Item 1. FINANCIAL STATEMENTS.

114K characters. Original on sec.gov · Markdown

Item 1. FINANCIAL STATEMENTS.

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)


	Second Quarter				Year to Date
(In millions, except per share amounts)	2026		2025		2026		2025

Revenue	$	5,881	$	5,426	$	11,625	$	10,558
Cost of revenue	(4,379)		(4,091)		(8,721)		(7,873)
General and administrative expenses	(848)		(764)		(1,598)		(1,589)

Operating income	654		571		1,306		1,096


Non-service FAS pension income and other, net(1)	185		105		258		189
Interest expense, net	(129)		(152)		(265)		(302)
Income before income taxes	710		524		1,299		983
Income tax expense	(110)		(66)		(187)		(139)


Net income	$	600	$	458	$	1,112	$	844

Subsidiary preferred stock deemed dividend	(14)		—		(14)		—
Net income available to common shareholders	$	586	$	458	$	1,098	$	844






Earnings per share available to common shareholders
Basic	$	3.15	$	2.45	$	5.89	$	4.50
Diluted	$	3.13	$	2.44	$	5.85	$	4.48

(1)“FAS” is defined as Financial Accounting Standards.

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)


	Second Quarter				Year to Date
(In millions)	2026		2025		2026		2025

Net income	$	600	$	458	$	1,112	$	844
Other comprehensive (loss) income, net of tax:
Foreign currency translation and other, net	1		52		(12)		82
Pension and other postretirement benefits	(8)		(7)		(16)		(78)
Other comprehensive (loss) income, net of tax	(7)		45		(28)		4
Comprehensive income	$	593	$	503	$	1,084	$	848

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)


(In millions, except par value)	July 3, 2026		January 2, 2026

Assets
Current assets
Cash and cash equivalents	$	1,521	$	1,069
Receivables, net	1,950		1,371
Contract assets	3,674		3,566
Inventories, net	1,272		1,219

Other current assets	656		484
Assets of business held for sale	1,010		884
Total current assets	10,083		8,593
Non-current assets
Property, plant and equipment, net	2,686		2,665
Goodwill	19,996		20,010
Intangible assets, net	6,540		6,509
Deferred income taxes	65		76
Other non-current assets	3,568		3,342

Total assets	$	42,938	$	41,195

Liabilities, mezzanine equity, and equity
Current liabilities

Current portion of long-term debt	$	1,815	$	673
Accounts payable	2,085		2,461
Contract liabilities	2,936		2,262
Compensation and benefits	376		482



Other current liabilities	1,192		1,235
Liabilities of business held for sale	113		113
Total current liabilities	8,517		7,226
Non-current liabilities
Long-term debt, net	9,184		10,443
Deferred income taxes	1,369		1,114
Subsidiary Series A preferred stock conversion feature	130		—
Subsidiary warrants	186		—
Other non-current liabilities	2,702		2,777
Total liabilities	22,088		21,560
Mezzanine equity
Redeemable subsidiary Series A convertible preferred stock, $1,422 redemption amount	968		—
Equity
Shareholders’ Equity:

Common stock, $1 par value per share	186		187
Paid-in capital	14,882		15,117
Retained earnings	4,723		4,212
Accumulated other comprehensive income	91		119


Total equity	19,882		19,635
Total liabilities, mezzanine equity, and equity	$	42,938	$	41,195

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


	Year to Date
(In millions)	2026		2025

Operating Activities
Net income	$	1,112	$	844
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	570		604
Share-based compensation	49		48
Net periodic benefit income	(139)		(150)
Share-based matching contributions under defined contribution plans	107		136
Net investment gains	(77)		(4)

Deferred income taxes	182		(94)
(Increase) decrease in:
Receivables, net	(675)		(383)
Contract assets	(138)		(634)
Inventories, net	(55)		86
Other current assets	(179)		(22)
Increase (decrease) in:
Accounts payable	(369)		38
Contract liabilities	656		177
Compensation and benefits	(105)		25
Other current liabilities	(88)		(268)
Income taxes	(5)		321
Other operating activities	(62)		(126)
Net cash provided by operating activities	784		598
Investing Activities

Capital expenditures	(207)		(147)
Proceeds from disposal of property, plant and equipment, net	7		9
Proceeds from sales of businesses, net of cash divested	—		831

