fiscal months.
(1)
On
January 28, 2021
and
October 21, 2022
, we announced that our Board approved
share repurchase authorizations under our repurchase
program of
$6.0 billion
and
$3.0 billion
, respectively. Our repurchase program does not have an expiration date and authorizes us to
repurchase shares of our common stock through open market purchases, private transactions, transactions structured through investment
banking institutions or any combination thereof.
(2)
Represents shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of restricted stock units
(“
RSUs
”) and performance share units (“
PSUs
”) that vested during the quarter.
Our equity incentive plans provide that the value of shares
delivered to us to pay the exercise price of stock options or to cover tax withholding obligations shall be the closing price of our common
stock on the date the relevant transaction occurs.
|
ITEM 6.
|
[RESERVED.]
|
|
ITEM 7.
|
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 for
fiscal 2024
compared with
fiscal 2023
. A discussion of
fiscal 2023
compared to
fiscal 2022
can be found in
Part II. Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended
December 29, 2023
(our “
Fiscal 2023 Form 10-K
”)
.
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 Consolidated Financial Statements and
accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the
discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results
could differ materially from those discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in
Part I. Item 1A. Risk Factors
of this Report. For additional
information, see
Part I. Item 1. Business
- Cautionary Statement Regarding Forward-Looking Statements
of this
Report
.
OVERVIEW
We are the Trusted Disruptor in the defense industry.
With customers’ mission-critical needs in mind, we deliver
end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of global
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
_____________________________________________________________________
21
services have defense and civil government applications, as well as commercial applications.
As of
January 3, 2025
,
we had approximately
47,000
employees, including approximately
18,000
engineers and scientists
.
We structure our operations primarily around the products, systems and services we sell and the markets we
serve, and we report our
financial results in four business segments
: SAS, IMS, CS and AR. See
Note 14: Business
Segments
in the Notes for further information regarding our business segments
.
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
76%
,
76%
and
74%
, in
fiscal 2024
,
2023
and
2022
, respectively.
On March 9, 2024, the President signed the first tranche of
GFY
2024 appropriations funding bills into law,
which funded six government agencies, including
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
DoD
, through the remainder of
GFY
2024. The bill
provided
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 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 included
$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
GFY
2025 funding. A short-term
CR
was enacted on
December 21, 2024 that will fund the U.S. Government until March 14, 2025. While operating under a
CR
,
government agencies are allocated a portion of
GFY
2024 enacted funds, and
DoD
is prohibited from starting new
programs. 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
.
For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business -
International Business,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Economic Environment
The macroeconomic environment continues to present challenges, which
have
impacted our business and may
continue to impact our future results.
The ongoing uncertainty relates to the impacts of inflation, interest rates and
ongoing federal deficits
, which could raise the cost of borrowing for the federal government impacting U.S.
Government spending priorities and the demand for our products.
For a discussion of inflation-related risks, see
“Item 1A. Risk Factors” of this Report.
Operating
Environment, Strategic Priorities and Key Performance Measures
As a proven alternative to traditional primes and new entrants, our flexible business model allows us to operate
as either a prime, merchant supplier, or subcontractor, offering both commercial pricing and traditional government
acquisition approaches. Our products are used across many customer platforms and this platform-agnostic
approach gives us a unique advantage in rapidly adapting to the changing threat environment while effectively
partnering with new entrants and non-traditional contractors. Customer demand for our solutions remains robust,
and we ended
fiscal 2024
with backlog of
$34.2 billion
, a
5%
increase over the prior year. Also in
fiscal 2024
, we
investe
d
$515 million
(
2%
of total revenue) in company-funded R&D focused on technologies that expand our
capabilities across our domains.
In
fiscal 2024
, we made considerable progress with our LHX NeXt initiative, our targeted three-year program
designed to enhance organizational agility and performance by leveraging our scale and relationships across
segments, driving operational efficiency and competitiveness for the enterprise. With this program we are investing
in enterprise tools and optimized, revamped processes to unlock further opportunities for margin expansion and
create additional value for our shareholders.
_____________________________________________________________________
22
Our strategic priorities continue to be p
erformance, growth and innovation
. We plan to continue to invest,
consistent with profitable growth opportunities, and sustain our culture of innovation, while delivering on our
commitments to investors, our customers and on every contract we are awarded. We intend to accomplish this by:
•
Building upon our solid foundation and operational rigor to execute for our customers;
•
Focusing on profitable growth while securing strategic positions as a prime
or
subcontractor; and
•
Leveraging innovation as a competitive advantage to develop rapid solutions.
We use the following key financial performance measures to manage our business, which are discussed in detail
below in the “Operations Review” and “Liquidity and Capital Resources” sections of this MD&A:
•
Revenue;
•
Operating income and margin; and
•
Net cash provided by operating activities.
We use these measures, along with other performance measures that are not defined by U.S. Generally
Accepted Accounting Principles (“
GAAP
”), to assess the success of our business and our ability to create
shareholder value. We believe these measures are balanced among long-term and short-term performance, growth
and innovation. We also use some of these and other performance metrics for executive compensation purposes.
OPERATIONS REVIEW
Consolidated Results of Operations
|
|
Fiscal Year Ended
|
||
|
(Dollars in millions, except per share amounts)
|
January 3, 2025
|
December 29, 2023
|
|
|
|
|||
|
Revenue
|
|||
|
Products
|
$
15,134
|
$
13,694
|
|
|
Services
|
6,191
|
5,725
|
|
|
Total revenue
|
21,325
|
19,419
|
|
|
Cost of revenue
|
|||
|
Products
|
(11,019)
|
(9,711)
|
|
|
Services
|
(4,782)
|
(4,595)
|
|
|
Cost of revenue
|
(15,801)
|
(14,306)
|
|
|
Gross margin
|
5,524
|
5,113
|
|
|
General and administrative expenses
|
(3,568)
|
(3,313)
|
|
|
Impairment of goodwill and other assets
|
(38)
|
(374)
|
|
|
Operating income
|
1,918
|
1,426
|
|
|
Non-service FAS pension income and other, net
(1)
|
354
|
338
|
|
|
Interest expense, net
|
(675)
|
(543)
|
|
|
Income before income taxes
|
1,597
|
1,221
|
|
|
Income taxes
|
(85)
|
(23)
|
|
|
Effective Tax Rate
|
5.3
%
|
1.9
%
|
|
|
Net income
|
1,512
|
1,198
|
|
|
Noncontrolling interests, net of income taxes
|
(10)
|
29
|
|
|
Net income attributable to L3Harris Technologies, Inc.
|
$
1,502
|
$
1,227
|
|
|
Diluted
EPS
(2)
|
$
7.87
|
$
6.44
|
|
______________
(1)
“FAS” is defined as Financial Accounting Standards.
(2)
“
EPS
” is defined as Earnings Per Share.
_____________________________________________________________________
23
Revenue
.
As described in more detail in
Note 13: Acquisitions and Divestitures
and elsewhere in the Notes,
during
fiscal 2024
and
2023
, we completed certain business divestitures. There was no significant revenue
attributable to divested
businesses
.
Products revenue
.
The following table presents products revenue by segment, net of intersegment:
|
Fiscal Year Ended
|
|||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
SAS
|
$
4,788
|
$
4,879
|
|
|
IMS
|
4,270
|
4,006
|
|
|
CS
|
4,498
|
4,057
|
|
|
AR
|
1,578
|
752
|
|
|
Total products revenue
|
$
15,134
|
$
13,694
|
|
Products revenue for
fiscal 2024
increased
$1,440 million
,
due to
the inclusion of a full year of
products
revenue
from AR, rather
than a partial year of revenue in fiscal 2023
(“
the AR Partial Year
”)
following the
July 28, 2023
acquisition of Aerojet Rocketdyne Holdings, Inc.
(“
AJRD”)
, as well as
increased
products revenues of
$441 million
and
$264 million
at CS and IMS, respectively, partially offset by decreased products revenue of
$91 million
at SAS
.
Services revenue.
The following table presents services revenue by segment, net of intersegment:
|
Fiscal Year Ended
|
|||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
SAS
|
$
2,029
|
$
1,928
|
|
|
IMS
|
2,501
|
2,537
|
|
|
CS
|
892
|
960
|
|
|
AR
|
769
|
300
|
|
|
Total services revenue
|
$
6,191
|
$
5,725
|
|
Service
s revenue for
fiscal 2024
increased
$466 million
, from the inclusion of a full year of services revenue
from AR rather than
the AR Partial Year
, as well as
increased
services revenue of
$101 million
at SAS, partially offset
by decreased services revenues of
$68 million
and
$36 million
at CS and IMS, respectively.
See the “Business Segment Results of Operations” discussion below in this MD&A for further information.
Cost of Revenue.
C
ost of products revenue.
The following table presents cost of products revenue by segment, net of
intersegment:
|
Fiscal Year Ended
|
|||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
SAS
|
$
(3,763)
|
$
(3,777)
|
|
|
IMS
|
(3,269)
|
(3,055)
|
|
|
CS
|
(2,738)
|
(2,319)
|
|
|
AR
|
(1,199)
|
(558)
|
|
|
Corporate
|
(50)
|
(2)
|
|
|
Total cost of products revenue
|
$
(11,019)
|
$
(9,711)
|
|
C
ost of products revenue
increased
$1,308 million
primarily from the inclusion of a full year of cost of products
revenue from AR rather than
the AR Partial Year
and increased cost of products revenue of
$419 million
and
$214
million
at CS and IMS, respectively.
_____________________________________________________________________
24
Cost of services revenue.
The following table presents cost of services revenue by segment, net of intersegment:
|
Fiscal Year Ended
|
|||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
SAS
|
$
(1,615)
|
$
(1,554)
|
|
|
IMS
|
(1,897)
|
(1,944)
|
|
|
CS
|
(682)
|
(845)
|
|
|
AR
|
(603)
|
(259)
|
|
|
Corporate
|
15
|
7
|
|
|
Total cost of services revenue
|
$
(4,782)
|
$
(4,595)
|
|
C
ost of services revenue
increased
$187 million
, primarily from the inclusion of a full year of cost of services
revenue from AR rather than
the AR Partial Year
and increased cost of services revenue
of
$61 million
at SAS,
partially offset by decreased cost of services revenue of
$163 million
and
$47 million
at CS
and IMS, respectively.
Gross Margin.
Gross margin for
fiscal 2024
increased
compared to
fiscal 2023
, largely due to the increases in
revenue noted above and
a favorable net change in e
stimate at completion
(“
EAC
”)
adjustments which increased
gross margin by
$124 million
, partially offset by a higher mix of lower margin revenue, primarily in our CS segment.
Gross margin as a percentage of revenue
remained flat
compared to
fiscal 2023
.
For discussion of operating income
by segment see “Business Segment Results of Operations” below in this MD&A for further information.
General and Administrative (“G&A”) Expenses
.
The following table presents the components of G&A expenses
:
|
Fiscal Year Ended
|
|||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Amortization of acquisition-related intangibles
|
$
(779)
|
$
(687)
|
|
|
LHX NeXt implementation costs
(1)
|
(267)
|
(115)
|
|
|
Merger, acquisition, and divestiture-related expenses
|
(102)
|
(174)
|
|
|
Business divestiture-related losses, net
(2)
|
(19)
|
(51)
|
|
|
Company-funded R&D costs
|
(515)
|
(480)
|
|
|
Selling and marketing
|
(445)
|
(450)
|
|
|
Other G&A expenses
(3)
|
(1,441)
|
(1,356)
|
|
|
G&A expenses
|
$
(3,568)
|
$
(3,313)
|
|
______________
(1)
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.
(2)
See
Note 13: Acquisitions and Divestitures
in the Notes for further information.
(3)
Includes other segment G&A expenses such as payroll and benefits, outside services, facilities, insurance and other expenses, as well as
unallocated corporate expenses, such as a portion of management and administration, legal, environmental, compensation, retiree benefits
and
other corporate G&A expenses and eliminations.
G&A
expenses
increased
$255 million
for
fiscal 2024
compared with
fiscal 2023
primarily due to increases in
LHX NeXt implementation costs, including
$42 million
related to employee severance charges and
$110 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, partially offset by a decrease in
merger, acquisition, and divestiture-related expenses. Additionally, other G&A expenses
increased
$85 million
primarily due to increases of
$97 million
in our AR se
gment from
the AR Partial Year
and
$86 million
in corporate,
primarily from
increases related to corporate-led initiatives and a
$15 million
legal reserve,
partially offset by
decreases in other G&A costs
of
$84 million
and
$15 million
in our SAS and CS segments
, respectively, primarily
from LHX NeXt driven cost savings.
Impairment of Goodwill and Other Assets.
In
fiscal 2024
, we recognized a
$14 million
non-cash charge for
impairment of goodwill in connection with the divestiture of our antenna and related businesses (“
Antenna disposal
group
”) and a
$24 million
non-cash charge for impairment of other assets at CS associated with the
Tactical Data
Links (“TDL”) acquisition
. In
fiscal 2023
, we recognized a
$296 million
non-cash charge for impairment of goodwill
in connection with the pending divestiture of our CAS disposal group
and
$78 million
of other asset impairments
associated with in-process R&D, customer contracts and a facility closure.
_____________________________________________________________________
25
Non-service FAS Pension Income and Other, Net.
The following table presents the components of non-service
FAS pension income and other, net:
|
|
Fiscal Year Ended
|
||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Non-service FAS pension income
(1)
|
$
322
|
$
310
|
|
|
Other, net
(2)
|
32
|
28
|
|
|
Non-service FAS pension income and other, net
|
$
354
|
$
338
|
|
_______________
(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 defined benefit plans. See
Note 9: 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.
Interest Expense, Net.
Our net interest expense
increased
$132 million
in
fiscal 2024
compared with
fiscal 2023
primarily due to a full year of interest on the
$3.25 billion
aggregate principal amount of fixed-rate debt issued in
July 2023 in connection with the AJRD acquisition, the issuance of
$2.25 billion
aggregate principal amount of
long-
term fixed-rate debt
in March 2024
and higher average outstanding notes under our commercial paper program (“
CP
Program
”) during
fiscal 2024
,
partially offset by repayment of the entire outstanding
$2.25 billion
, three-year senior
unsecured term loan facility (“
Term Loan 2025
”) in March 2024. See the “Liquidity and Capital Resources”
discussion below in this MD&A and
Note 8: Debt and Credit Arrangements
in the Notes for further information.
Income Taxes.
Our
effective tax rate
increased
to
5.3%
in
fiscal 2024
compared with
1.9%
in
fiscal 2023
. Our
effective tax rate for both years benefited from
R&D
credits, tax deductions for foreign derived intangible income
(“
FDII
”) and
favorable resolution of specific audit uncertainties. The year-over-year increase in the rate is the result
of favorable impacts of divestitures and internal restructuring in
fiscal 2023
, partially offset by favorable
adjustments to our valuation allowance position as a result of our ability to utilize certain state tax credits in
fiscal
2024
. See
Note 7: Income Taxes
in the Notes for further information.
Diluted
EPS
.
Diluted
EPS
increased
22%
in
fiscal 2024
compared with
fiscal 2023
primarily due to
higher
net
income from the combined effects of reasons noted in the sections above, notably the absence of a prior year CAS
disposal group goodwill impairment and an increase in
fiscal 2024
gross margin, partially offset by increases in G&A
expenses and interest expense, net
.
Business Segment Results of Operations
SAS.
Our SAS segment includes space payloads, sensors and full-mission solutions; classified intelligence and
cyber; airborne combat systems, and mission networks for air traffic management operations. See “Item 1. Business”
of this Report for a description of the sectors in SAS.
|
|
Fiscal Year Ended
|
||||
|
(Dollars in millions)
|
January 3, 2025
|
December 29, 2023
|
% Inc/(Dec)
|
||
|
Revenue
|
$
6,869
|
$
6,856
|
—%
|
||
|
Operating income
|
812
|
756
|
7%
|
||
|
Operating margin
|
11.8
%
|
11.0
%
|
|||
SAS segment revenue remained
flat
in
fiscal 2024
compared with
fiscal 2023
due to higher revenues of
$138
million
in
Intel & Cyber
, primarily from program growth and
$82 million
in
Mission Networks
from higher volumes,
offset by lower revenues of
$217 million
in
Airborne Combat Systems
, from lower revenue of
$115 million
associated with the divestiture of the
Antenna disposal group
and the remaining decrease primarily from lower F-35
related volume as TR-3 development transitions from development to a more gradual production ramp
. At
January 3, 2025
and
December 29, 2023
,
SAS segment ending backlog was
$9.4 billion
and
$9.5 billion
,
respectively.
SAS segment operating income
increased
in
fiscal 2024
compared with
fiscal 2023
, primarily due to
LHX NeXt
driven cost savings realized
during
fiscal 2024
, higher volume in Mission Networks and
$46 million
f
rom the
monetization of legacy end of life assets, aligned with our transformation and value creation priorities,
in addition to
the impact of a
$27 million
non-cash charge for impairment of other assets which occurred during
fiscal 2023
.
Such
increase was
partially offset by unfavorable EAC adjustments from program execution on classified fixed-price
development programs in
Space Systems
that are in the later stages of completion.
_____________________________________________________________________
26
IMS.
Our IMS segment includes
ISR; passive sensing and targeting; electronic attack; autonomy; power and
communications; networks; sensors;
aviation products; and pilot training operations
. See “Item 1. Business” of this
Report for a description of the sectors in IMS.
|
|
Fiscal Year Ended
|
||||
|
(Dollars in millions)
|
January 3, 2025
|
December 29, 2023
|
% Inc/(Dec)
|
||
|
Revenue
|
$
6,842
|
$
6,630
|
3%
|
||
|
Operating income
|
838
|
459
|
83%
|
||
|
Operating margin
|
12.2
%
|
6.9
%
|
|||
IMS segment revenue
increased
in
fiscal 2024
compared with
fiscal 2023
primarily due to higher
revenues of
$73 million
in
Defense Electronics
from higher demand for advanced electronics,
$56 million
in
ISR
f
rom higher
aircraft missionization volume,
$49 million
in Commercial Aviation Solutions from higher volume,
$31 million
in
Global Optical Systems
from higher commercial revenue for airborne electro-optical sensors and
$27 million
in
Maritime
from volume on classified programs.
At
January 3, 2025
and
December 29, 2023
, IMS segment ending
backlog was
$10.5 billion
and
$9.7 billion
, respectively.
IMS segment operating income
increased
in
fiscal 2024
compared with
fiscal 2023
primarily due to a
$296 million
non-cash charge for impairment of goodwill associated with the CAS disposal group in
fiscal 2023
,
in
addition to
improved program performance of
$69 million
, higher overall revenue volumes and
LHX NeXt driven cost
savings realized in
fiscal 2024
.
CS.
Our CS segment includes tactical communications with global communications solutions; broadband
communications; integrated vision solutions; and public safety radios, system applications and equipment. See
“Item 1. Business” of this Report for a description of the sectors in CS.
|
|
Fiscal Year Ended
|
||||
|
(Dollars in millions)
|
January 3, 2025
|
December 29, 2023
|
% Inc/(Dec)
|
||
|
Revenue
|
$
5,459
|
$
5,070
|
8%
|
||
|
Operating income
|
1,324
|
1,229
|
8%
|
||
|
Operating margin
|
24.3
%
|
24.2
%
|
|||
CS segment revenue
increased
in
fiscal 2024
compared with
fiscal 2023
primarily due to higher revenues of
$208 million
in Tactical Communications
and
$95 million
in I
ntegrated Vision Solutions associated with increased
domestic and international demand for our resilient communication equipment, related waveforms, and night vision
devices and
$86 million
in Broadband Communications
from higher volumes.
At
January 3, 2025
and
December 29,
2023
, CS segment ending backlog was
$7.3 billion
and
$6.3 billion
, respectively.
CS segment operating income
increased
in
fiscal 2024
compared with
fiscal 2023
primarily due to L
HX NeXt
driven cost savings realized
during
fiscal 2024
,
partially offset by a higher mix of domestic radios related to
competitive IDIQ contracts
and a
$24 million
non-cash charge for impairment of other assets at Broadband
Communications related to the
TDL acquisition
.
AR.
Our AR segment includes 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. See “Item 1. Business” of this Report for a description of the sectors in AR.
|
|
Fiscal Year Ended
|
||||
|
(Dollars in millions)
|
January 3, 2025
|
December 29, 2023
|
% Inc/(Dec)
|
||
|
Revenue
|
$
2,347
|
$
1,052
|
123%
|
||
|
Operating income
|
294
|
122
|
141%
|
||
|
Operating margin
|
12.5
%
|
11.6
%
|
|||
AR segment revenue and operating income
increased
in
fiscal 2024
compared with
fiscal 2023
primarily due to
the AR Partial Year
.
At
January 3, 2025
, AR segment ending backlog was
$7.0 billion
and
$7.2 billion
, respectively.
_____________________________________________________________________
27
Unallocated Corporate Expenses.
Unallocated corporate expenses include the portion of corporate costs not
included in management’s evaluation of segment operating performance.
|
Fiscal Year Ended
|
|||
|
(Dollars in millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Unallocated corporate department expense
(1)
|
(123)
|
(62)
|
|
|
Amortization of acquisition-related intangibles
(2)
|
(853)
|
(779)
|
|
|
Additional cost of revenue related to the fair value step-up in inventory sold
|
—
|
(30)
|
|
|
Merger, acquisition, and divestiture-related expenses
|
(102)
|
(174)
|
|
|
Business divestiture-related losses, net
(3)
|
(19)
|
(51)
|
|
|
Impairment of goodwill and other assets
(4)
|
(14)
|
(39)
|
|
|
LHX NeXt implementation costs
(5)
|
(267)
|
(115)
|
|
|
FAS/CAS operating adjustment
(6)
|
28
|
110
|
|
|
Total unallocated corporate expense
|
$
(1,350)
|
$
(1,140)
|
|
_______________
(1)
The increase in unallocated corporate department expense is primarily from increases related to corporate-led initiatives and a
$15 million
legal reserve.
(2)
Includes amortization of intangible assets acquired in connection with business combinations. Because our acquisitions benefit the entire
Company, the amortization was not allocated to any segment.
(3)
See
Note 13: Acquisitions and Divestitures
in the Notes for further information.
(4)
For
fiscal 2024
, includes a non-cash charge for impairment of goodwill related to our
Antenna disposal group
divestiture. For
fiscal 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. See
Note 13: Acquisitions and Divestitures
and
Note 6: Goodwill and Intangible Assets
in the
Notes for further information.
(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 14: Business Segments
in the Notes and the “General and Administrative
Expenses” discussion above in this MD&A.
(6)
Represents the difference between U.S. Government Cost Accounting Standards (“
CAS
”) pension cost and the service cost component of net
periodic benefit income under our defined benefit plans. See
Note 1: Significant Accounting Policies
in the Notes for additional information
regarding the FAS/CAS operating adjustment.
LIQUIDITY AND CAPITAL RESOURCES
We prioritize cash flow generation through our commitment to operational excellence, efficient balance sheet
management and continuous cost reduction efforts. We consistently assess various capital deployment options,
considering both our long-term outlook and the evolving market conditions, recognizing the importance of
adaptability as market dynamics change over time.
Our primary capital deployment priorities involve a focus on funding the business, including investing in
training,
facilities and digital infrastructure
, debt repayment to be achieved through the prioritization of capital allocation and
returning cash to our shareholders through dividends and share repurchases.
Capital Resources
As of
January 3, 2025
, we had cash and cash equivalents of
$615 million
, of which
$300 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.
Additionally, we have two credit facilities and a
CP Program
,
supported by amounts available under the credit
facilities.
Credit Facilities
.
At
January 3, 2025
, we had
no
outstanding borrowings
under our credit facilities
,
had available
borrowing capacity of
$2,985 million
,
net of outstanding borrowings under our
CP Program
, and we
re
in compliance
wit
h all covenants under both of the following:
2024 Credit Facility.
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 with a syndicate of
lenders which matured on
January 24, 2025
(“
2024 Credit Agreement
”).
