filings.toolsL3Harris Technologies 10-K 2022-12-30
Filed 2023-02-24. 23 sections, 667K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 30, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the transition period from _______________ to ______________ |
Commission File Number 1-3863
L3HARRIS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 34-0276860 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1025 West NASA Boulevard | ||||||||||||||
| Melbourne, | Florida | 32919 | ||||||||||||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (321) 727-9100
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $1.00 per share | LHX | New York Stock Exchange |
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.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 ☑
The aggregate market value of the voting common equity held by non-affiliates of the registrant at July 1, 2022 was $46,385,211,550 (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 July 1, 2022 are affiliates.
The number of shares outstanding of the registrant’s common stock as of February 17, 2023 was 190,089,405.
Documents Incorporated by Reference:
Portions of the registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Shareholders scheduled to be held on April 21, 2023, which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 30, 2022, 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 DECEMBER 30, 2022
TABLE OF CONTENTS
Exhibits
This Annual Report on Form 10-K contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K (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 1A. Risk Factors” 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.
Amounts contained in this Report may not always add to totals due to rounding.
PART I
Item 1. BUSINESS.
L3HARRIS
General
L3Harris Technologies, Inc. is a Trusted Disruptor for the aerospace and 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. We support government and commercial customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government and their prime contractors. 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. Each of our fiscal years ended December 30, 2022 (“fiscal 2022”), December 31, 2021 (“fiscal 2021”) and January 1, 2021 (“fiscal 2020”) included 52 weeks. Unless the context otherwise requires, the terms “we,” “our,” “us,” “Company” and “L3Harris” as used in this Report mean the combined company L3Harris Technologies, Inc. and its subsidiaries.
We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in three operating segments: Integrated Mission Systems (“IMS”); Space & Airborne Systems (“SAS”); and Communication Systems (“CS”). Our operating segments are also our reportable segments and are referred to as our business segments. See Note 24: Business Segments in the Notes to Consolidated Financial Statements in this Report (the “Notes”) for further information regarding our business segments, including how we define segment operating income or loss.
Effective January 1, 2022, we streamlined our business segments from four business segments to three business segments. As a result of the segment reorganization, the Aviation Systems segment was eliminated as a business segment and the ongoing operations that had been part of the Aviation Systems segment were integrated into the remaining segments. Defense aviation, commercial aviation products and commercial pilot training
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operations were moved into the Integrated Mission Systems segment; and mission networks for air traffic management operations were moved into the Space & Airborne Systems segment.
Acquisition of Viasat, Inc’s Tactical Data Links (“TDL”) Product Line
On October 3, 2022, we entered into a definitive agreement to acquire the TDL product line for a purchase price of approximately $1.96 billion, subject to customary adjustments. The acquisition was completed on January 3, 2023. This acquisition will enhance our networking capability and provide immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the integrated architecture goal of the U.S. Department of Defense (“DoD”) in joint all-domain command and control (“JADC2”). The TDL product line will be reported within our CS segment in fiscal 2023. See Note 3: Acquisitions and Note 26: Subsequent Events in the Notes for further information.
Pending Acquisition of Aerojet Rocketdyne Holdings, Inc. (“AJRD”)
On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction of approximately $4.7 billion. AJRD is a provider of propulsion systems and energetics for tactical and strategic missiles, missile defense systems and hypersonic applications. AJRD also provides liquid-fuel engines and the propulsion and power systems for in-space crew and cargo transports. Upon closure of the acquisition, we anticipate creating a new business segment. The acquisition is expected to close in fiscal 2023, pending required regulatory approvals and clearances and other customary closing conditions. See “Item 1A - Risk Factors” in this Report for a discussion of risks related to the acquisition. Also, see Note 3: Acquisitions in the Notes for further information.
Description of Business by Segment
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, including revenue, operating income and total assets, and with respect to our operations outside the United States, see Note 24: Business Segments in the Notes, and for additional information with respect to our business segments, see “Discussion of Business Segment Results of Operations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. For a discussion of certain risks affecting our business segments, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Integrated Mission Systems
IMS is a leading developer and integrator of mission systems in the air, land and sea domains. We provide top tier capabilities in the design, development, integration, production and sustainment of intelligence, surveillance and reconnaissance (“ISR”), integrated maritime communications systems and electro optical sensors for U.S. and allied military, civil government and commercial customers in our five business sectors:
ISR: We develop, integrate and maintain multi-mission ISR, signals intelligence and communication systems, including fleet management support services, sensor development, modifications and periodic depot maintenance for ISR and airborne missions. Significant customers include DoD and classified customers within the U.S. Government, U.K. Ministry of Defence, Royal Australian Air Force and other select foreign military services. For example, we provide premier signals intelligence and electronic warfare capability for the U.S. Air Force (“USAF”) Rivet Joint and Compass Call programs.
Maritime: We develop, integrate, manufacture and sustain mission systems in the maritime domain, specializing in integrated command, control, computers, communications, cyber, intelligence, surveillance and reconnaissance systems (“C5ISR”), bridge control, operational security solutions, signals intelligence and multi-intelligence platforms; ship and submarine-sensors; autonomous, unmanned surface and undersea solutions; power and platform control systems and other electronic and electrical products and systems. Significant customers include the U.S. Navy (“USN”), the U.S. Coast Guard, allied navies and other defense users.
Electro Optical: We design and manufacture advanced electro-optical and infrared (“EO/IR”) sensors and surveillance and targeting systems and provide modernization and life extension maintenance upgrade and support services across all domains; Space communications and launch vehicle avionics; and military Global Positioning System (“GPS”) user equipment and fuzing and ordnance systems. Significant customers include the U.S. Army, the USAF, USN, National Aeronautics and Space Administration, Canadian Department of National Defense, commercial space companies and more than 80 foreign militaries. For example, our Wescam system provides the MX and CMX family of turreted EO/IR solutions to airborne, maritime and ground domains for both commercial and military users around the globe.
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Commercial Aviation Solutions: We design and manufacture advanced avionics for commercial, unmanned and military applications. We develop, install and maintain flight simulators and training systems that are customized to commercial aircraft. We also provide commercial pilot training services, including airline training for licensed pilots, academy programs for new cadets and flight school training for pilots. Significant customers include commercial airlines, aircraft manufacturers and foreign military agencies.
Agile Development Group (“ADG”): ADG is an innovation accelerator and collaboration initiative established to rapidly address near-peer, national security threats. ADG is focused on advanced, front-end and rapid capability development, including advanced sensors, mission systems, unmanned systems and weapons systems, which align with customers’ critical needs and where the Company has existing differentiated technologies.
Additional information regarding the composition of IMS revenue of $6.9 billion for fiscal 2022 is as follows:
“U.S. Government Revenue” includes foreign military sales funded through the U.S. Government, whether directly or through prime contractors. “International Revenue” refers to product and service revenue for which the end consumer is located outside the U.S.
For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Space & Airborne Systems
SAS is a leading provider of full 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 major weapons systems for national security, civil government, commercial and international customers in our five business sectors:
Space Systems: We provide end-to-end space and ground-based solutions in support of intelligence, GPS, space exploration, weather and missile defense missions. We are a prime contractor on complete satellite systems, providing advanced payloads and integrated ground systems. Our products, systems and services primarily support the U.S. Space Force, the USAF, the U.S. Intelligence Community, U.S. civil agencies and other national security space prime customers. For example, we are the prime contractor on Space Development Agency (“SDA”) Tracking layer Tranche 0 and 1, building a constellation of space vehicles to provide persistent global missile warning and tracking to national defense authorities.
