Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements and accompanying Notes. In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 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 in the defense industry. With customers’ mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government 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

The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 77% for the two quarters ended June 28, 2024.

On March 9, 2024, the President signed the first tranche of U.S. Government fiscal year (“GFY”) 2024 appropriations funding bills into law, which funded six government agencies, including funding for the National Aeronautics and Space Administration, the National Oceanic and Atmospheric Administration, and the Federal Aviation Administration, through the remainder of GFY 2024 which ends on September 30, 2024. A second funding bill, signed into law on March 23, 2024, funded all remaining agencies, including the U.S. Department of Defense (“DoD”), through the remainder of GFY 2024. The bill provides approximately $844 billion in funding for DoD. This was in line with our expectations for modest 3% growth for defense over GFY 2023 levels and in line with the first year of the Fiscal Responsibility Act of 2023 (“FRA”) caps.

On March 11, 2024, the President’s Budget Request for GFY 2025 (“2025 PBR”) was released. The DoD requested $850 billion, a 1% topline increase consistent with the FRA caps.

On April 24, 2024, the President signed into law a supplemental GFY 2024 appropriations package that includes $67 billion in funding for key DoD programs, bringing the DoD funding for GFY 2024 to $911 billion.

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

See our U.S. Government funding risks and the discussion of our international business risks within Part I. Item 1A. Risk Factors in our Fiscal 2023 Form 10-K.

Economic Environment

The macroeconomic environment continues to evolve, which has impacted our business and may continue to impact our future results. The ongoing uncertainty related to the impacts of inflation, as well as increased interest rates, which raises the cost of borrowing for the federal government, could in the future impact U.S. Government spending priorities for our products. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factors in our Fiscal 2023 Form 10-K.

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KEY DEVELOPMENTS

Business Realignment. Effective for fiscal 2024, to better align our businesses, we realigned certain businesses within our SAS and IMS segments. See Note E: Goodwill and Other Intangible Assets in the Notes for further information.

Divestiture. On May 31, 2024, we completed the divestiture of our Antenna Disposal Group**,** which was reported in our SAS segment through the date of divestiture. See Note O: Acquisitions and Divestitures in the Notes for further information.

RESULTS OF OPERATIONS

Consolidated Results of Operations


	Quarter Ended						Two Quarters Ended
(Dollars in millions, except per share amounts)	June 28, 2024			June 30, 2023				June 28, 2024			June 30, 2023








Revenue	$	5,299		$	4,693			$	10,510		$	9,164
Cost of revenue	(3,939)			(3,506)				(7,802)			(6,811)
% of total revenue	74		%	75		%		74		%	74		%
Gross margin	1,360			1,187				2,708			2,353
% of total revenue	25.7		%	25.3		%		25.8		%	25.7		%
General and administrative expenses	(884)			(787)				(1,854)			(1,560)
% of total revenue	17		%	17		%		18		%	17		%


Operating Income	476			400				854			793
Non-service FAS pension income and other, net	86			83				174			165
Interest expense, net	(172)			(111)				(348)			(213)
Income from before income taxes	390			372				680			745
Income taxes	(23)			(21)				(28)			(55)
Effective tax rate	5.9		%	5.6		%		4.1		%	7.4		%
Net income	367			351				652			690
Noncontrolling interests, net of income taxes	(1)			(2)				(3)			(4)
Net income attributable to L3Harris Technologies, Inc.	$	366		$	349			$	649		$	686

Diluted EPS	$	1.92		$	1.83			$	3.40		$	3.60

Revenue and Gross Margin

Quarter Ended Comparison. Revenue increased 13% for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023, primarily due to the inclusion of $581 million of revenue from the acquisition of AJRD, which is reported in our AR segment, and higher revenue of $57 million in our CS segment from increased demand for tactical and broadband communications.

Gross margin increased, largely due to an increase in revenue volume, and gross margin as a percentage of revenue increased slightly for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023.

Two Quarters Ended Comparison. Revenue increased 15% for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily due to the inclusion of $1.1 billion of revenue from the acquisition of AJRD, which is reported in our AR segment, and higher revenue in our CS and SAS segments of $188 million and $88 million, respectively, partially offset by a decrease in revenue in our IMS segment of $37 million.

Gross margin increased, largely due to an increase in revenue volume, and gross margin as a percentage of revenue remained flat for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023.