The
2024 Credit Agreement
replaced the
prior
$2.4 billion
364
-Day Credit Agreement (“
2023 Credit Agreement
”).
2022 Credit Facility. O
n
July 29, 2022
, we established
a
$2.0 billion
, 5-year senior unsecured revolving credit
facility (the “
2022 Credit Facility
”) under a Revolving Credit Agreement (the “
2022 Credit Agreement
”) entered into
with a syndicate of lenders.
_____________________________________________________________________
28
In fiscal 2025, we expect to
refinance the
2022 Credit Agreement
to increase the capacity and extend the
maturity of the existing facility. Additionally, in fiscal 2025, we expect to establish a new
364
-day senior unsecured
revolving credit facility by entering into a
364
-day credit agreement with a syndicate of lenders.
CP Program.
At
January 3, 2025
, we had
$515 million
in outstanding notes under our
CP Program
.
Under the
CP
Program
, we may issue unsecured commercial paper notes up to a maximum aggregate amount of
$3.0 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.
See the “Financing
Activities” discussion below in this MD&A for further information about our
CP Program
.
Cash Flow
The following table provides a summary of our cash flow information:
|
|
Fiscal Year Ended
|
||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Cash and cash equivalents, beginning of period
|
$
560
|
$
880
|
|
|
Operating Activities:
|
|||
|
Net income
|
1,512
|
1,198
|
|
|
Non-cash adjustments
|
1,576
|
1,162
|
|
|
Changes in working capital
|
66
|
286
|
|
|
Other, net
|
(595)
|
(550)
|
|
|
Net cash provided by operating activities
|
$
2,559
|
$
2,096
|
|
|
Net cash used in investing activities
|
(263)
|
(7,021)
|
|
|
Net cash (used in) provided by financing activities
|
(2,224)
|
4,594
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(17)
|
11
|
|
|
Net increase (decrease) in cash and cash equivalents
|
$
55
|
$
(320)
|
|
|
Cash and cash equivalents, end of period
|
$
615
|
$
560
|
|
Operating Activities.
The
$463 million
increase
in
net cash provided by operating activities
in
fiscal 2024
compared with
fiscal 2023
was primarily due
to an increase in net income, excluding the impact of non-cash
adjustments, and
t
ax planning strategies
, partially offset by
$220 million
less cash provided by
working capital (i.e.,
receivables, contract assets, inventories, accounts payable and contract liabilities), primarily due to timing
.
Cash flow from operations was positive in all of our business segments in
fiscal 2024
.
Investing Activities
.
Our primary investing activities include net cash paid for acquired businesses, capital
expenditures and cash proceeds from sales of businesses.
The
$6,758 million
decrease
in
net cash used in investing activities
in
fiscal 2024
compared with
fiscal 2023
was primarily due to the
$6,688 million
cash used
for the acquisitions of TDL and AJRD in
fiscal 2023
and an
increase
of
$202 million
in net cash proceeds from the sale of businesses in
fiscal 2024
(see “Divestitures” section
below), partially offset by
$100 million
of contributions to our rabbi trust assets in
fiscal 2024
.
Divestitures.
During
fiscal 2024
, we completed the divestitures of our
Antenna disposal group
and
Aerojet
Ordnance Tennessee, Inc. (“
AOT disposal group
”)
for net cash proceeds of
$170 million
and
$103 million
,
respectively. During
fiscal 2023
, we completed the divestiture of Visual
Information Solutions for
net cash proceeds
of
$71 million
.
See
Note 13: Acquisitions and Divestitures
in the Notes for further information
.
Financing Activities.
Our primary financing activities include
issuances of long-term debt and commercial paper,
exercises of employee stock options
, repayments of long-term debt and commercial paper, dividend payments and
repurchases of common stock.
The
$6,818 million
change
in
net cash used in financing activities
in
fiscal 2024
compared with
net cash
provided by financing activities
in
fiscal 2023
was primarily due to a decrease in net proceeds from long-term debt
and an increase in net repayments
of commercial paper
of
$4,741 million
and
$2,683 million
, respectively, partially
offset by a
decrease
in
repayments of long-term debt
of
$550 million
and an
increase
in
proceeds from exercises of
employee stock options
of
$109 million
.
Long-term debt.
During
fiscal 2024
, w
e closed the issuance and sale of
$2.25 billion
aggregate principal amount
of the n
ew long-term fixed-rate debt consisting of the
5.05% 2029 Notes
, the
5.25% 2031 Notes
, and the
5.35%
_____________________________________________________________________
29
2034 Notes
(
collectively, the “
March Issued 2024 Notes
”)
and
closed the issuance and sale of
$600 million
aggregate principal amount of the
of the 5.50% Notes due 2054 (“
5.50% 2054 Notes
”).
We used the proceeds from the
March Issued 2024 Notes
to repay the entire
$2.25 billion
outstanding balance
of
Term Loan 2025
and
ne
t
proceeds from the
5.50% 2054 Notes
to repay borrowings under our
CP Program
and
intend to use such proceeds to repay the
$600 million
in aggregate principal amount of 3.832% notes due April
2025 (“
3.832% 2025 Notes
”) upon maturity.
Additionally, in fiscal 2024, we
repaid the
$350 million
aggregate
principal amount of our
3.95% notes, due May 2024
(“
3.95% 2024 Notes
”)
.
During
fiscal 2023
, we drew
$2.25 billion
in long-term debt on
Term Loan 2025
and
utilized the proceeds to
fund the TDL acquisition, including a portion of associated transaction and integration costs, and to repay the entire
outstanding
$250 million
aggregate principal amount of our
Floating Rate Notes due March 2023
. Additionally, we
closed the issuance and sale of
$3.25 billion
aggregate principal amount of fixed-rate
debt
consisting of the 5.4%
2027 Notes, the 5.4% 2033 Notes and the 5.6% 2053 Notes (collectively, the “
AJRD Notes
”).
The AJRD Notes were
used to fund a portion of the purchase price for the AJRD acquisition, and to pay related fees and expenses.
We repaid the entire outstanding
$800 million
aggregate principal amount of our 3.85% notes, due June 2023
(“
3.85% 2023 Notes
”) through
cash
.
CP program.
During
fiscal 2024
, we had a maximum outstanding balance of
$2,799 million
and a daily average
outstanding balance of
$2,100 million
under our
CP Program
.
We expect balances under the
CP Program
to remain
elevated as compared to historical norms through fiscal 2025.
Dividends.
Information concerning our dividends is set forth above under “Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this Report.
Common stock repurchases.
During
fiscal 2024
, we repurchased
2.5 million
shares of our common stock under
our share repurchase program for
$554 million
. At
January 3, 2025
, we had a remaining unused authorization under
our repurchase program of
$3,381 million
.
During
fiscal 2023
, we repurchased
2.5 million
shares of our common stock under our share repurchase
program for
$518 million
.
T
he
level and timing of our repurchases depends on a number of factors, including our financial condition,
capital requirements, cash flows, results of operations, future business prospects and other factors our Board and
management may deem relevant. The timing, volume and nature of repurchases are also subject to market
conditions, applicable securities laws and other factors and are at our discretion and may be suspended or
discontinued at any time. Additional information regarding our repurchase program is set forth above under “Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of
this Report.
Cash Requirements
Total Fixed-Rate Debt.
At
January 3, 2025
, we had fixed-rate debt, which reflects our total long-term debt,
including current portion but excluding finance leases, of
$11.5 billion
, of which
$610 million
is due within the next
12 months. The majority of our fixed-rate debt has been incurred in connection with merger and acquisition activity.
Additionally, we have outstanding interest on fixed-rate debt of
$4.9 billion
, of which
$534 million
is due within the
next 12 months. See
Note 8: Debt and Credit Arrangements
in the Notes for further information regarding our fixed-
rate debt.
Purchase Obligations.
At
January 3, 2025
, we had purchase obligations
of approximately
$9.2 billion
, of which
approximately
60%
are due within the next 12 months. Our purchase obligations mainly consist of outstanding
commitments on open purchase orders made to suppliers, subcontractors and other outsourcing partners under
U.S. Government contracts and
managed service agreements
.
Our risk associated with these purchase obligations is
generally limited to the termination liability provisions within such contracts. As such, we do not believe there to be
a material liquidity risk associated with outstanding purchase obligations.
Operating and finance lease commitments.
At
January 3, 2025
, we had operating and finance lease
commitments of
$1.2 billion
, of which
$199 million
is due within the next 12 months. See
Note 11: Leases
in the
Notes for further information regarding our lease commitments.
Defined Benefit Pension Contributions.
With respect to our U.S. qualified defined benefit pension plans, we
intend to contribute annually no less than the required minimum funding thresholds. In
fiscal 2024
, we made
approximately
$30 million
of contributions to our U.S. qualified defined benefit pension plans. We expect to make
_____________________________________________________________________
30
approximately
$23 million
of contributions to these plans in
fiscal 2025
and may consider voluntary contributions
thereafter.
Future required contributions primarily will depend on the actual annual return on plan 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
$789 million
as of
January 3, 2025
compared with
$66 million
as of
December 29, 2023
. The improvement in funded status as of
January 3, 2025
is primarily due to more favorable
than expected return on plan assets and decreased pension obligations resulting from higher discount rates. See
Note 9: Retirement Benefits
in the Notes for further information regarding our pension plans.
Commercial Commitments
We have entered into commercial commitments in the normal course of business including surety bonds,
standby letter of credit agreements and 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
or to obtain insurance policies with our insurance carriers. See
Note 15: Legal Proceedings, Commitments and
Contingencies
in the Notes for additional information.
Liquidity Assessment
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit
facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any
material issues with liquidity for the next 12 months and in the longer term, although we can give no assurances
concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties
and the state of global commerce and general political and global financial uncertainty.
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 revenu
e
.
CRITICAL ACCOUNTING ESTIMATES
Preparation of this Report in accordance with GAAP requires us to make estimates and assumptions that affect
the reported amount of assets, liabilities, revenue, expenses and backlog as well as disclosure of contingent assets
and liabilities. While the following is not intended to be a comprehensive list of our accounting estimates, we
consider the estimates discussed below as critical to an understanding of our financial statements because their
application places the most significant demands on our judgment, with financial reporting results dependent on
estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific
risks for these critical accounting estimates are described in the following paragraphs. The impact and any
associated risks described in the following paragraphs related to these estimates on our business operations are
discussed throughout this MD&A where such estimates affect our reported and expected financial results. Senior
management has discussed the development and selection of the critical accounting estimates and the related
disclosure included herein with the Audit Committee of our Board. Actual results may differ from those estimates.
Revenue Recognition
A significant portion of our business is derived from development and production contracts. Revenue and profit
related to development and production contracts are generally recognized over-time, typically using the percentage
of completion (“
POC
”) cost-to-cost method of revenue recognition, whereby we measure our progress towards
completion of the performance obligation based on the ratio of costs incurred to date to estimated costs at
completion under the contract. Because costs incurred represent work performed, we believe this method best
depicts the transfer of control of the asset to the customer. Under 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.
Recognition of profit on a contract requires estimates of the total cost at completion and transaction price and
the measurement of progress towards completion. Due to the long-term nature of many of our contracts, developing
the estimated total cost at completion and total transaction price often requires judgment. Factors that must be
considered in estimating the cost of the work to be completed include: the nature and complexity of the work to be
performed, subcontractor performance, the cost and availability of purchased materials and services, labor cost and
availability and the risk and impact of delayed performance. Factors that must be considered in estimating the total
_____________________________________________________________________
31
transaction price include contractual cost or performance incentives (such as incentive fees, award fees and
penalties) and other forms of variable consideration as well as our historical experience and our expectation for
performance on the contract. These variable amounts generally are awarded upon achievement of certain
negotiated performance metrics, program milestones or cost targets and can be based upon customer discretion.
We include such estimated amounts in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is
resolved.
At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost
at completion in line with these expectations. We follow a standard EAC process in
which
we review the progress
and performance on our ongoing contracts
.
If we successfully retire risks associated with the technical, schedule
and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the
retirement of these risks. Conversely, there are many reasons estimated contract costs can increase, including: (i)
supply chain disruptions, inflation and labor issues; (ii) design or other development challenges; and (iii) program
execution challenges (including from technical or quality issues and other performance concerns). Additionally, as
the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we
receive incentive or award fees that are higher or lower than expected.
When changes in estimated total costs at completion or in estimated total transaction price are determined, the
related impact on operating income is recognized on a cumulative basis. Cumulative EAC adjustments represent the
cumulative effect of the changes on current and prior periods; revenue and operating margins in future periods are
recognized as if the revised estimates had been used since contract inception. Any anticipated losses on these
contracts are fully recognized in the period in which the losses become evident. In
fiscal 2024
and fiscal
2023
,
earnings were impacted by recognition of net favorable EAC adjustments of
$39 million
and net unfavorable EAC
adjustments of
$85 million
, respectively.
During
fiscal 2024
, we recognized approximately
$100 million
in unfavorable EAC adjustments related to three
classified fixed-price development programs in
Space Systems,
however,
there were no individual EAC adjustments
that were material to our results of operations on a consolidated or segment basis in
fiscal 2024
or
2023
.
We recognize revenue from numerous contracts with multiple performance obligations. For these contracts, we
allocate the transaction price to each performance obligation based on the relative standalone selling price of the
product or service underlying each performance obligation. The standalone selling price represents the amount for
which we would sell the product or service to a customer on a standalone basis (i.e., not sold as a bundled sale with
any other products or services). The allocation of transaction price among separate performance obligations may
impact the timing of revenue recognition but will not change the total revenue recognized on the contract.
A substantial maj
ority of our revenue is derived from contracts with the U.S. Government, including foreign
military sales contracts. These contracts are subject to the Federal Acquisition Regulation (“
FAR
”) and the prices of
our contract deliverables are typically based on our estimated or actual costs plus margin. As a result, the
standalone selling prices of the products and services in these contracts are typically equal to the selling prices
stated in the contract, thereby eliminating the need to allocate (or reallocate) the transaction price to the multiple
performance obligations. In our non-U.S. Government contracts, when standalone selling prices are not directly
observable, we also generally use the expected cost plus margin approach to determine standalone selling price. In
determining the appropriate margin under the cost plus margin approach, we consider historical margins on similar
products sold to similar customers or within similar geographies where objective evidence is available. We may also
consider our cost structure and profit objectives, the nature of the proposal, the effects of customization of pricing,
our practices used to establish pricing of bundled products, the expected technological life of the product, margins
earned on similar contracts with different customers and other factors to determine the appropriate margin.
Defined Benefit Plans
Certain of our current and former employees participate in defined benefit plans in the U.S., Canada and United
Kingdom, which are sponsored by L3Harris. See
Note 9: Retirement Benefits
in the Notes for additional information
related to our defined benefit plans.
Significant Assumptions
The determination of the projected benefit obligation (“
PBO
”) and recognition of net
periodic
benefit income
related to defined benefit plans depend on various assumptions, including discount rates, expected return on plan
assets, rate of future compensation increases, mortality, termination and other factors.
We develop assumptions using relevant experience, in conjunction with market-related data for each plan.
Assumptions are reviewed annually with third-party experts and adjusted as appropriate.
Actual resu
l
ts that differ
_____________________________________________________________________
32
from our assumptions are accumulated and generally amortized for each plan to the extent required over the
estimated future life expectancy or, if applicable, the average remaining service period of the plan’s active
participants.
The following table presents the significant assumptions used to determine the PBO:
|
January 3, 2025
|
December 29, 2023
|
||||||
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
||||
|
Discount rate
|
5.46
%
|
5.38
%
|
4.91
%
|
4.87
%
|
|||
The following table presents the significant assumptions used to determine net periodic benefit income:
|
Fiscal Year Ended
|
|||||||
|
January 3, 2025
|
December 29, 2023
|
||||||
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
||||
|
Discount rate to determine service cost
|
4.92
%
|
5.00
%
|
5.18
%
|
5.26
%
|
|||
|
Discount rate to determine interest cost
|
4.80
%
|
4.78
%
|
5.08
%
|
5.06
%
|
|||
|
Expected return on plan assets
|
7.45
%
|
7.50
%
|
7.46
%
|
7.50
%
|
|||
Discount Rate.
The discount rate is used to calculate the present value of expected future benefit payments at
the measurement date. An increase in the discount rate decreases the
PBO
and generally decreases
our net periodic
benefit income. A decrease in the discount rate increases the
PBO
and generally increases our net periodic benefit
income.
The discount rate assumption is based on current investment yields of high-quality fixed income
investments during the retirement benefits maturity period. The pension discount rate is determined by considering
an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by
the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop
a single discount rate matching the plan’s characteristics.
Sensitivity Analysis
.
The sensitivity of the PBO to changes in the discount rate varies depending on the
magnitude and direction of the change in the discount rate. We estimate that a
25 basis point
change in the discount
rate of our combined U.S. defined benefit pension plans would have the following impact on our PBO at
January 3,
2025
and net periodic benefit income for the next twelve months:
|
(In millions)
|
25 Basis
Point Increase
|
25 Basis
Point Decrease
|
|
|
PBO
|
$
(155)
|
$
161
|
|
|
Net periodic benefit income
|
$
7
|
$
(8)
|
Expected Return on Plan Assets.
Substantially all of our plan assets are managed on a commingled basis in a
master investment trust. We determine our expected return on plan assets by evaluating both historical returns and
estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets over the
past 15, 20 and 25 years and historical broad market returns over long-term timeframes based on our strategic
allocation, which is detailed in
Note 9: Retirement Benefits
in the Notes. Future returns are based on independent
estimates of long-term asset class returns. Based on this approach, the weighted average long-term annual rate of
return on assets was estimated to be
7.45%
for both
fiscal 2024
and 2025.
Sensitivity Analysis.
We estimate that a
25 basis point
change in the expected return on plan assets of our
combined U.S. defined benefit pension plans would have the following impact on net periodic benefit income for the
next twelve months:
|
(In millions)
|
25 Basis
Point Increase
|
25 Basis
Point Decrease
|
|
|
Net periodic benefit income
|
$
(20)
|
$
20
|
Goodwill
We test our goodwill for impairment annually as of the first business day of our fourth fiscal quarter, which was
September 30
in
fiscal 2024
, 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. We test goodwill for impairment at a level within the
Company referred to as the reporting unit, which is our business segment level or one level below the business
_____________________________________________________________________
33
segment. Some of our segments are comprised of several reporting units. Allocation of goodwill to several reporting
units could make it more likely that we will have an impairment charge in the future. An impairment charge to any
one of our reporting units could have a material impact on our financial condition and results of operations.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant
judgment. To test goodwill for impairment, we may perform both qualitative and quantitative assessments. If we
elect to perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances
impacting the reporting unit to determine the probability that goodwill is impaired. If we determine it is more-likely-
than-not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative
assessment.
Our qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific
events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. These
factors include: (i) deterioration in the general economy; (ii) deterioration in the environment in which we operate;
(iii) increase in materials, labor or other costs; (iv) negative or declining cash flows; (v) changes in management,
changes in strategy or significant litigation; (vi) changes in the composition or carrying amount of net assets or an
expectation of disposing all or a portion of the reporting unit; or (vii) a sustained decrease in share price.
If we perform a quantitative assessment for a certain reporting unit, we calculate the fair value of that reporting
unit and compare the fair value to the reporting unit’s net book value. We estimate fair values of our reporting units
based on projected cash flows. Values derived from projected cash flows are corroborated through review of
revenue and/or earnings multiples applied to the latest twelve months’ revenue and earnings of our reporting units.
Projected cash flows are based on our best estimate of future revenues, operating costs and balance sheet metrics
reflecting our view of the financial and market conditions of the underlying business; and the resulting cash flows are
discounted using an appropriate discount rate that reflects the risk in the forecasted cash flows. The revenues and
earnings multiples applied to the revenues and earnings of our reporting units are based on current multiples of
revenues and earnings for similar businesses, and based on revenues and earnings multiples paid for recent
acquisitions of similar businesses made in the marketplace. We then assess whether any implied control premium,
based on a comparison of fair value based purely on our stock price and outstanding shares with fair value
determined by using all of the above-described models, is reasonable. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit
exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Fiscal 2024 Impairment Tests.
We performed our annual impairment test of all of our reporting units’ goodwill
as of
September 30, 2024
and concluded that for each of our reporting units no impairment existed.
Business realignment.
Effective for
fiscal 2024
, to better align our businesses, we adjusted our IMS segment by
realigning our Electro Optical
and Maritime sectors, which are also reporting units, splitting Electro Optical into two
sectors,
Global Optical Systems
and Defense Electronics, and moving one Electro Optical business to the Maritime
sector.
Global Optical Systems
and Defense Electronics represent one reporting unit. Immediately before and after
the realignment, we performed a quantitative impairment assessment under our former and new reporting unit
structure. These assessments indicated no impairment existed either before or after the realignment.
Antenna disposal group
divestiture
. For information related to the
Antenna disposal group
divestiture, including
goodwill allocation, impairment testing and resulting impairment see
Note 6: Goodwill and Intangible Assets
in the
Notes.
Fiscal 2023 Impairment Tests.
For information related to fiscal 2023 impairment tests and resulting
impairments see
Note 6: Goodwill and Intangible Assets
in the Notes.
At-risk goodwill.
Based on the
fiscal 2024
annual impairment testing, all of our reporting units had clearances
above 25%
.
Based on the
fiscal 2023
annual impairment testing, our Broadband reporting unit had clearance of
approximately
20%
and goodwill of
$2,656 million
and our ISR and Electro Optical reporting units had clearances of
approximately
6%
and goodwill of
$3,186 million
and
$2,193 million
, respectively.
An impairment of goodwill could result from a number of circumstances, including different assumptions used in
determining the fair value of the reporting units; changes to U.S. Government spending priorities or ability to win
competitively awarded contracts; an inability to meet our forecast; the rescission of significant contract awards as a
result of competitors protesting or challenging contracts awarded to us; or an increase in interest rates without a
corresponding increase in future revenue.
Goodwill-Related Fair Value Estimates.
Fair value determinations described above under the heading
“Goodwill” in this Critical Accounting Estimates section of this MD&A were determined based on a combination of
market-based valuation techniques, utilizing quoted market prices, comparable publicly reported transactions, and
_____________________________________________________________________
34
projected discounted cash flows. The process of evaluating the potential impairment of goodwill is highly subjective
and requires significant judgment. Material changes in these estimates could occur and result in additional
impairments in future periods.
Business Combinations
We account for business combinations using the acquisition method of accounting, whereby identifiable assets
acquired and liabilities assumed are measured at their estimated fair value as of the date of acquisition and any
excess of the fair value of consideration transferred over the fair values of identifiable assets and liabilities is
recorded as goodwill.
See
Note 13: Acquisitions and Divestitures
in the Notes for additional information.
Income Taxes
We record deferred tax assets and liabilities for differences between the tax basis of assets and liabilities and
amounts reported in our
Consolidated Balance Sheet
, as well as operating loss and tax credit carryforwards. We
follow very specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets
recorded on the
Consolidated Balance Sheet
and provide necessary valuation allowances as required. Future
realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate
character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under
the tax law. We regularly review our deferred tax assets for recoverability based on historical taxable income,
projected future taxable income, the expected timing of the reversals of existing temporary differences and tax
planning strategies. We have not made any material changes in the methodologies used to determine our tax
valuation allowances during
fiscal 2024
.
Our
Consolidated Balance Sheet
as of
January 3, 2025
included deferred tax assets of
$120 million
and
deferred tax liabilities of
$942 million
. For all jurisdictions in which we have net deferred tax assets, we expect that
our existing levels of pre-tax earnings are sufficient to generate the amount of future taxable income needed to
realize these tax assets. Our valuation allowance related to our deferred tax assets, which is reflected in our
Consolidated Balance Sheet
, was
$238 million
as of
January 3, 2025
. Although we make reasonable efforts to
ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions, or are
unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or
time period within which the underlying temporary differences become taxable or deductible, or if the potential
impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or a
significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a
material adverse impact on our operating results.
