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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 this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to our Consolidated Financial Statements and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2024 Form 10-K. The discussions in this MD&A contain forward-looking statements.
OVERVIEW
We are the Trusted Disruptor in the defense industry. With customers’ mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products and services have defense and civil government applications, as well as commercial applications. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 76% for year to date 2025.
U.S. and International Budget Environment
The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the new Administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures, and overall macroeconomic conditions.
On March 15, 2025, the President signed into law a full-year Continuing Resolution (“CR”) for GFY 2025, funding the government through September 30, 2025, with $893 billion for defense funding, including $851 billion for the U.S. Department of Defense (“DoD”). This is in line with the 1% increase permitted by the Fiscal Responsibility Act of 2023 caps for GFY 2025. Notably, the CR provides funding at the account level, not the program level, allowing federal agencies more discretion with how they can prioritize funding for programs.
On May 2, 2025, the White House released a preliminary GFY 2026 budget that included a flat national defense topline of $893 billion (including $849 billion for DoD) and assumed an additional $119 billion from reconciliation funding in 2026 for a total of $1 trillion. The Administration requested $557 billion for non-defense funding, down from $721 billion in GFY 2025, resulting in material funding declines for some agencies, including a $6 billion cut to NASA.
On July 4, 2025, the President signed Congress’ reconciliation package which included $155 billion for national defense spending to fund DoD priorities, including priorities closely aligned with L3Harris interests and opportunities, such as Golden Dome, munitions, and shipbuilding, $165 billion for Department of Homeland Security priorities, $12.5 billion for the Federal Aviation Administration (“FAA”) for air traffic control modernization efforts and $10 billion for NASA. The Administration expects departments and agencies will be able to access significant amounts of this additional funding in GFY 2026, specifically noting they expect DoD will access $113 billion in GFY 2026. The reconciliation package also raises the debt ceiling by $5 trillion and enacts key changes to the federal tax code, further discussed under the “U.S. Federal Tax Reform” heading below. With reconciliation complete, Congress continues its work on the GFY 2026 appropriations and authorization bills.
Internationally, NATO allies have committed to spend 5% of GDP annually over the next decade, with 3.5% on core defense articles and another 1.5% on critical infrastructure, cyber and other key areas.
There are indications both the Administration and Congress are interested in defense acquisition reform efforts, including a recent Executive Order pushing DoD to use rapid acquisition measures and draft language from both the House and Senate Armed Services Committees that we are monitoring closely.
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 2024 Form 10-K.
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U.S. Federal Tax Reform
Congress’ reconciliation package includes significant amendments to the U.S. federal income tax code. Key provisions include the permanent reinstatement of immediate expensing for domestic research expenditures, the restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing international tax provisions. These provisions were enacted subsequent to the end of second quarter 2025 and are not reflected in the accompanying Condensed Consolidated Financial Statements.
We expect favorable cash tax benefits of $150 million and an increase to our ETR between 200 and 300 basis points for fiscal 2025. We expect to recognize its effects in our provision for income taxes beginning in third quarter 2025. We are still evaluating the provisions of the legislation and the impact on our future financial position, results of operations, and cash flows.
Economic Environment
The ongoing uncertainty related to the impacts of inflation, as well as the interest rate environment and ongoing federal deficits, which raises the cost of borrowing for the federal government, could in the future impact U.S. Government spending priorities for our products and services. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factors in our Fiscal 2024 Form 10-K.
We continue to monitor and evaluate the potential impact of current and proposed changes in trade policies and in particular, tariffs. In response to enacted tariffs, we are seeking exemptions, evaluating alternative sources of materials and subcontracted components, as well as engaging in supplier negotiations to help manage cost impacts and are considering price adjustments and other strategies to support profitability. Based on current conditions, we do not expect a material impact on our 2025 results, but will continue to monitor developments and assess potential implications as trade policies evolve.
For a discussion of trade policy and macroeconomic related risks, see Part II. Item 1A. Risk Factors in our Form 10-Q for first quarter 2025, which is incorporated herein by reference, and Part I. Item 1A. Risk Factors in our Fiscal 2024 Form 10-K.