See the “Segment Product and Service Analysis” and “Discussion of Business Segment Results of Operations” discussion below in this MD&A for further information.

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Segment Product and Service Analysis

The following tables present revenue and cost of revenue from products and services by segment for the quarters ended June 28, 2024 and June 30, 2023:


	Quarter Ended June 28, 2024
(In millions)	SAS		IMS		CS		AR		Eliminations		Total

Revenue
Products	$	1,189	$	1,051	$	1,062	$	382	$	—	$	3,684
Services	505		649		262		199		—		1,615
Intersegment	13		29		22		—		(64)		—
Total	$	1,707	$	1,729	$	1,346	$	581	$	(64)	$	5,299

Cost of revenue
Products	$	909	$	833	$	612	$	291	$	15	$	2,660
Services	407		479		242		153		(2)		1,279
Intersegment	13		29		22		—		(64)		—
Total	$	1,329	$	1,341	$	876	$	444	$	(51)	$	3,939

	Quarter Ended June 30, 2023
	SAS		IMS		CS		AR		Eliminations		Total

Revenue
Products	$	1,222	$	1,085	$	1,040	**		$	—	$	3,347
Services	483		626		237		**		—		1,346
Intersegment	10		24		12		—		(46)		—
Total	$	1,715	$	1,735	$	1,289	$	—	$	(46)	$	4,693

Cost of revenue
Products	$	985	$	840	$	604	**		$	25	$	2,454
Services	381		491		188		**		(8)		1,052
Intersegment	10		24		12		—		(46)		—
Total	$	1,376	$	1,355	$	804	$	—	$	(29)	$	3,506

** AR is a reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

Quarter Ended Comparison. Products revenue increased $337 million for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily from the inclusion of $382 million of products revenue from AR, partially offset by decreases of $34 million and $33 million in products revenue from our IMS and SAS segments, respectively.

Cost of products revenue increased $206 million for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily from the inclusion of $291 million of cost of products revenue from AR, partially offset by a decrease of $76 million in cost of products revenue from our SAS segment.

Services revenue increased $269 million for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 from the inclusion of $199 million of services revenue from AR, as well as increases of $25 million, $23 million and $22 million in services revenue from our CS, IMS, and SAS segments, respectively.

Cost of services revenue increased $227 million for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily from the inclusion of $153 million of cost of services revenue from AR, as well as an increase of $54 million at our CS segment, from higher DoD sales in Tactical Communications during the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 and $26 million at our SAS segment.

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The following tables present revenue and cost of revenue from products and services by segment for the two quarters ended June 28, 2024 and June 30, 2023:


	Two Quarters Ended June 28, 2024
(In millions)	SAS		IMS		CS		AR		Eliminations		Total

Revenue
Products	$	2,399	$	2,076	$	2,069	$	739	$	—	$	7,283
Services	1,031		1,277		535		384		—		3,227
Intersegment	28		45		36		—		(109)		—
Total	$	3,458	$	3,398	$	2,640	$	1,123	$	(109)	$	10,510

Cost of revenue
Products	$	1,837	$	1,617	$	1,214	$	557	$	29	$	5,254
Services	830		960		463		297		(2)		2,548
Intersegment	28		45		36		—		(109)		—
Total	$	2,695	$	2,622	$	1,713	$	854	$	(82)	$	7,802

	Two Quarters Ended June 30, 2023
	SAS		IMS		CS		AR		Eliminations		Total

Revenue
Products	$	2,414	$	2,132	$	1,966	**		$	—	$	6,512
Services	933		1,258		461		**		—		2,652
Intersegment	23		45		25		—		(93)		—
Total	$	3,370	$	3,435	$	2,452	$	—	$	(93)	$	9,164

Cost of revenue
Products	$	1,883	$	1,629	$	1,164	**		$	65	$	4,741
Services	756		975		356		**		(17)		2,070
Intersegment	23		45		25		—		(93)		—
Total	$	2,662	$	2,649	$	1,545	$	—	$	(45)	$	6,811

** AR is a reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

Two Quarters Ended Comparison**.** Products revenue increased $771 million for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily from the inclusion of $739 million of products revenue from AR.

Cost of products revenue increased $513 million for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily from the inclusion of $557 million of cost of products revenue from AR.