The evaluation of tax positions taken in a filed tax return, or planned to be taken in a future tax return or claim,
involves inherent uncertainty and requires the use of judgment. We evaluate our income tax positions and record tax
benefits for all years subject to examination based on our assessment of the facts and circumstances as of the
reporting date. For tax positions where it is more likely than not that a tax benefit will be realized, we record the
largest amount of tax benefit with a greater than
50%
probability of being realized upon ultimate settlement with the
applicable taxing authority, assuming the taxing authority has full knowledge of all relevant information. For income
tax positions where it is not more likely than not that a tax benefit will be realized, we do not recognize a tax benefit
in our
Consolidated Balance Sheet
.
As of
January 3, 2025
, we had
$758 million
of unrecognized tax benefits, of which
$666 million
would favorably
impact our future tax rates in the event that the tax benefits are eventually recognized.
It is reasonably possible that there could be a significant change to our unrecognized tax benefits during the
course of the next twelve months as ongoing tax examinations continue, other tax examinations commence or
various statutes of limitations expire. However, an estimate of the range of possible changes is not practicable for
the remaining unrecognized tax benefits because of the significant number of jurisdictions in which we do business
and the number of open tax periods under various states of examination. See
Note 7: Income Taxes
in the Notes for
additional information.
Impact of Recently Adopted and Issued Accounting Pronouncements
See
Note 1: Significant Accounting Policies
in the Notes for information relating to the impact of recently adopted
and issued accounting pronouncements.
_____________________________________________________________________
35
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Foreign
Currency Risk
We are exposed to foreign currency risks that arise in normal course of our business operations. These risks
include the translation of local currency balances of foreign subsidiaries into U.S. dollars and transactions
denominated in currencies other than a subsidiary’s functional currency. Assets and liabilities of international
subsidiaries that use local currency as the functional currency, are translated at current rates of exchange and
income and expense items are translated at the weighted average exchange rate for the year. In
fiscal 2024
,
approximately
10%
of our business was transacted in local currency environments.
At
January 3, 2025
, the
cumulative impact of translating the assets and liabilities of these operations to U.S. Dollars was a
$265 million
loss,
which is included as a component of shareholders’ equity.
Our U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are
denominated in currencies other than the functional currencies of such businesses. To manage our exposure to
currency risk and market fluctuation risk associated with anticipated cash flows that are probable of occurring in the
future, we implement foreign currency forward contracts to hedge both balance sheet and off-balance sheet future
foreign currency commitments. At
January 3, 2025
, we had open foreign currency forward contracts with an
aggregate notional amount of
$201 million
, hedging certain forecasted transactions denominated in U.S. Dollars,
Canadian Dollars and Australian Dollars. Notional amounts are used to measure the volume of foreign currency
forward contracts and do not represent exposure to foreign currency losses. Factors that could impact the
effectiveness of our hedging programs for foreign currency include accuracy of sales estimates, volatility of currency
markets and the cost and availability of hedging instruments.
At
January 3, 2025
,
a hypothetical
10%
change in currency exchange rates for our foreign currency derivatives
held would not have had a material impact on the fair value of such instruments
or our results of operations or cash
flows. This quantification of exposure to the market risk associated with foreign currency financial instruments does
not take into account the offsetting impact of changes in the fair value of our foreign denominated assets, liabilities
and firm commitments.
Interest Rate Risk
We have exposure to interest rate risk associated with our financing activities, primarily our long-term debt and
short-term debt borrowings. At
January 3, 2025
, our long-term debt consisted exclusively of fixed-rate debt with a
carrying value and estimated fair value of
$11,530 million
and
$11,179 million
, respectively. The terms of our fixed-
rate debt obligations are not puttable to us (i.e., not required to be redeemed by us prior to maturity) and we
currently have no plans to refinance or repurchase outstanding fixed-rate debt prior to maturity. As such, fluctuation
in market interest rates impact the fair value of our long-term debt but do not impact our statement of operations or
cash flow. At
January 3, 2025
,
a hypothetical
10%
change in interest rates on our long-term fixed-rate debt
obligations would not have had a material impact on the fair value of these obligations
.
Additionally, at
January 3, 2025
, we had short-term variable-rate debt outstanding under our
CP Program
of
$515 million
.
Due to its short-term nature, the fair value of our short-term debt approximates the carrying value.
Outstanding notes under our
CP Program
bear interest that is variable based on certain short-term indices, thus
exposing us to interest-rate risk. At
January 3, 2025
,
a hypothetical
10%
change in interest rates on our short-term
debt obligations would not have had a material impact on our results of operations or cash flows
.
We can give no assurances, however, that interest rates will not change significantly or have a material effect on
the fair value of our debt obligations or our results of operations or cash flows over the next twelve months. See
Note
8: Debt and Credit Arrangements
in the Notes for information regarding the maturities of our fixed-rate debt
obligations and our CP program.
_____________________________________________________________________
36
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of L3Harris Technologies, Inc. (the Company) as of
January 3, 2025
and
December 29, 2023
, the related consolidated statements of operations, comprehensive
income, cash flows and equity for each of the three years in the period ended
January 3, 2025
, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at
January 3, 2025
and
December 29, 2023
, and the results of its operations and its cash flows for each of the three years in the period
ended
January 3, 2025
, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States)
(PCAOB)
, the Company's internal control over financial reporting as of
January 3, 2025
, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated
February 14, 2025
expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. 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 Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
_____________________________________________________________________
37
|
Cost estimation for revenue recognition on development and production contracts
|
|
|
Description of the Matter
|
As described in the consolidated financial statements, the Company recognized revenue for
certain of its development and production contracts over time, typically using a percentage
of completion cost-to-cost method, which required estimates of costs at completion for
each contract. At the outset of each contract, the Company gauges its complexity and
perceived risks and establishes an estimated total cost at completion with these
expectations. After establishing the estimated total cost at completion, the Company
reviews the progress and performance on its ongoing contracts at least quarterly and
updates the estimated total cost at completion. Such estimates are subject to change
during the performance of the contract and significant changes in estimates could have a
material effect on the Company’s results of operations.
Auditing the cost estimation for revenue recognition on development and production
contracts where revenue is recognized over time using the percentage of completion cost-
to-cost method involved subjective auditor judgment because the Company’s development
of the estimated total cost at completion requires estimates of the cost of the work to be
completed based on the Company’s underlying assumptions around achieving the
technical, schedule and cost aspects of its contracts. In determining the estimates of the
cost of the work to be completed, the Company considered the nature and complexity of
the work to be performed, subcontractor performance and the risk and impact of delayed
performance. Estimates of total cost at completion are also affected by management’s
assessment of the current status of the contract and expectation for performance on the
contract, as well as historical experience.
|
|
How We Addressed the
Matter in Our Audit
|
We obtained an understanding, evaluated the design and tested the operating
effectiveness of certain internal controls over the Company’s accounting for cost
estimation for development and production contracts. For example, we tested certain
controls over management’s review of the estimate at completion analyses and the
significant assumptions underlying the estimated total costs at completion. We also tested
certain of management’s controls to validate that the data used in the estimate at
completion analyses was complete and accurate.
To test the cost estimation for development and production contracts, our audit
procedures included, among others, obtaining an understanding of the contract, meeting
with program management to confirm our understanding of the risks associated with the
arrangement and the current contract performance, review of customer correspondence
and contractual milestones and comparing cost estimates to historical cost experience
with similar contracts, when applicable. Additionally, we obtained an understanding of the
Company’s past performance of estimating total costs at completion by reviewing changes
in the cost estimates from previous periods and reviewing the overall accuracy of
management’s cost to completion estimations through lookback analyses.
|
_____________________________________________________________________
38
|
Valuation of Goodwill
|
|
|
Description of the Matter
|
At
January 3, 2025
, the Company’s goodwill was
$20.3 billion
. As more fully described in
the consolidated financial statements, the Company tests goodwill for impairment annually
(or under certain circumstances, more frequently) at the reporting unit level using either a
qualitative or quantitative assessment. Under the quantitative assessment to test for
goodwill impairment, the Company compares the fair value of a reporting unit to its
carrying amount, including goodwill. The Company estimates the fair value of its reporting
units using a combination of a discounted cash flows analysis and market-based valuation
methodologies.
Auditing the Company’s quantitative goodwill impairment tests involved subjective auditor
judgment due to the significant estimation required in management’s determination of the
fair value of the reporting units. The significant estimation is primarily due to the sensitivity
of the respective fair values to underlying assumptions, particularly at the Aerojet
Rocketdyne (AR) reporting unit, including changes in the weighted average cost of capital
and projected EBITDA margins. These assumptions relate to the expected future operating
performance of the Company’s AR reporting unit, are forward-looking, and are sensitive to
and affected by economic, industry and company-specific qualitative factors.
|
|
How We Addressed the
Matter in Our Audit
|
We obtained an understanding, evaluated the design and tested the operating
effectiveness of relevant internal controls over the Company’s goodwill impairment review
process, including controls over management’s review of the significant assumptions used
in the valuation models. We also tested management’s controls to validate that the data
used in the valuation models was complete and accurate.
To test the estimated fair value of the Company’s AR reporting unit, we performed audit
procedures that included, among others, assessing the valuation methodologies used by
the Company, involving our valuation specialists to assist in testing the significant
assumptions discussed above, and testing the completeness and accuracy of the
underlying data the Company used in its valuation analyses. For example, we compared the
significant assumptions used by management to current industry, market and economic
trends, the historical results of the AR reporting unit and other relevant factors. We also
assessed the historical accuracy of management’s valuation estimates and performed
sensitivity analyses of significant assumptions used in the impairment tests to evaluate the
change in the fair value of the AR reporting unit resulting from changes in the significant
assumptions.
In addition, we reviewed the reconciliation of the fair value of the reporting units based on
the annual impairment test to the market capitalization of the Company.
|
/s/
Ernst & Young LLP
We have served as the Company’s auditor since at least 1932, but we are unable to determine the specific year.
February 14, 2025
_____________________________________________________________________
39
CONSOLIDATED STATEMENT OF OPERATIONS
|
Fiscal Year Ended
|
|||||
|
(In millions, except per share amounts)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
|
|||||
|
Revenue
|
|||||
|
Products
|
$
|
$
|
$
|
||
|
Services
|
|
|
|
||
|
Total revenue
|
|
|
|
||
|
Cost of revenue
|
|||||
|
Products
|
(
|
(
|
(
|
||
|
Services
|
(
|
(
|
(
|
||
|
Total cost of revenue
|
(
|
(
|
(
|
||
|
General and administrative expenses
|
(
|
(
|
(
|
||
|
Impairment of goodwill and other assets
|
(
|
(
|
(
|
||
|
Operating income
|
|
|
|
||
|
Non-service FAS pension income and other, net
|
|
|
|
||
|
Interest expense, net
|
(
|
(
|
(
|
||
|
Income before income taxes
|
|
|
|
||
|
Income taxes
|
(
|
(
|
(
|
||
|
Net income
|
|
|
|
||
|
Noncontrolling interests, net of income taxes
|
(
|
|
|
||
|
Net income attributable to L3Harris Technologies, Inc.
|
$
|
$
|
$
|
||
|
Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
|
|||||
|
Basic
|
$
|
$
|
$
|
||
|
Diluted
|
$
|
$
|
$
|
||
See accompanying Notes to
Consolidated Financial Statements
.
_____________________________________________________________________
40
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
|
|||||
|
Net income
|
$
|
$
|
$
|
||
|
Other comprehensive income (loss):
|
|||||
|
Foreign currency translation, net of income taxes
|
(
|
|
(
|
||
|
Hedging derivatives, net of income taxes
|
(
|
|
(
|
||
|
Pension and other postretirement benefits, net of income
taxes
|
|
|
(
|
||
|
Other comprehensive income (loss) recognized during the
period
|
|
|
(
|
||
|
Reclassification adjustments for (gains) losses included in
net income
|
(
|
(
|
|
||
|
Other comprehensive income (loss), net of income taxes
|
|
|
(
|
||
|
Total comprehensive income
|
|
|
|
||
|
Comprehensive (income) loss attributable to
noncontrolling interest
|
(
|
|
|
||
|
Total comprehensive income attributable to L3Harris
Technologies, Inc.
|
$
|
$
|
$
|
||
See accompanying Notes to
Consolidated Financial Statements
.
_____________________________________________________________________
41
CONSOLIDATED BALANCE SHEET
|
(In millions, except shares)
|
January 3, 2025
|
December 29, 2023
|
|
|
Assets
|
|||
|
Current assets
|
|||
|
Cash and cash equivalents
|
$
|
$
|
|
|
Receivables, net
|
|
|
|
|
Contract assets
|
|
|
|
|
Inventories, net
|
|
|
|
|
Income taxes receivable
|
|
|
|
|
Other current assets
|
|
|
|
|
Assets of business held for sale
|
|
|
|
|
Total current assets
|
|
|
|
|
Non-current assets
|
|||
|
Property, plant and equipment, net
|
|
|
|
|
Goodwill
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
Other non-current assets
|
|
|
|
|
Total assets
|
$
|
$
|
|
|
Liabilities and equity
|
|||
|
Current liabilities
|
|||
|
Short-term debt
|
$
|
$
|
|
|
Current portion of long-term debt, net
|
|
|
|
|
Accounts payable
|
|
|
|
|
Contract liabilities
|
|
|
|
|
Compensation and benefits
|
|
|
|
|
Other current liabilities
|
|
|
|
|
Income taxes payable
|
|
|
|
|
Liabilities of business held for sale
|
|
|
|
|
Total current liabilities
|
|
|
|
|
Non-current liabilities
|
|||
|
Long-term debt, net
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
Total liabilities
|
|
|
|
|
Equity
|
|||
|
Shareholders’ Equity:
|
|||
|
Preferred stock, without par value;
|
|
|
|
|
Common stock,
$
outstanding
December 29, 2023
, respectively
|
|
|
|
|
Paid-in capital
|
|
|
|
|
Retained earnings
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
(
|
|
|
Total shareholders’ equity
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
Total equity
|
|
|
|
|
Total liabilities and equity
|
$
|
$
|
See accompanying Notes to
Consolidated Financial Statements
.
_____________________________________________________________________
42
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Fiscal Year Ended
|
||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Operating Activities
|
|||||
|
Net income
|
$
|
$
|
$
|
||
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|||||
|
Depreciation and amortization
|
|
|
|
||
|
Share-based compensation
|
|
|
|
||
|
Net periodic benefit income
|
(
|
(
|
(
|
||
|
Share-based matching contributions under defined
contribution plans
|
|
|
|
||
|
Impairment of goodwill and other assets
|
|
|
|
||
|
Deferred income taxes
|
|
(
|
(
|
||
|
(Increase) decrease in:
|
|||||
|
Receivables, net
|
|
|
(
|
||
|
Contract assets
|
(
|
|
|
||
|
Inventories, net
|
|
(
|
(
|
||
|
Other current assets
|
(
|
(
|
|
||
|
Increase (decrease) in:
|
|||||
|
Accounts payable
|
(
|
|
|
||
|
Contract liabilities
|
|
|
|
||
|
Compensation and benefits
|
(
|
|
(
|
||
|
Other current liabilities
|
|
(
|
(
|
||
|
Income taxes
|
(
|
(
|
|
||
|
Other operating activities
|
(
|
(
|
(
|
||
|
Net cash provided by operating activities
|
|
|
|
||
|
Investing Activities
|
|||||
|
Net cash paid for acquired businesses
|
|
(
|
|
||
|
Capital expenditures
|
(
|
(
|
(
|
||
|
Proceeds from sale of property, plant and equipment, net
|
|
|
|
||
|
Proceeds from sales of businesses
|
|
|
|
||
|
Other investing activities
|
(
|
(
|
(
|
||
|
Net cash used in investing activities
|
(
|
(
|
(
|
||
|
Financing Activities
|
|||||
|
Proceeds from issuances of long-term debt, net
|
|
|
|
||
|
Repayments of long-term debt
|
(
|
(
|
(
|
||
|
Change in commercial paper, maturities under 90 days, net
|
(
|
|
|
||
|
Proceeds from commercial paper, maturities over 90 days
|
|
|
|
||
|
Repayments of commercial paper, maturities over 90 days
|
(
|
(
|
|
||
|
Proceeds from exercises of employee stock options
|
|
|
|
||
|
Repurchases of common stock
|
(
|
(
|
(
|
||
|
Dividends paid
|
(
|
(
|
(
|
||
|
Other financing activities
|
(
|
(
|
(
|
||
|
Net cash (used in) provided by financing activities
|
(
|
|
(
|
||
|
Effect of exchange rate changes on cash and cash
equivalents
|
(
|
|
(
|
||
|
Net increase (decrease) in cash and cash equivalents
|
|
(
|
(
|
||
|
Cash and cash equivalents, beginning of period
|
|
|
|
||
|
Cash and cash equivalents, end of period
|
$
|
$
|
$
|
||
See accompanying Notes to
Consolidated Financial Statements
.
_____________________________________________________________________
43
CONSOLIDATED STATEMENT OF EQUITY
|
|
Fiscal Year Ended
|
||||
|
(In millions, except per share amounts)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
|
|||||
|
Common Stock
|
|||||
|
Beginning balance
|
$
|
$
|
$
|
||
|
Shares issued under stock incentive plans
|
|
|
|
||
|
Shares issued under defined contribution plans
|
|
|
|
||
|
Repurchases and retirement of common stock
|
(
|
(
|
(
|
||
|
Ending balance
|
|
|
|
||
|
Paid-in Capital
|
|||||
|
Beginning balance
|
|
|
|
||
|
Shares issued under stock incentive plans
|
|
|
|
||
|
Shares issued under defined contribution plans
|
|
|
|
||
|
Share-based compensation expense
|
|
|
|
||
|
Tax withholding payments on share-based
awards
|
(
|
(
|
(
|
||
|
Repurchases and retirement of common stock
|
(
|
(
|
(
|
||
|
Other
|
(
|
(
|
|
||
|
Ending balance
|
|
|
|
||
|
Retained Earnings
|
|||||
|
Beginning balance
|
|
|
|
||
|
Net income attributable to L3Harris
Technologies, Inc.
|
|
|
|
||
|
Repurchases and retirement of common stock
|
(
|
(
|
(
|
||
|
Cash dividends
|
(
|
(
|
(
|
||
|
Other
|
(
|
|
(
|
||
|
Ending balance
|
|
|
|
||
|
Accumulated Other Comprehensive Income (Loss)
|
|||||
|
Beginning balance
|
(
|
(
|
(
|
||
|
Other comprehensive income (loss), net of
income taxes
|
|
|
(
|
||
|
Ending balance
|
|
(
|
(
|
||
|
Noncontrolling Interests
|
|||||
|
Beginning balance
|
|
|
|
||
|
Net income (loss) attributable to noncontrolling
interests
|
|
(
|
(
|
||
|
Other
|
(
|
(
|
(
|
||
|
Ending balance
|
|
|
|
||
|
Total Equity
|
$
|
$
|
$
|
||
|
Cash dividends per share
|
$
|
$
|
$
|
||
See accompanying Notes to
Consolidated Financial Statements
.
_____________________________________________________________________
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization
— L3Harris Technologies, Inc., together with its subsidiaries, is the Trusted Disruptor in the
defense industry.
With customers’ mission-critical needs in mind, we deliver end-to-end technology solutions
connecting the space, air, land, sea and cyber domains in the interest of global 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.
As of
January 3, 2025
we had approximately
47,000
employees.
Technologies, Inc. and its consolidated subsidiaries. As used in these Notes to the
Consolidated Financial
Statements
, the terms “L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its
2023
and
fiscal 2022
each included 52 weeks.
estimates and assumptions that affect the amounts reported in the accompanying
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
Consolidated Financial Statements
and these
Notes. Materially different results can occur as circumstances change and additional information becomes known.
Financial Statements
and these Notes to conform to current year classifications.
investments with a maturity of
three or fewer months
when purchased. These investments include accrued interest
and are carried at the lower of cost or market.
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.
In certain instances, fair value is estimated using quoted market prices obtained from external pricing services.
In obtaining such data from the pricing service, 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.
Financial instruments.
The
carrying amounts of certain of our financial instruments reflected in our
Consolidated
Balance Sheet
, including cash and cash equivalents, accounts receivable, non-current receivables, notes receivable,
accounts payable and short-term debt, approximate their fair values. Fair values for long-term fixed-rate debt are
primarily based on quoted market prices for those or similar instruments. See
Note 8: Debt and Credit Arrangements
in these Notes for additional information regarding fair values for our
long-term fixed-rate
debt. A discussion of fair
values for our derivative financial instruments is included under the caption “Financial Instruments and Risk
Management” in this Note.
_____________________________________________________________________
45
and they generally do not bear interest.
This value includes an allowance for estimated uncollectible accounts to
reflect any losses anticipated on the accounts receivable balances which is charged to the provision for doubtful
accounts.
We calculate this allowance at inception based on expected loss over the life of the receivable. We
consider historical write-offs by customer, level of past due accounts and economic status of the
customer
. A
receivable is considered delinquent if it is unpaid after the term of the related invoice has expired. Write-offs are
our allowances for collection losses
were
$
21
million
and
$
15
million
, respectively.
results in accounts receivable, contract assets and contract liabilities at the end of each reporting period. Contract
assets mainly represent unbilled amounts typically resulting from revenue recognized exceeding amounts billed to
customers for contracts utilizing the 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 portion of the contract price until contract completion. Contract liabilities
include advance payments and billings in excess of revenue recognized, including deferred revenue. Contract assets
and liabilities are reported on a contract-by-contract basis at the end of each reporting period.
Contract assets related to amounts withheld by customers until contract completion are not considered a
significant financing component of our contracts because the intent is to protect the customers from our failure to
satisfactorily complete our performance obligations. Payments received from customers in advance of revenue
recognition are not considered a significant financing component of our contracts because they are utilized to pay for
contract costs within a one-year period or are requested by us to ensure the customers meet their payment
obligations.
or net realizable value. We regularly review inventory quantities on hand and record a provision for excess and
obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and
use, is recorded at cost and depreciated on a reasonable and systematic basis, typically the straight-line method,
over the estimated
useful life of the asset.
Estimated useful lives generally range as follows: buildings, including
leasehold improvements, between
two
and
45
years
; machinery and equipment between
two
and
10
years
; and
software capitalized for internal-use between
two
and
10
years
.
We review property, plant and equipment for
impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be
businesses at their estimated fair value at the date of acquisition. We initially record goodwill for the amount the
consideration transferred exceeds the acquisition-date fair value of net identifiable assets acquired.
We test goodwill for impairment at a level within the Company referred to as the reporting unit, which is our
business segment level or one level below the business segment. Goodwill is tested for impairment annually as of
the first business day of our fourth fiscal quarter, or under certain circumstances more frequently, such as when
events or circumstances indicate there may be impairment. Such events or circumstances may include a significant
deterioration in overall economic conditions, changes in the business climate of our industry, a decline in our market
capitalization, operating performance indicators, competition, reorganizations of our business or the disposal of all
or a portion of a reporting unit.
To test goodwill for impairment
, we may perform both qualitative and quantitative assessments. If we elect to
perform a qualitative assessment for a certain reporting unit, we evaluate events and circumstances impacting the
reporting unit to determine the probability that goodwill is impaired. If we perform a quantitative assessment for a
certain reporting unit, we calculate the fair value of that reporting unit and compare the fair value to the reporting
unit’s net book value. We estimate fair values of our reporting units based on projected cash flows, and sales and/or
earnings multiples applied to the latest twelve months’ sales and earnings of our reporting units. Projected cash
flows are based on our best estimate of future revenues, operating costs and balance sheet metrics reflecting our
view of the financial and market conditions of the underlying business; and the resulting cash flows are discounted
using an appropriate discount rate that reflects the risk in the forecasted cash flows. Revenue and earnings
multiples are based on current multiples of revenues and earnings for similar businesses, and based on revenue and
earnings multiples paid for recent acquisitions of similar businesses made in the marketplace. We then assess
_____________________________________________________________________
46
whether any implied control premium, based on a comparison of fair value based purely on our stock price and
outstanding shares with fair value determined by using all of the above-described models, is reasonable.