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RESULTS OF OPERATIONS
The second quarter 2025 and 2024 both include 13 weeks, while year to date 2025 and 2024 include 25 weeks and 26 weeks, respectively. Outcomes for specific periods, or year-over-year comparisons of results of operations and segment performance should be considered in this context.
Consolidated Results of Operations
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Products | $ | 3,708 | $ | 3,684 | $ | 7,274 | $ | 7,283 | |||||||||||||||||||||||||||
| Services | 1,718 | 1,615 | 3,284 | 3,227 | |||||||||||||||||||||||||||||||
| Total revenue | 5,426 | 5,299 | 10,558 | 10,510 | |||||||||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||
| Products | (2,716) | (2,660) | (5,312) | (5,254) | |||||||||||||||||||||||||||||||
| Services | (1,375) | (1,279) | (2,561) | (2,548) | |||||||||||||||||||||||||||||||
| Total cost of revenue | (4,091) | (3,939) | (7,873) | (7,802) | |||||||||||||||||||||||||||||||
| Gross margin | 1,335 | 1,360 | 2,685 | 2,708 | |||||||||||||||||||||||||||||||
| General and administrative expenses | (764) | (884) | (1,589) | (1,854) | |||||||||||||||||||||||||||||||
| Operating Income | 571 | 476 | 1,096 | 854 | |||||||||||||||||||||||||||||||
| Non-service FAS pension income and other, net | 105 | 86 | 189 | 174 | |||||||||||||||||||||||||||||||
| Interest expense, net | (152) | (172) | (302) | (348) | |||||||||||||||||||||||||||||||
| Income before income taxes | 524 | 390 | 983 | 680 | |||||||||||||||||||||||||||||||
| Income taxes | (66) | (23) | (139) | (28) | |||||||||||||||||||||||||||||||
| Effective Tax Rate | 12.6 | % | 5.9 | % | 14.1 | % | 4.1 | % | |||||||||||||||||||||||||||
| Net income | 458 | 367 | 844 | 652 | |||||||||||||||||||||||||||||||
| Noncontrolling interests, net of income taxes | — | (1) | — | (3) | |||||||||||||||||||||||||||||||
| Net income attributable to L3Harris | $ | 458 | $ | 366 | $ | 844 | $ | 649 | |||||||||||||||||||||||||||
| Diluted EPS | $ | 2.44 | $ | 1.92 | $ | 4.48 | $ | 3.40 |
Revenue
The following table presents revenue from products and services by segment, net of intersegment eliminations:
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| CS | $ | 1,167 | $ | 1,062 | $ | 2,313 | $ | 2,069 | |||||||||||||||
| IMS | 938 | 1,009 | 1,887 | 1,997 | |||||||||||||||||||
| SAS | 1,101 | 1,189 | 2,122 | 2,399 | |||||||||||||||||||
| AR | 502 | 424 | 952 | 818 | |||||||||||||||||||
| Products revenue | $ | 3,708 | $ | 3,684 | $ | 7,274 | $ | 7,283 | |||||||||||||||
| CS | $ | 192 | $ | 262 | $ | 386 | $ | 535 | |||||||||||||||
| IMS | 662 | 649 | 1,292 | 1,277 | |||||||||||||||||||
| SAS | 673 | 505 | 1,246 | 1,031 | |||||||||||||||||||
| AR | 191 | 199 | 360 | 384 | |||||||||||||||||||
| Services revenue | $ | 1,718 | $ | 1,615 | $ | 3,284 | $ | 3,227 |
Second Quarter Comparison. Products revenue increased $24 million, or 1%, due to higher products revenues of $105 million and $78 million in our CS and AR segments, respectively, partially offset by lower products revenues of $88 million and $71 million in our SAS and IMS segments, respectively.
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Services revenue increased $103 million, or 6%, primarily due to higher services revenues of $168 million in our SAS segment, partially offset by lower services revenue of $70 million in our CS segment.