Intel & Cyber: We provide situational awareness, advanced wireless and cyber solutions for classified intelligence and defense customers.
Mission Avionics: We provide military airborne mission system processing computers, avionics systems and displays, hardened electronics, weapons release systems, data links and antennas supporting fixed wing and rotary platforms, including F-35, F/A-18 and C-130.
Electronic Warfare: We provide full suite electronic warfare capabilities including multi-spectral situational awareness, threat warning and countermeasures capabilities for airborne and maritime platforms, including F/A-18, F-16, and B-52.
Mission Networks: We provide mission-critical infrastructure communications and networking solutions for air traffic management for the U.S. Federal Aviation Administration and international airspace national service providers.
Additional information regarding the composition of SAS revenue of $6.1 billion for fiscal 2022 is as follows:
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For a discussion of certain risks affecting this segment, including risks relating to our U.S. Government contracts and subcontracts, see “Item 1. Business - Principal Customers; Government Contracts,” “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” of this Report.
Communication Systems
CS is focused on enabling warfighters in the multi-domain environment with the resources, capabilities and agility to support today’s mission and innovate solutions for the future. We are a leading provider of communications solutions for DoD, international customers, Federal and state agencies and commercial customers in our five business sectors:
Tactical Communications: We provide tactical radios to the U.S. Army, the USAF, the U.S. Marine Corps, the USN, the U.S. Special Operations Command and international defense customers, including developing and manufacturing software-defined radios for key DoD network modernization programs and satellite communication (“SATCOM”) terminals and battlefield management networks for U.S. and international defense customers. For example, we are providing Handheld, Manpack and Small Form-Fit radios to the U.S. Army.
We operate in this market principally on a commercial market-driven business model.
Broadband Communications: We provide resilient and trusted mission critical networks across all domains, providing connectivity and interoperability to support ISR, tactical operations, networking and electronic attack under any operational scenario in the world.
Integrated Visions Solutions: We design, manufacture and sustain a full suite of helmet-mounted integrated night vision goggles and heads up displays along with Clip-on Weapon Sights and weapon-mounted aiming lasers and range finders.
Public Safety: We provide state-of-art Long-Term Evolution solutions and Land Mobile Radios as well as mission critical systems applications and equipment for Federal, state and local government police and fire first responders, as well as providing integrated professional communications and system solutions for utilities, transit agencies and commercial customers.
Additional information regarding the composition of CS revenue of $4.2 billion for fiscal 2022 is as follows:
For a discussion of certain risks affecting this segment, including risks relating to our supply chain disruptions, see “Item 1. Business - Materials, Suppliers and Seasonality” and “Item 1A. Risk Factors” of this Report.
International Business
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 $3.9 billion (23% of our revenue), $3.9 billion (22% of our revenue) and $3.7 billion (20% of our revenue), in fiscal 2022, 2021
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and 2020, respectively. Direct export sales are primarily denominated in U.S. Dollars, whereas sales from foreign subsidiaries are generally denominated in the local currency of the subsidiary. For financial information regarding our domestic and international operations, including long-lived assets, see Note 24: 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. For further information regarding our international subsidiaries, see Exhibit 21 of this Report.
International revenue for fiscal 2022 came from a large number of countries, and no single foreign country accounted for more than 5% of our total revenue. Some of our exports are paid for by letters of credit, with the balance carried on an open account. Advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of the related costs incurred. Significant foreign government contracts generally require us to provide performance guarantees. In order to remain competitive in international markets, we also enter into offset agreements or recourse or vendor financing arrangements to facilitate sales to certain customers.
We utilize indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale or, in some cases, solicit orders from commercial or government customers for direct sales by us. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be above or below our list prices. Our dealers and distributors generally receive a discount from our list prices and may mark up those prices in setting the final sales prices paid by the customer.
The particular economic, social and political conditions for business conducted outside the U.S. differ from those encountered by U.S. businesses. We believe that the overall business risk for our international business as a whole is somewhat greater than that faced by our domestic businesses as a whole. A description of the types of risks to which we are subject in our international business is contained in “Item 1A. Risk Factors” of this Report. In our opinion, these risks are partially mitigated by the diversification of our international business and the protection provided by letters of credit and advance payments, progress payments and other similar payments.
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”). In each of our markets, we concentrate on the opportunities that we believe are compatible with our resources, overall technological capabilities and objectives. Principal competitive factors in these markets are product and systems quality and reliability; technological capabilities, including reliable, resilient and innovative cyber capabilities; service; past performance; ability to develop and implement complex, integrated solutions; ability to meet delivery schedules; the effectiveness of third-party sales channels in international markets; 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 aerospace and defense companies; principally BAE Systems, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon Technologies and Thales; and, increasingly, 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 Report.
Principal Customers; Government Contracts
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 74%, 75% and 78% in fiscal 2022, 2021 and 2020, respectively. No other customer accounted for more than 5% of our revenue in fiscal 2022. Additional information regarding customers for each of our segments is provided under “Item 1. Business — Description of Business by Segment” of this Report. Our U.S. Government sales are predominantly derived from contracts with departments and agencies of, and prime contractors to, the U.S. Government. Most of the sales in our SAS and IMS segments are made directly or indirectly to the U.S. Government under contracts or subcontracts containing standard government contract clauses providing for redetermination of profits, if applicable, and for termination for the convenience of the U.S. Government or for default based on performance.
Our U.S. Government contracts and subcontracts include both cost-reimbursable and fixed-price contracts. Government-wide Acquisition Contracts (“GWACs”) and multi-vendor indefinite delivery-indefinite quantity (“IDIQ”)
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contracts, which can include task orders for each contract type, require us to compete both for the initial contract and then for individual task or delivery orders under such 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 overhead costs have been made partially or wholly unallowable for reimbursement by statute or regulation. Examples include certain merger and acquisition costs, lobbying costs, charitable contributions, interest expense and certain litigation defense costs.
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 and 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. Accordingly, 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 from the U.S. Government 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. Our production contracts are mainly fixed-price contracts and development contracts are generally cost-reimbursable contracts.
As stated above, U.S. Government contracts are terminable for the convenience of the U.S. Government, as well as for default based on performance. Companies supplying goods and services to the U.S. Government are dependent on Congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. Government policies resulting from various military, political, economic and international developments. Long-term U.S. Government contracts and related orders are subject to cancellation if appropriations for subsequent performance periods become unavailable. Under contracts terminable for the convenience of the U.S. Government, a contractor is entitled to receive payments for its allowable costs and, in general, the proportionate share of fees or earnings for the work done. Contracts that are terminable for default generally provide that the U.S. Government pays only for the work it has accepted and may require the contractor to pay for the incremental cost of re-procurement and may hold the contractor liable for damages. In many cases, there is also uncertainty relating to the complexity of designs, necessity for design improvements and difficulty in forecasting costs and schedules when bidding on developmental and highly sophisticated technical work. Under many U.S. Government contracts, we are required to maintain facility and personnel security clearances complying with DoD and other Federal agency requirements.
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 finally 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.
The U.S. Government has increased its focus on procurement process improvement initiatives and has implemented certain changes in its procurement practices. These developments 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 to our business, financial condition, results of operations, cash flows and equity.
For further discussion of risks relating to U.S. Government contracts, see “Item 1A. Risk Factors”, “Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
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Backlog
Company-wide total backlog was $22.3 billion at December 30, 2022, of which $16.2 billion was funded backlog, compared with $21.1 billion at December 31, 2021, of which $15.2 billion was funded backlog. We expect to recognize approximately 55% of the revenue associated with Company-wide total backlog by the end of 2023 and approximately 75% of the revenue associated with Company-wide total backlog by the end of 2024, with the remainder to be recognized thereafter. However, we can give no assurance of such fulfillment or that our backlog will become revenue in any particular period, if at all. Backlog is subject to delivery delays and program cancellations, which are beyond our control.