Other investing activities	(11)		(27)
Net cash (used in) provided by investing activities	(211)		666
Financing Activities
Proceeds from issuance of subsidiary Series A preferred stock, net	973		—

Repayments of long-term debt	(112)		(611)
Change in commercial paper, net	—		470


Repurchases of common stock	(525)		(822)
Dividends paid	(470)		(453)
Other financing activities	17		1
Net cash used in financing activities	(117)		(1,415)
Effect of exchange rate changes on cash and cash equivalents	(4)		18
Net increase (decrease) in cash and cash equivalents	452		(133)
Cash and cash equivalents, beginning of period	1,069		615
Cash and cash equivalents, end of period	$	1,521	$	482

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

_____________________________________________________________________

L3HARRIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)


	Second Quarter				Year to Date
(In millions, except per share amounts)	2026		2025		2026		2025

Common Stock
Beginning balance	$	187	$	188	$	187	$	190
Share-based compensation	—		1		1		1
Repurchases and retirement of common stock	(1)		(2)		(2)		(4)
Ending balance	186		187		186		187
Paid-in Capital
Beginning balance	14,974		15,170		15,117		15,558
Share-based compensation and other, net	84		121		172		190
Repurchases and retirement of common stock	(176)		(201)		(407)		(658)
Ending balance	14,882		15,090		14,882		15,090
Retained Earnings
Beginning balance	4,421		3,787		4,212		3,739
Net income and other	600		458		1,111		844
Subsidiary preferred stock deemed dividend	(14)		—		(14)		—
Repurchases and retirement of common stock	(52)		(50)		(116)		(160)
Cash dividends	(232)		(225)		(470)		(453)
Ending balance	4,723		3,970		4,723		3,970
Accumulated Other Comprehensive Income (Loss)
Beginning balance	98		(14)		119		27
Other comprehensive (loss) income, net of tax	(7)		45		(28)		4
Ending balance	91		31		91		31
Noncontrolling Interests
Beginning balance	—		(1)		—		65
Derecognized with divestiture	—		—		—		(63)
Other	—		1		—		(2)
Ending balance	—		—		—		—
Total Equity	$	19,882	$	19,278	$	19,882	$	19,278
Cash dividends per share	$	1.25	$	1.20	$	2.50	$	2.40

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

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A: BASIS OF PRESENTATION

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of L3Harris Technologies, Inc. and its consolidated subsidiaries. As used in these notes to the Condensed Consolidated Financial Statements (these “Notes”), the terms “L3Harris,” “Company,” “we,” “our” and “us” refer to L3Harris Technologies, Inc. and its consolidated subsidiaries. Intercompany transactions and accounts have been eliminated.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all information and footnotes necessary for a complete presentation of financial condition, results of operations, cash flows and equity in conformity with GAAP for annual financial statements and are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period.

In the opinion of management, these interim financial statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of our financial condition, results of operations, cash flows and equity for the periods presented. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 2, 2026 (our “Fiscal 2025 Form 10-K”). The accompanying Condensed Consolidated Balance Sheet as of January 2, 2026 has been derived from our audited financial statements in Fiscal 2025 Form 10-K.

Our fiscal year is based on a 52- or 53-week period ending on the Friday nearest December 31. The fiscal quarters ended July 3, 2026 (“second quarter 2026”) and June 27, 2025 (“second quarter 2025”) both include thirteen weeks. The year-to-date periods ended July 3, 2026 (“year to date 2026”) and June 27, 2025 (“year to date 2025”) include twenty-six and twenty-five weeks, respectively.

Segment Reorganization

Effective in fiscal 2026, we streamlined our operating segments, which are also our reportable segments or business segments, from four segments to three segments, more closely aligning common capabilities and business models. We report our financial results in the following three reportable segments, consistent with the manner in which our chief operating decision maker manages the business, evaluates performance, and allocates resources:

Space & Mission Systems (“SMS”): Integrates satellite and payload capabilities, including missile warning and defense, with maritime, air special missions, and other global defense and civil government programs;

Communications & Spectrum Dominance (“CSD”): Combines all of our capabilities in resilient communications and electronic warfare; and

Missile Solutions (“MSL”): Unites propulsion, sensing, guidance, and other advanced missile and munition technologies for delivery of end-to-end missile solutions.