Services revenue increased $575 million for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily from the inclusion of $384 million of services revenue from AR, as well as increases of $98 million and $74 million in services revenue from our SAS and CS segments, respectively.

Cost of services revenue increased $478 million for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily from the inclusion of $297 million of cost of services revenue from AR, as well as an increase of $107 million at our CS segment, from higher DoD sales in Tactical Communications and $74 million at our SAS segment.

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General and Administrative Expenses (“G&A”)

G&A expenses were as follows:


	Quarter Ended				Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023

Amortization of acquisition-related intangibles	$	(194)	$	(150)	$	(391)	$	(292)
Company-sponsored R&D costs	(124)		(117)		(238)		(231)
Selling and marketing	(112)		(107)		(225)		(220)
LHX NeXt implementation costs(1)	(48)		(22)		(175)		(35)
Merger, acquisition, and divestiture-related expenses	(21)		(38)		(61)		(88)
Business divestiture-related (losses) gains, net	(24)		26		(24)		26
Impairment of goodwill and other assets	(14)		(30)		(14)		(30)
Other G&A expenses(2)	(347)		(349)		(726)		(690)
Total G&A expenses	$	(884)	$	(787)	$	(1,854)	$	(1,560)

(1)Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental information technology (“IT”) expenses for implementation of new systems.

(2)Other G&A expenses primarily include unallocated corporate expenses and segment G&A expenses.

Quarter Ended Comparison. For the quarter ended June 28, 2024, total G&A expenses increased primarily due to the recognition of pre-tax losses on the sale of our Antenna Disposal Group and pending divestiture of our CAS Disposal Group during the quarter ended June 28, 2024 compared with a pre-tax gain during the quarter ended June 30, 2023 and an increase in amortization of acquisition-related intangibles during the quarter ended June 28, 2024.

Two Quarters Ended Comparison. For the two quarters ended June 28, 2024, total G&A expenses increased primarily due to increases in LHX NeXt implementation costs including $65 million related to employee severance charges and $110 million for third-party consulting expenses, incremental IT expenses for implementation of new systems and other charges, an increase in amortization of acquisition-related intangibles and the recognition of pre-tax losses on the sale of our Antenna Disposal Group and pending divestiture of our CAS Disposal Group during the two quarters ended June 28, 2024 compared with a pre-tax gain during the two quarters ended June 30, 2023.

For more detail on our LHX NeXt initiative and implementation costs, see Note N: Restructuring and Other Exit Costs in the Notes and the “Operating Environment, Strategic Priorities and Key Performance Measures” section in the MD&A in our Fiscal 2023 Form 10-K.

Non-service FAS Pension Income and Other, net

Non-service FAS pension income and other, net was as follows:


	Quarter Ended				Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023		June 28, 2024		June 30, 2023

Non-service FAS pension income(1)	$	81	$	77	$	161	$	154
Other, net(2)	5		6		13		11
Non-service FAS pension income and other, net	$	86	$	83	$	174	$	165

(1)Includes interest cost, expected return on plan assets, amortization of net actuarial gain, and amortization of prior service (credit) cost components of net periodic benefit income under our pension and OPEB plans. See Note H: Retirement Benefits in the Notes for more information on the composition of non-service FAS pension income.

(2)Other, net primarily includes changes in the market value of our rabbi trust assets, gains and losses on our equity investments in nonconsolidated affiliates and royalty income.

Interest Expense, net

Quarter Ended Comparison. Interest expense, net, increased for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily due to interest expense of approximately $44 million and $30 million on the AJRD Notes and the 2024 Notes, respectively, and an increase of $28 million in interest expense on outstanding notes under the CP Program, partially offset by a decrease of $37 million in interest expense on Term Loan 2025, which was repaid on March 14, 2024.

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Two Quarters Ended Comparison. Interest expense, net, increased for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily due to interest expense of approximately $88 million and $35 million on the AJRD Notes and the 2024 Notes, respectively, and an increase of $60 million in interest expense on outstanding notes under the CP Program, partially offset by a decrease of $41 million in interest expense on Term Loan 2025, which was repaid on March 14, 2024.

See Note G: Debt and Credit Arrangements in the Notes for further information.