We define funded backlog as unfilled firm orders for products and services for which funding has been authorized and, in the case of U.S. Government customers, appropriated. The level of order activity related to U.S. Government programs can be affected by the timing of U.S. Government funding authorizations and project evaluation cycles. Year-over-year comparisons could, at times, be impacted by these factors, among others.
We define unfunded backlog as unfilled firm orders for products and services for which funding has not been authorized and, in the case of U.S. Government customers, appropriated. The determination of the unfunded portion of total backlog involves substantial estimating, particularly with respect to customer requirements contracts and development and production contracts of a cost-reimbursable or incentive nature. We do not include the value of unexercised contract options or potential orders under IDIQ contracts in our unfunded backlog.
For backlog information for each of our business segments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
See Note 23: Backlog in the Notes for additional information regarding Company-wide total backlog.
Research and Development
Company-sponsored R&D costs, which include R&D for commercial products and services and independent R&D related to government products and services, were $603 million, $692 million and $684 million in fiscal 2022, 2021 and 2020, respectively. A portion of our independent R&D costs are allocated among contracts and programs in process under U.S. Government contractual arrangements. Company-sponsored R&D costs not otherwise allocable are charged to expense when incurred. Company-sponsored research is directed to the development of new products and services and to building technological capability in various markets.
Customer-sponsored 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). This research helps strengthen and broaden our technical capabilities. Customer-sponsored research costs are accounted for principally by the percentage-of-completion cost-to-cost method and included in our revenue and cost of product sales and services. See Note 1: Significant Accounting Policies in the Notes for further information on the cost-to-cost percentage-of-completion method of revenue recognition.
Patents and Other Intellectual Property
We consider our patents and other intellectual property, in the aggregate, to constitute an important asset. We own a large portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other intellectual property, including reliable, resilient and innovative cyber capabilities, and we routinely apply for new patents, trademarks and copyrights. We also license intellectual property to and from third parties. As of December 30, 2022, we held approximately 2,300 U.S. patents and 1,800 foreign patents, and had approximately 300 U.S. patent applications pending and 300 foreign patent applications pending. Unpatented research, development and engineering skills also make an important contribution to our business. Although our intellectual property rights in the aggregate are important to our business and the operations of our business segments, we do not consider our business or any business segment to be materially dependent on any single patent, license or other intellectual property right, or any group of related patents, licenses or other intellectual property rights. We are engaged in a proactive patent licensing program and have entered into a number of licenses and cross-license agreements, some of which generate royalty income. Although existing license agreements have generated income in past years and may do so in the future, there can be no assurances we will enter into additional income-producing license agreements. From time to time, we engage in litigation to protect our patents and other intellectual property. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be challenged, invalidated or circumvented, or may not provide competitive advantages. For further discussion of risks relating to intellectual property, see “Item 1A. Risk Factors” of this Report. 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
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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 a valuable asset.
Government Regulations
Our company is subject to various Federal, state, local and international laws and regulations relating to the development, manufacturing, 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, wireless communications, 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.
Import/Export Regulations. We sell products and solutions to customers all over the world and are required to comply with U.S. export control regulations, including the International Traffic in Arms Regulations (“ITAR”) and the U.S. Export Administration Regulations, and economic and trade sanctions programs limiting or banning sales into certain countries. Countries outside of the U.S. have implemented similar controls and sanction regulations. Together, these controls and regulations may impose licensing requirements on exports of certain technology and software from the U.S. and may impact our ability to transact business in certain countries or with certain customers. We have developed compliance programs and training to prevent violations of these programs and regulations, and we regularly monitor changes in the law and regulations and create strategies to deal with changes. Changes in the law may restrict or further restrict our ability to sell products and solutions.
Anti-Corruption Regulations. Because we have significant international operations, we must comply with complex regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act and other local laws prohibiting corrupt payments to governmental officials and anti-competition regulations. We have compliance policies, programs and training to prevent non-compliance with such anti-corruption regulations in the U.S. and outside the U.S. We monitor pending and proposed legislation and regulatory changes that may impact our business and develop strategies to address the changes and incorporate them into existing compliance programs.
Environmental. Our operations are subject to and affected by U.S. Federal, state, local and foreign laws and regulations regarding discharge of materials into the environment or otherwise relating to the protection of the environment. We have previously announced our environmental sustainability goals: to reduce greenhouse gas (“GHG”) emissions by 30% and water usage by 20% from 2019 levels and achieve a 75% solid waste diversion rate (away from landfills) by 2026. We are investing in renewable energy, including entering into a virtual power purchase agreement, and other solutions to achieve our GHG emission reduction target and our other environmental sustainability goals. In 2022, we measured our performance against these goals and exceeded our GHG emissions target, met our water use reduction target and are progressing forward in regards to our solid waste diversion rate from landfill. Additional information is provided in our Sustainability Report which can be found on our Company website, and is not incorporated by reference into this Report.
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 25: Legal Proceedings and Contingencies in the Notes.
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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 for our products. We are dependent on suppliers and subcontractors for a large number of components and subsystems and the ability of our suppliers and subcontractors to adhere to customer or regulatory materials restrictions and to meet performance and quality specifications and delivery schedules. In some instances, we are dependent on one or a few sources, either because of the specialized nature of a particular item or because of local content preference requirements pursuant to which we operate on a given project. In addition, in connection with our U.S. Government contracts, we are required to procure certain materials, components and parts, including microelectronics components, from supply sources approved by the U.S. Government, which may limit the suppliers and subcontractors we may utilize. Although we have been affected by financial and performance issues of some of our suppliers and subcontractors, other than in our CS segment, we have not been materially adversely affected by the inability to obtain materials or products. On occasion, we have experienced component shortages from vendors as a result of pandemics, natural disasters, or the shifting regulatory landscape. These events or regulations may cause a spike in demand for certain electronic components, such as lead-free components, resulting in industry-wide supply chain disruptions.
Revenue and operating income have been, and we expect will continue to be, adversely impacted by supply chain disruptions, primarily in our CS segment. While our product demand remains strong, we can give no assurances and the ultimate extent of the supply chain disruptions to our CS segment remains uncertain. 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
As a global aerospace and defense technology company, our performance is dependent on our highly educated and skilled workforce for our success. Attracting, developing, motivating and retaining highly skilled employees, particularly those with technical, engineering and science backgrounds and experience, is a critical factor in our ability to execute our strategic priorities. We use human capital measures to set goals and monitor performance in several areas, including employee health and safety; talent acquisition, development and retention; and diversity, equity and inclusion.
Workforce Demographics. We had approximately 46,000 employees at December 30, 2022, including approximately 20,000 engineers and scientists. Approximately 88% of our employees are located in the U.S. and a significant number of our employees possess a U.S. Government security clearance. As of December 30, 2022, approximately 2,500, 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 strive to maintain a safe work environment for all employees and eliminate workplace incidents, risks and hazards. We review and monitor our performance closely to reduce Occupational Safety and Health Administration reportable incidents. For fiscal 2022, our total recordable injury rate declined by 17% and lost day injury rate declined by 18%, compared with the previous year, while numerous locations across L3Harris reached one year or more without a recordable injury.