Information on the reallocation of goodwill in connection with the segment reorganization can be found under the “Reallocation of Goodwill in Segment Reorganization” heading in Note E: Goodwill and Intangible Assets Form 10-Q for first quarter 2026, which is incorporated herein by reference.

The historical results, discussion and presentation of our business segments as set forth in the accompanying Condensed Consolidated Financial Statements and these Notes reflect the impact of these changes for all periods presented in order to present segment information on a comparable basis. There is no impact on our previously reported consolidated statements of operations, balance sheets, statements of cash flows or statements of equity resulting from these changes.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying Condensed Consolidated Financial Statements and these Notes and related disclosures. These estimates and assumptions are based on experience and other information available prior to issuance of the accompanying Condensed Consolidated Financial Statements and these Notes. Materially different results can occur as circumstances change and additional information becomes known.

Reclassifications

The classification of certain prior year amounts have been adjusted in our Condensed Consolidated Financial Statements and these Notes to conform to current year classifications.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Investments

We hold certain investments in companies that align with our strategic business objectives, including advancing capabilities, market access, and technology development. These investments, consisting of equity method investments and equity interest investments, are included as a component of the “Other non-current assets” line item in our Condensed Consolidated Balance Sheet. See Note 1: Significant Accounting Policies in our Fiscal 2025 Form 10-K for further information on accounting policies for our investments.

Investments are summarized below:


(In millions)	July 3, 2026		January 2, 2026

Equity method	$	132	$	88
Equity interest	127		82

Net Investment Gains. We recognized net investment gains of $73 million and $77 million for second quarter and year to date 2026, respectively, and $6 million and $4 million in second quarter and year to date 2025, respectively. The second quarter and year to date 2026 net investment gains primarily reflect changes in observable inputs on some of our equity interest investments and higher equity in net earnings of investees driven by strong performance on some of our equity method investments. These gains are net of $21 million and $23 million in impairment charges for second quarter and year to date 2026, respectively, which reflects our evaluation of the recoverability of the carrying amounts of these assets. Gains and losses, net of impairments, from investments that are operationally aligned with our business segments were $39 million for both second quarter and year to date 2026 and are included as a component of segment operating income. Equity in net earnings of investees that are not aligned with a business segment were $34 million and $38 million for second quarter and year to date, respectively, and are presented within Corporate non‑operating results. Net investment gains are included in the “Non-service FAS pension income and other, net” line item in our Condensed Consolidated Statement of Operations in second quarter and year to date 2026. See Note Q: Business Segment Information in these Notes for further information.

Recently Issued Accounting Pronouncements

Accounting pronouncements issued during second quarter 2026, but not yet adopted, are under evaluation for their potential impact on our operating results, financial position, or cash flows. For information on accounting pronouncements issued prior to fiscal 2026, see Note 1: Significant Accounting Policies in our Fiscal 2025 Form 10-K.

NOTE B: STRATEGIC INVESTMENT IN SUBSIDIARY

Overview

On April 17, 2026, through our wholly owned subsidiary, Aerojet Rocketdyne Holdings, Inc. ("AR"), which operates as our Missile Solutions segment, we entered into a definitive agreement (the “DoW Investment Agreement”) with the United States Department of War (the “Investor”). The DoW Investment Agreement provides for the issuance and sale of 10,000 shares of Redeemable AR Series A Convertible Preferred Stock (the “Subsidiary Series A Preferred Stock”) at a par value of $0.0001 per share and stated value of $100,000 per share, as well as pre-IPO and post-IPO warrants (collectively referred to herein as the “Subsidiary Warrants”), for an aggregate purchase price of $1 billion, which is the initial face value of the Subsidiary Series A Preferred Stock.

The Subsidiary Series A Preferred Stock payout options include either one of the following: (i) a liquidation preference equal to face value of the preferred shares plus 7% cumulative annual dividends, compounded quarterly (the “Liquidation Preference”); (ii) an automatic conversion to AXYV Inc., our newly formed wholly owned subsidiary (“AXYV”), common stock upon a Qualified Initial Public Offering of AR on or before December 31, 2027 (as defined in the DoW Investment Agreement; herein “QIPO”); or (iii) a redemption feature at fair value of the Missile Solutions segment on April 17, 2031 if a QIPO does not occur. Under the DoW Investment Agreement, we are expected to use commercially reasonable efforts to consummate a QIPO, assuming certain contractual milestones are met. The options are mutually exclusive and are dependent on achieving those milestones.