Income Taxes

During interim periods, we estimate our worldwide forecasted full-year effective tax rate and apply that rate to year-to-date ordinary income in order to compute the year-to-date income tax provision. Although most items will be considered part of the forecasted full-year effective tax rate, there are a number of items that are instead required to be recorded in the interim period in which they occur; such as certain changes in uncertain tax positions, the accrual of interest and penalties, changes in tax laws or rates, and other items as prescribed by GAAP. As a result, there may be quarterly fluctuations in our effective tax rate and the results for the interim periods are not necessarily indicative of the results to be expected for the full year or future periods.

Our ETR was 5.9% and 4.1% for the quarter and two quarters ended June 28, 2024, respectively, and 5.6% and 7.4% for the quarter and two quarters ended June 30, 2023, respectively. The ETR for all periods benefited from R&D credits, tax deductions for FDII, the resolution of specific audit uncertainties and excess tax benefits related to share-based compensation.

Diluted EPS

Quarter Ended Comparison. Diluted EPS increased for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily due to an increase in net income from the combined effects of reasons noted in the sections above, primarily an increase in gross margin, partially offset by an increase in general and administrative expenses.

Two Quarters Ended Comparison. Diluted EPS decreased for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 primarily due to a decrease in net income from the combined effects of reasons noted in the sections above, primarily an increase in general and administrative expenses and interest expense, partially offset by an increase in gross margin.

Discussion of Business Segment Results of Operations

SAS Segment


	Quarter Ended								Two Quarters Ended
	June 28, 2024			June 30, 2023			% Inc/(Dec)		June 28, 2024			June 30, 2023			% Inc/(Dec)

Revenue	$	1,707		$	1,715		—	%	$	3,458		$	3,370		3	%
Operating income	215			168			28	%	431			355			21	%
Operating income as a percentage of revenue (“operating margin”)	12.6		%	9.8		%			12.5		%	10.5		%

Quarter Ended Comparison. SAS segment revenue was flat for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily due to $47 million of lower revenue from continued reduction in legacy airborne platform volume and $16 million lower revenue from the divestiture of the Antenna Disposal Group, partially offset by higher revenues of $39 million and $21 million in Intel and Cyber and Space Systems, respectively and $11 million in Mission Networks.

The increase in SAS segment operating income for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 was primarily due to a $27 million non-cash charge for impairment of other assets during the quarter ended June 30, 2023, in addition to program performance and the benefit of cost savings realized as a result of transformation initiatives during the quarter ended June 28, 2024.

Two Quarters Ended Comparison. The increase in SAS segment revenue for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to higher revenues of $80 million and $65 million in Space Systems and Intel and Cyber, respectively, from program growth and $22 million in Mission Networks from increased volume, partially offset by $56 million of lower revenue from continued reduction in legacy airborne platform volume and $18 million lower revenue from the divestiture of the Antenna Disposal Group.

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The increase in SAS segment operating income for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to $27 million from improved program performance during the two quarters ended June 28, 2024, a $27 million non-cash charge for impairment of other assets during the two quarters ended June 30, 2023 and cost savings realized as a result of transformation initiatives.

IMS Segment


	Quarter Ended								Two Quarters Ended
(Dollars in millions)	June 28, 2024			June 30, 2023			% Inc/(Dec)		June 28, 2024			June 30, 2023			% Inc/(Dec)

Revenue	$	1,729		$	1,735		—	%	$	3,398		$	3,435		(1)	%
Operating income	206			162			27	%	396			347			14	%
Operating margin	11.9		%	9.3		%			11.7		%	10.1		%

Quarter Ended Comparison. IMS segment revenue was flat for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 primarily due to higher revenue of $48 million in Maritime from material volume on programs, partially offset by lower revenue of $31 million in Commercial Aviation from lower volume.

The increase in IMS segment operating income for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 was primarily due to a $13 million increase from improved program performance during the quarter ended June 28, 2024, a $12 million non-cash charge for impairment of other assets related to facility closures and restructuring of a customer contract during the quarter ended June 30, 2023 and cost savings realized as a result of transformation initiatives during the quarter ended June 28, 2024.

Two Quarters Ended Comparison. The decrease in IMS segment revenue for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to lower revenue of $63 million in ISR from lower aircraft procurement and $30 million in Commercial Aviation from lower volumes, partially offset by higher revenue of $39 million in Maritime from material volume on classified programs and $21 million higher revenue in GOS.