Talent Acquisition, Development and Retention. Our talent acquisition, development and retention strategy is focused on attracting the best talent and recognizing and rewarding performance while continually developing, engaging and retaining high-performing employees. We strive to attract employees in all stages of their careers. In addition to hiring approximately 7,500 new employees, L3Harris was recognized with nearly 15 employer awards or recognitions from external organizations in fiscal 2022. Our development philosophy centers around creating broad experiences, setting “SMART” (specific, measurable, achievable, realistic, and timely) performance goals and offering continuous feedback and learning opportunities. We provide formal and informal development aligned with individual learning styles including: self-directed personal and professional development through e-learning, books and videos; professional certification support; leadership development programs developed in partnership with leading universities; rotational development programs; and on-the-job learning. Annually and quarterly, we assign learning content that supports our “e3” operating system (excellence, everywhere, everyday), Code of Conduct, ethical standards, compliance with laws applicable to our business and responsibility for safety and environmental goals. 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
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and a discretionary paid time off program. In addition, our Ramp program is designed to support employees in transition, including those returning to work from parental leave or preparing for retirement. Finally, we have established a comprehensive listening strategy to help us better understand the employee experience through the use of multiple surveys over the course of the employee lifecycle. We use this feedback, in conjunction with external benchmarking and research, to identify areas in which we can enhance the employee experience and ensure every person feels engaged and motivated to do their best work.
Diversity, Equity and Inclusion. We believe that our future success depends on our ability to continue to innovate and develop new solutions to solve our customers’ most critical challenges, and that diversity of thought, experience, perspective and background drives innovation. We have established two clear goals: half of our workforce will be women and at least a third will be people of color. We are investing in an inclusive, equitable and diverse workforce by supporting a variety of science, technology, engineering and mathematics initiatives. We also have an established diversity council, co-chaired by our CEO and comprised of employee resource group leadership and executives from across the Company, to evaluate and influence the strategies, policies and steps we take to advance diversity, equity and inclusion. We offer nine employee resource groups that bring together employees from diverse backgrounds and foster networking, professional development and community outreach opportunities. We also further build inclusive behaviors and culture through ongoing learning throughout the year, encouraging conversation and action through initiatives like our annual “Day of Understanding” event, “Six Signature Traits for Inclusive Leadership” training and our inaugural virtual “Inclusion Conference.” Finally, we believe that celebrating inclusivity, equity and our unique and diverse backgrounds and experiences makes us stronger, demonstrated by our various listening and communications strategies that celebrate the unique storytelling and voices of employees, such as our “I am L3Harris” series. Through the above and other efforts, we have improved the diversity of our workforce and we continue to work toward our long-term goals.
The table below provides the makeup of our workforce in fiscal 2022:
| Overall | Executive | ||||||||||
| Persons of color(1) | 28% | 20% | |||||||||
| Female population(1) | 25% | 36% | |||||||||
| Veterans(1) | 17% | 17% | |||||||||
| Persons with disabilities(1) | 9% | 8% | |||||||||
| Generational breakout(2): | |||||||||||
| Boomers (1945-1964) | 23% | 25% | |||||||||
| Generation X (1965-1980) | 35% | 58% | |||||||||
| Millennials (1981-1996) | 35% | 17% | |||||||||
| Generation Z (after 1996) | 7% | —% |
(1) Based on employee self-identification
(2) Age ranges align with Pew Research Center definitions.
Additional information regarding our human capital strategy is available in our Diversity, Equity and Inclusion Annual Report that can be found on our company website. Information on our website, including our Diversity, Equity and Inclusion Annual Report, is not incorporated by reference into this Report.
Website Access to L3Harris Reports; Available Information
General. We maintain an Internet website at https://www.l3harris.com. We file 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, with the U.S. Securities and Exchange Commission (“SEC”). These filings are available, free of charge, on our website as soon as reasonably practicable after these reports are electronically filed with or furnished to the SEC. We also will provide the reports in electronic or paper form, free of charge, upon request to our Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. We also make available on our website, free of charge, our annual report to shareholders and proxy statement. 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. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at https://www.sec.gov, and reports we file with or furnish to the SEC are available free of charge at this internet site.
Additional information relating to our business, including our business segments, is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report.
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Corporate Governance Guidelines and Committee Charters. We previously adopted Corporate Governance Guidelines, which are available on the Corporate Governance section of our website at https://www.l3harris.com/company/environmental-social-and-governance. In addition, the charters of each of the standing committees of our Board of Directors, namely, the Audit Committee, Compensation Committee, Finance Committee, Innovation and Cyber Committee and Nominating and Governance Committee, are also available on the Corporate Governance section of our website. A copy of the charters is also available free of charge upon written request to our Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919.
Certifications. We have filed with the SEC the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to this Report. In addition, an annual CEO certification was submitted by our Chief Executive Officer to the New York Stock Exchange (“NYSE”) in May 2022 in accordance with the NYSE’s listing standards, which included a certification that he was not aware of any violation by L3Harris of the NYSE’s corporate governance listing standards.
Item 1A. RISK FACTORS.
We have described many of the trends and other factors that we believe could impact our business and future results in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report. In addition, 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 U.S. Government customers for a significant portion of our revenue, and 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 are highly dependent on sales to U.S. Government customers, primarily defense-related programs with the DoD and a broad range of programs with the U.S. Intelligence Community and other U.S. Government departments and agencies. The percentage of our revenue derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, both directly and through prime contractors, was 74% in fiscal 2022. Therefore, a reduction in U.S. Government funding or a change in U.S. Government spending priorities (in particular, related to the DoD) would significantly reduce our revenue and have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
We operate in highly competitive markets, and the U.S. Government may choose to use contractors other than us, for example as part of competitive bidding processes (through which we expect that a majority of the business we seek will be awarded), or otherwise due to our competitors’ ongoing efforts to expand their business relationships with the U.S. Government. The U.S. Government has increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including multi-vendor IDIQ, GWAC, General Services Administration Schedule 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 and proposals for contracts that may not be awarded to us or may be split with competitors and the risk that we may fail to accurately estimate the resources and costs required to fulfill any contract awarded to us. The current competitive bidding environment has resulted in an increase of bid protests from unsuccessful bidders, which typically extends the time until work on a contract can begin and may result in us experiencing significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or challenging contracts awarded to us.
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. Budget and appropriations decisions made by the U.S. Government are outside of our control and have long-term consequences for our business. U.S. Government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous factors, including sequestration (automatic, across-the-board U.S. Government budgetary spending cuts) and potential alternative funding arrangements. 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. For example, in fiscal 2022, there was a decline in
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demand for fuzing and ordnance systems aligned with DoD budget priorities, which was the driver for charges for impairment of goodwill in our IMS segment. Any inability of the U.S. Government to complete its budget process for any U.S. Government fiscal year (“GFY”), and consequently having to operate on funding levels equivalent to its prior fiscal year pursuant to a “continuing resolution” 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 - Key Developments - 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-plus and time-and-material type contracts. In particular, our fixed-price contracts could subject us to losses in the event of cost overruns or a significant increase in or sustained period of increased inflation.
We generate revenue through various fixed-price, cost-plus and time-and-material contracts. For a general description of our U.S. Government contracts and subcontracts, including a discussion of revenue generated thereunder and of cost-reimbursable versus fixed-price contracts, see “Item 1. Business - Principal Customers; Government Contracts” of this Report. For a description of our revenue recognition policies, see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates - Revenue Recognition” of this Report.