The purpose of the investment is to strengthen the U.S. defense industrial base by providing funding for the Missile Solutions segment to expand and modernize its facilities, accelerate research and development, and increase production capacity for critical technologies. The fair value of the investment exceeds the proceeds as it simultaneously provides financing, the opportunity to substantially expand an existing commercial relationship, and the benefit of an anchor investor whose participation tangibly demonstrates the Missile Solutions segment’s strong long-term business prospects.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The DoW Investment Agreement contains customary representations, warranties, and covenants by us and the Investor. Under the terms of the DoW Investment Agreement, AR or the Investor may redeem the Subsidiary Series A Preferred Stock and Subsidiary Warrants held by the Investor under certain conditions.

Use of Proceeds

Net proceeds of $973 million are to be used, under the terms of the DoW Investment Agreement, to fund development and construction activities on expanding our missile manufacturing capacity and capabilities within our Missile Solutions segment. We intend to use the remaining net proceeds, if any, for general corporate purposes. The net proceeds are presented as “Proceeds from issuance of subsidiary Series A preferred stock, net” line item in our Condensed Consolidated Statement of Cash Flows as Net cash used in financing activities.

Preferred Stock

Because redemption of the Subsidiary Series A Preferred Stock is not solely within our control due to the redemption features described above, the Subsidiary Series A Preferred Stock is classified as mezzanine equity and included in the "Redeemable subsidiary Series A convertible preferred stock" line item in our Condensed Consolidated Balance Sheet.

Conversion Upon QIPO. Upon completion of a QIPO, the Subsidiary Series A Preferred Stock will convert into common stock of AXYV (the “AXYV Common Stock”) at a 20% discount (the “Conversion Price”) to the public offering price in the QIPO (the “QIPO Price”). The conversion terms are designed to provide the holder with a fixed return settled in a variable number of AXYV Common Stock. At QIPO, depending on valuation, we expect the investor to own approximately 10% of the outstanding shares.

Non-IPO Redemption. If a QIPO does not occur on or before December 31, 2027, the redemption price calculation methodology varies depending on whether specified milestones have been achieved by such date. If such milestones are not achieved by December 31, 2027, the redemption price would be calculated using an alternative methodology that applies a contractual premium of 110% to the Liquidation Preference. If the milestones are achieved by December 31, 2027, the redemption price would be calculated on or after April 16, 2031, and would equal the greater of (i) the Liquidation Preference or (ii) the fair market value on a proforma ownership percentage basis. If there is a sale of AXYV before a QIPO, the Investor is entitled to receive cash equal to the greater of the Liquidation Preference or the if-converted value based on the Conversion Price described above.

Conversion and Redemption Feature Embedded Derivatives*.* Certain of the conversion and redemption features represent embedded derivatives. These features of the Subsidiary Series A Preferred Stock were bifurcated from the host instrument and recorded as a derivative liability, which is included in the "Subsidiary Series A preferred stock conversion feature" line item in the Condensed Consolidated Balance Sheet at its fair value. The derivative liability is measured at fair value each reporting period, with changes recognized in earnings as a component of the "Non-service FAS pension income and other, net" line item in our Condensed Consolidated Statement of Operations.

Warrants

The Subsidiary Warrants entitle the Investor to purchase shares representing 3% of the AXYV Common Stock, on a fully diluted basis, and consist of pre-IPO warrants exercisable at 100%, 110%, and 120% of the non-IPO common stock price, and post-IPO warrants exercisable at 100%, 110%, and 120% of the QIPO Price, which take effect upon a QIPO. The pre-IPO warrants become exercisable only upon (i) the occurrence of certain events outlined in the DoW Investment Agreement and (ii) the passage of time (i.e., on or after December 31, 2027), but only if certain operational conditions are met that are outside the control of the Company and the Investor. Upon a QIPO, the pre-IPO warrants automatically convert to post-IPO warrants.

The pre-IPO warrants are accounted for as derivative liabilities, included in the "Subsidiary warrants" line item in the Condensed Consolidated Balance Sheet, initially measured at fair value with subsequent changes recognized in earnings as a component of the "Non-service FAS pension income and other, net" line item in our Condensed Consolidated Statement of Operations.