The increase in IMS segment operating income for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to a $28 million increase from improved program performance during the two quarters ended June 28, 2024, a $12 million non-cash charge for impairment of other assets related to facility closures and restructuring of a customer contract during the two quarters ended June 30, 2023, cost savings realized as a result of transformation initiatives, partially offset by a decrease from lower product volumes in GOS during the two quarters ended June 28, 2024.

CS Segment


	Quarter Ended								Two Quarters Ended
(Dollars in millions)	June 28, 2024			June 30, 2023			% Inc/(Dec)		June 28, 2024			June 30, 2023			% Inc/(Dec)

Revenue	$	1,346		$	1,289		4	%	$	2,640		$	2,452		8	%
Operating income	329			325			1	%	639			591			8	%
Operating margin	24.4		%	25.2		%			24.2		%	24.1		%

Quarter Ended Comparison. The increase in CS segment revenue for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 was primarily due to higher revenues of $27 million in Broadband Communications from higher volumes and $24 million in Tactical Communications associated with an increase in DoD sales.

The increase in CS segment operating income for the quarter ended June 28, 2024 compared with the quarter ended June 30, 2023 was primarily due to $15 million net favorable settlement of legal matters, higher volumes in Broadband Communications and cost savings realized as a result of transformation initiatives, offset by the timing of software sales and unfavorable mix of higher DoD sales in Tactical Communications during the quarter ended June 28, 2024.

Two Quarters Ended Comparison. The increase in CS segment revenue for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to higher revenues of $75 million in Tactical Communications associated with an increase in DoD sales, $61 million in Broadband Communications from higher volumes and $52 million in Integrated Vision Solutions from higher volumes.

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The increase in CS segment operating income for the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to higher volumes in both Broadband Communications and Integrated Vision Solutions, improved program performance in Integrated Vision Solutions, $15 million net favorable settlement of legal matters and cost savings realized as a result of transformation initiatives, partially offset by a decrease from the timing of software sales and unfavorable mix of higher DoD sales in Tactical Communication during the two quarters ended June 28, 2024.

AR Segment


	Quarter Ended					Two Quarters Ended
(Dollars in millions)	June 28, 2024			June 30, 2023	% Inc/(Dec)	June 28, 2024			June 30, 2023	% Inc/(Dec)

Revenue	$	581		**	*	$	1,123		**	*
Operating income	75			**	*	147			**	*
Operating margin	12.9		%	****		13.1		%	****

** AR is a reportable segment established during the quarter ended September 29, 2023, which consists of operations of AJRD. As such, there is no comparable prior year information.

Not meaningful

Results were driven by program performance across both the Missile Solutions and Space Propulsion and Power Systems sectors in the quarter and two quarters ended June 28, 2024.

Operating income was impacted by cost synergies recognized in the quarter and two quarters ended June 28, 2024.

Unallocated Corporate Expenses


	Quarter Ended				Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023			June 28, 2024		June 30, 2023

Unallocated corporate department expense, net(1)	$	(33)	$	(35)		$	(66)	$	(41)
Amortization of acquisition-related intangibles(2)	(215)		(173)			(432)		(338)
Additional cost of revenue related to the fair value step-up in inventory sold	—		(15)			—		(30)
Merger, acquisition, and divestiture-related expenses	(21)		(38)			(61)		(88)
Asset group and business divestiture-related (losses) gains, net(3)	(24)		26			(24)		26
Impairment of goodwill and other assets(4)	(14)		(21)			(14)		(39)
LHX NeXt implementation costs(5)	(48)		(22)			(175)		(35)


FAS/CAS operating adjustment(6)	6		23			13		45
Total unallocated corporate expenses	$	(349)	$	(255)		$	(759)	$	(500)

(1)Includes corporate items such as a portion of management and administration, legal, environmental, compensation, retiree benefits, other corporate expenses and eliminations.

(2)Includes amortization of identifiable intangible assets acquired in connection with business combinations. Because our acquisitions benefited the entire Company, the amortization of identifiable intangible assets acquired was not allocated to any segment.

(3)For the quarter and two quarters ended June 28, 2024, includes pre-tax losses recognized in connection with the sale of our Antenna Disposal Group and pending divestiture of our CAS Disposal Group. For the quarter and two quarters ended June 30, 2023, includes a pre-tax gain on sale of VIS. See Note O: Acquisitions and Divestitures in these Notes for further information.