If we determine it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount,
we measure any impairment loss by comparing the fair value of each reporting unit to its carrying amount, including
goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and an
impairment loss is recognized in an amount equal to that excess.
lives, either according to the underlying economic benefit as reflected by future net cash inflows or on a straight-line
basis depending on the nature of the asset, generally ranging between
three
to
20
ye
ars
.
We review finite-lived
intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of the
asset may not be recoverable. We evaluate the recoverability of such assets based on the expectations of
undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows is less than
the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying
amount.
Our most significant finite-lived intangible asset is customer relationships that are established through written
customer contracts (i.e., revenue arrangements). The fair value for customer relationships is determined, as of the
date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax
earnings and cash flows arising from the follow-on revenues expected from the customer relationships over the
estimated lives, including the probability of expected future contract renewals and revenues, less a contributory
assets charge, all of which is discounted to present value.
Indefinite-lived intangible assets are tested annually for impairment, or under certain circumstances, more
frequently, such as when events or circumstances indicate there may be an impairment.
This testing compares the
fair value of the asset to its carrying amount, and, when appropriate, the carrying amount of these assets is reduced
to its fair value.
operating and finance leases under which we are the lessee. As a practical expedient, leases with a term of twelve
months or less (including reasonably certain extension periods) and leases with expected lease payments of less
than
$250 thousand
are expensed as incurred
in the “
Cost of revenue
” and “
General and administrative expenses
”
line items in our
Consolidated Statement of Operations
.
ROU assets and lease liabilities are recognized based on the present value of future lease payments, which are
primarily base rent. We have some lease payments that are based on an index and changes to the index are treated
as variable lease payments and recognized
in the “
Cost of revenue
” and “
General and administrative expenses
” line
items in our
Consolidated Statement of Operations
in the period in which the obligation for those payments is
incurred. Our lease payments also include non-lease components such as real estate taxes and common-area
maintenance costs. As a practical expedient, we account for lease and non-lease components as a single
component. For certain leases, the non-lease components are variable and are therefore excluded from lease
payments to determine the ROU asset. The present value of future lease payments is determined using our
incremental borrowing rate at lease commencement over the expected lease term. We use our incremental
borrowing rate because our leases do not provide an implicit lease rate. The expected lease term represents the
number of years we expect to lease the property, including options to extend or terminate the lease when it is
reasonably certain that we will exercise the option.
Operating lease cost and finance lease amortization are recognized on a straight-line basis over the expected
lease term in the
“
Cost of revenue
” and “
General and administrative expenses
” line items in our
Consolidated
Statement of Operations
. Interest
on finance lease liabilities i
s recognized in the “
Interest expense, net
” line item in
our
Consolidated Statement of Operations
.
tax assets and liabilities for differences between the tax basis of assets and liabilities and amounts reported in our
Consolidated Balance Sheet
, as well as operating loss and tax credit carryforwards. We follow specific and detailed
guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and
provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability
based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing
temporary differences and tax planning strategies.
We
have elected to account for tax on Global Intangible Low-Taxed Income as a current-period expense when
_____________________________________________________________________
47
functional currency, are translated at current rates of exchange and income and expense items are translated at the
weighted average exchange rate for the year. The resulting translation adjustments are recorded as a component of
stock options) at fair value and recognize cost over the vesting period, with forfeitures recognized as they occur. It is
our practice to issue shares when options are exercised.
shares, we reduce common stock for
the par value and allocate any excess purchase price over par value to paid-in
million
under our repurchase program. At
January 3, 2025
, we had
remaining unused authorization under our
repurchase program of
$
3,381
million
.
rights and payment terms of the parties can be identified, the contract has commercial substance and the
collectability of the consideration, or transaction price, is probable. Our contracts are often subsequently modified to
include changes in specifications, requirements or price that may create new or change existing enforceable rights
and obligations. We do not account for contract modifications (including unexercised options) or follow-on contracts
until they meet the requirements noted above to account for a contract.
We categorize revenue and costs for performance obligations to provide tangible goods as “product” and
revenue and costs for performance obligations to provide services for which the principal result is not to produce
anything tangible as “service.” In instances where a single performance obligation requires us to deliver products
and perform services, we derive the product and service categories presented in our financial statements based
upon the predominant nature of each performance. In these cases, we classify the revenue and costs from the entire
performance obligation based on the nature of the overall promise made to the customer.
At the inception of each contract, we evaluate the promised products and services to determine whether the
contract should be accounted for as having one or more performance obligations. A performance obligation is a
promise to transfer a distinct product or service to a customer and represents the unit of accounting for revenue
recognition. A substantial majority of our revenue is derived from long-term development and production contracts
involving the design, development, manufacture or modification of defense products and related services according
to the customers’ specifications. Due to the highly interdependent and interrelated nature of the underlying
products and services and the significant service of integration that we provide, which often results in the delivery of
multiple units, we account for these contracts as one performance obligation. For contracts that include both
development/production and follow-on support services (for example, operations and maintenance), we generally
consider the follow-on services distinct in the context of the contract and account for them as separate performance
obligations. Additionally, we recognize revenue from contracts to provide multiple distinct products to a customer
for which the products can readily be sold to other customers based on their commercial nature and, accordingly,
these products are accounted for as separate performance obligations.
Shipping and handling costs incurred after control of a product has transferred to the customer (for example, in
free on board shipping arrangements) are treated as fulfillment costs and, therefore, are not accounted for as
separate performance obligations. Also, we record taxes collected from customers and remitted to governmental
authorities on a net basis such that they are excluded from revenue.
As noted above, our contracts are often subsequently modified to include changes in specifications,
requirements or price. Depending on the nature of the modification, we consider whether to account for the
modification as an adjustment to the existing contract or as a separate contract. Often, the deliverables in our
contract modifications are not distinct from the existing contract due to the significant integration and interrelated
tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they are part of
the existing contract, and we may be required to recognize a cumulative catch-up adjustment to revenue at the date
of the contract modification.
We determine the transaction price for each contract based on our best estimate of the consideration we expect
to receive, which includes assumptions regarding variable consideration such as award and incentive fees. These
variable amounts are generally awarded upon achievement of certain negotiated performance metrics, program
milestones or cost targets and can be based upon customer discretion. We include such estimated amounts in the
transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not
_____________________________________________________________________
48
occur when the uncertainty associated with the variable consideration is resolved. We estimate variable
consideration primarily using the most likely amount method.
For contracts with multiple performance obligations, we allocate the transaction price to each performance
obligation based on the relative standalone selling price of the product or service underlying each performance
obligation. The standalone selling price represents the amount for which we would sell the product or service to a
customer on a standalone basis (i.e., not sold as a bundle with any other products or services). Our contracts with
the U.S. Government, including foreign military sales contracts, are subject to the FAR and the prices of our contract
deliverables are typically based on our estimated or actual costs plus margin. As a result, the standalone selling
prices of the products and services in these contracts are typically equal to the selling prices stated in the contract,
thereby eliminating the need to allocate (or reallocate) the transaction price to the multiple performance obligations.
In our non-U.S. Government contracts, we also generally use the expected cost plus margin approach to determine
standalone selling price. In addition, we determine standalone selling price for certain contracts that are commercial
in nature based on observable selling prices.
We recognize revenue for each performance obligation when (or as) the performance obligation is satisfied by
transferring control of the promised products or services underlying the performance obligation to the customer.
The transfer of control can occur over-time or at a point in time.
A significant portion of our business is derived from
development and production contracts. Revenue and profit related to development and production contracts are
generally recognized over-time, typically using the POC cost-to-cost method of revenue recognition, whereby we
measure our progress towards completion of the performance obligation based on the ratio of costs incurred to date
to estimated costs at completion under the contract. Because costs incurred represent work performed, we believe
this method best depicts the transfer of control of the asset to the customer. Under 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. To a lesser extent, we also recognize revenue from contracts to provide multiple
distinct products to a customer that are commercial in nature and can readily be sold to other customers. These
performance obligations do not meet
the
criteria listed below to recognize revenue over-time; therefore, we
recognize revenue at a point in time, generally when the products are received and accepted by the customer.
Point-in-Time Revenue Recognition.
Our performance obligations are satisfied at a point in time unless they
meet at least one of the following criteria, in which case they are satisfied over-time:
•
The customer simultaneously receives and consumes the benefits provided by our performance as we
perform;
•
Our performance creates or enhances an asset (for example, work in process) that the customer controls as
the asset is created or enhanced; or
•
Our performance does not create an asset with an alternative use to us and we have an enforceable right to
payment for performance completed to date.
Over-Time Revenue Recognition.
For U.S. Government development and production contracts, there is generally
a continuous transfer of control of the asset to the customer as it is being produced based on FAR clauses in the
contract that provide the customer with lien rights to work in process and allow the customer to unilaterally
terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any
work in process. This also typically applies to our contracts with prime contractors for U.S. Government
development and production contracts, when the above-described FAR clauses are flowed down to us by the prime
contractors.
Our non-U.S. Government development and production contracts, including international direct commercial
contracts and U.S. contracts with state and local agencies, utilities, commercial and transportation organizations,
often do not include the FAR clauses described above. However, over-time revenue recognition is typically
supported either through our performance creating or enhancing an asset that the customer controls as it is created
or enhanced or based on other contractual provisions or relevant laws that provide us with an enforceable right to
payment for our work performed to date plus a reasonable profit if our customer were permitted to and did
terminate the contract for reasons other than our failure to perform as promised.
For performance obligations to provide services that are satisfied over-time, we recognize revenue either on a
straight-line basis, the POC cost-to-cost method or based on the right-to-invoice method (i.e., based on our right to
bill the customer), depending on which method best depicts transfer of control to the customer.
Contract Estimates.
Under 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. Recognition of profit on a
contract requires estimates of the total cost at completion and transaction price and the measurement of progress
_____________________________________________________________________
49
towards completion. Due to the long-term nature of many of our contracts, developing the estimated total cost at
completion and total transaction price often requires judgment. Factors that must be considered in estimating the
cost of the work to be completed include the nature and complexity of the work to be performed, subcontractor
performance and the risk and impact of delayed performance. Factors that must be considered in estimating the
total transaction price include contractual cost or performance incentives (such as incentive fees, award fees and
penalties) and other forms of variable consideration, as well as our historical experience and our expectation for
performance on the contract.
At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost
at completion in line with these expectations. We follow a standard EAC process in which we review the progress
and performance on our ongoing contrac
ts
. If we successfully retire risks associated with the technical, schedule
and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the
retirement of these risks.
Conversely, there are many reasons estimated contract costs can increase, including: (i)
supply chain disruptions, inflation and labor issues; (ii) design or other development challenges; and (iii) program
execution challenges (including from technical or quality issues and other performance concerns).
Additionally, as
the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we
receive incentive or award fees that are higher or lower than expected.
When changes in estimated total costs at completion or in estimated total transaction price are determined, the
related impact on operating income is recognized on a cumulative basis.
EAC adjustments represent the cumulative
effect of the changes from current and prior periods;
revenue and operating margins in future periods are recognized
as if the revised estimates had been used since contract inception. Any anticipated losses on these contracts are
fully recognized in the period in which the losses become evident.
|
Fiscal Year Ended
|
|||||
|
(In millions, except per share amounts)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Net EAC adjustments, before income taxes
|
$
|
$
(
|
$
|
||
|
Net EAC adjustments, net of income taxes
|
|
(
|
|
||
|
Net EAC adjustments, net of income taxes, per diluted share
|
|
(
|
|
||
Revenue recognized from performance obligations satisfied (or partially satisfied) in prior periods was
$
210
million
,
$
118
million
and
$
110
million
in
fiscal 2024
,
2023
and
2022
, respectively.
location under a bill-and-hold arrangement. Revenue is recognized on bill-and-hold arrangements at the point in
time when the customer obtains control of the product and all of the following criteria have been met: the
arrangement is substantive (for example, the customer has requested the arrangement); the product is identified
separately as belonging to the customer; the product is ready for physical transfer to the customer; and we do not
have the ability to use the product or direct it to another customer. In determining when the customer obtains
control of the product, we consider certain indicators, including whether we have a present right to payment from
the customer, whether title and/or significant risks and rewards of ownership have transferred to the customer and
whether customer acceptance has been received (in the case of arrangements with customer acceptance
provisions).
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 or appropriated) and unfunded backlog (i.e., orders for which funds
have not been appropriated and/or incrementally funded). Backlog excludes unexercised contract options and
potential orders under ordering-type contracts, such as IDIQ contracts.
At
January 3, 2025
, our ending backlog was
$
34.2
billion
, of which
$
23.3
billion
was funded backlog. We expect
to recognize approximately
45
%
of the revenue associated
with this backlog by the end of fiscal
2025
and
approximately
75
%
by the end of fiscal
2026
,
with the remainder to be recognized thereafter. At
December 29,
2023
, our ending backlog was
$
32.7
billion
, of which
$
22.0
billion
was funded backlog.
or unfunded
position
of each defined benefit plan is recorded in our
Consolidated Balance Sheet
. Funded status is
derived by subtracting the respective year-end values of the PBO from the fair value of plan assets. Actuarial gains
and losses and
prior service credits and costs
are recorded, net of inc
ome taxes,
in the “
Accumulated other
comprehensive income (loss)
” line item in our
Consolidated Balance Sheet
u
ntil they are amortized as a component
_____________________________________________________________________
50
of net periodic benefit income in the “
Non-service FAS pension income and other, net
” line item in our
Consolidated
Statement of Operations
.
The determination of the PBO and the recognition of
net periodic benefit income
related to defined benefit plans
depend on various assumptions, including discount rates,
expected return
on plan assets, the rate of future
compensation increases, mortality, termination and health care cost trend rates.
We
develop each assumption using
relevant Company experience in conjunction with market-related data. Actuarial assumptions are reviewed annually
with third-party consultants and adjusted as appropriate.
For the recognition of net periodic benefit income, we use
a market-related value of plan assets to calculate the expected return on plan assets. The market-related value of
plan assets is based on yearly average asset values at the measurement date over the last five years, with
investment gains or losses to be phased in over five years.
Net actuarial gains and losses are amortized to the net
periodic benefit income using the corridor approach, where the net gains and losses in excess of 10% of the greater
of the PBO or the market-related value of plan assets are amortized for each plan over the estimated future life
expectancy or, if applicable, the average remaining s
ervice period
of the plan’s active participants. The fair value of
plan assets is determined based on market prices or estimated fair value at the measurement date. The
measurement date for valuing defined benefit plan assets and obligations is the end of the month closest to our
efficiency of property or that reduce or prevent environmental contamination. We accrue environmental expenses
resulting from existing conditions that relate to past or current operations. Our accruals for environmental expenses
are recorded on a site-by-site basis when it is probable a liability has been incurred and the amount of the liability
can be reasonably estimated, based on current law and existing technologies available to us. Our accruals for
environmental expenses represent the best estimates related to the investigation and remediation of environmental
media such as water, soil, soil vapor, air and structures, as well as related legal fees
and
regulatory agency oversight
fees
, and are reviewed periodically, at least annually at the year-end balance sheet date, and updated for progress
of investigation and remediation efforts and changes in facts and legal circumstances. If the timing and amount of
future cash payments for environmental liabilities are fixed or reliably determinable, we generally discount such
cash flows in estimating our accrual.
The relevant factors we considered in estimating our potential liabilities under applicable environmental
statutes and regulations included some or all of the following as to each site: incomplete information regarding
particular sites and other potentially responsible parties; uncertainty regarding the extent of investigation or
remediation; our share, if any, of liability for such conditions; the selection of alternative remedial approaches;
changes in environmental standards and regulatory requirements; probable insurance proceeds; cost-sharing
agreements with other parties; and potential indemnification from successor and predecessor owners of these sites
.
Balance Sheet
at fair value.
These financial instruments are marked-to-market using forward prices and fair value
q
uote
s and are categorized in Level 2 of the fair value hierarchy.
Derivatives that are not hedges are adjusted to fair
value through income.
If the derivative qualifies and is designated as a hedge, it must be documented as such at the
inception of the hedge. Depending on the nature of the hedge, changes in the fair value of the derivative are either
offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in
other comprehensive income (loss) until the hedged item is recognized in earnings. Gains and losses in accumulated
other comprehensive income (l
oss)
are reclassified to earnings when the related hedged item is recognized in
earnings
.
The cash flow impact of our derivatives is included in the same category in our
Consolidated Statement of
Cash Flows
as the cash flows of the related hedged items. We do not hold or issue derivatives for speculative trading
shareholders divided by our weighted average number of basic or diluted shares outstanding. Potential dilutive
Intersegment revenues are generally transferred at cost to the buying segment, and the sourcing segment
recognizes a profit that is eliminated. The elimination of intersegment revenues is included in the “other” line item in
Note 14: Business Segments
in these Notes
.
Corporate expenses are primarily allocated to our business segments
using an allocation methodology prescribed by U.S. Government regulations for government contractors. The
“
Unallocated corporate department expense
” line item in
Note 14: Business Segments
in these Notes represents the
portion of corporate expenses that are not included in management’s evaluation of segment operating performance
or elimination of intersegment profits
.
_____________________________________________________________________
51
FAS/CAS Operating Adjustment.
We calculate and allocate a portion of our defined benefit plan costs to our U.S.
Government contracts in accordance with CAS. However, o
ur
Consolidated Financial Statements
require we
difference between CAS pension cost and the service cost component of net periodic benefit income (“FAS pension
service cost”) is reflected in the “
FAS/CAS operating adjustment
,” which is included as a component of Unallocated
corporate department expense line item in
Note 14: Business Segments
in these Notes.
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
FAS pension service cost
|
$
(
|
$
(
|
$
(
|
||
|
Less: CAS pension cost
|
(
|
(
|
(
|
||
|
FAS/CAS operating adjustment
|
|
|
|
||
income and other, net
” line item in our
Consolidated Statement of Operations
. See
Note 9: Retirement Benefits
in
these Notes for additional information regarding our defined benefit plans and composition of net periodic benefit
administrative expenses
” line item in our
Consolidated Statement of Operations
. These costs were
$
515
million
,
$
480
million
and
$
603
million
in
fiscal 2024
,
2023
, and
2022
, respectively.
Customer-funded
R&D
costs are incurred pursuant to contractual arrangements, principally U.S. Government-
sponsored contracts requiring us to provide a product or service meeting certain defined performance or other
specifications (such as designs), and such contractual arrangements are accounted for principally by the
POC
cost-
to-cost revenue recognition method. Customer-funded
R&D
is included in the “
Revenue
” and “
Cost of revenue
” line
items in our
Consolidated Statement of Operations
.
(“FASB”) issued
Accounting Standards Update (“ASU”) 2023-07
, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures (“ASU 2023-07”) which requires additional segment disclosures on an annual and
interim basis, including significant segment expenses that are regularly provided to the chief operating decision
maker. The standard does not change how operating segments and reportable segments are determined. ASU
2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim reporting periods
beginning after December 15, 2024 and is required to be applied retrospectively to all periods presented in the
consolidated financial statements. We adopted this standard in fiscal 2024 and applied the provisions to our
business segment disclosure. See
Note 14: Business Segments
in these Notes for further information. The adoption
of 2023-07 did not have any impact on our operating results, financial position, or cash flows.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax
Disclosures (“ASU 2023-09”) which requires disaggregated income tax disclosures on an annual basis, including
information on our effective income tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for
annual reporting periods beginning after December 15, 2024, and may be applied prospectively or retrospectively.
We are evaluating the impact of ASU 2023-09 and expect the standard will only impact our income taxes
disclosures with no material impact on our operating results, financial position, or cash flows.
In March 2024,
the SEC issued SEC Release Nos. 33-11275 and 34-99678, The Enhancement and
Standardization of Climate-Related Disclosures for Investors, which requires climate-related disclosures in annual
reports and registration statements. In April 2024, the SEC released an order staying this final rule pending judicial
review of all the petitions challenging the rule. If enacted, the rule would require disclosure of material climate-
related risks, our governance and risk management of climate-related risks and any material climate-related targets
or goals, greenhouse gas emissions as well as disclosure of the financial statement effects, such as costs and losses
resulting from severe weather events and other natural conditions. We are evaluating the impact of the rule and
related litigation on our disclosures.
In
November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—
Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU
2024-03”) which requires disclosure, in the notes to financial statements, of specified information about certain
costs and expenses included in each expense caption on the face of the income statement at interim and annual
reporting periods. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and
interim reporting periods beginning after December 15, 2027, and should be applied either prospectively to financial
_____________________________________________________________________
52
statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior
periods presented in the financial statements. We are evaluating the impact of ASU 2024-03 and expect the
standard
will only impact our disclosures
with no material impact on our operating results, financial position, or cash
|
Fiscal Year Ended
|
|||||
|
(In millions, except per share amounts)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Basic weighted-average common shares outstanding
|
|
|
|
||
|
Impact of dilutive share-based awards
|
|
|
|
||
|
Diluted weighted-average common shares outstanding
|
|
|
|
||
Diluted EPS
excludes the antidilutive impact of
3.3
million
,
3.7
million
and
0.3
million
weighted average share-
based awards outstanding in
fiscal 2024
,
2023
and
2022
, respectively.
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Contract assets
|
$
|
$
|
|
|
Contract liabilities, current
|
(
|
(
|
|
|
Contract liabilities, non-current
(1)
|
(
|
(
|
|
|
Net contract assets
|
$
|
$
|
_______________
(1)
The non-current portion of contract liabilities is included as a component of the “
Other long-term liabilities
” line item in our
Consolidated
Balance Sheet
.
Contract assets and liabilities as of
January 3, 2025
and
December 29, 2023
were impacted primarily by the
timing of contractual billing milestones.
In
fiscal 2024
,
2023
and
2022
, we recognized
$
1,433
million
,
$
1,247
million
and
$
1,057
million
, res
pectively,
of revenue related to contract liabilities that were outstanding at the end of
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Finished products
|
$
|
$
|
|
|
Work in process
|
|
|
|
|
Materials and supplies
|
|
|
|
|
Inventories, net
|
$
|
$
|
_____________________________________________________________________
53
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Land
|
$
|
$
|
|
|
Software capitalized for internal use
|
|
|
|
|
Buildings
|
|
|
|
|
Machinery and equipment
|
|
|
|
|
|
|
||
|
Less: accumulated depreciation and amortization
|
(
|
(
|
|
|
Property, plant and equipment, net
|
$
|
$
|
Depreciation and amortization expense related to property, plant and equipment was
$
429
million
,
$
389
million
and
$
342
million
in
fiscal 2024
,
2023
and
2022
, respectively.
There were
no
impairments
of property, plant and equipment in
fiscal 2024
,
2023
or
2022
.
Goodwill
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
Total
|
||||
|
Balance at December 30, 2022
|
$
|
$
|
$
|
**
|
$
|
||||
|
Reallocation of goodwill in business realignment
|
|
(
|
|
|
|
||||
|
Goodwill increase from acquisitions
(1)
|
|
|
|
|
|
||||
|
Goodwill decrease from divestitures
|
(
|
—
|
|
|
(
|
||||
|
Assets of business held for sale
|
—
|
(
|
|
|
(
|
||||
|
Impairment of goodwill
|
|
(
|
|
|
(
|
||||
|
Currency translation adjustments
|
|
|
|
|
|
||||
|
Balance at December 29, 2023
|
|
|
|
|
|
||||
|
Goodwill from AJRD acquisition
|
—
|
—
|
—
|
|
|
||||
|
Goodwill decrease from divestitures
(2)
|
(
|
|
|
(
|
(
|
||||
|
Impairment of goodwill
|
(
|
|
|
|
(
|
||||
|
Currency translation adjustments
|
(
|
(
|
(
|
|
(
|
||||
|
Balance at January 3, 2025
|
$
|
$
|
$
|
$
|
$
|
_______________
**
Our AR segment, which is also the AR reporting unit, was established in connection with the AJRD acquisition and consists of assets,
liabilities and operations
assumed
. As such, there is no comparable prior year information. See
Note 13: Acquisitions and Divestitures
in
these Notes for further information.
