L3Harris Technologies 10-Q 2023-09-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 29, 2023

or

Commission File Number 1-3863

L3HARRIS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (321) 727-9100

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. þ Yes o 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). þ Yes o 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

The number of shares outstanding of the registrant’s common stock as of October 20, 2023 was 189,540,249.

L3HARRIS TECHNOLOGIES, INC.

FORM 10-Q

For the Quarter Ended September 29, 2023

TABLE OF CONTENTS

This Quarterly Report on Form 10-Q (this “Report”) contains trademarks, service marks and registered marks of L3Harris Technologies, Inc. and its subsidiaries. All other trademarks are the property of their respective owners.

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PART I. FINANCIAL INFORMATION

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

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The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements and accompanying Notes. In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2022 Form 10-K. 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.”

OVERVIEW

We are the 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, missiles and munitions 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. 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.

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 75% for the three quarters ended September 29, 2023.

On December 29, 2022, the President signed the National Defense Authorization Act, providing $858 billion of national defense funding for the 2023 U.S. Government fiscal year (“GFY”), of which $816 billion was allotted to the DoD. On March 13, 2023, the DoD released details around the President’s GFY 2024 $886 billion national defense budget request (“2024 PBR”). The PBR includes $842 billion for the DoD, a proposed increase of approximately 3% over the enacted GFY 2023 DoD budget. Many of our offerings funded in the enacted GFY 2023 DoD budget are also supported by the 2024 PBR, including responsive satellites, ISR aircraft, tactical communications and maritime solutions.

On June 3, 2023, the President signed the Fiscal Responsibility Act of 2023 (“FRA”), which suspended the federal debt limit through January 1, 2025 and established new discretionary funding limits for defense and non-defense accounts. The FRA capped GFY 2024 national defense funding at $886 billion, including $842 billion for the DoD specifically, and non-defense funding at $704 billion.

On September 30, 2023, the President signed a short-term Continuing Resolution (“CR”), funding the government for 48 days through November 17, 2023. Congress has until November 17th to enact a full-year GFY 2024 appropriations bill or another CR to fund the government. While operating under a CR, government agencies are allocated a portion of GFY 2023 enacted funds, and DoD is prohibited from starting new programs.

The overall defense spending environment, both in the U.S. and internationally, reflects the continued impacts of the conflicts in Ukraine and geopolitical tensions across Asia and the Middle East, and changes to U.S. Government or international spending priorities have and could in the future impact our business.

See our U.S. Government funding risks and the discussion of our international business risks within Part I: Item 1A. Risk Factors in our Fiscal 2022 Form 10-K.

Economic Environment

The macroeconomic environment continues to present challenges, which have impacted our actual results and may continue to impact our future results. Rising inflation in the U.S. has led to higher input costs. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, raise the cost of borrowing for the Federal government.

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To the extent feasible, we continue to proactively deploy operational improvement strategies and 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.

KEY DEVELOPMENTS

Business Realignment. Effective for fiscal 2023, we adjusted our reporting to better align our businesses and transferred our ADG business (representing $76 million and $233 million of revenue for the quarter and three quarters ended September 29, 2023, respectively, and $93 million and $240 million of revenue for the quarter and three quarters ended September 30, 2022, respectively) from our IMS segment to our SAS segment. See Note A: Basis of Presentation and Summary of Significant Accounting Policies in the Notes for further information.

Acquisition of TDL. On January 3, 2023, we completed the TDL acquisition, which is reported within our CS segment. See Note B: Acquisitions, Divestitures and Asset Sales in the Notes for further information regarding the TDL acquisition.

Acquisition of AJRD and New Business Segment. On July 28, 2023 we completed the acquisition of AJRD. Upon completion of the acquisition, we established a new reportable segment, AR. The operations of AJRD are reported in the newly established AR segment and in our corporate segment. The AR segment consists of missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions.

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RESULTS OF OPERATIONS

Consolidated Results of Operations

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In the normal course of business, we are exposed to the risks associated with foreign currency exchange rates, changes in interest rates and market return fluctuations on our defined benefit plans. Other than the changes in our commercial paper and debt balances discussed in the Liquidity and Capital Resources section of Part I: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations above, there were no material changes during the three quarters ended September 29, 2023, with respect to the information appearing in Part II: Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Fiscal 2022 Form 10-K.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures 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 and accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures. As required by Rule 13a-15 under the Exchange Act, as of September 29, 2023, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our CEO and our CFO, and have concluded that as of September 29, 2023 our disclosure controls and procedures were effective.

Changes in Internal Control

We periodically review our internal control over financial reporting (“ICFR”) 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 ICFR 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.

The TDL acquisition is being integrated into the existing CS segment systems and processes from an ICFR perspective. Further, as part of our acquisition of AJRD, we are in the process of incorporating our controls and procedures with respect to AJRD’s operations, and we will include internal controls with respect to AJRD’s operations in our assessment of the effectiveness of our ICFR as of the end of fiscal 2024. Other than changes related to incorporating our controls and procedures with respect to TDL and AJRD operations, there have been no changes in our ICFR that occurred during the quarter ended September 29, 2023 that have materially affected, or are reasonably likely to materially affect, our ICFR.