(4)For the quarter and two quarters ended June 28, 2024, includes a non-cash charge for impairment of goodwill related to our Antenna Disposal Group divestiture. See Note O: Acquisitions and Divestitures and Note E: Goodwill and Other Intangible Assets in these Notes for further information related to the Antenna Disposal Group. For the quarter and two quarters ended June 30, 2023, includes the $21 million non-cash charge for impairment of in-process R&D associated with a facility closure and additionally for the two quarters ended June 30, 2023, includes an $18 million non-cash charge for impairment of a customer contract.

(5)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems. For further information on our LHX NeXt initiative and implementation costs see Note N: Restructuring and Other Exit Costs in the Notes and the “General and Administrative Expenses” discussion above in this MD&A.

(6)Represents the difference between the service cost component of net periodic benefit income under our pension and OPEB plans and total CAS pension and OPEB cost. See Note P: Business Segment Information in the Notes for additional information regarding the FAS/CAS operating adjustment.

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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL STRATEGIES

Cash Flows


	Two Quarters Ended
(In millions)	June 28, 2024		June 30, 2023

Cash and cash equivalents, beginning of period	$	560	$	880
Operating Activities:
Net income	652		690
Non-cash adjustments	444		288
Changes in working capital	(522)		(120)
Other, net	76		(94)
Net cash provided by operating activities	650		764
Net cash used in investing activities	(58)		(2,074)
Net cash (used in) provided by financing activities	(600)		794
Effect of exchange rate changes on cash and cash equivalents	(5)		2
Net decrease in cash and cash equivalents	(13)		(514)
Cash and cash equivalents, end of period	$	547	$	366

Net cash provided by operating activities

The $114 million decrease in net cash provided by operating activities in the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to $402 million more cash used to fund net working capital (i.e., receivables, contract assets, inventories, accounts payable and contract liabilities), primarily due to timing, in addition to a decrease in income tax payments, partially offset by a $156 million increase in non-cash adjustments.

Net cash used in investing activities

The $2,016 million decrease in net cash used in investing activities in the two quarters ended June 28, 2024 compared with the two quarters ended June 30, 2023 was primarily due to the $1,973 million cash used for the acquisitions of Viasat, Inc.’s Tactical Data Links in the first quarter of fiscal 2023, in addition to an $87 million increase in net cash proceeds from sale of businesses during the quarter ended June 28, 2024.

Net cash (used in) provided by financing activities

The $1,394 million change in net cash used in financing activities in the two quarters ended June 28, 2024 compared with net cash provided by financing activities in the two quarters ended June 30, 2023 was primarily due to a $1,547 million increase in repayments of borrowings and a $79 million decrease in net proceeds from issuances of commercial paper, partially offset by a $196 million decrease in cash used to repurchase our common stock under our share repurchase program. See Note G: Debt and Credit Arrangements in the Notes for further information.

Cash and cash equivalents

At June 28, 2024, we had cash and cash equivalents of $547 million, of which $283 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.

Capital Structure and Resources

Described below are significant changes to our credit arrangements and debt during the two quarters ended June 28, 2024.

Credit Agreements

On January 26, 2024, we replaced the 2023 Credit Agreement with the 2024 Credit Agreement. At June 28, 2024, we had no outstanding borrowings under either our 2024 Credit Agreement or our 2022 Credit Agreement, and had available borrowing capacity of $1.4 billion, net of outstanding CP Program borrowings, and were in compliance with all covenants under both aforementioned credit agreements.

CP Program

Under the CP Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.0 billion. Subject to notice and certain other requirements of the CP Program, we may increase the aggregate

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amount available for issuance up to $3.5 billion. From time to time, we use borrowings under the CP Program for general corporate purposes, including the funding of acquisitions, debt repayment, dividend payments and repurchases of our common stock.

During the two quarters ended June 28, 2024, we had a maximum outstanding balance of $2.8 billion and a daily average outstanding balance of $2.4 billion under our CP Program. We expect balances under the CP Program to remain elevated as compared to historical norms through fiscal 2025. For further information about our Credit Agreements and CP Program, see Note G: Debt and Credit Arrangements in the Notes.