(1)
CS: Goodwill recognized in connection with the TDL acquisition is included in our Broadband reporting unit within our CS segment. AR:
Goodwill recognized in connection with the AJRD acquisition is included within the AR Reporting unit, which is also our AR segment.
(2)
SAS:
Goodwill (net of impairment) derecognized in connection with the
Antenna disposal group
divestiture. See discussion under “Goodwill
Impairments" below.
AR: Goo
dwill derecognized in connection with the
AOT disposal group
divestiture. See
Note 13: Acquisitions and
Divestitures
in these Notes for further information.
At
January 3, 2025
and
December 29, 2023
, accumulated goodwill impairment losses totaled
$
80
million
,
$
1,126
million
and
$
355
million
in our SAS, IMS, and CS segments, respectively. There are
no
accumulated
impairment losses in our AR segment.
Reallocation of Goodwill in Business Realignments.
To better align our businesses, we adjusted our reporting
within our business segments and goodwill reporting units as follows:
Fiscal 2024.
We realigned our
Electro Optical
and Maritime sectors in our IMS segment, which are also reporting
units, splitting
Electro Optical
into
two
sectors,
Global Optical Systems
and
Defense Electronics
, and moving
one
Electro Optical
business to the Maritime sector.
Global Optical Systems
and
Defense Electronics
represent
one
reporting unit.
Immediately before and after the realignment, we performed a quantitative impairment assessment
under our former and new reporting unit structure. These assessments indicated no impairment existed either
before or after the realignment.
_____________________________________________________________________
54
Fiscal 2023.
We t
ransferred our
Agile Development Group (“
ADG
”)
business (a reporting unit) from our IMS
segment to our SAS segment (also a reporting unit). In connection with the realignment, we reduced our reporting
units from
nine
to
eight
as the ADG reporting unit and all
$
327
million
of associated goodwill was absorbed by our
existing SAS reporting unit given the economic similarities of the
two
reporting units. Immediately before the
realignment, we performed a qualitative impairment assessment over our SAS reporting unit and a quantitative
impairment assessment over our ADG reporting unit. Immediately after the realignment, we performed a
quantitative impairment assessment over the SAS reporting unit. These assessments indicated no impairment
existed either before or after the realignment.
Goodwill Impairments.
We assess goodwill for
impairment annually or under certain circumstances more
frequently, such as when events or circumstances indicate there may be impairment.
Fiscal 2024.
As described in more detail in
Note 13: Acquisitions and Divestitures
in these Notes, d
uring the
quarter ended
June 28, 2024
, we completed the divestiture of
Antenna disposal group
.
As the
Antenna disposal
group
represents the disposal of a portion of the SAS reporting unit, which is also the SAS segment, we assigned
$
93
million
of goodwill to the
Antenna disposal group
on a relative fair value basis. In connection with the preparation of
our financial statements for the quarter and two quarters ended
June 28, 2024
, we
performed a quantitative
impairment assessment on
goodwill assigned to the
Antenna disposal group
and a qualitative impairment
assessment on the goodwill assigned to the retained businesses of the reporting unit. As a result of these tests, we
determined that the fair value of the
Antenna disposal group
was below its carrying value and accordingly recorded a
non-cash charge for impairment of
$
14
million
included in the
“
Impairment of goodwill and other assets
” line item
in our
Consolidated Statement of Operations
.
F
iscal 2023.
As described in more detail in
Note 13: Acquisitions and Divestitures
in these Notes, d
uring the
quarter ended
December 29, 2023
,
we entered into a definitive agreement to sell our CAS disposal group,
which
includes both the
CTS
and Commercial Aviation reporting units.
As of
November 27, 2023
, the date of the
agreement,
the fair
value less costs to sell the CAS disposal group was
$
834
million
, inclusive of considerations
related to noncontrolling interest and accumulated other comprehensive
income
.
In connection with the preparation of our financial statements for
fiscal 2023
, we evaluated the facts and
circumstances which impacted the agreed upon selling price of the CAS disposal group and identified interim
indicators of impairment within both reporting units subsequent to our annual impairment testing date of October 2,
2023. Specifically, supply chain-related operational challenges which negatively impact cash flows over the short-
term forecast period were assessed in combination with our long-term portfolio shaping strategy to dispose of non-
core businesses. As a result, we performed quantitative impairment tests for both reporting units as of
November 27, 2023
, utilizing an income approach aligned to market prices for the
two
reporting units, as specified
in the definitive agreement. As a result of these tests, we determined that the fair value of the CTS reporting unit was
above carrying value, while the fair value of the Commercial Avionics reporting unit was below its carrying value, and
concluded goodwill related to the Commercial Aviation reporting unit was impaired. Therefore we recorded a non-
cash charge for impairmen
t of
$
296
million
asso
ciated with the Commercial Aviation reporting unit in the
“
Impairment of goodwill and other assets
” line item in our
Consolidated Statement of Operations
.
The carrying amounts of the CAS disposal group assets (including
$
534
million
of goodwill) and liabilities were
classified as held for sale in our
Consolidated Balance Sheet
at
December 29, 2023
.
Fiscal 2022.
During
fiscal 2022
, we determined that goodwill related to our Broadband,
ADG
and Electro Optical
reporting units was impaired and we recorded non-cash impairment charges of
$
355
million
,
$
313
million
and
$
134
million
,
respectively, in the “
Impairment of goodwill and other assets
” line item in our
Consolidated Statement of
Operations
. See
Note 9: Goodwill
in our Fiscal 2022 Form 10-K for further information on our fiscal 2022 goodwill
impairments.
_____________________________________________________________________
55
Intangible Assets
|
|
January 3, 2025
|
December 29, 2023
|
|||||||||
|
(In millions)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Carrying
Amount
|
|||||
|
Customer relationships
|
$
|
$
(
|
$
|
$
|
$
(
|
$
|
|||||
|
Developed technologies
|
|
(
|
|
|
(
|
|
|||||
|
Trade names
|
|
(
|
|
|
(
|
|
|||||
|
Other, including contract backlog
|
|
(
|
|
|
(
|
|
|||||
|
Total finite-lived intangible assets
|
|
(
|
|
|
(
|
|
|||||
|
Trade name — indefinite-lived
|
|
—
|
|
|
—
|
|
|||||
|
Total intangible assets, net
|
$
|
$
(
|
$
|
$
|
$
(
|
$
|
|||||
Amortization expense for intangible assets was
$
853
million
,
$
779
million
and
$
605
million
in
fiscal 2024
,
2023
and
2022
, respectively.
|
|
(In millions)
|
|
2025
|
$
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
Thereafter
|
|
|
Total
|
$
|
In-process R&D Impairment.
During fiscal 2023, we closed a facility, which triggered an evaluation of the in-
process R&D related to the operations of the closed facility for impairment. As a result, we recorded a
$
21
million
non-cash charge for the impairment of in-process R&D intangible assets which is included in the “
Impairment of
Income Tax Provision
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Current:
|
|||||
|
United States
|
$
(
|
$
|
$
|
||
|
International
|
|
|
|
||
|
State and local
|
|
|
|
||
|
Total current income taxes
|
(
|
|
|
||
|
Deferred:
|
|||||
|
United States
|
|
(
|
(
|
||
|
International
|
(
|
|
(
|
||
|
State and local
|
(
|
(
|
(
|
||
|
Total deferred income taxes
|
|
(
|
(
|
||
|
Total income taxes
|
$
|
$
|
$
|
||
_____________________________________________________________________
56
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
U.S. statutory income tax rate
|
|
|
|
||
|
State taxes
|
|
|
|
||
|
International income
|
|
|
|
||
|
Non-deductible goodwill impairment
|
|
|
|
||
|
R&D tax credit
|
(
|
(
|
(
|
||
|
FDII deduction
|
(
|
(
|
(
|
||
|
Changes in valuation allowance
|
(
|
|
|
||
|
Impact of divestitures and reorganizations
|
|
(
|
(
|
||
|
Share-based compensation
(1)
|
(
|
|
(
|
||
|
Settlement of tax audits
|
(
|
(
|
(
|
||
|
Other items
|
(
|
|
(
|
||
|
Effective income tax rate
|
|
|
|
||
_______________
As of
January 3, 2025
, we estimate our outside basis difference in foreign subsidiaries that are considered
indefinitely reinvested to be approximately
$
1.5
billion
. The outside basis difference is comprised predominantly of
purchase accounting adjustments and to a lesser extent, undistributed earnings and other equity adjustments. In
the event of a disposition of the foreign subsidiaries or a distribution, we may be subject to incremental U.S. income
taxes, subject to an adjustment for foreign tax credits, and withholding taxes or income taxes payable to the foreign
jurisdictions. As of
January 3, 2025
, the determination of the amount of unrecognized deferred tax liability related to
the outside basis difference is not practicable.
Purchase of Tax Credits
Section 6418 of the Internal Revenue Code permits, in certain circumstances, the sale of federal income tax
credits generated from renewable and alternative energy sources. During the year ended
January 3, 2025
, we
entered into a binding agreement for the purchase of tax credits totaling
$
200
million
for the 2024 tax year for a net
purchase price of
$
191
million
, allowing us to reduce our 2024 federal income taxes payable by the
$
200
million
.
We have recorded a liability to the seller for the amount owed in the “
Other current liabilities
” line of the
Consolidated Balance Sheet
. We have recorded an income tax benefit of
$
9
million
for the difference between the
amount paid or to be paid to the seller and the reduction to our taxes payable in the “
Income taxes
”
line of the
Consolidated Statement of Operations
.
_____________________________________________________________________
57
Deferred Income Tax Assets (Liabilities)
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
|
|||
|
Deferred tax assets, net:
|
|||
|
Accruals
|
$
|
$
|
|
|
Tax loss and credit carryforwards
(1)
|
|
|
|
|
Operating lease obligation
|
|
|
|
|
Capitalized research and experimental expenditures
|
|
|
|
|
Other
|
|
|
|
|
Valuation allowance
(2)
|
(
|
(
|
|
|
Deferred tax assets, net
|
|
|
|
|
Deferred tax liabilities:
|
|||
|
Property, plant and equipment
|
(
|
(
|
|
|
Acquired intangibles
|
(
|
(
|
|
|
Operating lease ROU asset
|
(
|
(
|
|
|
Deferred revenue on long-term contracts
(3)
|
(
|
|
|
|
Other
|
(
|
(
|
|
|
Deferred tax liabilities
|
(
|
(
|
|
|
Net deferred tax liabilities
|
$
(
|
$
(
|
_______________
(1)
At
January 3, 2025
, primarily includes operating loss and credit carryforwards of
$
81
million
and
$
165
million
, respectively, which have
expiration dates ranging from less than one year to no expiration date. A significant portion of the carryforwards are either indefinite or begin
expiring in 2035.
(2)
Valuation allowance established to offset certain domestic and foreign deferred tax assets due to the uncertainty regarding our ability to
realize these assets in the future. The net change in our valuation allowance in fiscal
2024
and
2023
was a decrease of
$
2
million
and
$
3
million
, respectively
.
(3)
Based on recent IRS guidance, we made a method change to defer taxable income for long-term contracts accounted for under the POC
cost-to-cost method that include deferred R&D expenses, resulting in a
$
913
million
reduction in our current income taxes (current payable)
and corresponding increase to our deferred income taxes (deferred tax liability).
Net deferred tax assets (liabilities)
were classified as follows in our
Consolidated Balance Sheet
:
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Deferred income tax assets
|
$
|
$
|
|
|
Deferred income tax liabilities
|
(
|
(
|
|
|
Net deferred tax liabilities
|
$
(
|
$
(
|
Income before income taxes of our international subsidiaries
was
$
191
million
,
$
205
million
and
$
95
million
in
fiscal
2024
,
2023
and
2022
, respectively.
We paid
$
102
million
,
$
715
million
and
$
309
million
in income taxes, net of refunds received, in fiscal
2024
,
2023
and
2022
, respectively.
_____________________________________________________________________
58
Tax Uncertainties
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Balance at beginning of fiscal year
|
$
|
$
|
$
|
||
|
Additions based on tax positions taken during current
period
|
|
|
|
||
|
Additions based on tax positions taken during prior period
|
|
|
|
||
|
Additions from tax positions related to acquired entities
|
|
|
|
||
|
Decreases based on tax positions taken during prior
period
|
(
|
(
|
(
|
||
|
Decreases from lapse in statutes of limitations
|
(
|
(
|
(
|
||
|
Decreases from settlements
|
(
|
(
|
(
|
||
|
Balance at end of fiscal year
(1)
|
$
|
$
|
$
|
||
_______________
(1)
Inc
ludes
unrecognized tax benefits
that would favorably impact our future tax rates in the event that the tax benefits are eventually
recognized of
$
666
million
and
$
509
million
at
January 3, 2025
and
December 29, 2023
,
respectively.
We recognize accrued interest and penalties related to unrecognized tax benefits in our income tax provision. In
fiscal
2024
,
2023
and
2022
, we recognized
$
29
million
,
$
20
million
and
$
12
million
, respectively.
At
January 3,
2025
and
December 29, 2023
, accrued interest and penalties related to unrecognized tax benefits was
$
109
million
and
$
80
million
, respectively, which is included in the “
Other long-term liabilities
” line item in our
Consolidated
Balance Sheet
.
We file numerous separate and consolidated income tax returns reporting our financial results and, where
appropriate, those of our subsidiaries and affiliates, in the U.S. federal jurisdiction and various state, local and
foreign jurisdictions. Pursuant to the Compliance Assurance Process, the Internal Revenue Service (“
IRS
”) is
examining our federal tax returns for fiscal
2021, 2022, and 2023.
Legacy L3’s
federal tax returns for calendar years
2017 and 2018 are currently under IRS examination and refund claims related to calendar years 2012, 2013, 2015
and 2016 have been filed with the IRS. In addition, legacy AJRD refund claims related to calendar year 2019 and
2020 have been filed with the IRS.
We are currently under examination or contesting proposed adjustments by various state and international tax
authorities for fiscal years ranging from 2013 through 2022. It is reasonably possible that there could be a
significant change to our unrecognized tax benefit balance during the course of the next twelve months as these
examinations continue, other tax examinations commence or various statutes of limitations expire. An estimate of
the range of possible changes is not practicable for the remaining unrecognized tax benefits because of the
significant number of jurisdictions in which we do busine
ss and the number of open tax periods under various stages
of examination.
_____________________________________________________________________
59
Long-Term Debt
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Variable-rate debt:
|
|||
|
Term Loan 2025
|
$
|
$
|
|
|
Fixed-rate debt:
(1)
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total variable and fixed-rate debt
|
|
|
|
|
Financing lease obligations and other debt
|
|
|
|
|
Long-term debt, including the current portion of long-term debt
|
|
|
|
|
Plus: unamortized bond premium
|
|
|
|
|
Less: unamortized discounts and issuance costs
|
(
|
(
|
|
|
Long-term debt, including the current portion of long-term debt, net
|
|
|
|
|
Less: current portion of long-term debt, net
|
(
|
(
|
|
|
Total long-term debt, net
|
$
|
$
|
_______________
(1)
All fixed-rate notes and debentures rank equally in right of payment.
(2)
We may redeem th
ese notes, in whole or in part, at our option, at a pre-determined redemption price pursuant to their terms prior to the
applicable maturity date.
(3)
Upon change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase these
notes at a pre-determined price pursuant to their terms.
(4)
The debentures are not redeemable prior to maturity.
(5)
Collectively, the “
AJRD Notes
.”
The maturities of long-term debt, including the current portion of long-term debt and excluding finance lease
obligations, for the five years following the end of
fiscal 2024
and, in total thereafter, are:
$
610
million
in
fiscal
2025
;
$
659
million
in
fiscal 2026
;
$
1,254
million
in fiscal
2027
;
$
1,880
million
in fiscal
2028
;
$
1,154
million
in
fiscal
2029
; and
$
5,973
million
thereafter.
Long-
Term Debt Issuances.
On
March 13, 2024
,
we closed the issuance and sale of
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.
_____________________________________________________________________
60
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
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.
We incurred debt issuance costs of
$
20
million
and
$
7
million
for the
March Issued 2024 Notes
and
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
Consolidated Statement of Operations
.
Long-Term Debt Repayments.
Fiscal 2024.
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
.
Fiscal 2023.
On
March 14, 2023
, we repaid the entire outstanding
$
250
million
aggregate principal amount of
our
Floating Rate Notes due Marc
h 2023
t
hrough a
$
250
million
draw on
Term Loan 2025
.
On
June 15, 2023
, we
repaid the entire outstanding
$
800
million
aggregate principal amount of our
3.85% 2023 Notes
through cash on
hand and the issuance of commercial paper during
fiscal 2023
.
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
. At
January 3, 2025
, our
CP Program
was 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
January 3, 2025
and
December 29, 2023
, we had
$
515
million
and
$
1,599
million
in outstanding notes under
our
CP Program
, respectively, which is included as a component of the “
Short-term debt
” line item in our
Consolidated Balance Sheet
. The outstanding notes under our
CP Program
had a weighted-average interest rate of
Fair Value of Debt
|
January 3, 2025
|
December 29, 2023
|
||||||
|
(In millions)
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||
|
Term Loan 2025
(1)
|
$
|
$
|
$
|
$
|
|||
|
All other long-term debt, net (including current portion)
(2)
|
|
|
|
|
|||
|
Long-term debt, including the current portion of long-term
debt, net
|
$
|
$
|
$
|
$
|
|||
_______________
(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 long-
term debt were measured at fair value in our consolidated balance sheet, it would be categorized as Level 2 within 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.
Credit Agreements
On
January 26, 2024
, we established a new
$
1.5
billion
,
364
-day senior unsecured revolving credit facility by
entering into a
364
-day credit agreement maturing no later than
January 24, 2025
with a syndicate of lenders. The
2024 Credit Agreement
, which matured on
January 24, 2025
, replaced the
2023 Credit Agreement
.
At our election, borrowings under the
2024 Credit Agreement
, which were designated in U.S. Dollars, bore
interest at the sum of the term s
ecured overnight financing
rate or the Base Rate (as defined in the
2024 Credit
Agreement
), plus an applicable margin that varied 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
_____________________________________________________________________
61
outstanding, we were required to pay a quarterly unused commitment fee that varied based on our
Senior Debt
Ratings
.
The
2024 Credit Agreement
contained representations, warranties, covenants and events of default that are
substantially similar to the
2022 Credit Agreement
which established a
$
2.0
billion
,
five
-year
senior unsecured
revolving credit facility.
At
January 3, 2025
,
we had
no
o
utstanding
borrowings under our credit facility, had
available borrowing capacity
of
$
2,985
million
, net of outstanding notes under our
CP Program
,
and we
re
in compliance
wit
h all covenants under
the
2024 Credit Agreement
and the
2022 Credit Agreement
.
At
December 29, 2023
,
we had
no
o
utstanding borrowings under our credit facility,
had available borrowing
capacity of
$
2,801
million
, net of outstanding notes under our
CP Program
, and
we
re
in compliance
wit
h all
covenants under the
2023 Credit Agreement
and the
2022 Credit Agreement
.
Interest Paid
Total interest paid was
$
654
million
,
$
489
million
and
$
296
million
in
fiscal 2024
,
2023
and
2022
, respectively.
Defined Contribution Plans
We sponsor numerous defined contribution savings plans, which allow our eligible employees to contribute a
portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plans include several
match contribution formulas which require us to match a percentage of the employee contributions up to certain
limits, generally totaling
6.0
%
of employee eligible pay. Matching contributions, net of forfeitures, charged to
expense were
$
276
million
,
$
267
million
and
$
226
million
in
fiscal 2024
,
2023
and
2022
, respectively.
Deferred Compensation Plans
We also sponsor certain non-qualified deferred compensation plans.
The following table provides the fair value
of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level:
|
January 3, 2025
|
December 29, 2023
|
||||||
|
(In millions)
|
Total
|
Level 1
|
Total
|
Level 1
|
|||
|
Assets
|
|||||||
|
Deferred compensation plan assets:
(1)
|
|||||||
|
Equity and fixed income securities
|
$
|
$
|
$
|
$
|
|||
|
Investments measured at NAV:
|
|||||||
|
Corporate-owned life insurance
|
|
|
|||||
|
Total fair value of deferred compensation plan assets
|
$
|
$
|
|||||
|
Liabilities
|
|||||||
|
Deferred compensation plan liabilities:
(2)
|
|||||||
|
Equity securities and mutual funds
|
$
|
$
|
$
|
$
|
|||
|
Investments measured at NAV:
|
|||||||
|
Common/collective trusts and guaranteed
investment contracts
|
|
|
|||||
|
Total fair value of deferred compensation plan liabilities
|
$
|
$
|
|||||
_______________
(1)
Represents diversified assets held in
rabbi trusts primarily associated with our non-qualified deferred compensation plans, which are
measured at fair value and included in the “
Other current assets
” and “
Other non-current assets
” line items in our
Consolidated Balance
Sheet
. In
fiscal 2024
, we contributed
$
100
million
to our rabbi trust assets.
(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
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.
_____________________________________________________________________
62
Defined Benefit Plans
We sponsor various defined benefit pension plans for eligible employees in the U.S., Canada and United
Kingdom. Our largest plans are generally closed to new entrants. Benefits for most participants under the terms of
these plans are based on the employee’s years of service and compensation. We fund these plans as required by
statutory regulations and through voluntary contributions. Some of our employees also participate in other
postretirement defined benefit plans (“
Other Benefits
”) such as health care and life insurance plans.
Our largest
defined benefit plan is the
Consolidated Pension Plan
,
with
85
%
and
86
%
of
total plan assets
and PBO, respectively,
as of
January 3, 2025
.
During
fiscal 2024
, we reduced our defined benefit pension plan benefit obligations by approximately
$
333
million
by purchasing group annuity policies and transferring approximately
$
333
million
of pension plan assets to
an insurance company. There was no gain or loss as a result of this transaction.
Funded Status.
The following table summarizes the funded status of our defined benefit plans:
|
|
January 3, 2025
|
December 29, 2023
|
|||||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Total
|
Pension
|
Other
Benefits
|
Total
|
|||||
|
Change in benefit obligation
|
|||||||||||
|
PBO at beginning of fiscal year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Service cost
|
|
|
|
|
|
|
|||||
|
Interest cost
|
|
|
|
|
|
|
|||||
|
Actuarial (gain) loss
|
(
|
(
|
(
|
|
(
|
|
|||||
|
Benefits paid
(1)
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
|
Expenses paid
|
(
|
|
(
|
(
|
|
(
|
|||||
|
Currency translation adjustment
|
(
|
(
|
(
|
|
|
|
|||||
|
Acquisitions
(2)
|
|
|
|
|
|
|
|||||
|
Other
|
(
|
(
|
(
|
|
|
|
|||||
|
PBO at end of fiscal year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Change in plan assets
|
|||||||||||
|
Plan assets at beginning of fiscal year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Actual return on plan assets
|
|
|
|
|
|
|
|||||
|
Employer contributions
|
|
|
|
|
|
|
|||||
|
Benefits paid
(1)
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
|
Expenses paid
|
(
|
|
(
|
(
|
|
(
|
|||||
|
Currency translation adjustment
|
(
|
|
(
|
|
|
|
|||||
|
Acquisitions
(2)
|
|
|
|
|
|
|
|||||
|
Other
|
|
|
|
|
|
|
|||||
|
Plan assets at end of fiscal year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Funded status at end of fiscal year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
_______________
(1)
Fiscal 2024 includes approximately
$
333
million
associated with
the
purchase of group annuity policies and transfer of plan assets to an
insurance company. The transaction is reflected in
this caption
as settlement accounting had not been met.
(2)
PBO assumed and plan assets acquired in the AJRD acquisition. Net defined benefit plan liability is included in our “
Other long-term
liabilities
” and “
Compensation and benefits
” line items in “Acquisition of AJRD” section of
Note 13: Acquisitions and Divestitures
.