Year to Date Comparison. Products revenue was flat, due to higher products revenues of $244 million and $134 million in our CS and AR segments, respectively, offset by lower products revenues of $277 million and $110 million in our SAS and IMS segments, respectively.
Services revenue increased $57 million, or 2%, primarily due to higher services revenue of $215 million in our SAS segment, partially offset by lower services revenue of $149 million in our CS segment.
See the “Business Segment Results of Operations” discussion below in this MD&A for further information.
Cost of Revenue
The following table presents cost of revenue from products and services by segment, net of intersegment eliminations:
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| CS | $ | (705) | $ | (612) | $ | (1,395) | $ | (1,214) | |||||||||||||||
| IMS | (746) | (800) | (1,458) | (1,556) | |||||||||||||||||||
| SAS | (854) | (909) | (1,680) | (1,837) | |||||||||||||||||||
| AR | (399) | (325) | (744) | (619) | |||||||||||||||||||
| Corporate | (12) | (14) | (35) | (28) | |||||||||||||||||||
| Cost of products revenue | $ | (2,716) | $ | (2,660) | $ | (5,312) | $ | (5,254) | |||||||||||||||
| CS | $ | (148) | $ | (242) | $ | (302) | $ | (463) | |||||||||||||||
| IMS | (528) | (479) | (1,007) | (960) | |||||||||||||||||||
| SAS | (539) | (407) | (977) | (830) | |||||||||||||||||||
| AR | (145) | (153) | (279) | (297) | |||||||||||||||||||
| Corporate | (15) | 2 | 4 | 2 | |||||||||||||||||||
| Cost of services revenue | $ | (1,375) | $ | (1,279) | $ | (2,561) | $ | (2,548) |
Second Quarter Comparison. Cost of products revenue increased $56 million, or 2%, primarily due to higher cost of products revenues of $93 million and $74 million in our CS and AR segments, respectively, partially offset by lower cost of products revenues of $55 million and $54 million in our SAS and IMS segments, respectively.
Cost of services revenue increased $96 million, or 8%, primarily due to higher cost of services revenues of $132 million and $49 million in our SAS and IMS segments, respectively, partially offset by lower cost of services revenue of $94 million in our CS segment.
Year to Date Comparison. Cost of products revenue increased $58 million, or 1%, primarily due to higher cost of products revenues of $181 million and $125 million in our CS and AR segments, respectively, partially offset by lower cost of products revenues of $157 million and $98 million in our SAS and IMS segments, respectively.
Cost of services revenue increased $13 million, or 1%, primarily due to higher cost of services revenues of $147 million and $47 million in our SAS and IMS segments, respectively, partially offset by lower cost of services revenues of $161 million and $18 million in our CS and AR segments, respectively.
Gross Margin
Second Quarter Comparison. Gross margin decreased $25 million primarily due to a $62 million decrease from the March 2025 CAS disposal group divestiture and $20 million unfavorable change in net EAC adjustments, partially offset by favorable mix from higher margin revenue, primarily in our CS segment.
Year to Date Comparison. Gross margin decreased $23 million primarily due to a $67 million decrease from the March 2025 CAS disposal group divestiture and $60 million unfavorable change in net EAC adjustments, impacted by program execution on certain classified development programs in SAS, partially offset by favorable higher margin revenue mix, primarily in our CS segment.
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G&A Expenses
The following table presents the components of G&A expenses:
| Second Quarter | Year to Date | ||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Amortization of intangibles | $ | (177) | $ | (194) | $ | (354) | $ | (391) | |||||||||||||||
| Company-funded R&D costs | (132) | (124) | (244) | (238) | |||||||||||||||||||
| Selling and marketing | (120) | (112) | (225) | (225) | |||||||||||||||||||
| LHX NeXt implementation costs(1) | (39) | (48) | (74) | (175) | |||||||||||||||||||
| Merger, acquisition, and divestiture-related expenses | (13) | (21) | (30) | (61) | |||||||||||||||||||
| Business divestiture-related losses | — | (24) | (17) | (24) | |||||||||||||||||||
| Other G&A expenses(2) | (283) | (361) | (645) | (740) | |||||||||||||||||||
| G&A expenses | $ | (764) | $ | (884) | $ | (1,589) | $ | (1,854) | |||||||||||||||
(1)Includes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems. See Note O: Business Segment Information in the Notes and the “Operating Environment, Strategic Priorities and Key Performance Measures” section in the MD&A in our Fiscal 2024 Form 10-K for more detail on our LHX NeXt initiative and implementation costs.