In fiscal 2022, 73% of our revenue was derived from fixed-price contracts which 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, particularly for firm fixed-price contracts 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. 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 certain circumstances, paying the entire cost of its replacement by another provider regardless of the size or foreseeability of any cost overruns that occur over the life of the contract. Because many of these contracts involve new technologies and applications and can last for years, unforeseen events, such as technological difficulties, fluctuations 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 the contractual price becoming less favorable or even unprofitable to us over time (which, especially in the case of sharp and significant sustained inflation, could happen quickly and have long lasting impact), and increased interest rates resulting from inflationary pressures can also impact the fair value of these contracts. 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 major losses if the customer exercises its right to terminate. In addition, some 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 thei
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Item 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
Item 2. PROPERTIES.
Our principal executive offices are located at owned facilities in Melbourne, Florida. As of December 30, 2022, we operated approximately 300 locations in the U.S., Canada, Europe, Oceania, Asia, the Middle East and South America, consisting of approximately 22 million square feet of manufacturing, administrative, R&D, warehousing, engineering and office space, of which we owned approximately 9 million square feet and leased approximately 13 million square feet. There are no material encumbrances on any of our owned facilities. As of December 30, 2022, we had major operations at the following locations:
Integrated Mission Systems — Greenville, Waco, Rockwall and Plano, Texas; Camden, New Jersey; Mirabel and Waterdown, Canada; Anaheim, California; Mason and Cincinnati, Ohio; Tulsa, Oklahoma; Salt Lake City, Utah; Philadelphia, Pennsylvania; Crawley, United Kingdom; and Grand Rapids, Michigan.
Space & Airborne Systems — Palm Bay, Melbourne and Malabar, Florida; Clifton, New Jersey; Rochester and Amityville, New York; Van Nuys, San Diego, San Leandro and Menlo Park, California; Colorado Springs, Colorado; Herndon, Virginia; Fort Wayne, Indiana; Wilmington, Massachusetts; and Alpharetta, Georgia.
Communication Systems — Salt Lake City, Utah; Rochester, New York; Londonderry, New Hampshire; Lynchburg, Virginia; Tempe, Arizona; Farnborough, United Kingdom; Brisbane, Australia; Sunrise, Florida; and Abu Dhabi, United Arab Emirates.
Corporate — Melbourne, Florida; and Washington, D.C.
The following is a summary of the approximate floor space of our offices and facilities in productive use, by segment, at December 30, 2022:
| (In millions) | Approximate Total Square Feet Owned | Approximate Total Square Feet Leased | Approximate Total Square Feet | ||||||||||||||
| Integrated Mission Systems | 2.5 | 8.0 | 10.5 | ||||||||||||||
| Space & Airborne Systems | 4.8 | 2.9 | 7.7 | ||||||||||||||
| Communication Systems | 1.7 | 1.7 | 3.4 | ||||||||||||||
| Corporate | 0.3 | 0.1 | 0.4 | ||||||||||||||
| Total | 9.3 | 12.7 | 22.0 |
In our opinion, our facilities, whether owned or leased, 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 frequently review our anticipated requirements for facilities and 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 8: Property, Plant and Equipment, Net and Note 18: Lease Commitments in the Notes for more information on our owned properties and our lease obligations, respectively. Our facilities and other properties are maintained in good operating condition.
Item 3. LEGAL PROCEEDINGS.
From time to time, as a normal incident of the nature 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 employee 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; environmental matters; or compliance with government procurement or related legal or regulatory requirements. 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. Although it is not always feasible to predict the outcome of these matters with certainty, it is reasonably possible that some lawsuits, claims or proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued.
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
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issues. Due in part to the complexity and pervasiveness of these requirements, we are a party to or have property subject to various litigation, proceedings and remediation obligations. The extent of our financial exposure cannot be reasonably estimated in all cases.
For information regarding the matters discussed above, including material legal proceedings and contingencies, see “Item 1. Business — Governmental Regulations — Environmental Regulations” of this Report and Note 1: Significant Accounting Policies regarding our environmental expenditures and Note 25: Legal Proceedings and Contingencies included in our Notes to Consolidated Financial Statements.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS.
The name, age, position held with us and principal occupation and employment during at least the past five years for each of our executive officers as of February 24, 2023 were as follows:
| Name and Age | Position Currently Held and Past Business Experience | |||||||
| James P. Girard, 46 | Vice President and Chief Human Resources Officer since June 29, 2019. Vice President, Human Resources from July 2015 to June 2019. | |||||||
| Christopher E. Kubasik, 61 | Chair and Chief Executive Officer since June 29, 2022. Vice Chair and Chief Executive Officer from June 29, 2021. Vice Chair, President and Chief Operating Officer from June 29, 2019 to June 29, 2021 to June 29, 2022. Served with L3, as Chairman, Chief Executive Officer and President from May 2018 to June 2019; as Chief Executive Officer and President from January 2018 to May 2018. | |||||||
| Samir B. Mehta, 50 | President, Communication Systems since January 2023. Before joining L3Harris in January 2023, Mr. Mehta worked at Collins Aerospace, a subsidiary of Raytheon Technologies Corporation (“Raytheon”), formerly United Technologies Corporation, as President of Advanced Structures from 2018 to 2022 and President, Aftermarket from 2017 to 2018. Prior to Raytheon, Mr. Mehta spent over 17 years with Sikorsky Aircraft, notably serving as President, Defense Systems and Services. | |||||||
| Scott T. Mikuen, 61 | Senior Vice President, General Counsel and Secretary since February 2013. General Counsel since 2010 and Secretary since 2004. | |||||||
| Corliss J. Montesi, 58 | Vice President and Principal Accounting Officer since August 2021. Vice President, Internal Audit from June 2020 to August 2021. Before joining L3Harris in June 2020, Ms. Montesi worked at Stanley Black and Decker as Vice President, Functional Transformation – Shared Services from 2018 to 2019; and as Vice President, Corporate Controller from 2014 to 2018. | |||||||
| Jonathan P. Rambeau, 50 | President, Integrated Mission Systems since October 2022. Before joining L3Harris, Mr. Rambeau worked at Lockheed Martin Corporation (“Lockheed Martin”) for 26 years, notably serving as Vice President and General Manager, Integrated Warfare Systems and Sensors of the Rotary and Mission Systems business from 2020 to 2022 and Vice President and General Manager, C6ISR, Rotary and Mission Systems from 2016 to 2020. | |||||||
| Sean J. Stackley, 65 | Senior Vice President, Strategy & Growth since October 2022. President, Integrated Mission Systems since June 29, 2019. Served with L3 as Senior Vice President and President of Communications & Networked Systems Segment from September 2018 to June 2019; and as Corporate Vice President, Strategic Advance Programs and Technologies from January 2018 to September 2018. Before joining L3 in January 2018, (Hon.) Mr. Stackley spent four decades in public service, including a 27-year career with the U.S. Navy, where he most recently was Acting Secretary of the Navy from January 2017 to July 2017 and Secretary of the Navy for Research, Development and Acquisition from 2008 to 2017. | |||||||
| Michelle L. Turner, 49 | Senior Vice President and Chief Financial Officer since January 2022. Before joining L3Harris, Ms. Turner worked at Johnson & Johnson as Vice President and Chief Financial Officer of Enterprise Supply Chain from October 2017 to January 2022; at BHP Billiton Petroleum from April 2016 to September 2017 as Vice President and Chief Financial Officer; and at Raytheon as Vice President and Chief Financial Officer of Space & Airborne Systems from June 2012 to March 2016. | |||||||
| Edward J. Zoiss, 58 | President, Space & Airborne Systems since June 29, 2019. President, Electronic Systems from July 2015 to June 2019. Vice President and General Manager, Defense Programs, Government Communications Systems from June 2013 to July 2015. | |||||||
There is no family relationship between any of our executive officers or directors. There are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or elected as an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such. All of our executive officers are elected annually and serve at the pleasure of our Board of Directors.