Immediately prior to the QIPO, the pre-IPO warrants will convert into post‑IPO warrants of AXYV. The number of shares underlying the post-IPO warrants will be calculated as a specified percentage of the fully diluted common stock of AXYV immediately prior to the QIPO, after giving effect to the conversion of the Subsidiary Series A Preferred Stock.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Measurements

The conversion and redemption feature embedded derivatives and warrants are measured at fair value using valuation models containing expected QIPO timing and probability, projected valuation of AXYV, equity volatility, and probability-weighted scenario outcomes. The significant unobservable quantitative input used for the fair value measurement of the warrants is equity volatility, which was 30% as of July 3, 2026. These liabilities are classified within Level 3 of the fair value hierarchy. See Note H: Fair Value Measurements in these Notes for further information on fair value methodology.

Measurement and Recognition

Upon initial recognition, the fair value of the Subsidiary Series A Preferred Stock was assigned first to the conversion feature embedded derivative based on the fair value at issuance and the residual amount was recorded as the initial fair value of the Subsidiary Series A Preferred Stock. The Subsidiary Warrants were separately recognized at their fair value. No fair value gains or losses associated with these instruments were recognized during second quarter or year to date 2026.

Fair values recognized upon initial issuance in our Condensed Consolidated Balance Sheet are summarized below:


(In millions)	April 17, 2026

Subsidiary Series A preferred stock conversion feature	$	130
Subsidiary warrants	186

Redeemable subsidiary Series A convertible preferred stock	1,070

Program Investment Asset. We recognized a program investment intangible asset of $386 million, which represents the fair value in excess of cash proceeds from our issuance of preferred stock, embedded derivative instruments, and warrants related to the DoW strategic investment. This asset will be amortized as a reduction to revenue on a straight-line basis over its estimated useful life of 20 years, commencing upon achievement of a milestone. The asset is included in the “Intangible assets, net” line item in the Condensed Consolidated Balance Sheet and is recognized as a non-cash financing activity and excluded from our Condensed Consolidated Statement of Cash Flows for year to date 2026. See Note F: Goodwill and Intangible Assets in these Notes for further information.

Upon recognition of this asset, we recorded a deferred tax liability of $89 million, which is netted against the Subsidiary Series A Preferred Stock, and is included in the “Deferred income taxes” line item in the Condensed Consolidated Balance Sheet.

Transaction Costs. We incurred transaction costs of $27 million in connection with the issuance of the Subsidiary Series A Preferred Stock and related derivative instruments. These costs were recognized as a reduction to the initial carrying value of the Subsidiary Series A Preferred Stock, reflected in the “Redeemable subsidiary Series A convertible preferred stock” line item in the Condensed Consolidated Balance Sheet.

Subsidiary Preferred Stock Deemed Dividend. The Subsidiary Series A Preferred Stock has multiple redemption factors, as described above. As of July 3, 2026, we evaluated if the Subsidiary Series A Preferred Stock was currently redeemable or probable of becoming redeemable. While the Subsidiary Series A Preferred Stock is not currently redeemable, it is probable of becoming redeemable based on passage of time and certain milestones that are not currently achieved. Accordingly, we will recognize accretion to the current highest redemption value of $1,422 million through a subsidiary preferred stock deemed dividend. The highest redemption value will be reevaluated each quarter and the accretion will be recognized ratably over time through April 16, 2031.

The Redeemable subsidiary Series A convertible preferred stock recognized in our Condensed Consolidated Balance Sheet after consideration of the aforementioned items is summarized below:


(In millions)

Balance as of April 17, 2026	$	1,070
Deferred tax liability	(89)
Transaction costs	(27)
Subsidiary preferred stock deemed dividend	14
Balance as of July 3, 2026	$	968

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE C: EARNINGS PER SHARE AVAILABLE TO COMMON SHAREHOLDERS (“EPS”)

EPS is calculated as net income available to common shareholders divided by our weighted-average number of basic or diluted common shares outstanding. Net income available to common shareholders is calculated by reducing net income by the amount of the subsidiary preferred stock deemed dividend associated with the Subsidiary Series A Preferred Stock as it is not a participating security.