(2)Includes other segment G&A expenses, primarily payroll and benefits, outside services, facilities, insurance, gains recognized from asset sales, and unallocated corporate department expenses.
Second Quarter Comparison. G&A expenses decreased $120 million, or 14%, primarily due to a decrease of $78 million in other G&A expenses, largely from a $75 million gain in IMS recognized in connection with the monetization of certain legacy end-of-life assets in second quarter 2025, and a decrease of $24 million in business divestiture-related losses, reflecting the pre-tax losses associated with the Antenna disposal group and then pending CAS disposal group divestitures in second quarter 2024.
Year to Date Comparison. G&A expenses decreased $265 million, or 14%, primarily due to $101 million lower LHX NeXt implementation costs, including a $51 million decrease in third-party consulting and a $30 million decrease in employee severance, a $75 million gain in IMS recognized in connection with the monetization of certain legacy end-of-life assets in second quarter 2025, $37 million lower amortization of intangibles and $31 million lower merger, acquisition and divestiture-related expenses.
Non-service FAS Pension Income and Other, net
Non-service FAS pension income and other, net increased $19 million and $15 million for second quarter and year to date, respectively, reflecting changes in the non-service cost components of net periodic benefit income under our defined benefit plans, as included in Note H: Retirement Benefits in the Notes, in addition to changes in other non-operating income and expenses, primarily changes in the market value of our rabbi trust assets.
Interest Expense, net
Interest expense, net decreased $20 million and $46 million for second quarter and year to date, respectively, primarily due to lower average outstanding notes under our CP Program during 2025. See Note G: Debt and Credit Arrangements in the Notes and the “Liquidity and Capital Resources” section below in this MD&A for further information.
Income Taxes
During interim periods, we estimate our global forecasted full-year ETR and apply that rate to year to date ordinary income in order to compute the year to date income tax provision. Although most items will be considered part of the forecasted full-year ETR, there are a number of items that are instead required to be recorded in the interim period in which they occur; such as certain changes in uncertain tax positions, the accrual of interest and penalties, changes in tax laws or rates, and other items as prescribed by GAAP. As a result, there may be quarterly fluctuations in our ETR and the results for the interim periods are not necessarily indicative of the results to be expected for the full year or future periods.
Second Quarter Comparison. Our ETR was 12.6% and 5.9% for second quarter 2025 and 2024, respectively. Second quarter 2025 ETR benefited from favorable impacts of resolution of audit uncertainties, R&D credits and tax deductions for FDII, partially offset by unfavorable impacts from a state legislative change that required us to establish a valuation allowance on R&D credit carryforwards and the CAS disposal group divestiture. Second quarter 2024 ETR benefited from favorable impacts of R&D credits, resolution of specific audit uncertainties and tax deductions for FDII.
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Year to Date Comparison. Our ETR was 14.1% and 4.1% for year to date 2025 and 2024, respectively. Year to date 2025 and 2024 ETR both benefited from favorable impacts of R&D credits, resolution of audit uncertainties and tax deductions for FDII. Year to date 2024 ETR further benefited from the favorable impact of excess tax benefits from equity-based compensation, while our year to date 2025 ETR was unfavorably impacted by the CAS disposal group divestiture and a state legislative change that required us to establish a valuation allowance on R&D credit carryforwards.
Diluted EPS
Diluted EPS increased 27% and 32% for second quarter and year to date, respectively, primarily due to higher net income from the combined effects of reasons noted in the sections above.