Debt

At June 28, 2024, we had $11.2 billion of outstanding long-term debt, net, including the current portion of long-term debt, net and financing lease obligations, the majority of which we incurred in connection with merger and acquisition activity.

During the two quarters ended June 28, 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of the 2024 Notes and used the proceeds to repay the entire outstanding $2.25 billion drawn on Term Loan 2025. Additionally, we repaid the $350 million aggregate principal amount of our 3.95% 2024 Notes. For further information about our long-term debt, see Note G: Debt and Credit Arrangements in the Notes and Note 8: Debt and Credit Arrangements in our Fiscal 2023 Form 10-K.

Liquidity Assessment

Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next twelve months and in the longer term, although, we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt. See Part I. Item 1A. Risk Factors in our Fiscal 2023 Form 10-K.

Based on our current business plan and revenue prospects, we believe that our existing cash, funds generated from operations, availability under our senior unsecured credit facilities and our CP Program and access to the public and private debt and equity markets will be sufficient to provide for our anticipated working capital requirements, capital expenditures and repayments of our debt securities at maturity for the next twelve months and the reasonably foreseeable future thereafter.

Our total additions of property, plant and equipment net of proceeds from the sale of property, plant and equipment for fiscal 2024 are expected to be approximately 2% of revenue. Other than operating expenses, cash uses for fiscal 2024 are expected to consist primarily of additions of property, plant and equipment, dividend payments, debt repayments, LHX NeXt implementation costs and repurchases under our share repurchase program. See “Capital Structure and Resources” and “Material Cash Requirements and Commercial Commitments” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K for further information regarding our cash requirements.

Funding of Pension Plans

With respect to our U.S. qualified defined benefit pension plans, we intend to contribute annually no less than the required minimum funding thresholds. We do not expect to make material contributions to these plans in fiscal 2024.

Future required contributions primarily will depend on the actual annual return on assets and the discount rate used to measure the benefit obligation at the end of each year. Depending on these factors, and the resulting funded status of our pension plans, the level of future statutory required minimum contributions could be material. We had net defined benefit plan assets of $210 million as of June 28, 2024. See Note 9: Retirement Benefits in our Fiscal 2023 Form 10-K and Note H: Retirement Benefits in the Notes for further information regarding our pension plans.

Common Stock Repurchases

During the two quarters ended June 28, 2024, we used $322 million to repurchase 1.5 million shares of our common stock under our share repurchase program at an average price per share of $215.24, including commissions of $0.02 per share. During the two quarters ended June 28, 2024, $27 million in shares of our common stock were delivered to us or withheld by us to satisfy withholding taxes on employee share-based awards. Shares repurchased by us are cancelled and retired.

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At June 28, 2024, we had a remaining unused authorization under our repurchase program of $3.6 billion. See “Liquidity, Capital Resources and Financial Strategies” in our Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K and Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of this Report for further information regarding common stock repurchases*.*

Dividends

On February 23, 2024, we announced that our Board of Directors (“Board”) increased the quarterly per share cash dividend rate on our common stock from $1.14 to $1.16, commencing with the dividend declared by our Board for the first quarter of fiscal 2024, for an annualized per share cash dividend rate of $4.64. See item 5. Market for registrant’s common equity, related stockholder matters and issuer repurchases of equity securities in our Fiscal 2023 Form 10-K for further information regarding our dividends.

Material Cash Requirements and Commercial Commitments

The amounts disclosed in our Fiscal 2023 Form 10-K include our material cash requirements and commercial commitments. Except for the level of indebtedness under our CP Program and the establishment of our new 2024 Credit Facility, there were no material changes to our material cash requirements from contractual cash obligations to repay debt, to purchase goods and services or to make payments under operating leases or our commercial commitments; or in our contingent liabilities on outstanding surety bonds, standby letters of credit agreements or other arrangements with financial institutions and customers primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers or to obtain insurance policies with our insurance carriers as disclosed in our Fiscal 2023 Form 10-K. Further information about our Credit Agreements and CP Program can be found in “Capital Structure and Resources” in this MD&A and Note G: Debt and Credit Arrangements in the Notes.