Potential dilutive common shares primarily consist of employee stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), Subsidiary Series A Preferred Stock and Subsidiary Warrants. As of July 3, 2026, the Subsidiary Series A Preferred Stock is anti-dilutive and the Subsidiary Warrants are not currently exercisable, therefore both instruments are excluded from the dilutive EPS calculation.

See Note B: Strategic Investment in Subsidiary in these Notes for further information on the subsidiary preferred stock deemed dividend, Subsidiary Series A Preferred Stock and Subsidiary Warrants.

Basic and diluted EPS are calculated as follows:


	Second Quarter				Year to Date
(In millions, except per share amount)	2026		2025		2026		2025

Net income	$	600	$	458	$	1,112	$	844
Subsidiary preferred stock deemed dividend	(14)		—		(14)		—
Net income available to common shareholders	$	586	$	458	$	1,098	$	844

Basic weighted-average common shares outstanding	186.2		187.0		186.5		187.7
Impact of dilutive share-based awards	1.1		0.8		1.2		0.8
Diluted weighted-average common shares outstanding	187.3		187.8		187.7		188.5

Earnings per share available to common shareholders
Basic	$	3.15	$	2.45	$	5.89	$	4.50
Diluted	$	3.13	$	2.44	$	5.85	$	4.48

Anti-dilutive share-based awards excluded from diluted EPS were 0.4 million and 0.5 million for second quarter and year to date 2026, respectively, and 1.0 million and 2.0 million for second quarter and year to date 2025, respectively.

NOTE D: CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets represent unbilled receivables for revenue recognized in advance of billings, primarily under the percentage-of-completion (“POC”) cost-to-cost method. Contract liabilities consist of advance payments and billings in excess of revenue recognized. Contract assets and liabilities are reported net on a contract-by-contract basis.

Contract assets and contract liabilities are summarized below:


(In millions)	July 3, 2026		January 2, 2026

Contract assets	$	3,674	$	3,566
Contract liabilities	(2,936)		(2,262)
Contract liabilities, non-current(1)	(83)		(108)
Net contract assets	$	655	$	1,196

(1)Included as a component of the “Other non-current liabilities” line item in our Condensed Consolidated Balance Sheet.

During second quarter and year to date 2026, we recognized revenue of $481 million and $1,342 million, respectively, related to contract liabilities that were outstanding as of January 2, 2026. During second quarter and year to date 2025, we recognized revenue of $517 million and $1,215 million, respectively, related to contract liabilities that were outstanding as of January 3, 2025.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE E: INVENTORIES, NET

Inventories, net are summarized below:


(In millions)	July 3, 2026		January 2, 2026

Materials and supplies	$	696	$	685
Work in process	347		291
Finished products	229		243
Inventories, net	$	1,272	$	1,219

NOTE F: GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill, by business segment, were as follows:


(In millions)	SMS		CSD		MSL		Total

Balance as of January 2, 2026(1)	$	9,005	$	7,712	$	3,293	$	20,010

Currency translation adjustments	(9)		(5)		—		(14)
Balance as of July 3, 2026	$	8,996	$	7,707	$	3,293	$	19,996

(1)Balances reflect impact of segment reorganization, as discussed in Note A: Basis of Presentation in these Notes. Information on the reallocation of goodwill in connection with the reorganization can be found under the “Reallocation of Goodwill in Segment Reorganization” heading in Note E: Goodwill and Intangible Assets in our Form 10-Q for first quarter 2026, which is incorporated herein by reference.

As of both July 3, 2026 and January 2, 2026, accumulated goodwill impairment losses were $120 million, $431 million, and $337 million in our Space and Mission Systems, Communications and Spectrum Dominance, and Missile Solutions segments, respectively.

Intangible Assets

Intangible assets, net are summarized below:


	July 3, 2026						January 2, 2026
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships(1)	$	8,316	$	(4,337)	$	3,979	$	8,329	$	(4,031)	$	4,298
Developed technologies(1)	847		(570)		277		849		(544)		305
Trade names(1)	174		(79)		95		175		(75)		100
Program investment(2)	386		—		386		—		—		—
Other	4		(4)		—		6		(3)		3
Total finite-lived intangible assets	9,727		(4,990)		4,737		9,359		(4,653)		4,706
Trade name(3)	1,803		—		1,803		1,803		—		1,803
Intangible assets, net	$	11,530	$	(4,990)	$	6,540	$	11,162	$	(4,653)	$	6,509

(1)Includes acquisition-related intangibles that benefit the entire Company. As such, these assets and associated amortization are reported at Corporate.