Business Segment Results of Operations
CS Segment
As of June 27, 2025, CS ending backlog was $7.0 billion.
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,376 | $ | 1,346 | 2 | % | $ | 2,728 | $ | 2,640 | 3 | % | |||||||||||||||||||||||
| Operating income | 336 | 329 | 2 | % | 681 | 639 | 7 | % | |||||||||||||||||||||||||||
| Operating income as a percentage of revenue (“operating margin”) | 24.4 | % | 24.4 | % | 25.0 | % | 24.2 | % |
Second Quarter Comparison. CS revenue increased primarily due to higher revenues of $23 million in Tactical Communications associated with increased international demand for our resilient communication equipment, partially offset by lower DoD demand.
CS operating income increased and operating margin remained flat primarily due to LHX NeXt driven cost savings and favorable mix, partially offset by the absence of $15 million net favorable settlement of legal matters in second quarter 2024.
Year to Date Comparison. CS revenue increased primarily due to higher revenue of $107 million in Tactical Communications from higher international volume on resilient communication equipment.
CS operating income increased primarily due to favorable higher margin international mix in Tactical Communications and LHX NeXt driven cost savings, partially offset by the absence of $15 million net favorable settlement of legal matters in second quarter 2024.
IMS Segment
As of June 27, 2025, IMS ending backlog was $9.9 billion.
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,622 | $ | 1,671 | (3) | % | $ | 3,214 | $ | 3,298 | (3) | % | |||||||||||||||||||||||
| Operating income | 214 | 200 | 7 | % | 417 | 385 | 8 | % | |||||||||||||||||||||||||||
| Operating margin | 13.2 | % | 12.0 | % | 13.0 | % | 11.7 | % |
Second Quarter Comparison. IMS revenue decreased primarily due to lower revenue of $138 million from the March 2025 CAS disposal group divestiture. Excluding the divestiture impact, IMS revenue increased $89 million, primarily due to $84 million of higher revenue in ISR from classified program ramp.
IMS operating income increased primarily due to a $75 million gain recognized in connection with the monetization of legacy end-of-life assets, aligned with our transformation and value creation priorities, in second quarter 2025, partially offset by a $25 million unfavorable EAC adjustment from the resolution of a contract matter related to lower utilization on the Canadian Maritime Helicopter Program as it nears completion and a $32 million decrease from the March 2025 CAS disposal group divestiture.
Year to Date Comparison. IMS revenue decreased primarily due to lower revenue of $123 million from the March 2025 CAS disposal group divestiture. Excluding the divestiture impact, IMS revenue increased $54 million,
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primarily due to $26 million of higher revenues in ISR from classified program ramp and $26 million in Targeting and Sensor Systems from higher commercially priced revenue for airborne electro-optical sensors.
IMS operating income increased primarily due to a $75 million gain recognized in connection with monetization of legacy end-of-life assets, aligned with our transformation and value creation priorities, in addition to improved program performance in Maritime, favorable mix impact from higher airborne electro-optical sensors volume and LHX NeXt driven cost savings. Such increases were partially offset by a $25 million unfavorable EAC adjustment from the resolution of a contract matter related to lower utilization on the Canadian Maritime Helicopter Program as it nears completion and a $32 million decrease from the March 2025 CAS disposal group divestiture.
SAS Segment
As of June 27, 2025, SAS ending backlog was $10.6 billion.
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 1,787 | $ | 1,707 | 5 | % | $ | 3,398 | $ | 3,458 | (2) | % | |||||||||||||||||||||||
| Operating income | 220 | 215 | 2 | % | 396 | 431 | (8) | % | |||||||||||||||||||||||||||
| Operating margin | 12.3 | % | 12.6 | % | 11.7 | % | 12.5 | % |
Second Quarter Comparison. SAS revenue increased primarily due to higher revenues of $132 million in Mission Networks from higher FAA volume and $25 million in Airborne Combat Systems from higher volume and improved program performance, partially offset by lower revenues of $52 million and $24 million in Space Systems and Intel & Cyber, respectively, from program timing, and a $32 million decrease from the May 2024 Antenna disposal group divestiture.