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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 NYSE, under the ticker symbol “LHX.” According to the records of our transfer agent, as of February 17, 2023, there were 10,087 holders of record of our common stock.
Dividends
We paid per share cash dividends on our common stock of $1.12 each quarterly period of fiscal 2022, $1.02 each quarterly period of fiscal 2021 and $.85 each quarterly period of fiscal 2020. On February 24, 2023, we announced that our Board of Directors increased the quarterly per share cash dividend rate on our common stock from $1.12 to $1.14, commencing with the dividend declared by our Board of Directors for the first quarter of fiscal 2023, for an annualized per share cash dividend rate of $4.56, which was our twenty-second consecutive annual increase in our quarterly cash dividend rate. Our annualized per share cash dividend rate was $4.48 in fiscal 2022, $4.08 in fiscal 2021 and $3.40 in fiscal 2020. Quarterly cash dividends are typically paid in March, June, September and December. We currently expect to continue paying and increasing the rates of cash dividends in the near future, but we can give no assurances concerning payment of future dividends or future dividend increases. The annual declaration of dividends by our Board of Directors 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 of Directors may deem relevant.
L3Harris Stock Performance Graph
The following performance graph and table do not constitute soliciting material and the performance graph and table should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the performance graph and table by reference therein.
The performance graph and table below compare each of the 2 fiscal years in the period ended June 28, 2019, the fiscal transition period for the two quarters ended January 3, 2020, fiscal 2020, fiscal 2021 and fiscal 2022 cumulative total shareholder return, or TSR, of our common stock (the common stock of Harris Corporation prior to the L3Harris Merger on June 29, 2019, and the common stock of L3Harris Technologies, Inc. after the L3Harris Merger) with the comparable cumulative total returns of 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”). The figures in the performance graph and table below assume an initial investment of $100 at the close of business on June 30, 2017 in L3Harris common stock, the S&P 500 and the S&P 500 Aerospace & Defense and the reinvestment of all dividends.
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COMPARISON OF EACH OF THE TWO FISCAL YEARS IN THE PERIOD ENDED JUNE 28, 2019 (PRIOR TO THE L3HARRIS MERGER), THE FISCAL TRANSITION PERIOD FOR THE TWO QUARTERS ENDED JANUARY 3, 2020, FISCAL 2020, FISCAL 2021 AND FISCAL 2022 CUMULATIVE TOTAL RETURN AMONG L3HARRIS, S&P 500 AND S&P 500 AEROSPACE & DEFENSE
| L3HARRIS PERIOD END | June 30, 2017 | June 29, 2018 | June 28, 2019 | January 3, 2020 | January 1, 2021 | December 31, 2021 | December 30, 2022 | ||||||||||||||||
| L3Harris Technologies, Inc. | $ | 100 | $ | 135 | $ | 179 | $ | 201 | $ | 184 | $ | 211 | $ | 210 | |||||||||
| S&P 500 | $ | 100 | $ | 114 | $ | 126 | $ | 140 | $ | 166 | $ | 213 | $ | 175 | |||||||||
| S&P 500 Aerospace & Defense | $ | 100 | $ | 125 | $ | 139 | $ | 152 | $ | 123 | $ | 139 | $ | 163 | |||||||||
Recent Sales of Unregistered Securities
During fiscal 2022, we did not issue or sell any unregistered securities.
Issuer Purchases of Equity Securities
On January 28, 2021, we announced that our Board of Directors approved a $6.0 billion share repurchase authorization under our repurchase program that was in addition to the remaining unused authorization of $210 million as of January 1, 2021. On October 21, 2022, we announced that our Board of Directors approved an additional $3.0 billion share repurchase authorization.
During fiscal 2022, we repurchased 4.7 million shares of our common stock under our share repurchase program for $1.1 billion at an average share price of $231.44, excluding commissions of $0.02 per share. During fiscal 2021, we repurchased 17.1 million shares of our common stock under our share repurchase program for $3.7 billion at an average share price of $215.28, excluding commissions of $0.02 per share. The level and timing of our repurchases depends on a number of factors, including our financial condition, capital requirements, cash flows,
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results of operations, future business prospects and other factors our Board of Directors and management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and are at our discretion and may be suspended or discontinued at any time. Shares repurchased by us are cancelled and retired. The following table sets forth information with respect to repurchases by us of our common stock during the fiscal quarter ended December 30, 2022:
| Period* | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs**(1)** | Maximum approximate dollar value of shares that may yet be purchased under the plans or programs**(1)** ($ in millions) | |||||||||||||||||||
| Month No. 1 | |||||||||||||||||||||||
| (October 1, 2022 - October 28, 2022) | |||||||||||||||||||||||
| Repurchase program(1) | 829,862 | $ | 220.71 | 829,862 | $4,452 | ||||||||||||||||||
| Employee transactions(2) | 4,760 | $ | 220.47 | — | — | ||||||||||||||||||
| Month No. 2 | |||||||||||||||||||||||
| (October 29, 2022 - November 25, 2022) | |||||||||||||||||||||||
| Repurchase program(1) | — | $ | — | — | $4,452 | ||||||||||||||||||
| Employee transactions(2) | 6,380 | $ | 227.36 | — | — | ||||||||||||||||||
| Month No. 3 | |||||||||||||||||||||||
| (November 26, 2022 - December 30, 2022) | |||||||||||||||||||||||
| Repurchase program(1) | — | $ | — | — | $4,452 | ||||||||||||||||||
| Employee transactions(2) | 2,240 | $ | 223.41 | — | — | ||||||||||||||||||
| Total | 843,242 | 829,862 | $4,452 |
*Periods represent our fiscal months.
(1)On October 21, 2022, we announced that our Board of Directors approved a $3.0 billion share repurchase authorization under our share repurchase program that was in addition to the remaining unused authorization of $1.6 billion as of September 30, 2022. 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. As of December 30, 2022, the remaining unused authorization under our repurchase programs was $4.5 billion (as reflected in the table above).
(2)Represents a combination of (a) shares of our common stock delivered to us in satisfaction of the tax withholding obligation of holders of performance units, restricted units or restricted shares that vested during the quarter and (b) performance units, restricted units or restricted shares returned to us upon retirement or employment termination of employees. Our equity incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs.
Item 6. [RESERVED.]
| | | | | | |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
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 2022 compared with fiscal 2021 and fiscal 2021 compared with fiscal 2020. 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 below in this MD&A under “Forward-Looking Statements and Factors that May Affect Future Results.”
We are a Trusted Disruptor for the global aerospace and 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. We support government and commercial customers in more than 100 countries, with our largest customers being
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various departments and agencies of the U.S. Government and their prime contractors. Our products and services have defense and civil government applications, as well as commercial applications. As of December 30, 2022, we had approximately 46,000 employees, including approximately 20,000 engineers and scientists. We generally sell directly to our customers, and we utilize agents and intermediaries to sell and market some products and services, especially in international markets.
We structure our operations primarily around the products and services we sell and the markets we serve, and we report the financial results of our continuing operations in the three operating segments: Integrated Mission Systems, Space & Airborne Systems and Communication Systems. Our operating segments are also our reportable segments and are referred to as our business segments. See Note 24: Business Segments in the Notes for further information regarding our business segments, including how we define segment operating income or loss.
U.S. and International Budget Environment
Our largest customers are various departments and agencies of the U.S. Government — 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 74%, 75% and 78%, in fiscal 2022, 2021 and 2020, respectively.