Actuarial gains in the PBO as of
January 3, 2025
were primarily the result of higher discount rates. Actuarial
losses in the PBO as of
December 29, 2023
were primarily the result of lower discount rates.
_____________________________________________________________________
63
|
|
January 3, 2025
|
December 29, 2023
|
|||||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Total
|
Pension
|
Other
Benefits
|
Total
|
|||||
|
Assets of business held for sale
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Other non-current assets
|
|
|
|
|
|
|
|||||
|
Compensation and benefits
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
|
Other long-term liabilities
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
(loss)
” line item in our
Consolidated Balance Sheet
:
|
|
January 3, 2025
|
December 29, 2023
|
|||||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Total
|
Pension
|
Other
Benefits
|
Total
|
|||||
|
Actuarial (gain) loss
|
$
(
|
$
(
|
$
(
|
$
|
$
(
|
$
|
|||||
|
Net prior service (credit) cost
|
(
|
|
(
|
(
|
|
(
|
|||||
|
Total recognized in accumulated other
comprehensive income (loss), pre-tax
|
$
(
|
$
(
|
$
(
|
$
|
$
(
|
$
(
|
|||||
|
January 3, 2025
|
December 29, 2023
|
||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
|||
|
PBO
|
|
|
|
|
|||
|
Fair value of plan assets
|
|
|
|
|
|||
Accumulated Benefit Obligation (
“
ABO
”
):
The
ABO
for all defined benefit pension plans was
$
7,585
million
and
$
8,563
million
at
January 3, 2025
and
December 29, 2023
, respectively.
The following table provides information
for our defined benefit plans with
ABO
in excess of plan assets:
|
January 3, 2025
|
December 29, 2023
|
||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
|||
|
ABO
|
$
|
N/A
|
$
|
N/A
|
|||
|
Fair value of plan assets
|
|
N/A
|
|
N/A
|
|||
_____________________________________________________________________
64
Net Periodic Benefit Income.
We record the service cost component of net periodic benefit income in the “
Cost
of revenue
” and “
General and administrative expenses
” line items and the non-service cost components in the
“
Non-service FAS pension income and other, net
” line item in our
Consolidated Statement of Operations
.
other comprehensive income:
|
Fiscal Year Ended
|
|||||||||||
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
|||||||||
|
(In millions)
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
T
o
t
a
l
|
Pension
|
Other
Benefits
|
||||
|
Net periodic benefit income
|
|||||||||||
|
Operating
|
|||||||||||
|
Service cost
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||
|
Non-operating
|
|||||||||||
|
Interest cost
|
|
|
|
|
|
|
|||||
|
Expected return on plan assets
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
|
Amortization of net actuarial (gain) loss
|
(
|
(
|
(
|
(
|
|
(
|
|||||
|
Amortization of prior service (credit) cost
|
(
|
|
(
|
|
(
|
|
|||||
|
Non-service cost periodic benefit income
|
(
|
(
|
(
|
(
|
(
|
(
|
|||||
|
Net periodic benefit income
|
$
(
|
$
(
|
$
(
|
$
(
|
$
(
|
$
(
|
|||||
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income
|
|||||||||||
|
Net actuarial (gain) loss
|
$
(
|
$
(
|
$
(
|
$
(
|
$
|
$
(
|
|||||
|
Prior service (credit) cost
|
(
|
|
|
|
|
|
|||||
|
Amortization of net actuarial gain (loss)
|
|
|
|
|
(
|
|
|||||
|
Amortization of prior service credit (cost)
|
|
(
|
|
(
|
|
(
|
|||||
|
Currency translation adjustment
|
|
|
|
|
|
|
|||||
|
Total change recognized in other
comprehensive income
|
(
|
|
(
|
|
|
(
|
|||||
|
Total impact from net periodic benefit
income and changes in other
comprehensive income
|
$
(
|
$
(
|
$
(
|
$
(
|
$
(
|
$
(
|
|||||
Assumptions.
The following table presents the weighted-average assumptions used to determine the benefit
obligation:
|
January 3, 2025
|
December 29, 2023
|
||||||
|
Pension
(1)
|
Other
Benefits
|
Pension
|
Other
Benefits
|
||||
|
Discount rate
|
|
|
|
|
|||
|
Rate of future compensation increase
|
|
N/A
|
|
N/A
|
|||
|
Cash balance interest crediting rate
|
|
N/A
|
|
N/A
|
|||
_______________
(1)
Key assumptions for our Consolidated Pension Plan include a discount rate o
f
5.49
%
, cash balance interest crediting rate of
4.50
%
and a
_____________________________________________________________________
65
The following table presents the weighted-average assumptions used to determine net periodic benefit income:
|
Fiscal Year Ended
|
|||||||||||
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
|||||||||
|
Pension
(1)
|
Other
Benefits
|
Pension
|
Other
Benefits
|
Pension
|
Other
Benefits
|
||||||
|
Discount rate to determine service cost
|
|
|
|
|
|
|
|||||
|
Discount rate to determine interest cost
|
|
|
|
|
|
|
|||||
|
Expected return on plan assets
|
|
|
|
|
|
|
|||||
|
Rate of future compensation increase
|
|
N/A
|
|
N/A
|
|
N/A
|
|||||
|
Cash balance interest crediting rate
|
|
N/A
|
|
N/A
|
|
N/A
|
|||||
_______________
(1)
Key assumptions for our Consolidated Pension Plan include expected return on plan assets of
7.50
%
, which is being maintained at
7.50
%
for
fiscal
2025
.
The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in
which the plans invest, the weight of each asset class in the strategic allocation, the correlations among asset
classes and their expected volatilities. Our expected rate of return on plan assets is estimated by evaluating both
historical returns and estimates of future returns. Specifically, the determination of the expected long-term rate of
return takes into consideration: (1) the plan’s actual historical annual return on assets over the past
15
-,
20
- and
25
-
year time periods, (2) historical broad market returns over long-term timeframes weighted by the plan’s strategic
allocation and (3) independent estimates of future long-term asset class returns, weighted by the plan’s strategic
allocation. Based on this approach, the long-term expected annual rate of return on assets is estimated at
7.50
%
for
fiscal
2025
for the U.S. defined benefit pension plans. The weighted average long-term expected annual rate of
return on assets for all defined benefit pension plans is estimated to be
7.45
%
for
fiscal 2025
.
The assumed composite rate of future increases in the per capita healthcare costs (the healthcare trend rate) is
Investment Policy.
The investment strategy for managing defined benefit plan assets is to seek an optimal rate
of return relative to an appropriate level of risk. We manage substantially all defined benefit plan assets on a
commingled basis in a master investment trust. In making these asset allocation decisions, we take into account
recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among
the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, we
diversify our investments by strategy, asset class, geography and sector and engage a large number of managers to
gain broad exposure to the markets.
|
|
Target Asset Allocation
|
||
|
Equity investments
|
|
—
|
|
|
Fixed income investments
|
|
—
|
|
|
Alternative investments
|
|
—
|
|
|
Cash and cash equivalents
|
|
—
|
|
_____________________________________________________________________
66
Fair Value of Plan Assets.
The following is a description of the valuation techniques and inputs used to measure
fair value for major categories of investments as reflected in the table that follows such description:
•
Domestic and international equities, which include common and preferred shares, domestic listed and
foreign listed equity securities, open-ended and closed-ended mutual funds, real estate investment trusts
and exchange traded funds, are generally valued at the closing price reported on the major market
exchanges on which the individual securities are traded at the measurement date. Because these assets are
traded predominantly on liquid, widely traded public exchanges, equity securities are categorized as Level 1
assets.
•
Private equity funds are typically limited partnership investment structures. Private equity funds are valued
using a market approach based on NAV calculated by the funds and are not publicly available. Private equity
funds generally have liquidity restrictions that extend for
ten
or more years. At
January 3, 2025
and
December 29, 2023
, our defined benefit plans had future unfunded commitments totaling
$
539
million
and
$
550
million
, respectively, related to private equity fund investments.
•
Real asset funds are typically limited partnership investment structures. Real asset funds are valued using a
market approach based on NAV calculated by the funds and are not publicly available. Real asset funds
generally permit redemption on a quarterly basis with
90
or fewer days-notice. At each of
January 3, 2025
and
December 29, 2023
, our defined benefit plans had
no
future unfunded commitments related to real
asset fund investments.
•
Hedge funds, which include equity long/short, event-driven, fixed-income arbitrage and global macro
strategies, are typically limited partnership investment structures. Limited partnership interests in hedge
funds are valued using a market approach based on NAV calculated by the funds and are not publicly
available. Hedge funds generally permit redemption on a quarterly or more frequent basis with
90
or fewer
days’ notice. At each of
January 3, 2025
and
December 29, 2023
, our defined benefit plans had
no
future
unfunded commitments related to hedge fund investments.
•
Fixed income investments, which include U.S. Government securities, investment and non-investment-
grade corporate bonds and securitized bonds, are generally valued using pricing models that use verifiable,
observable market data such as interest rates, benchmark yield curves and credit spreads, bids provided by
brokers or dealers or quoted prices of securities with similar characteristics. Fixed income investments are
generally categorized as Level 2 assets. Fixed income funds valued at the closing price reported on the
major market exchanges on which the individual fund is traded are categorized as Level 1 assets.
•
Cash and
cash equivalents are primarily comprised of short-term money market funds valued at cost, which
approximates fair value, or valued at quoted market prices of identical instruments. Cash and cash
equivalents currency are categorized as Level 1 assets; cash equivalents, such as money market funds or
short-term commingled funds, are categorized as Level 2 assets.
•
Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient are
not categorized in the fair value hierarchy and are included in the table to permit reconciliation of the fair
value hierarchy to the aggregate defined benefit plan assets.
_____________________________________________________________________
67
and by fair value hierarchy level:
|
|
January 3, 2025
|
||||||
|
(In millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||
|
Asset category
|
|||||||
|
Equities:
|
|||||||
|
Domestic equities
|
$
|
$
|
$
|
$
|
|||
|
International equities
|
|
|
|
|
|||
|
Real estate investment trusts
|
|
|
|
|
|||
|
Fixed income:
|
|||||||
|
Corporate bonds
|
|
|
|
|
|||
|
Government securities
|
|
|
|
|
|||
|
Securitized assets
|
|
|
|
|
|||
|
Fixed income funds
|
|
|
|
|
|||
|
Cash and cash equivalents
|
|
|
|
|
|||
|
Other
|
|
|
|
|
|||
|
Total
|
|
$
|
$
|
$
|
|||
|
Investments measured at NAV:
|
|||||||
|
Equity funds
|
|
||||||
|
Fixed income funds
|
|
||||||
|
Hedge funds
|
|
||||||
|
Private equity funds
|
|
||||||
|
Real asset funds
|
|
||||||
|
Other
|
|
||||||
|
Total investments measured at NAV
|
|
||||||
|
Receivables, net
|
|
||||||
|
Total fair value of plan assets
|
$
|
||||||
|
December 29, 2023
|
|||||||
|
(In millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||
|
Asset category
|
|||||||
|
Equities:
|
|||||||
|
Domestic equities
|
$
|
$
|
$
|
$
|
|||
|
International equities
|
|
|
|
|
|||
|
Real estate investment trusts
|
|
|
|
|
|||
|
Fixed income:
|
|||||||
|
Corporate bonds
|
|
|
|
|
|||
|
Government securities
|
|
|
|
|
|||
|
Securitized assets
|
|
|
|
|
|||
|
Fixed income funds
|
|
|
|
|
|||
|
Cash and cash equivalents
|
|
|
|
|
|||
|
Other
|
|
|
|
|
|||
|
Total
|
|
$
|
$
|
$
|
|||
|
Investments measured at NAV:
|
|||||||
|
Equity funds
|
|
||||||
|
Fixed income funds
|
|
||||||
|
Hedge funds
|
|
||||||
|
Private equity funds
|
|
||||||
|
Real asset funds
|
|
||||||
|
Other
|
|
||||||
|
Total investments measured at NAV
|
|
||||||
|
Receivables, net
|
|
||||||
|
Total fair value of plan assets
|
$
|
||||||
_____________________________________________________________________
68
Contributions.
Funding requirements under IRS rules are a major consideration in making contributions to our
defined benefit plans
. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the
required minimum funding thresholds.
The Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and
further amended by the Worker, Retiree, and Employer Recovery Act of 2008, the Moving Ahead for Progress in the
21st Century Act (“
MAP-21
”) and applicable Internal Revenue Code regulations mandate minimum funding
thresholds.
The Highway and Transportation Funding Act of 2014, the Bipartisan Budget Act of 2015, the American
Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act further extended the interest rate
stabilization provision of
MAP-21
.
In
fiscal 2024
, w
e made approximately
$
30
million
of contributions to our
U.S.
qualified defined benefit pension plans
. As a result of prior voluntary contributions
, we made
no
material
contributions to our U.S. qualified defined benefit pension plans in
fiscal 2023
or
2022
.
We expect to make
contributions of approximately
$
23
million
to these plans during fiscal 2025, and may consider voluntary
contributions thereafter.
Estimated Future Benefit Payments.
The following table provides the projected timing of payments for benefits
earned to date and benefits expected to be earned for future service by current active employees under our defined
benefit plans:
|
(In millions)
|
Pension
|
Other
Benefits
(1)
|
Total
|
||
|
Fiscal Years:
|
|||||
|
2025
|
$
|
$
|
$
|
||
|
2026
|
|
|
|
||
|
2027
|
|
|
|
||
|
2028
|
|
|
|
||
|
2029
|
|
|
|
||
|
2030 — 2034
|
|
|
|
_______________
(1)
Projected payments for Other Benefits reflect net payments from the Company, which include subsidies that reduce the gross payments by
less than
1
%
.
Multi-employer Benefit Plans
Certain of our businesses participate in multi-employer defined benefit pension plans. We make cash
contributions to these plans under the terms of collective-bargaining agreements that cover union employees based
on a fixed rate per hour of service worked by the covered employees. The risks of participating in these multi-
employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the
multi-employer plan by one employer may be used to provide benefits to employees of other participating
employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be
borne by the remaining participating employers and (3) if we choose to stop participating in some of our multi-
employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan,
referred to as a withdrawal liability. Cash contributed and expenses recorded for our multi-employer plans were
not
material in
fiscal 2024
,
2023
or
2022
.
A
t
January 3, 2025
,
we had
stock options and other share-based compensation outstanding under our
2024
Equity Incentive Plan, which was approved by our shareholders on
April 19, 2024
,
as well as under employee equity
incentive plans assumed by L3Harris (collectively, the “
L3Harris SIPs
”).
As part of our long-term incentive
compensation program, we have made awards to employees in the form of
RSUs
,
PSUs
and non-qualified stock
options under the L3Harris SIPs. We have also awarded
RSUs
in the form of deferred units to our non-employee
directors.
We believe that
share-based
awards more closely align the interests of participants with those of
shareholders.
_____________________________________________________________________
69
Statement of Operations
:
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Share-based compensation expense
|
$
|
$
|
$
|
||
|
Amounts recognized in our Consolidated Statement of Operations include:
|
|||||
|
Cost of revenue
|
$
|
$
|
$
|
||
|
General and administrative expenses
|
|
|
|
||
|
Share-based compensation expense, before income taxes
|
|
|
|
||
|
Income taxes on share-based compensation expense
|
(
|
(
|
(
|
||
|
Share-based compensation expense, net of income taxes
|
$
|
$
|
$
|
||
Share
-Based
Compensation Awards
As of
January 3, 2025
, a total of
21.2
million
shares of common stock remained available under our
L3Harris
SIPs
for future issuance (excluding shares to be issued in respect of outstanding stock options, with each full-value
award (e.g.,
RSUs
and
PSUs
) counting as
4.6
shares against the total remaining for future issuance). During
fiscal
2024
, we issued an aggregate of
1.3
million
shares of common stock under the terms of our
L3Harris SIPs
, which is
net of shares withheld for tax purposes.
lapse upon the achievement of continued employment (or board membership) over a specified time period.
The grant-date fair value of these awards was based on the closing price of our common stock on the grant date
outstanding which were payable in shares.
|
(In thousands, except per unit amounts)
|
Units
|
Weighted-Average
Grant-Date Price
Per Unit
|
|
|
RSUs outstanding at December 29, 2023
|
|
$
|
|
|
Granted
|
|
$
|
|
|
Vested
|
(
|
$
|
|
|
Forfeited
|
(
|
$
|
|
|
RSUs outstanding at January 3, 2025
|
|
$
|
As of
January 3, 2025
, there was
$
57
million
of total unrecognized compensation expense related to these
awards under our
L3Harris SIPs
. This expense is expected to be recognized over a weighted-average period of
1.41
years
. The weighted-average grant-date price per unit was
$
211.95
,
$
199.33
and
$
225.58
for awards granted in
fiscal 2024
,
2023
and
2022
, respectively. The total fair value of the awards that vested in
fiscal 2024
,
2023
and
2022
was
$
46
million
,
$
44
million
and
$
69
million
, respectively.
criteria, such as meeting predetermined operating income or earnings per share, ret
urn on invested capital targets
and market conditions, such as total shareholder return, for a
three
-yea
r
performance period. These awards also
generally vest after a
three
-year
performance period. The final determination of the number of shares to be issued in
respect of an award is made by our Board or a committee thereof.
The grant-date fair value of awards with market conditions was determined based on a multifactor Monte Carlo
valuation model that simulates our stock price and TSR relative to other companies in the S&P 500, less a discount
to reflect the delay in payments of cash dividend-equivalents that are made only upon vesting. The fair value of
these awards is amortized to compensation expense over the performance period if achievement of the
_____________________________________________________________________
70
|
(In thousands, except per unit amounts)
|
Units
|
Weighted-Average
Grant-Date Price
Per Unit
|
|
|
PSUs outstanding at December 29, 2023
|
|
$
|
|
|
Granted
|
|
$
|
|
|
Adjustment for achievement of performance measures
|
|
$
|
|
|
Vested
|
(
|
$
|
|
|
Forfeited
|
(
|
$
|
|
|
PSUs outstanding at January 3, 2025
|
|
$
|
As of
January 3, 2025
, there was
$
35
million
of total unrecognized compensation expense related to these
awards under our
L3Harris SIPs
. This expense is expected to be recognized over a weighted-average period of
1.52
years
. The weighted-average grant-date price per unit was
$
230.09
,
$
223.09
and
$
258.83
for awards granted in
fiscal 2024
,
2023
and
2022
, respectively. The total fair value of the awards that vested in
fiscal 2024
,
2023
and
2022
was
$
37
million
,
$
42
million
and
$
41
million
, respectively.
under the
L3Harris SIPs
are equal to or greater than the fair market value of our common stock on the grant date,
using the closing stock price of our common stock. Stock options may be exercised for a period of
ten years
after the
date of grant, and stock options, other than performance stock options, generally become exercisable in
installments, which are typically
33.3
%
one year from the grant date,
33.3
%
two years from the grant date and
performance criteria.
pricing model which used assumptions noted in the following table:
|
Fiscal Year Ended
|
|||||
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
|||
|
Expected dividends
|
|
|
|
||
|
Expected volatility
|
|
|
|
||
|
Risk-free interest rates
|
|
|
|
||
|
Expected term (years)
|
|
|
|
||
Expected volatility over the expected term of the stock options is based on implied volatility from traded stock
options on our common stock and the historical volatility of our stock price. The expected term of the stock options
is based on historical observations of our common stock, considering average years to exercise for all stock options
exercised and average years to cancellation for all stock options canceled, as well as average years remaining for
vested outstanding stock options, which is calculated based on the weighted-average of these three inputs. The
risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield
curve in effect at the time of grant.
_____________________________________________________________________
71
|
Shares
(In thousands)
|
Weighted
Average
Exercise
Price
Per Share
|
Weighted
Average
Remaining
Contractual
Term
(In years)
|
Aggregate
Intrinsic
Value
(In millions)
|
||||
|
Stock options outstanding at December 29, 2023
|
|
$
|
|||||
|
Granted
|
|
$
|
|||||
|
Exercised
|
(
|
$
|
|||||
|
Forfeited or expired
|
(
|
$
|
|||||
|
Stock options outstanding at January 3, 2025
|
|
$
|
|
$
|
|||
|
Stock options exercisable at January 3, 2025
|
|
$
|
|
$
|
The weighted-average grant-date fair value per share was
$
50.99
,
$
54.63
and
$
53.66
for stock options granted
in
fiscal 2024
,
2023
and
2022
, respectively. The total intrinsic value of stock options at the time of exercise was
$
100
million
,
$
23
million
and
$
56
million
for stock options exercised in
fiscal 2024
,
2023
and
2022
, respectively.
|
(In thousands, except per share amounts)
|
Shares
|
Weighted-Average
Grant-Date Fair
Value
Per Share
|
|
|
Unvested stock options at December 29, 2023
|
|
$
|
|
|
Granted
|
|
$
|
|
|
Vested/forfeited, net
|
(
|
$
|
|
|
Unvested stock options at January 3, 2025
|
|
$
|
As of
January 3, 2025
, there was
$
20
million
of total unrecognized compensation expense related to unvested
stock options granted under our
L3Harris SIPs
. This expense is expected to be recognized over a weighted-average
period of
1.80
years
. The total fair value of stock options that vested in
fiscal 2024
,
2023
and
2022
was
$
14
million
,
$
14
million
and
$
42
million
, respectively.
Our operating and finance leases primarily consist of real estate leases for office space, warehouses,
manufacturing, R&D facilities, telecommunication tower space and land and equipment leases.
Lease Costs.
Components of lease costs included in our
Consolidated Statement of Operations
are as follows:
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Operating lease cost
|
$
|
$
|
$
|
||
|
Short-term and equipment lease cost
|
|
|
|
||
|
Variable lease cost
|
|
|
|
||
|
Other, net
(1)
|
|
|
|
||
|
Total lease cost
|
$
|
$
|
$
|
||
______________
(1) Consists of finance lease amortization and interest costs as well as sublease income.
See “Leases” section in
Note 1: Significant Accounting Policies
in these Notes for the line items in our
Consolidated Statement of Operations
where our lease costs are presented.
_____________________________________________________________________
72
Balance Sheet Information.
ROU assets and lease liabilities included in our
Consolidated Balance Sheet
are as
follows:
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Operating Leases
|
|||
|
Other non-current assets
|
$
|
$
|
|
|
Assets of business held for sale
|
|
|
|
|
Total operating lease assets
|
$
|
$
|
|
|
Other current liabilities
|
$
|
$
|
|
|
Other long-term liabilities
|
|
|
|
|
Liabilities of business held for sale
|
|
|
|
|
Total operating lease liabilities
|
$
|
$
800
|
$
|
|
Finance Leases
|
|||
|
Property, plant and equipment
|
$
|
$
|
|
|
Accumulated amortization
|
(
|
(
|
|
|
Property, plant and equipment, net
|
|
|
|
|
Assets of business held for sale
|
|
|
|
|
Total finance lease assets
|
$
|
$
|
|
|
Current portion of long-term debt, net
|
$
|
$
|
|
|
Long-term debt, net
|
|
|
|
|
Liabilities of business held for sale
|
|
|
|
|
Total finance lease liabilities
|
$
|
$
|
|
Fiscal Year Ended
|
|||
|
(In millions, except lease term and discount rate)
|
January 3, 2025
|
December 29, 2023
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|||
|
Net cash provided by operating activities - operating lease payments
|
$
|
$
|
|
|
Assets obtained in exchange for new lease obligations
|
|||
|
ROU assets obtained with operating leases
|
$
|
$
|
|
|
Property, plant and equipment obtained with finance leases
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|||
|
Operating leases
|
|
|
|
|
Finance leases
|
|
|
|
|
Weighted average discount rate
|
|||
|
Operating leases
|
|
|
|
|
Finance leases
|
|
|
|
_____________________________________________________________________
73
|
(In millions)
|
Operating Leases
|
Finance Leases
|
|
|
2025
|
$
|
$
|
|
|
2026
|
|
|
|
|
2027
|
|
|
|
|
2028
|
|
|
|
|
2029
|
|
|
|
|
Thereafter
|
|
|
|
|
Total future lease payments required
(1)
|
|
|
|
|
Less: imputed interest
|
|
|
|
|
Total
|
$
|
$
|
_______________
(1)
On
January 3, 2025
, we had additional future payments on leases of
$
228
million
that had not yet commenced. These leases will commence
between
2025
and
2026
, and have lease terms o
f
three
to
15
years
.