SAS operating income increased primarily due to a $19 million gain recognized in connection with monetization of legacy end-of-life assets aligned with our transformation and value creation priorities, improved program performance and LHX NeXt driven cost savings. Unfavorable mix partially offsets these increases and contributed to a decrease in operating margin.
Year to Date Comparison. SAS revenue decreased primarily due to lower revenues of $176 million in Space Systems from lower volume associated with program timing and the impact of negative EAC adjustments from challenges on certain classified development programs and $114 million in Airborne Combat Systems, reflecting a $76 million decrease from the May 2024 Antenna disposal group divestiture, with the remaining decrease primarily associated with lower classified program revenue. Such decreases were partially offset by higher revenue of $188 million in Mission Networks from higher FAA volume.
SAS operating income decreased primarily due to $44 million of unfavorable EAC adjustments from program execution challenges on certain classified development programs in Space Systems recognized during first quarter 2025, and unfavorable mix, partially offset by a $19 million gain recognized in connection with the monetization of legacy end-of-life assets aligned with our transformation and value creation priorities, and LHX NeXt driven cost savings.
AR Segment
As of June 27, 2025, AR ending backlog was $7.9 billion.
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2025 | 2024 | % Inc/(Dec) | 2025 | 2024 | % Inc/(Dec) | |||||||||||||||||||||||||||||
| Revenue | $ | 698 | $ | 633 | 10 | % | $ | 1,327 | $ | 1,217 | 9 | % | |||||||||||||||||||||||
| Operating income | 93 | 81 | 15 | % | 169 | 158 | 7 | % | |||||||||||||||||||||||||||
| Operating margin | 13.3 | % | 12.8 | % | 12.7 | % | 13.0 | % |
Second Quarter Comparison. AR revenue increased primarily due to higher revenue of $57 million in Missile Solutions from increased production volume on key missile and munitions programs and new program ramp.
AR operating income increased primarily due to higher volume and improved performance driven by LHX NeXt driven cost savings and a favorable contract resolution.
Year to Date Comparison. AR revenue increased primarily due to higher revenue of $119 million in Missile Solutions from increased production volume on key missile and munitions programs and new program ramp.
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AR operating income increased primarily due to higher volume and improved performance driven by LHX NeXt driven cost savings and a favorable contract resolution, partially offset by lower net favorable EAC adjustments. Operating margin was impacted by unfavorable mix.
Unallocated Corporate Expenses
| Second Quarter | Year to Date | ||||||||||||||||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||
| Amortization of intangibles | $ | (193) | $ | (215) | $ | (387) | $ | (432) | |||||||||||||||||||||||||||
| LHX NeXt implementation costs | (39) | (48) | (74) | (175) | |||||||||||||||||||||||||||||||
| Merger, acquisition, and divestiture-related expenses | (13) | (21) | (30) | (61) | |||||||||||||||||||||||||||||||
| Business divestiture-related losses | — | (24) | (17) | (24) | |||||||||||||||||||||||||||||||
| Impairment of goodwill | — | (14) | — | (14) | |||||||||||||||||||||||||||||||
| FAS/CAS operating adjustment | 3 | 6 | 6 | 13 | |||||||||||||||||||||||||||||||
| Other unallocated corporate expenses | (50) | (33) | (65) | (66) | |||||||||||||||||||||||||||||||
| Unallocated corporate expenses | $ | (292) | $ | (349) | $ | (567) | $ | (759) |
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
As of June 27, 2025, we had cash and cash equivalents of $482 million, of which $327 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.
CP Program. As of June 27, 2025, we had $985 million in outstanding notes under our CP Program. Our CP Program serves as a source of short-term financing under which we may issue unsecured commercial paper notes up to a maximum aggregate amount of $3.0 billion, supported by amounts available under our credit facilities, discussed below. From time to time, we use borrowings under the CP Program for general corporate purposes, including funding acquisitions, repaying debt, paying dividends, and repurchasing our common stock. See the “Financing Activities” discussion below in this MD&A for further information about our CP Program.