(2)The program investment asset, reported within our Missile Solutions segment, represents the fair value in excess of cash proceeds from our issuance of preferred stock, embedded derivative instruments and warrants related to the DoW strategic investment. This asset will be amortized on a straight-line basis over its estimated useful life of 20 years, commencing upon achievement of a milestone. See Note B: Strategic Investment in Subsidiary in these Notes.

(3)Includes the Corporate trade name, which benefits the entire Company and is reported at Corporate.

Amortization expense for intangible assets was $177 million and $351 million for second quarter and year to date 2026, respectively, and $193 million and $387 million for second quarter and year to date 2025, respectively. Future estimated amortization expense for intangible assets is as follows:


(In millions)	Remaining Fiscal 2026		Fiscal 2027		Fiscal 2028		Fiscal 2029		Fiscal 2030		Thereafter		Total

Amortization expense	$	295	$	550	$	478	$	422	$	405	$	2,587	$	4,737

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE G: INCOME TAXES

Tax Legislation Update

The Organisation for Economic Cooperation and Development (“OECD”) established a 15% global minimum tax applicable to multinational companies, which has been adopted by a majority of countries in which we operate and may subject us to this tax. In January 2026, the OECD issued additional guidance that is expected to reduce the global minimum tax burden on U.S. based multinationals. We are actively monitoring the legislative adoption of this guidance in relevant jurisdictions and will continue to evaluate its applicability to our operations and refine our estimates of the effective tax rate and cash tax impacts as new legislation is enacted. There was no impact on our effective tax rate in second quarter 2026.

Effective Tax Rate (“ETR”)

ETR was as follows:


	Second Quarter						Year to Date
(In millions)	2026			2025			2026			2025

Income tax expense	$	(110)		$	(66)		$	(187)		$	(139)
ETR	15.5		%	12.6		%	14.4		%	14.1		%

Second quarter 2026 and 2025 ETR both benefited from favorable impacts of research and development (“R&D”) credits, tax deductions for foreign derived intangible income (“FDII”) and the favorable resolution of audit uncertainties. Second quarter 2026 ETR increased primarily due to larger second quarter 2025 favorable audit settlements, partially offset by unfavorable impacts from the Commercial Aviation Solutions (“CAS disposal group”) divestiture and establishment of a state valuation allowance for R&D credit carryforwards.

Year to date 2026 and 2025 ETR both benefited from favorable impacts of R&D credits, the favorable resolution of audit uncertainties and tax deductions for FDII. Year to date 2026 ETR benefited from the favorable impact of excess tax benefits from share based-compensation, partially offset by unfavorable return-to-provision adjustments. 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.

NOTE H: FAIR VALUE MEASUREMENTS

We measure certain assets and liabilities at fair value on a recurring basis utilizing a three-level fair value hierarchy that prioritizes inputs based on market observability:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included within Level 1, including: quoted prices for similar assets or liabilities in active or inactive markets; quoted prices for identical assets or liabilities in inactive markets; and inputs derived from or corroborated by observable market data.
Level 3 — Unobservable inputs with little or no market activity that are significant to the fair value of the assets or liabilities and reflect our assumptions about market participants’ pricing, using the best available information.

We utilize observable inputs whenever available. In certain instances, fair value is estimated using quoted market prices from external pricing services. We assess the methodologies of these services to ensure valuations reflect fair value, including net asset value (“NAV”). The NAV reported by an asset manager may be adjusted when sufficient evidence indicates NAV is not representative of fair value.

For fair value information related to our embedded derivative and warrant liabilities, long-term debt and deferred compensation plan assets and liabilities, see Note B: Strategic Investment in Subsidiary, Note I: Debt and Credit Arrangements and Note J: Retirement Benefits, respectively, in these Notes.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE I: DEBT AND CREDIT ARRANGEMENTS

Long-Term Debt

Long-term debt is summarized below:


(In millions)	July 3, 2026		January 2, 2026


















Fixed-rate debt(1)	$	10,776	$	10,876
Finance lease obligations and other	267		283


Unamortized discounts and issuance costs, net of bond premium	(44)		(43)
Total long-term debt	10,999		11,116
Less: Current portion of long-term debt(2)	1,815		673
Long-term debt, net	$	9,184	$	10,443

(1)See Note 8: Debt and Credit Arrangements in our Fiscal 2025 Form 10-K for information on our fixed-rate debt.