For the 2023 GFY, which began on October 1, 2022, the President’s budget request (“PBR”) proposed $773 billion of DoD funding, a 4% increase above the amount enacted for the 2022 GFY, and the Senate Appropriations Subcommittee on Defense has supported a $37 billion increase to the PBR, representing a 9% increase year over year. On December 29, 2022, a 2023 GFY DoD budget of $817 billion was enacted. Many of L3Harris’ offerings are supported in the 2023 GFY DoD budget, including responsive satellites, ISR aircraft, tactical communications, networked maritime systems and classified cyber solutions, however, we continue to monitor the political and budget environments and we can give no assurances on the extent of future orders.
In international markets, the North Atlantic Treaty Organization (“NATO”) continues to evolve its strategy on multiple levels. Several countries, including Finland and Sweden, are pursuing NATO membership, while existing NATO members such as the U.K. and France have in recent months committed to increased spending beyond the 2% of gross domestic product target. Recently, additional countries, such as Japan, have followed similar paths with expanded defense budgets. The expectation of increased spending in international markets provides us with the opportunity to offer a range of solutions to international customers, but international sales remain dependent on economic, social and political conditions that may differ from those in the United States as well as changes in export controls and other trade regulations in the United States.
Even with the increases in expected DoD budget proposals and with the overall demand environment both in the U.S. and internationally reflecting the conflict in Ukraine and geopolitical tensions, changes to U.S. Government spending priorities have and could in the future impact our business. A decline in demand for fuzing and ordnance systems due to reduced U.S. Government spending for precision weapons was largely responsible for charges for impairment of goodwill in our IMS segment. See Note 9: Goodwill in the Notes for further information. Other changes in spending priorities in the future could adversely affect our existing programs and future contracts and impact our financial condition and results of operations.
For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business - Principal Customers: Government Contracts,” “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 and may continue to impact our future results. Rising inflation in the U.S. has led to higher costs. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, which raises the cost of borrowing for the Federal government, could in the future impact U.S. Government spending priorities and the demand for our products. Higher interest rates have also had an impact on the fair value of our reporting units and contributed to charges for impairment of goodwill at our IMS and CS segments. See Note 9: Goodwill in the Notes for further information.
To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services; 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. Management has worked to mitigate supply chain disruptions and labor mobility challenges, with modest improvements in the supply chain during the second half of fiscal 2022 for Tactical Communications, our largest product-based business, and increasing stability in labor mobility and employee
_____________________________________________________________________30
attrition. However due to uncertainty in the current environment, there can be no assurances that we will not see further impacts in our financial condition and results of operations.
Acquisition of TDL Product Line
On October 3, 2022, we entered into a definitive agreement to acquire the TDL product line for a purchase price of approximately $1.96 billion, subject to customary adjustments. The acquisition was completed subsequent to fiscal 2022 year-end on January 3, 2023. We used third-party debt borrowings under a new $2.25 billion three-year senior unsecured term loan facility, the Term Loan 2025, to finance the acquisition. The purchase of the TDL product line will enhance our networking capability and provide immediate access to the ubiquitous Link 16 waveform, better positioning us to enable the DoD’s integrated architecture goal in JADC2. The TDL product line will be reported within our CS segment.
Pending Acquisition of AJRD
On December 17, 2022, we entered into a definitive agreement to acquire AJRD in an all-cash transaction of approximately $4.7 billion. AJRD is a provider of propulsion systems and energetics for tactical and strategic missiles, missile defense sys
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. For a discussion of such policies and procedures and the related risks, see “Financial Risk Management” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report, which is incorporated by reference into this Item 7A.
In addition, we are exposed to market return fluctuations on our defined benefit plans. A material adverse decline in the value of these assets and/or the discount rate for PBOs would result in a decrease in the funded status of the defined benefit plans, an increase in net periodic benefit cost and an increase in required funding. To protect against declines in the discount rate (i.e., interest rates), we will continue to monitor the performance of these assets and market conditions as we evaluate the amount of future contributions. For further information, see Note 14: Pension and Other Postretirement Benefits in the Notes, which information is incorporated by reference into this Item 7A.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page | |||||
| Management’s Report on Internal Control Over Financial Reporting | 55 | ||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) on the Consolidated Financial Statements | 56 | ||||
| Report of Independent Registered Public Accounting Firm on the Effectiveness of Internal Control Over Financial Reporting | 59 | ||||
| Consolidated Statement of Operations — Fiscal Year Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 60 | ||||
| Consolidated Statement of Comprehensive Income — Fiscal Year Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 61 | ||||
| Consolidated Balance Sheet — December 30, 2022 and December 31, 2021 | 62 | ||||
| Consolidated Statement of Cash Flows — Fiscal Year Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 63 | ||||
| Consolidated Statement of Equity — Fiscal Year Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 64 | ||||
| Notes to Consolidated Financial Statements | 65 | ||||
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MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The management of L3Harris Technologies, Inc. (the “Company”) 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, based on an appropriate cost-benefit analysis, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. 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 (iii) 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2022. 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 management’s assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 30, 2022.
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 page 59 of this Annual Report on Form 10-K.
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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 December 30, 2022 and December 31, 2021, the related consolidated statements of operations, comprehensive income, cash flows and equity for each of the three years in the period ended December 30, 2022, 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 December 30, 2022 and December 31, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2022, 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 December 30, 2022, 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 24, 2023 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
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
Item 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures that are designed to ensure 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. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15 under the Exchange Act, as of December 30, 2022, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on this work and other evaluation procedures, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that as of December 30, 2022, our disclosure controls and procedures were effective.
(b) Changes in Internal Control: We periodically review our internal control over financial reporting as part of our efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our system of internal control over financial reporting to identify potential changes to our processes and systems that may improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating the activities of business units, migrating certain processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls. In addition, when we acquire new businesses, we incorporate our controls and procedures into the acquired business as part of our integration activities. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Evaluation of Internal Control over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 30, 2022. In making this assessment, our 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 our management’s assessment and those criteria, our management concluded that our internal control over financial reporting was effective as of December 30, 2022. “Management’s Report on Internal Control Over Financial Reporting” is included within “Item 8. Financial Statements and Supplementary Data” of this Report. The effectiveness of our internal control over financial reporting was audited by Ernst & Young LLP, our independent registered public accounting firm, whose unqualified report is included within “Item 8. Financial Statements and Supplementary Data” of this Report.
Item 9B. OTHER INFORMATION.
Not applicable.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
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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 2023 Annual Meeting of Shareholders scheduled to be held on April 21, 2023 (our “2023 Proxy Statement”), which is expected to be filed within 120 days after the end of our fiscal 2022.
(a) Identification of Directors: The information required by this Item with respect to our directors is incorporated herein by reference to the discussion under the headings Proposal 1: Election of Directors and Nominee Biographies in our 2023 Proxy Statement.
(b) 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.
(c) Audit Committee Information; Financial Expert: The information required by this Item with respect to the Audit Committee of our Board of Directors and “audit committee financial experts” is incorporated herein by reference to the discussions under the headings Corporate Governance and Board Committees— Audit Committee in our 2023 Proxy Statement.
(d) Delinquent Section 16(a) Reports: Information related to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the discussion under the heading Delinquent Section 16(a) Reports in our 2023 Proxy Statement.
(e) 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 2023 Proxy Statement.