Credit Facilities. As of June 27, 2025, we had no outstanding borrowings under our credit facilities, had available borrowing capacity of $2,015 million, net of outstanding notes under our CP Program, and were in compliance with all covenants.
2025 Five-Year Credit Facility. On February 18, 2025, we established a new $2.5 billion, five-year senior unsecured revolving credit facility by entering into the 2025 Five-Year Credit Agreement. The 2025 Five-Year Credit Agreement replaced the prior $2.0 billion 2022 Credit Agreement.
2025 364-Day Credit Facility. On February 18, 2025, we established a new $500 million 364-day senior unsecured revolving credit facility by entering into the 2025 364-Day Credit Agreement. The 2025 364-Day Credit Agreement replaced the prior $1.5 billion 2024 Credit Agreement, which matured on January 24, 2025.
See Note G: Debt and Credit Arrangements in the Notes for further information regarding our credit facilities.
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Cash Flows
The following table provides a summary of our cash flow information:
| Year to Date | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Cash and cash equivalents, beginning of period | $ | 615 | $ | 560 | |||||||
| Operating Activities: | |||||||||||
| Net income | 844 | 652 | |||||||||
| Non-cash adjustments | 544 | 444 | |||||||||
| Changes in working capital | (716) | (522) | |||||||||
| Other, net | (74) | 76 | |||||||||
| Net cash provided by operating activities | 598 | 650 | |||||||||
| Net cash provided by (used in) investing activities | 666 | (58) | |||||||||
| Net cash used in financing activities | (1,415) | (600) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 18 | (5) | |||||||||
| Net decrease in cash and cash equivalents | (133) | (13) | |||||||||
| Cash and cash equivalents, end of period | $ | 482 | $ | 547 |
Operating Activities. The $52 million decrease in net cash provided by operating activities for year to date 2025 compared with year to date 2024 was primarily due to $194 million more cash used to fund working capital, primarily driven by timing of billing and collection activity, and cash used for settlement of a longstanding legal matter, partially offset by an increase in net income.
Investing Activities. The $724 million change in net cash provided by investing activities for year to date 2025 compared with net cash used in investing activities for year to date 2024 was primarily due to a $673 million increase in proceeds from sale of businesses, net of cash divested, and a $65 million decrease in capital expenditures. The increase in proceeds from sale of business, net of cash divested, reflects the March 2025 CAS disposal group divestiture, partially offset by the May 2024 Antenna disposal group divestiture.
Financing Activities. The $815 million increase in net cash used in financing activities for year to date 2025 compared with year to date 2024 was primarily due to an increase in cash used to repurchase common stock of $500 million and increase in repayments of long-term debt, net of issuances, of $245 million. Our primary financing activities are further discussed below.
Common Stock Repurchases. On January 28, 2021 and October 21, 2022, we announced that our Board of Directors (“Board”) approved share repurchase authorizations under our repurchase program of $6.0 billion, which was fully utilized in first quarter 2025, and $3.0 billion, respectively. During year to date 2025, we used $822 million of cash to repurchase 3.9 million shares of our common stock under our share repurchase program. As of June 27, 2025, we had $2.6 billion of remaining unused authorization under our repurchase program.
During year to date 2024, we used $322 million of cash to repurchase 1.5 million shares of our common stock under our share repurchase program. See “Liquidity and Capital Resources” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2024 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.
Long-term debt. During year to date 2025, we repaid the entire outstanding $600 million aggregate principal amount of our 3.832% 2025 Notes with proceeds from the $600 million 5.50% 2054 Notes issued in fiscal 2024.
During year to date 2024, we closed the issuance and sale of $2.25 billion aggregate principal amount of long-term fixed-rate debt consisting of 5.05% notes, due June 2029, 5.25% notes, due June 2031 and 5.35% notes, due June 2034 and used the proceeds to repay the entire outstanding $2.25 billion, variable rate-term loan facility utilized to finance the fiscal 2023 acquisition of Tactical Data Links. Additionally, we repaid $350 million aggregate principal amount of our 3.950% notes, due May 28, 2024.