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent
concessions, leasehold improvement incentives or unusual provisions or conditions. We do not consider any
_____________________________________________________________________
74
|
(In millions)
|
Foreign
currency
translation
|
Hedging
derivatives
|
Pension and
other
postretirement
benefits
(1)
|
Total AOCI
|
|||
|
Balance at December 29, 2023
|
$
(
|
$
(
|
$
|
$
(
|
|||
|
Other comprehensive (loss) income, before
reclassifications to earnings and income taxes
|
(
|
(
|
|
|
|||
|
Income taxes
|
|
|
(
|
(
|
|||
|
Other comprehensive (loss) income before
reclassifications to earnings, net of income taxes
|
(
|
(
|
|
|
|||
|
(Gains) losses reclassified to earnings, before income
taxes
(2)
|
(
|
|
(
|
(
|
|||
|
Income taxes
|
|
|
|
|
|||
|
(Gains) losses reclassified to earnings, net of income
taxes
|
(
|
|
(
|
(
|
|||
|
Other comprehensive (loss) income, net of income taxes
|
(
|
(
|
|
|
|||
|
Balance at January 3, 2025
|
$
(
|
$
(
|
$
|
$
|
|||
|
Balance at December 30, 2022
|
$
(
|
$
(
|
$
|
$
(
|
|||
|
Other comprehensive income, before reclassifications to
earnings and income taxes
|
|
|
|
|
|||
|
Income taxes
|
|
(
|
(
|
(
|
|||
|
Other comprehensive income before reclassifications to
earnings, net of income taxes
|
|
|
|
|
|||
|
Losses (gains) reclassified to earnings, before income
taxes
(2)
|
|
|
(
|
(
|
|||
|
Income taxes
|
|
(
|
|
|
|||
|
Losses (gains) reclassified to earnings, net of income
taxes
|
|
|
(
|
(
|
|||
|
Other comprehensive income, net of income taxes
|
|
|
|
|
|||
|
Balance at December 29, 2023
|
$
(
|
$
(
|
$
|
$
(
|
|||
|
Balance at December 31, 2021
|
$
(
|
$
(
|
$
|
$
(
|
|||
|
Other comprehensive loss, before reclassifications to
earnings and income taxes
|
(
|
(
|
(
|
(
|
|||
|
Income taxes
|
|
|
|
|
|||
|
Other comprehensive loss before reclassifications to
earnings, net of income taxes
|
(
|
(
|
(
|
(
|
|||
|
Losses (gains) reclassified to earnings, before income
taxes
(2)
|
|
|
(
|
|
|||
|
Income taxes
|
|
(
|
|
(
|
|||
|
Losses (gains) reclassified to earnings, net of income
taxes
|
|
|
(
|
|
|||
|
Other comprehensive (loss) income, net of income taxes
|
(
|
|
(
|
(
|
|||
|
Balance at December 30, 2022
|
$
(
|
$
(
|
$
|
$
(
|
_______________
(1)
See
Note 9: Retirement Benefits
in these Notes for further information.
(2)
Losses (gains) reclassified to earnings are included in the “
Revenue
,”
“
Cost of revenue
,”
“
Interest expense, net
”
and “
Non-service FAS
pension income and other, net
” line items in our Consolidated Statement of Operations.
_____________________________________________________________________
75
On
January 3, 2023
, we completed the acquisition of TDL for a purchase price of
$
1,958
million
. The acquisition
enhances our networking capability and provides access to the ubiquitous Link 16 waveform, better positioning us to
enable the DoD integrated architecture goal in
JADC2
.
On
November 22, 2022
, we established
Term Loan 2025
with a syndicate of lenders, in part, to finance the
acquisition.
Net assets and results of operations of TDL are reflected in our financial results commencing on
January 3,
2023
, the acquisition date, and are reported within our CS segment, with the exception of acquired intangible
assets, which are recorded in our corporate headquarters.
We accounted for the acquisition of TDL using the acquisition method of accounting, which required us to
measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the acquisition
date, with the excess of the consideration transferred over those fair values recorded as goodwill.
|
(In millions)
|
January 3, 2023
|
|
Purchase price
|
$
|
|
Estimated net working capital and other adjustments
|
|
|
Cash consideration paid
|
|
|
Settlement of preexisting relationship
(1)
|
|
|
Fair value of consideration transferred
|
$
|
_______________
(1)
Prior to the acquisition, we had a preexisting relationship with Viasat’s TDL business in the normal course of business. As of the acquisition
date, our CS segment had a receivable from Viasat’s TDL business with a fair value of
$
1
million
that was settled in connection with the
acquisition.
_____________________________________________________________________
76
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
fiscal year ended
December 29, 2023
.
The following table summarizes the 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
January 3, 2023
|
Measurement Period
Adjustments, Net
(1),(2)
|
Final as of
December 29, 2023
|
||
|
Receivables
|
$
|
$
—
|
$
|
||
|
Contract assets
|
|
|
|
||
|
Inventories, net
|
|
(
|
|
||
|
Other current assets
|
|
—
|
|
||
|
Property, plant and equipment
|
|
(
|
|
||
|
Goodwill
|
|
|
|
||
|
Other intangible assets
|
|
(
|
|
||
|
Deferred income taxes
|
|
|
|
||
|
Other non-current assets
|
|
(
|
|
||
|
Total assets acquired
|
$
|
$
|
$
|
||
|
Accounts payable
|
$
|
$
—
|
$
|
||
|
Contract liabilities
|
|
—
|
|
||
|
Compensation and benefits
|
|
—
|
|
||
|
Other current liabilities
|
|
|
|
||
|
Other long-term liabilities
|
|
|
|
||
|
Total liabilities assumed
|
$
|
$
|
$
|
||
|
Net assets acquired
|
$
|
$
|
$
|
_______________
(1)
Fair value adjustments during the fiscal year ended
December 29, 2023
primarily related to refined assumptions in the valuation of customer
relationship intangible assets.
(2)
Assets acquired include
$
11
million
of
Contract assets
that were reclassified from
Inventories, net
to
Contract assets
to conform TDL’s
accounting policies with those of L3Harris, as required under ASC 805. As such, reclassified amounts will not be recognized as revenue in
future periods.
Intangible Assets.
All intangible assets acquired in the TDL acquisition are subject to amortization.
The fair value and
weighted-average amortization period of identifiable intangible assets acquired as of the acquisition date is as
follows:
|
Total
|
Useful Lives
|
||
|
(In millions)
|
(In Years)
|
||
|
Customer relationships:
|
|||
|
Backlog
|
$
|
|
|
|
Government programs
|
|
|
|
|
Total customer relationships
|
|
||
|
Developed technology
|
|
|
|
|
Total identifiable intangible assets acquired
|
$
|
The fair value of intangible assets is estimated using the relief from royalty method for the acquired developed
technology and the multi-period excess earnings method for the acquired customer relationships. Both of these
level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate
discount rates, royalty rates related to the developed technology intangible assets, revenue growth attributable to
the intangible assets and remaining useful lives.
The fair value of inventory was estimated using the replacement
cost approach and comparative sales method, which require estimates of replacement cost for raw materials and
_____________________________________________________________________
77
estimates of expected sales price less costs to complete and dispose of the inventory, plus a profit margin for efforts
incurred for the work in progress and finished goods.
Goodwill.
The
$
1,143
million
of goodwill recognized is attributable to the assembled workforce, in addition to
synergies expected to be realized through integration with existing CS segment businesses and growth opportunities
in the space domain. The acquired goodwill is tax deductible. See
Note 6: Goodwill and Intangible Assets
in these
Notes for further information.
Financial Results.
The following table includes revenue and income before income taxes of TDL included in our
Consolidated Statement of Operations
for the acquisition date through
December 29, 2023
and the comparable
periods of calendar year 2022. The comparable period results do not include any integration synergies or accounting
conformity adjustments and are not necessarily indicative of our results of operations that actually would have been
obtained had the acquisition of TDL been completed for the period presented, or which may be realized in the future.
|
Fiscal Year Ended
|
|||
|
(In millions)
|
December 29, 2023
|
December 30, 2022
|
|
|
Revenue
|
$
|
$
|
|
|
Income before income taxes
|
|
|
|
Acquisition-Related Costs.
Acquisition-related costs have been expensed as incurred.
In connection with the
TDL
acquisition, we recorded transaction and integration costs of
$
15
million
and
$
78
million
in
fiscal 2024
and
2023, respectively, which were included in the
General and administrative expenses
line item in our
Consolidated
Statement of Operations
.
On
July 28, 2023
, we acquired AJRD, a technology-based engineering and manufacturing company that
develops and produces missile solutions with technologies for strategic defense, missile defense, and hypersonic
and tactical systems, as well as space propulsion and power systems for national security space and exploration
missions. The acquisition provides us access to a new market. We acquired
100
%
percent of AJRD for a total net
purchase price of
$
4,715
million
.
The acquisition was fina
nced through the issuance
and sale of the
AJRD Notes
and
a draw down under the
2023 Credit Agreement
.
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.
|
(In millions)
|
July 28, 2023
|
|
Cash consideration paid for AJRD outstanding common stock & equity awards
|
$
|
|
AJRD debt settled by L3Harris
|
|
|
Cash consideration paid
|
|
|
Less cash acquired
|
(
|
|
Fair value of consideration transferred
|
$
|
_____________________________________________________________________
78
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 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
|
$
|
$
—
|
$
|
||
|
Contract assets
|
|
(
|
|
||
|
Inventories, net
|
|
—
|
|
||
|
Other current assets
|
|
|
|
||
|
Income taxes receivable
|
|
|
|
||
|
Property, plant and equipment
|
|
|
|
||
|
Goodwill
|
|
|
|
||
|
Intangible assets
|
|
—
|
|
||
|
Other non-current assets
|
|
|
|
||
|
Total assets acquired
|
$
|
$
|
$
|
||
|
Current portion of long-term debt, net
|
$
|
$
—
|
$
|
||
|
Accounts payable
|
|
—
|
|
||
|
Contract liabilities
|
|
|
|
||
|
Compensation and benefits
|
|
|
|
||
|
Income taxes payable
|
|
(
|
|
||
|
Other current liabilities
|
|
|
|
||
|
Long-term debt, net
|
|
—
|
|
||
|
Deferred income taxes
|
|
(
|
|
||
|
Other long-term liabilities
|
|
|
|
||
|
Total liabilities assumed
|
$
|
$
|
$
|
||
|
Fair value of consideration transferred
|
$
|
$
|
$
|
_______________
(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 intangible assets acquired 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 (in millions)
|
Useful Lives (in years)
|
||
|
Customer relationships:
|
|||
|
Backlog
|
$
|
|
|
|
Government programs
|
|
|
|
|
Total customer relationships
|
|
||
|
Trade names
|
|
|
|
|
Total identifiable intangible assets acquired
|
$
|
The fair value of intangible assets is estimated using the relief from royalty method for the acquired trade names
and the multi-period excess earnings method for the acquired customer relationships. Both of these level 3 fair
value methods are income-based valuation approaches, which require judgment to estimate appropriate discount
_____________________________________________________________________
79
rates, royalty rates related to the trade names intangible assets, revenue growth attributable to the intangible assets
and remaining useful lives.
Forward Loss Provision.
In connection with the acquisition, we recorded a forward loss provision of
$
363
million
which was included in “
Other current liabilities
” line item in our
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-type 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
Consolidated Statement of Operations
. We recognized
$
125
million
and
$
8
million
of amortization related to the
forward loss provisi
on in
fiscal 2024
and 2023, respectively.
Off-market Customer Contracts.
In connection with the acquisition, we 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
Consolidated Balance Sheet
, respectively, and excludes any amounts already recognized in forward loss provisions
(see discussion in the preceding paragraph).
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-type 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
$
58
million
and
$
14
million
of amortization related to off-market contract liabilities in
fiscal 2024
and 2023, 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 6: Goodwill and Intangible Assets
in these Notes for further information.
Financial Results.
See
Note 14: Business Segments
in these Notes for the AR segment financial results for
fiscal
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
Consolidated Statement of Operations
.
In connection with
the AJRD acquisition
, we recorded transaction and integration costs of
$
78
million
and
$
83
million
for
fiscal 2024
and 2023, respectively.
During the quarter ended
December 29, 2023
, we entered into a definitive
agreement to sell our CAS disposal
group (“CAS agreement”) 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.
On
November 20, 2024
, we entered into an amendment to the CAS agreement (“CAS amendment one”) tha
t,
among other matters, accelerated
the contingent consideration so that it becomes payable at closing, resulting in an
upfront cash purchase price of
$
800
million
,
subject to customary purchase price adjustments
and closing
conditions as set forth in the agreement, and revised certain purchase price adjustment provisions to remove a cap
on working capital payments due to us upon closing. CAS amendment one expired on
January 4, 2025
, prior to us
completing the sale. Subsequent to our
fiscal 2024
year end, on
January 8, 2025
, we entered into a second
amendment to the CAS agreement (“CAS amendment two”) that includes the same terms as CAS a
mendment one
.
The transaction is expected to close in fiscal 2025, subject to the satisfaction of closing conditions as set forth in the
CAS agreement
.
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. Income or loss before income taxes attributable to
_____________________________________________________________________
80
L3Harris Technologies, Inc. was income of
$
121
million
, loss of
$
208
million
and income of
$
88
million
for
fiscal
2024
,
2023
and
2022
, respectively.
Consolidated Balance Sheet
were as follows:
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Receivables, net
|
$
|
$
|
|
|
Contract assets
|
|
|
|
|
Inventories, net
|
|
|
|
|
Other current assets
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
Goodwill
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
Other non-current assets
|
|
|
|
|
Valuation allowance
|
(
|
(
|
|
|
Total assets held for sale
|
$
|
$
|
|
|
Current portion of long-term debt
|
$
|
$
|
|
|
Accounts payable
|
|
|
|
|
Contract liabilities
|
|
|
|
|
Compensation and benefits
|
|
|
|
|
Other current liabilities
|
|
|
|
|
Long-term debt, net
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
Total liabilities held for sale
|
$
|
$
|
In connection with the preparation of our financial statements for
fiscal 2023
, we concluded that goodwill
related to the
CAS disposal group
was impaired and we recorded a non-cash impairment charge of
$
296
million
,
which is included in the “
Impairment of goodwill and other assets
” line item in our
Consolidated Statement of
Operations
. See
Note 6: Goodwill and Intangible Assets
in these Notes for additional information.
Additionally, in
fiscal 2023
we recognized a pre-tax loss of
$
77
million
included in the “
General and administrative expenses
” and
“
Noncontrolling interests, net of income taxes
” line items in our
Consolidated Statement of Operations
.
During t
he three quarters
ended
September 27, 2024
, we recorded an additional valuation allowance due to an
increase in the carrying value of the
CAS disposal group
, and additional remaining estimated costs to sell which
resulted in additional pre-tax losses of
$
44
million
, inclusive of amounts attributable to noncontrolling interest.
As of
January 3, 2025
, the fair value less costs to sell of the
CAS disposal group
was
$
896
million
, inclusive of
consideration related to noncontrolling interest and accumulated other comprehensive income. As a result, in the
quarter ended
January 3, 2025
, we recorded a
$
15
million
reversal of the previously recognized pre-tax losses in
our
Consolidated Statement of Operations
to reduce the cumulative pre-tax losses associated with the CAS disposal
group to
$
106
million
. 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, in our
Consolidated Statement of Operations
.
AOT Disposal Grou
p.
On
January 3, 2025
, we completed the divestiture of our AOT disposal group
, which
produces high performance specialty metal components for defense, aerospace, and commercial products, for cash
proceeds of
$
103
million
. The operating results of the
AOT disposal group
were reported in our AR segment through
the date of divestiture. In connection with the sale, we recognized a pre-tax gain of
$
19
million
included in the
“
General and administrative expenses
” line item in our
Consolidated Statement of Operations
. The carrying amounts
of assets and liabilities included in the
AOT disposal group
sale on
January 3, 2025
were
$
112
million
and
$
28
million
, respectively.
_____________________________________________________________________
81
provides a variety of airborne and ground-based antennas and test equipment for
cash proceeds of
$
170
million
and
a
$
25
million
note
receivable,
included in the “
Other non-current assets
” line item in our
Consolidated Balance
Sheet
at
January 3, 2025
.
The operating results of the
Antenna disposal group
were reported in our SAS segment
through the date of divestiture.
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.
In connection with the sale, we recorded a
non-cash charge for
impairment of goodwill of
$
14
million
and a p
re-tax loss of
$
9
million
included in the “
Impairment of goodwill and
other assets
”
and
“
General and administrative expenses
” line items, respectively, in our
Consolidated Statement of
Operations
for
fiscal 2024
.
See
Note 6: Goodwill and Intangible Assets
in these Notes for additional information
related to goodwill allocated to the
Antenna disposal group
and related impairment.
proceeds of
$
71
million
(after
selling costs and purchase price adjustments)
and recognized a pre-tax gain of
$
26
million
included in the “
General and administrative expenses
” line item in our
Consolidated Statement of
Operations
. The operating results of VIS were reported in the SAS segment through the date of divestiture.
Divestiture and Asset Sale.
During
fiscal 2022
, we completed
one
business divestiture and
one
asset sale from
our IMS segment for combined net cash proceeds of
$
23
million
and recognized a pre-tax gain of
$
8
million
associated with the asset sale included in the “
General and administrative expenses
” line item in our
Consolidated
Statement of Operations
.
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 1: Significant Accounting Policies
in these Notes for additional information regarding the fair value hierarchy and see
Note 6: Goodwill and Intangible
Assets
in these Notes for additional information regarding the impairment of goodwill related to our business
divestitures.
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;
airborne combat
systems
; and mission networks for air traffic management operations; and
IMS:
including multi-mission ISR systems; passive sensing and targ
eting; electronic attack platforms; autonomy;
power and communications; networks; sensors; and the CAS disposal group, which includes aviation products and
pilot training operations; and
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.
Chief Operating Decision Maker (“CODM”)
Our CODM is Christopher E. Kubasik, Chair and CEO. Each of our business segments are regularly reviewed by
the CODM through periodic financial reporting packages to assess the segments performance, allocate resources
and regularly communicate with segment management, who are part of the CODM’s executive staff.
_____________________________________________________________________
82
Business Segment Financial Information
|
Fiscal Year Ended
January 3, 2025
|
||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
Other
(1)
|
Total
|
|
Revenue
|
$
|
$
|
$
|
$
|
$
(
|
$
|
|
Cost of Revenue
|
(
|
(
|
(
|
(
|
|
(
|
|
Other Segment Costs
(2)
|
(
|
(
|
(
|
(
|
|
(
|
|
Unallocated corporate department
expense
|
(
|
|||||
|
Operating income
|
$
|
$
|
$
|
$
|
$
—
|
$
|
|
Non-service FAS pension income
and other, net
|
|
|||||
|
Interest expense, net
|
(
|
|||||
|
Income before income taxes
|
$
|
|||||
|
Fiscal Year Ended
December 29, 2023
|
||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
Other
(1)
|
Total
|
|
Revenue
|
$
|
$
|
$
|
$
|
$
(
|
$
|
|
Cost of Revenue
|
(
|
(
|
(
|
(
|
|
(
|
|
Other Segment Costs
(2)
|
(
|
(
|
(
|
(
|
(
|
(
|
|
Unallocated corporate department
expense
|
(
|
|||||
|
Operating income
|
$
|
$
|
$
|
$
|
$
—
|
$
|
|
Non-service FAS pension income
and other, net
|
|
|||||
|
Interest expense, net
|
(
|
|||||
|
Income before income taxes
|
$
|
|||||
|
Fiscal Year Ended
December 30, 2022
|
||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
Other
(1)
|
Total
|
|
Revenue
|
$
|
$
|
$
|
**
|
$
(
|
$
|
|
Cost of revenue
|
(
|
(
|
(
|
**
|
|
(
|
|
Other Segment Costs
(2)
|
(
|
(
|
(
|
**
|
(
|
(
|
|
Unallocated corporate department
expense
|
(
|
|||||
|
Operating income
|
$
|
$
|
$
|
**
|
$
—
|
$
|
|
Non-service FAS pension income
and other, net
|
|
|||||
|
Interest expense, net
|
(
|
|||||
|
Income before income taxes
|
$
|
|||||
_______________
** Our AR segment was established in the quarter ended September 29, 2023 in connection with the AJRD acquisition. As such, there is no fiscal
2022 information.
(1) Includes corporate headquarters and intersegment eliminations
(2) Other segment costs include
Impairment of goodwill and other assets
, company-funded R&D costs, selling and marketing costs, and other
G&A expenses, which includes a portion of capital expenditure and depreciation and amortization costs that are disaggregated by segment
under the “Disaggregation of Revenue” heading below in this Note.
_____________________________________________________________________
83
Unallocated Corporate Expense.
Total unallocated corporate expense includes corporate items such as a
portion of management and administration, legal, environmental, compensation, retiree benefits, other corporate
expenses and eliminations and the FAS/CAS operating adjustment. Total unallocated corporate expense also
includes 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 related impairment of goodwill; impairment of other assets; LHX NeXt implementation costs;
and other items.
LHX NeXt Initiative.
LHX NeXt is our initiative to transform multiple functions, systems and processes to increase
agility and competitiveness. The LHX NeXt effort is expected to continue for the next
two years
with one-time costs
for workforce optimization, incremental IT expenses for implementation of new systems, third party consulting and
other costs.
Disaggregation of Revenue
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.
|
Fiscal Year Ended
|
|||||||
|
January 3, 2025
|
|||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
|||
|
Revenue By Customer Relationship
|
|||||||
|
Prime contractor
|
$
|
$
|
$
|
$
|
|||
|
Subcontractor
(1)
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Contract Type
|
|||||||
|
Fixed-price
(2)
|
$
|
$
|
$
|
$
|
|||
|
Cost-reimbursable
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Geographical Region
|
|||||||
|
United States
|
$
|
$
|
$
|
$
|
|||
|
International
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
_______________
(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.
_____________________________________________________________________
84
|
Fiscal Year Ended
|
|||||||
|
December 29, 2023
|
|||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
|||
|
Revenue By Customer Relationship
|
|||||||
|
Prime contractor
|
$
|
$
|
$
|
$
|
|||
|
Subcontractor
(1)
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Contract Type
|
|||||||
|
Fixed-price
(2)
|
$
|
$
|
$
|
$
|
|||
|
Cost-reimbursable
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Geographical Region
|
|||||||
|
United States
|
$
|
$
|
$
|
$
|
|||
|
International
|
|
|
|
|
|||
|
Intersegment
|
|
|
|
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
_______________
(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.
|
Fiscal Year Ended
|
|||||||
|
December 30, 2022
|
|||||||
|
(In millions)
|
SAS
|
IMS
|
CS
|
AR
|
|||
|
Revenue By Customer Relationship
|
|||||||
|
Prime contractor
|
$
|
$
|
$
|
**
|
|||
|
Subcontractor
(1)
|
|
|
|
**
|
|||
|
Intersegment
|
|
|
|
**
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Contract Type
|
|||||||
|
Fixed-price
(2)
|
$
|
$
|
$
|
**
|
|||
|
Cost-reimbursable
|
|
|
|
**
|
|||
|
Intersegment
|
|
|
|
**
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
|
Revenue By Geographical Region
|
|||||||
|
United States
|
$
|
$
|
$
|
**
|
|||
|
International
|
|
|
|
**
|
|||
|
Intersegment
|
|
|
|
**
|
|||
|
Total segment
|
$
|
$
|
$
|
$
|
|||
_______________
**
Our AR segment was established in the quarter ended September 29, 2023 in connection with the AJRD acquisition. As such, there is no
fiscal 2022 information.
(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.