(f) Policy for Nominees: The information required under Item 407(c)(3) of Regulation S-K is incorporated herein by reference to the discussion under the headings Director Nomination Process and Shareholder Nominations and Proposals in our 2023 Proxy Statement concerning procedures by which shareholders may recommend nominees to our Board of Directors, submit nominees for inclusion in our proxy materials pursuant to our “proxy access” provision of our By-Laws or directly propose nominees for consideration pursuant to our By-Laws but not pursuant to the proxy access provision. No material changes to those procedures have occurred since the disclosure regarding those procedures in our Proxy Statement for our 2022 Annual Meeting of Shareholders. As disclosed in a Current Report on Form 8-K filed by us with the SEC on December 13, 2022, however, we amended and restated our By-Laws on December 8, 2022 to, among other things, (i) require that a shareholder providing notice of its intent to nominate an individual to the Board pursuant to the universal proxy rules adopted by the SEC must comply with all requirements of those rules and provide reasonable evidence of such compliance, upon request; and (ii) enhance the procedural mechanics and disclosure requirements in connection with a shareholder’s request to nominate directors under our advance notice or proxy access by-laws, including by requiring a shareholder delivering a notice pursuant to such by-laws to (a) provide additional background information and disclosures with respect to the shareholder, any nominees proposed by the shareholder and certain other interested persons and (b) update such notice, if necessary, so that it remains true and correct both as of the record date and ten business days prior to the applicable meeting.
Additional information concerning requirements and procedures for shareholders directly nominating directors is contained under the heading Shareholder Nominations and Proposals in our 2023 Proxy Statement.
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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 2023 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as of December 30, 2022 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.
| 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) | 4,503,967 | $162.56 | 14,293,456 | ||||||||
| Equity compensation plans not approved by shareholders | — | — | — | ||||||||
| Total | 4,503,967 | $162.56 | 14,293,456 |
(1) Consists of awards under the L3Harris SIPs.
(2) Under the L3Harris SIPs, in addition to options, we have granted share-based compensation awards in the form of performance shares, shares of restricted stock, performance share units, restricted stock units, shares of immediately vested common stock and other similar types of share-based awards. As of December 30, 2022, there were awards outstanding under those plans with respect to 1,197,838 shares, consisting of awards of (i) 673,495 restricted stock units and (ii) 524,343 performance share units, for which all 1,197,838 were payable in shares but for which no shares were yet issued and outstanding. The 4,503,967 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 3,306,129 outstanding options and in respect of awards of 1,197,838 performance share units and restricted stock units payable in shares. Because there is no exercise price associated with awards of shares of restricted stock, performance share units or restricted stock units, 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 15: Stock Options and Other 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 2023 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 2023 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 2023 Proxy Statement.
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PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Report:
| Page | |||||
| (1) List of Financial Statements Filed as Part of this Report: | |||||
| The following financial statements and reports of L3Harris Technologies, Inc. and its consolidated subsidiaries are included in Item 8 of this Report at the page numbers referenced below: | |||||
| Management’s Report on Internal Control Over Financial Reporting | 55 | ||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) on the Consolidated Financial Statements | 56 | ||||
| Report of Independent Registered Public Accounting Firm on the Effectiveness of Internal Control Over Financial Reporting | 59 | ||||
| Consolidated Statement of Operations — Fiscal Years Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 60 | ||||
| Consolidated Statement of Comprehensive Income — Fiscal Years Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 61 | ||||
| Consolidated Balance Sheet — December 30, 2022 and December 31, 2021 | 62 | ||||
| Consolidated Statement of Cash Flows — Fiscal Years Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 63 | ||||
| Consolidated Statement of Equity — Fiscal Years Ended December 30, 2022, December 31, 2021 and January 1, 2021 | 64 | ||||
| Notes to Consolidated Financial Statements | 65 | ||||
| (2) 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. |
(3) Exhibits:
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC:
(4)(a) Specimen Stock Certificate for L3Harris Technologies, Inc.’s common stock, incorporated herein by reference to Exhibit 4 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on July 1, 2019. (Commission File Number 1-3863)
(4)(b) (i) Indenture, dated as of May 1, 1996, between L3Harris Technologies, Inc. (formerly known as Harris Corporation) and The Bank of New York, 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.’s (formerly known as Harris Corporation) Registration Statement on Form S-3, Registration Statement No. 333-03111, filed with the SEC on May 3, 1996.
(ii) Instrument of Resignation from Trustee and Appointment and Acceptance of Successor Trustee, dated as of November 1, 2002 (effective November 15, 2002), among L3Harris Technologies, Inc. (formerly known as Harris Corporation), JP Morgan Chase Bank, as Resigning Trustee, and The Bank of
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Item 16. FORM 10-K SUMMARY.
None.
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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.
| L3HARRIS TECHNOLOGIES, INC. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: February 24, 2023 | By: | /s/ Christopher E. Kubasik | ||||||||||||
| Christopher E. Kubasik | ||||||||||||||
| Chair and Chief Executive Officer |
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.
| Signature | Title | Date | ||||||||||||||||||
| /s/ CHRISTOPHER E. KUBASIK | Chair and Chief Executive Officer (Principal Executive Officer) | February 24, 2023 | ||||||||||||||||||
| Christopher E. Kubasik | ||||||||||||||||||||
| /s/ MICHELLE L. TURNER | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | February 24, 2023 | ||||||||||||||||||
| Michelle L. Turner | ||||||||||||||||||||
| /s/ CORLISS J. MONTESI | Vice President, Principal Accounting Officer (Principal Accounting Officer) | February 24, 2023 | ||||||||||||||||||
| Corliss J. Montesi | ||||||||||||||||||||
| /s/ SALLIE B. BAILEY | Director | February 24, 2023 | ||||||||||||||||||
| Sallie B. Bailey | ||||||||||||||||||||
| /s/ PETER W. CHIARELLI | Director | February 24, 2023 | ||||||||||||||||||
| Peter W. Chiarelli | ||||||||||||||||||||
| /s/ THOMAS A. CORCORAN | Director | February 24, 2023 | ||||||||||||||||||
| Thomas A. Corcoran | ||||||||||||||||||||
| /s/ THOMAS A. DATTILO | Director | February 24, 2023 | ||||||||||||||||||
| Thomas A. Dattilo | ||||||||||||||||||||
| /s/ ROGER B. FRADIN | Director | February 24, 2023 | ||||||||||||||||||
| Roger B. Fradin | ||||||||||||||||||||
| /s/ JOANNA L. GERAGHTY | Director | February 24, 2023 | ||||||||||||||||||
| Joanna L. Geraghty | ||||||||||||||||||||
| /s/ HARRY B. HARRIS JR | Director | February 24, 2023 | ||||||||||||||||||
| Harry B. Harris, Jr. | ||||||||||||||||||||
| /s/ LEWIS HAY III | Director | February 24, 2023 | ||||||||||||||||||
| Lewis Hay III | ||||||||||||||||||||
| /s/ LEWIS KRAMER | Director | February 24, 2023 | ||||||||||||||||||
| Lewis Kramer | ||||||||||||||||||||
| /s/ RITA S. LANE | Director | February 24, 2023 | ||||||||||||||||||
| Rita S. Lane | ||||||||||||||||||||
| /s/ ROBERT B. MILLARD | Director | February 24, 2023 | ||||||||||||||||||
| Robert B. Millard | ||||||||||||||||||||
| /s/ LLOYD W. NEWTON | Director | February 24, 2023 | ||||||||||||||||||
| Lloyd W. Newton | ||||||||||||||||||||
| /s/ CHRISTINA L. ZAMARRO | Director | February 24, 2023 | ||||||||||||||||||
| Christina L. Zamarro | ||||||||||||||||||||
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