As of June 27, 2025, we had $11.1 billion of outstanding long-term debt, net, including the current portion of long-term debt, net of $141 million. The current portion primarily consists of the $100 million 7.00% debentures, due January 15, 2026.
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CP Program. During year to date 2025, our CP Program had a maximum outstanding balance of $1.8 billion and a daily average outstanding balance of $1.3 billion. During year to date 2024, our CP Program had a maximum outstanding balance of $2.8 billion and daily average outstanding balance of $2.4 billion. While we continue to expect balances under the CP Program to remain elevated as compared to historical norms through fiscal 2025, we expect to utilize cash from operations to lower the outstanding balance by the end of fiscal 2025.
Dividends. On February 28, 2025, we announced that our Board increased the quarterly per share cash dividend rate on our common stock to $1.20 from $1.16, the 24th consecutive annual dividend increase. During year to date 2025 and 2024, we paid $453 million and $445 million in dividends, respectively. See Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our Fiscal 2024 Form 10-K for further information regarding our dividends.
Cash Requirements
Except for the level of indebtedness under our CP Program and the establishment of the new 2025 Five-Year Credit Agreement and the new 2025 364-Day Credit Facility, there were no material changes to our cash requirements or commercial commitments as disclosed in our Fiscal 2024 Form 10-K. Further information about our credit facilities and CP Program can be found in “Capital Resources” in this MD&A and Note G: Debt and Credit Arrangements in the Notes.
Defined Benefit Plan Contributions. As of June 27, 2025, we had net defined benefit plan assets of $868 million, the majority of which pertain to our U.S. qualified defined benefit pension plans. We intend to contribute annually no less than the required minimum funding thresholds to these pension plans and do not expect to make material contributions in fiscal 2025. Future required contributions will depend primarily on the actual return on plan assets and the discount rate used to measure the benefit obligation at the end of each year.
We expect to continue evaluating opportunities to strategically manage our pension obligations, including the potential for additional pension de-risking transactions in the future, subject to market conditions and plan funding levels. These actions align with our long-term strategy to reduce exposure to pension volatility while maintaining financial flexibility.
See Note 9: Retirement Benefits in our Fiscal 2024 Form 10-K and Note H: Retirement Benefits in the Notes for further information regarding our defined benefit plans.
Liquidity Assessment
Given our current cash position, outlook for funds generated from operations, credit ratings, available credit facilities, cash needs and debt structure, we have not experienced to date, and do not expect to experience, any material issues with liquidity for the next 12 months and in the longer term, although we can give no assurances concerning our future liquidity, particularly in light of our overall level of debt, U.S. Government budget uncertainties and the state of global commerce and general political and global financial uncertainty. See Part I. Item 1A. Risk Factors in our Fiscal 2024 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, dividend payments, repurchases under our share repurchase program and repayments of our debt securities at maturity for the next 12 months and the reasonably foreseeable future thereafter. Our capital expenditures for fiscal 2025 are expected to be approximately 2% of revenue. See “Cash Requirements” in this MD&A and “Capital Resources”, “Cash Requirements” and “Commercial Commitments” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2024 Form 10-K, for further information regarding our cash requirements.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the critical accounting estimates disclosed in “Critical Accounting Estimates” in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2024 Form 10-K, except for, as set forth below.
Goodwill
We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter, or under certain circumstances, more frequently, such as when events or circumstances indicate there may be impairment or when we reorganize our reporting structure such that the composition of one or more of our reporting units is affected.
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Fiscal 2025 Impairment Tests. Information on interim impairment tests can be found in “Critical Accounting Estimates– Fiscal 2025 Impairment Tests” in Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-Q for first quarter 2025, which is incorporated herein by reference. These assessments indicated no impairment existed.
Impact of Recently Issued Accounting Pronouncements
There have been no new accounting pronouncements that became effective during year to date 2025 that have had a material impact on our Condensed Consolidated Financial Statements.
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