There can be no assurance that our business will continue to generate cash flows at current levels or that the cost or availability of future borrowings, if any, under our CP Program, credit facilities, or in the debt markets will not be impacted by any potential future credit or capital markets disruptions. If we are unable to maintain cash balances, generate cash flow from operations, borrow under our CP Program or increase the aggregate amount available under our CP Program or our credit facilities sufficient to service our obligations, we may be required to reduce capital expenditures, reduce or terminate our share repurchases, obtain additional financing or sell assets. Our ability to make principal payments or pay interest on or refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions affecting the defense, government and other markets we serve and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the critical accounting estimates disclosed in “Critical Accounting Estimates” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2023 Form 10-K, except, as set forth below.

Goodwill

We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected.

Fiscal 2024 Impairment Tests. Effective in fiscal 2024, to better align our businesses, we adjusted our IMS segment by realigning our EO and Maritime sectors, which are also reporting units, splitting EO into two sectors, GOS and DE, and moving one EO business to the Maritime sector. GOS and DE represent one reporting unit. Immediately before and after the realignment, we performed a quantitative impairment assessment under our former and new reporting unit structure. These assessments indicated no impairment existed either before or after the realignment.

See Note E: Goodwill and Other Intangible Assets in the Notes for more information.

Impact of Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements which became effective during the two quarters ended June 28, 2024 that have had a material impact on our Condensed Consolidated Financial Statements.

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FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Report 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 divestitures and the timing thereof; 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 Part I. Item 1A. Risk Factors in our Fiscal 2023 Form 10-K and in Part II. 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 (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“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.

The following are some of the factors we believe could cause our actual results to differ materially from our historical results or our current expectations or projections. Other factors besides those listed here also could adversely affect us. See Part I. Item 1A. Risk Factors in our Fiscal 2023 Form 10-K and Part II. Item 1A. Risk Factors of this Report for more information regarding factors that might cause our results to differ materially from those expressed in or implied by the forward-looking statements contained in this Report.

We depend on winning business in competitive markets from U.S. Government customers for a significant portion of our revenue.
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.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts. Our fixed-price contracts, particularly those for development programs, could subject us to losses in the event of cost overruns or a significant increase in or sustained period of increased inflation.
We depend significantly on U.S. Government contracts, which generally are subject to immediate termination and heavily regulated and audited. The application or impact of regulations, unilateral government action, termination or negative audit findings for one or more of these contracts could have an adverse impact on our business, financial condition, results of operations, cash flows and equity.
We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth in our markets and, as a result, future income and expenditures.
We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in which we operate, our ability to insure against risks, our operations or our profitability.
We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
We derive a significant portion of our revenue from international operations and are subject to the risks of doing business internationally.
We depend on our subcontractors and suppliers to provide materials, components, subsystems and services for many of our products and services, and failures in or disruptions to our supply chain could cause our products and or services to be produced or delivered in an untimely or unsatisfactory manner.
We must attract and retain key employees, and any failure to do so could seriously harm us.

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We could be negatively impacted by a security breach, through cyber-attack, cyber intrusion, insider threats or otherwise, or other significant disruption of our IT networks and related systems or of those we operate for certain of our customers.
Our future success will depend on our ability to develop new products and services and technologies that achieve market acceptance in our current and future markets.
We have significant operations in locations that could be materially and adversely impacted in the event of a natural disaster or other significant disruption.
With our acquisition of AJRD, there is 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.
Failure to achieve the expected results of LHX NeXt could adversely affect our future financial condition and results of operations.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded defined benefit plans’ liability may materially adversely affect our financial and operating activities or our ability to incur additional debt.
The level of returns on defined benefit plan assets, changes in interest rates and other factors could materially adversely affect our financial condition, results of operations, cash flows and equity.
Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of operations and cash flows.
We may not be successful in obtaining the necessary export licenses to conduct certain operations abroad, and Congress may prevent proposed sales to certain foreign governments.
Unforeseen environmental issues, including regulations related to greenhouse gas emissions or change in customer sentiment related to environmental sustainability, could have a material adverse effect on our business, financial condition, results of operations, cash flows and equity.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners.
The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity.
Third parties have claimed in the past, and may claim in the future, that we are infringing directly or indirectly upon their intellectual property rights, and third parties may infringe upon our intellectual property rights.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.
Challenges arising from the expanded operations related to the acquisition of AJRD may affect our future results.
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity.
Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other intangible assets to become impaired, resulting in substantial losses and write-downs that would materially adversely affect our results of operations and financial condition.

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