_____________________________________________________________________
85
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Geographical Information for Operations
|
|||||
|
Revenue from U.S. operations
|
$
|
$
|
$
|
||
|
Revenue from international operations
|
|
|
|
||
Our products are produced principally in the U.S. with international revenue derived primarily from exports. No
revenue earned from any individual foreign country exceeded
5%
of our total revenue in
fiscal 2024
,
2023
and
2022
.
Revenue from U.S. Government customers, including foreign military sales funded through the U.S. Government,
whether directly or through prime contractors, by all segments as a percentage of total revenue were
76
%
,
76
%
and
Revenue from products and services
where the end consumer is located outside the U.S., including foreign
military sales funded through the U.S. Government, whether directly or through prime contractors,
was
$
4,388
million
(
21
%
of our revenue),
$
4,173
million
(
21
%
of our revenue) and
$
3,908
million
(
23
%
of our revenue) in
fiscal
2024
,
2023
and
2022
, respectively. Export revenue and revenue from international operations in
fiscal 2024
was
principally from the EMEA and APAC regions and Canada.
|
Fiscal Year Ended
|
|||||
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
December 30, 2022
|
||
|
Capital Expenditures
|
|||||
|
SAS
|
$
|
$
|
$
|
||
|
IMS
|
|
|
|
||
|
CS
|
|
|
|
||
|
AR
|
|
|
**
|
||
|
Corporate
|
|
|
|
||
|
Total capital expenditures
|
$
|
$
|
$
|
||
|
Depreciation and Amortization
|
|||||
|
SAS
|
$
|
$
|
$
|
||
|
IMS
|
|
|
|
||
|
CS
|
|
|
|
||
|
AR
|
|
|
**
|
||
|
Corporate
|
|
|
|
||
|
Total depreciation and amortization
|
$
|
$
|
$
|
||
|
Geographical Information for Operations
|
|||||
|
Long-lived assets of U.S. operations
|
$
|
$
|
$
|
||
|
Long-lived assets of international operations
|
|
|
|
||
_______________
**
Our AR segment was established in the quarter ended September 29, 2023 in connection with the AJRD acquisition. As such, there is no
fiscal 2022 information.
In addition to depreciation and amortization expense related to property, plant and equipment, “
Depreciation
and Amortization
” in the table above also includes
$
860
million
,
$
777
million
and
$
596
million
of amortization
related to intangible assets, debt premium, debt discount, debt issuance costs and other items in
fiscal 2024
,
2023
and
2022
, respectively.
_____________________________________________________________________
86
Assets by Business Segment
|
(In millions)
|
January 3, 2025
|
December 29, 2023
|
|
|
Total Assets
|
|||
|
SAS
|
$
|
$
|
|
|
IMS
|
|
|
|
|
CS
|
|
|
|
|
AR
|
|
|
|
|
Corporate
(1)
|
|
|
|
|
Total Assets
|
$
|
$
|
_______________
(1)
Identifiable intangible assets acquired in connection with business combinations were recorded as corporate assets because they benefit
the entire Company. Intangible asset balances recorded as corporate assets were
$
7,639
million
and
$
8,540
million
at
January 3, 2025
and
December 29, 2023
, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred
compensation plan assets, buildings and equipment, real estate held for development and leasing, investments, as well as any assets of
businesses held for sale.
From tim
e to time, as a normal incident of the nature and kind of businesses in which we are or were engaged,
various claims or charges are asserted and litigation or arbitration is commenced by or against us 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 arbitral
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
January 3, 2025
, 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
January 3, 2025
were reserved against or would not have a material adverse effect on our
financial condition, results of operations, cash flows or equity.
Tax Audits
Our tax filings are subject to audit by taxing authorities in jurisdictions where we conduct or conducted business.
These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or
ultimately through legal proceedings. We believe we have adequately accrued for any ultimate amounts that are
likely to result from these audits; however, final assessments, if any, could be different from the amounts recorded
in our
Consolidated Financial Statements
. Additional information regarding audits and examinations by taxing
authorities of our tax filings is set forth in
Note 7: Income Taxes
in these Notes.
U.S. Government Business
We are engaged in supplying products and services to various departments and agencies of the
U.S. Government. We are therefore dependent on Congressional appropriations and administrative allotment of
funds and may be affected by changes in U.S. Government policies. U.S. Government development and production
contracts typically involve long lead times for design and development, are subject to significant changes in contract
scheduling and may be unilaterally modified or canceled by the U.S. Government. Often these contracts call for
successful design and production of complex and technologically advanced products or systems. We may
participate in supplying products and services to the U.S. Government as either a prime contractor or as a
subcontractor to a prime contractor. Disputes may arise between the prime contractor and the U.S. Government or
between the prime contractor and its subcontractors and may result in litigation or arbitration between the
contracting parties.
_____________________________________________________________________
87
Generally, U.S. Government contracts are subject to procurement laws and regulations, including the FAR, which
outline uniform policies and procedures for acquiring products and services by the U.S. Government, and specific
agency acquisition regulations that implement or supplement the FAR, such as the Defense Federal Acquisition
Regulation Supplement. As a U.S. Government contractor, our contract costs are audited and reviewed on a
continuing basis by the Defense Contract Audit Agency (“
DCAA
”). The
DCAA
also reviews the adequacy of, and a
U.S. Government contractor’s compliance with, the contractor’s business systems and policies, including the
contractor’s property, estimating, compensation and management information systems. In addition to these routine
audits, from time to time, we may, either individually or in conjunction with other U.S. Government contractors, be
the subject of audits and investigations by other agencies of the U.S. Government. These audits and investigations
are conducted to determine if our performance and administration of our U.S. Government contracts are compliant
with applicable contractual requirements and procurement and other applicable federal laws and regulations,
including ITAR and FCPA. These investigations may be conducted with or without our knowledge or cooperation. We
are unable to predict the outcome of such investigations or to estimate the amounts of resulting claims or other
actions that could be instituted against us or our officers or employees. Under present U.S. Government
procurement laws and regulations, if indicted or adjudged in violation of procurement or other federal laws, a
contractor, such as us, or one or more of our operating divisions or subdivisions, could be subject to fines, penalties,
repayments, or compensatory or treble damages. U.S. Government regulations also provide that certain findings
against a contractor may lead to suspension or debarment from eligibility for awards of new U.S. Government
contracts for a period of time to be determined by the U.S. Government. Suspension or debarment would have a
material adverse effect on us because of our reliance on U.S. Government contracts. In addition, our export
privileges could be suspended or revoked, which also would have a material adverse effect on us. For further
discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors” of this Report.
International
As an international company, we are, from time to time, the subject of investigations relating to our international
operations, including under U.S. export control laws (such as ITAR), the FCPA and other similar U.S. and
international laws.
Commercial Commitments
In the normal course of business, we have entered into commercial commitments primarily relating to the
guarantee of future performance on certain contracts to provide products and services to customers or to obtain
insurance policies with our insurance carriers.
|
(In millions)
|
Commercial
Commitment Total
|
Commitments
expiring within
1 Year
|
|
|
|
|||
|
Surety bonds used for performance
|
$
|
$
|
|
|
Standby letters of credit used for:
|
|||
|
Advance payments
|
|
|
|
|
Performance
|
|
|
|
|
Financial
|
|
|
|
|
Warranty
|
|
|
|
|
Total standby letters of credit
|
|
|
|
|
Total commitments
|
$
|
$
|
The surety bonds and standby letters of credit used for performance are primarily related to our Public Safety
business sector. As is customary in bidding for and completing network infrastructure projects for public safety
systems, contractors are required to procure surety bonds and/or standby letters of credit for bids, performance,
warranty and other purposes (collectively, “
Performance Bonds
”). Such Performance Bonds normally have
maturities of up to
three years
and are standard in the industry as a way to provide customers a mechanism to seek
redress if a contractor does not satisfy performance requirements under a contract.
Typically, a customer is permitted to draw on a Performance Bond if we do not fulfill all terms of a project
contract. In such an event, we would be obligated to reimburse the financial institution that issued the Performance
Bond for the amounts paid
.
_____________________________________________________________________
88
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
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 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 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.
As of
January 3, 2025
,
we
were named, and continue to be named, as a potentially responsible party at
111
sites where future liabilities could exist. These sites included
13
sites owned by us,
71
sites associated with our
former and current locations or operations and
27
hazardous waste treatment, storage or disposal facility sites not
owned by us that contain hazardous substances allegedly attributable to us fro
m past operations.
Based on an assessment of relevant factors, we estimated that our liability under applicable environmental
statutes and regulations for identified sites was
$
637
million
and
$
613
million
, respectively, as of
January 3, 2025
and
December 29, 2023
. 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
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. Government. We consider the recovery probable based on U.S. Government
contracting regulations. As of
January 3, 2025
and
December 29, 2023
, we had an asset for the recoverable portion
of these reserves of
$
462
million
and
$
432
million
, respectively. 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
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
Not applicable.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES.
|
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15 under the Exchange Act, management, with the participation of our
principal executive
officer (CEO) and principal financial officer (CFO)
, carried out an evaluation of the Company’s disclosure controls and
procedures as of
January 3, 2025
. Based on this evaluation, the CEO and CFO concluded that as of
January 3, 2025
,
our disclosure controls and procedures
were
designed at a reasonable assurance level and were effective to provide
reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and
that such information is accumulated and communicated to management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable
assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
_____________________________________________________________________
89
Our management, with the participation of our CEO and CFO,
assessed
the effectiveness of the Company’s
internal control over financial reporting as of
January 3, 2025
. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal
Control-Integrated Framework
(2013 framework). Based on this assessment, management concluded that the
Company’s internal control over financial reporting was effective as of
January 3, 2025
.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued a report on the
effectiveness of the Company’s internal control over financial reporting. This report appears on the following page of
this Report.
Changes in Internal Control Over Financial Reporting
Other than changes related to incorporating our controls and procedures with respect to AJRD operations, there
have been no changes in our internal control over financial reporting that occurred during the quarter ended
January 3, 2025
that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
_____________________________________________________________________
90
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of L3Harris Technologies, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited L3Harris Technologies, Inc.’s internal control over financial reporting as of
January 3, 2025
, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, L3Harris
Technologies, Inc. (the Company) maintained, in all material respects, effective internal control over financial
reporting as of
January 3, 2025
, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of
January 3, 2025
and
December 29, 2023
,
the related consolidated statements of operations, comprehensive income, cash flows and equity for each of the
three years in the period ended
January 3, 2025
, and the related notes and our report dated
February 14, 2025
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. 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 Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Orlando, Florida
February 14, 2025
_____________________________________________________________________
91
|
ITEM 9B.
|
OTHER INFORMATION.
|
Securities Trading Plans of Directors and Executive Officers
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
|
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)
|
|||
|
|
|
|
Up to
expiring in 2027
|
|||
|
|
|
|
Up to
|
|||
|
|
|
|
Up to
shares of underlying options expiring in
2028
|
_______________
(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 9C.
|
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
|
Not applicable.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
Information regarding our directors, executive officers and corporate governance is included in our Proxy
Statement for our
2025
Annual Meeting of Shareholders scheduled to be held on
April 18, 2025
(our “
2025
Proxy
Statement”), which is expected to be filed within 120 days after the end of our
fiscal 2024
.
Directors.
The information required by this Item with respect to our directors and corporate governance is
incorporated herein by reference to the discussion under the headings
Proposal 1: Election of Directors
and
Corporate Governance
in our
2025
Proxy Statement.
Identification of Executive Officers.
Certain information regarding our executive officers is included in Part I of
this Report under the heading “Information about our Executive Officers” in accordance with General
Instruction G(3) of Form 10-K.
Code of Ethics.
All of our directors and employees, including our Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer and other senior accounting and financial officers, are required to abide by our Code of
Conduct. Our Code of Conduct is posted on our website at
https://www.l3harris.com/resources/other/l3harris-code-
conduct
and is also available free of charge by written request to our Director of Ethics and Compliance, L3Harris
Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. We intend to disclose on the Code of
Conduct section of our website at
https://www.l3harris.com/resources/other/l3harris-code-conduct
any amendment
to, or waiver from, our Code of Conduct that is required to be disclosed to shareholders, within four business days
following such amendment or waiver. The information required by this Item with respect to codes of ethics is
incorporated herein by reference to the discussion under the heading
Code of Conduct
in our
2025
Proxy Statement.
Insider Trading
Policies.
We have adopted an Insider Trading Policy
, which governs the purchase, sale, and/or
other dispositions of our securities by directors, officers and employees and other covered persons and is designed
to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to us. A
copy of our Insider Trading Policy is filed as Exhibit 19 to this Report.
_____________________________________________________________________
92
|
ITEM 11.
|
EXECUTIVE COMPENSATION.
|
The information required by this Item with respect to compensation of our directors and executive officers is
incorporated herein by reference to the discussions under the headings
Director Compensation and Benefits
,
Compensation Discussion and Analysis, Compensation Committee Report, Compensation Tables, CEO Pay Ratio
and
Pay Versus Performance
in our
2025
Proxy Statement.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
The following table provides information about our common stock that may be issued, whether upon the
exercise of options, warrants and rights or otherwise, under our existing equity compensation plans, as of
January 3,
2025
:
|
Plan Category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
(2)
|
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(b)
(2)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans
(excluding securities
reflected in column (a))
(c)
|
|||
|
Equity compensation plans approved by shareholders
(1)
|
3,544,971
|
$191.09
|
21,172,833
|
|||
|
Equity compensation plans not approved by
shareholders
|
—
|
—
|
—
|
|||
|
Total
|
3,544,971
|
191.09
|
21,172,833
|
_______________
(1) Consists of awards under the L3Harris SIPs.
(2)
Under the L3Harris SIPs, in addition to stock options, we have granted share-based compensation awards in the form of
PSUs
,
RSUs
and
other similar types of share-based awards
. As of
January 3, 2025
, there were awards outstanding under those plans with respect to
1,008,116
shares, consisting of awards of (i)
582,326
RSUs
and (ii)
425,790
PSUs
, for which all
1,008,116
were payable in shares but for
which no shares were yet issued and outstanding. The
3,544,971
shares to be issued upon exercise of outstanding options, warrants and
rights as listed in column (a) consisted of shares to be issued in respect of the exercise of
2,536,855
outstanding stock
options
and awards
of
1,008,116
PSUs
and
RSUs
payable in shares. Because there is no exercise price associated with awards of
PSUs
or
RSUs
, all of which are
granted to employees at no cost, such awards are not included in the weighted-average exercise price calculation in column (b).
See
Note 10: Share-Based Compensation
in the Notes for a general description of our share-based incentive
plans.
The other information required by this Item with respect to security ownership of certain of our beneficial
owners and management is incorporated herein by reference to the discussions under the headings
Principal
Shareholders
and
Shares Owned By Directors, Nominees and Executive Officers
in our
2025
Proxy Statement.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
The information required by this Item is incorporated herein by reference to the discussions under the headings
Director Independence Standards
and
Related Person Transactions
in our
2025
Proxy Statement.
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES.
|
The information required by this Item is incorporated herein by reference to the discussion under the heading
Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm
in our
2025
Proxy
Statement.
_____________________________________________________________________
93
PART IV
|
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
|
The following documents are filed as a part of this Report:
|
|
Page
|
|
Financial Statements
|
|
|
The following consolidated financial statements of L3Harris Technologies, Inc. are included in Item 8 of
this Report at the page numbers referenced below:
|
|
|
and
December 30, 2022
....................................................................................................................................
|
|
|
December 29, 2023
and
December 30, 2022
..............................................................................................
|
|
|
Consolidated Balance Sheet
—
January 3, 2025
and
December 29, 2023
...................................................
|
|
|
and
December 30, 2022
...................................................................................................................................
|
|
|
Consolidated Statement of Equity
—
Fiscal Years Ended
January 3, 2025
,
December 29, 2023
and
December 30, 2022
...........................................................................................................................................
|
|
|
Notes to
Consolidated Financial Statements
......................................................................................................
|
|
|
The following report of L3Harris Technologies, Inc.’s independent registered public accounting firm with
respect to the above referenced consolidated financial statements and their report on internal controls
over financial reporting are included in Item 8 and Item 9A of this Report at the page numbers referenced
below:
|
|
|
Financial Statements
..........................................................................................................................................
|
|
|
Over Financial Reporting
....................................................................................................................................
|
|
|
Financial Statement Schedules
|
|
|
All schedules are omitted because they are not applicable, the amounts are not significant or the
required information is shown in the
Consolidated Financial Statements
or the Notes thereto.
|
Exhibits
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with
the SEC:
_____________________________________________________________________
94
**(4)(b) (i) Indenture, dated as of October 1, 1990, between L3Harris Technologies, Inc. (formerly known as
Harris Corporation) and U.S. Bank National Association (as successor to National City Bank), as Trustee,
relating to unlimited amounts of debt securities which may be issued from time to time by L3Harris
Technologies, Inc. (formerly known as Harris Corporation) when and as authorized by L3Harris
Technologies, Inc.’s (formerly known as Harris Corporation) Board of Directors or a Committee of the
Board, incorporated herein by reference to Exhibit 4 to L3Harris Technologies, Inc. (formerly known as
Harris Corporation) Registration Statement on Form S-3, Registration Statement No. 33-35315, filed
with the SEC on June 8, 1990.
Harris Corporation) and U.S. National Association (as successor to National City Bank), incorporated
(4)(c)
(i) Indenture, dated as of September 3, 2003, between L3Harris Technologies, Inc. (formerly known as
Harris Corporation) and The Bank of New York Mellon Trust Company, N.A., as successor to The Bank of
time by L3Harris Technologies, Inc. (formerly known as Harris Corporation) when and as authorized by
(ii) Instrument of Resignation of Trustee, Appointment and Acceptance of Successor Trustee, dated as
(4)(d)
(i) Subordinated Indenture, dated as of September 3, 2003, between L3Harris Technologies, Inc.
_____________________________________________________________________
95
(4)(e) Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), L3Harris Technologies, Inc. by this filing agrees, upon
request, to furnish to the SEC a copy of other instruments defining the rights of holders of long-term
debt of L3Harris Technologies, Inc.
(4)(f)
Description of L3Harris Technologies, Inc.’s Securities, incorporated herein by reference to Exhibit 4(x)
*(10)(b)
L3Harris Technologies, Inc. Executive Change in Control Severance Plan, effective as of July 21, 2023,
*(10)(c)
L3Harris Technologies, Inc. Severance Pay Plan, effective as of March 1, 2020, incorporated herein by
*(10)(d)
L3Harris Technologies, Inc. Annual Incentive Plan (Amended and Restated Effective as of August 28,
*(10)(e)
(i) 2015 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to L3Harris
*(10)(f)
(i) L3Harris Technologies, Inc. 2015 Equity Incentive Plan (Amended and Restated Effective as of August
_____________________________________________________________________
96
*10(g)
(i) L3Harris Technologies, Inc. 2024 Equity Incentive Plan, incorporated herein by reference to Exhibit
*(10)(i)
(i) L3Harris Excess Retirement Savings Plan, as amended and restated effective June 1, 2024,
to L3Harris Technologies, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2,
*(10)(k)
L3Harris Technologies, Inc. 2019 Non-Employee Director Deferred Compensation Plan, incorporated
*(10)(l)
(i) Amended and Restated Master Trust Agreement and Declaration of Trust, made as of December 2,
_____________________________________________________________________
97
Corporation) Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 2010. (Commission
Rabbi Trust Agreement, dated and effective as of February 28, 2019, incorporated herein by reference
*10(n)
Summary of Annual Compensation of L3Harris Technologies, Inc., Non-Employee Directors effective as
**10(o)
Revolving Credit Agreement, dated as of July 29, 2022, by and among L3Harris Technologies, Inc. and
***10(q)
364-Day Credit Agreement, dated January 26, 2024, by and among L3Harris Technologies, Inc. and the
***10(r)
Form of Commercial Paper Dealer Agreement, dated March 14, 2023, between L3Harris Technologies,
*10(t)
Offer Letter, November 4, 2022, between L3Harris Technologies, Inc. and Samir B. Mehta, incorporated
_____________________________________________________________________
98
(97)
Incentive-Based Compensation Recovery Policy, incorporated herein by reference to Exhibit 97 to
L3Harris Technologies, Inc’s Annual Report on Form 10-K for the fiscal year ended December 29, 2023.
(101) The financial information from L3Harris Technologies, Inc.’s Annual Report on Form 10-K for the period
from December 31, 2022 to December 29, 2023 formatted in Inline XBRL (Extensible Business
Reporting Language) includes: (i) the Consolidated Balance Sheet, (ii) the Consolidated Statement of
Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statement
of Changes in Stockholders Equity, (v) the Consolidated Statement of Cash Flows and (vi) the Notes to
the Consolidated Financial Statements.
(104) Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
_______________
* Management contract or compensatory plan or arrangement.
** Paper filing.
*** Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. L3Harris Technologies, Inc. hereby undertakes to furnish
supplementally copies of any of the omitted schedules upon request by the SEC.
|
ITEM 16.
|
FORM 10-K SUMMARY.
|
None.
_____________________________________________________________________
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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L3HARRIS TECHNOLOGIES, INC.
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(Registrant)
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Date: February 14, 2025
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By:
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/s/ Christopher E. Kubasik
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Christopher E. Kubasik
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Chair and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ C
HRISTOPHER
E. K
UBASIK
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Chair and Chief Executive Officer
(Principal Executive Officer)
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February 14, 2025
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Christopher E. Kubasik
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/s/ K
ENNETH
L. B
EDINGFIELD
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Senior Vice President, Chief Financial Officer
and President, Aerojet Rocketdyne
(Principal Financial Officer)
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February 14, 2025
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Kenneth L. Bedingfield
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/s/ J
OHN
P. C
ANTILLON
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Vice President, Principal Accounting Officer
(Principal Accounting Officer)
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February 14, 2025
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John P. Cantillon
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*
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Director
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February 14, 2025
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Sallie B. Bailey
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*
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Director
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February 14, 2025
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Thomas A. Dattilo
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*
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Director
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February 14, 2025
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Roger B. Fradin
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*
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Director
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February 14, 2025
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Joanna L. Geraghty
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*
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Director
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February 14, 2025
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Kirk S. Hachigian
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*
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Director
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February 14, 2025
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Harry B. Harris, Jr.
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*
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Director
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February 14, 2025
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Lewis Hay III
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*
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Director
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February 14, 2025
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Rita S. Lane
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*
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Director
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February 14, 2025
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Robert B. Millard
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*
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Director
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February 14, 2025
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David S. Regnery
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*
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Director
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February 14, 2025
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Edward A. Rice, Jr.
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*
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Director
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February 14, 2025
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William H. Swanson
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*
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Director
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February 14, 2025
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Christina L. Zamarro
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* By Christoph T. Feddersen pursuant to a Power of Attorney executed by the Directors listed above, which has been
filed with this Annual Report on Form 10-K.
Date: February 14, 2025
By:
/s/ Christoph T. Feddersen
Christoph T. Feddersen, Attorney-in-Fact
TABLE OF CONTENTS
Part I. Item 1. BusinessNote 14: BusinessNote 13: Acquisitions and DivestituresNote 9: Retirement BenefitsNote 8: Debt and Credit ArrangementsNote 7: Income TaxesNote 6: Goodwill and Intangible AssetsNote 14: Business SegmentsNote 1: Significant Accounting PoliciesNote 11: LeasesNote 9: Retirement Benefits in The Notes For Further Information Regarding Our Pension PlansNote 15: Legal Proceedings, Commitments andItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 14: Business Segments in These Notes. Corporate Expenses Are Primarily Allocated To Our Business SegmentsNote 2: Earnings Per ShareNote 3: Contract Assets and Contract LiabilitiesNote 4: Inventories, NetNote 5: Property, Plant and Equipment, NetNote 13: Acquisitions andNote 9: GoodwillNote 10: Share-based CompensationNote 12: Accumulated Other Comprehensive Income (loss) ( Aoci )Note 6: Goodwill and IntangibleNote 15: Legal Proceedings, Commitments and ContingenciesItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 16. Form 10-k Summary