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PART II. OTHER INFORMATION

See Note P: Legal Proceedings and Contingencies in the Notes for discussion regarding material legal proceedings and contingencies. Except as set forth in such discussion, there have been no material developments in legal proceedings as reported in Part I: Item 3. Legal Proceedings in our Fiscal 2022 Form 10-K.

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, cash flows and equity as set forth in Part I: Item 1A. Risk Factors in our Fiscal 2022 Form 10-K. There have been no material changes, other than the amendment below, to the risk factors disclosed in our Fiscal 2022 Form 10-K. We may disclose changes to our risk factors or disclose additional risk factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material also may adversely impact our business, financial condition, results of operations, cash flows and equity.

With our acquisition of AJRD, there is increased risk of the release, unplanned ignition, explosion, or improper handling of dangerous materials used in our business, which could disrupt our operations and adversely affect our financial results.

With our acquisition of AJRD, our business operations are subject to increased risk in connection with the handling, production, and disposition of potentially explosive and ignitable energetic materials and other dangerous chemicals, including motors and other materials used in rocket propulsion. The handling, production, transport, and disposition of hazardous materials could result in incidents that temporarily shut down or otherwise disrupt our manufacturing operations and could cause production delays. A release of these chemicals or an unplanned ignition or explosion could result in death or significant injuries to employees and others. Material property damage to us or third parties could also occur. The use of these products in applications by our customers could also result in liability if an explosion, unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic materials, including but not limited to, regulations governing hazardous substances and hazardous waste. The failure to properly store and ultimately dispose of such materials could create significant liability and/or result in regulatory sanctions. Any release, unplanned ignition or explosion could expose us to adverse publicity or liability for damages or cause production delays, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.

The real estate assets acquired as part of our acquisition of AJRD are subject to various risks due to environmental liabilities, regulatory exposure and vulnerability to changes to the real estate market, any of which could adversely affect the value of such assets or our financial results.

The real estate assets acquired as part of our acquisition of AJRD are subject to various risks that could adversely affect the value of such assets or our financial results, including the following:

• our reserves for estimated future environmental obligations relating to real estate assets acquired as part of our acquisition of AJRD may prove to be insufficient;

• we may be unable to complete environmental remediation or to have state and federal environmental restrictions on our real estate assets lifted;

• our real estate assets are subject to various Federal, state, and local regulations and restrictions that may impose significant limitations, including those related to endangered or protected wildlife species, zoning, land use, building, occupancy and other required governmental permits and authorizations, and such regulations and restrictions are subject to change; and

• economic and political uncertainties could have an adverse effect on real estate market conditions, construction costs, availability of labor and materials and other factors in the Sacramento region, where the acquired real estate assets are concentrated, and the real estate industry in general.

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Issuer Purchases of Equity Securities

The following table sets forth information with respect to repurchases by us of our common stock during the quarter ended September 29, 2023:

• 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 $1.5 billion at that time. 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 September 29, 2023, the remaining unused authorization under our repurchase programs was $3.9 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 stock incentive plans provide that the value of shares delivered to us to pay the exercise price of options or to cover tax withholding obligations shall be the closing price of our common stock on the date the relevant transaction occurs.

Sales of Unregistered Equity Securities

During the quarter ended September 29, 2023, we did not issue or sell any unregistered equity securities.

None.

Not applicable.

None.

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The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC:

(2)* Agreement and Plan of Merger, dated as of December 17, 2022, by and among L3Harris Technologies, Inc., Aquila Merger Sub Inc. and Aerojet Rocketdyne Holdings, Inc., incorporated herein by reference to exhibit 2.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with the SEC on December 19, 2022. (Commission File Number 1-3863)

(10.1)** L3Harris Technologies, Inc. Executive Change in Control Severance Plan, effective as of July 21, 2023, incorporated herein by reference to Exhibit 10.1 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with SEC on July 24 2023. (Commission File Number 1-3863)

(10.2)** Summary of Annual Compensation of L3Harris Technologies, Inc. Non-Employee Directors, effective as of January 1, 2024, incorporated herein by reference to Exhibit 10.2 to L3Harris Technologies, Inc.’s Current Report on Form 8-K filed with SEC on July 24 2023. (Commission File Number 1-3863)

(10.3)** Amendment Thirteen to the L3Harris Retirement Savings Plan (as amended and restated effective January 1, 2021) dated July 17, 2023.

(15) Letter Regarding Unaudited Interim Financial Information.

(31.1) Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

(31.2) Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

(32.1) Section 1350 Certification of Chief Executive Officer.

(32.2) Section 1350 Certification of Chief Financial Officer.

(101) The financial information from L3Harris Technologies, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2023 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Statement of Operations, (ii) the Condensed Consolidated Statement of Comprehensive Income (Loss), (iii) the Condensed Consolidated Balance Sheet, (iv) the Condensed Consolidated Statement of Cash Flows, (v) the Condensed Consolidated Statement of Equity, and (vi) the Notes to Condensed Consolidated Financial Statements.

(104) Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.

• Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. L3Harris Technologies, Inc. hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.

** Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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