(2)As of July 3, 2026, includes the $550 million 3.85% notes, due December 2026 (“3.85% 2026 Notes”) and $1,250 million 5.40% notes, due January 2027 (“5.40% 2027 Notes”). As of January 2, 2026, includes the $100 million 7.00% debentures, due January 2026 (“7.00% 2026 Debentures”) and $550 million 3.85% 2026 Notes.

Repayments. On January 14, 2026, we repaid the entire outstanding $100 million 7.00% 2026 Debentures with cash on hand.

Fair Value. As of July 3, 2026 and January 2, 2026, the estimated fair value of long-term debt was $11.0 billion and $11.2 billion, respectively. These values were estimated using a market approach based on quoted market prices for our debt in the secondary market and would be classified as Level 2 in the fair value hierarchy. See Note H: Fair Value Measurements in these Notes for further information on fair value.

Credit Agreements

Five-Year Credit Facility. On February 18, 2025, we established a $2.5 billion, five-year senior unsecured revolving credit facility (the “2025 Five-Year Credit Facility”) under a Revolving Credit Agreement (“2025 Five-Year Credit Agreement”) maturing on February 18, 2030 with a syndicate of lenders. For a description of the 2025 Five-Year Credit Agreement and related covenants, see Note 8: Debt and Credit Arrangements in our Fiscal 2025 Form 10-K.

As of July 3, 2026, we had no outstanding borrowings under the 2025 Five-Year Credit Agreement and had available borrowing capacity of $2.5 billion, net of outstanding borrowings under our commercial paper program, as discussed below, and were in compliance with all covenants under the 2025 Five-Year Credit Agreement.

364-Day Credit Facility. On February 18, 2025, we established a $500 million 364-day senior unsecured revolving credit facility (“2025 364-Day Credit Facility”) by entering into a 364-day Credit Agreement (“2025 364-Day Credit Agreement”) with a syndicate of lenders. The 2025 364-Day Credit Facility matured on February 17, 2026.

Commercial Paper Program (“CP Program”)

Under our CP Program, we may issue unsecured commercial paper notes up to a maximum aggregate amount, supported by the availability under our credit agreements. As of July 3, 2026, our CP Program had maximum aggregate capacity of $2.5 billion, supported by our 2025 Five-Year Credit Facility. As of January 2, 2026, our CP Program had maximum aggregate capacity of $3.0 billion, supported by our 2025 Five-Year Credit Facility and 2025 364-Day Credit Facility, which matured on February 17, 2026.

The commercial paper notes are sold at par less a discount representing an interest factor or, if interest bearing, at par, and the maturities vary but may not exceed 397 days from the date of issue. The commercial paper notes rank at least pari passu with all other unsecured and unsubordinated indebtedness.

As of both July 3, 2026 and January 2, 2026, we had no outstanding notes under our CP Program.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE J: RETIREMENT BENEFITS

Deferred Compensation Plans

We sponsor certain non-qualified deferred compensation plans which are measured at fair value on a recurring basis in our Condensed Consolidated Balance Sheet. Deferred compensation plan assets represent diversified assets held in rabbi trusts, which include marketable equity and fixed income securities and corporate-owned life insurance (“COLI”) contracts. Liabilities represent participant balances in marketable equity securities and common/collective trusts (“CCTs”) and guaranteed investment contracts (“GICs”) based on participant designed investment options.

The following table summarizes our deferred compensation plan assets and liabilities and classifications within the fair value hierarchy:


	July 3, 2026				January 2, 2026
(In millions)	Total		Level 1		Total		Level 1

Assets
Equity and fixed income securities	$	279	$	279	$	255	$	255
COLI, measured at NAV	40				38
Deferred compensation plan assets(1)	$	319			$	293

Liabilities
Equity securities	$	15	$	15	$	15	$	15
CCTs and GICs, measured at NAV	453				431
Deferred compensation plan liabilities(2)	$	468			$	446

(1)Included in the “Other current assets” and “Other non-current assets” line items in our Condensed Consolidated Balance Sheet.

(2)Included in the “Compensation and benefits” and “Other non-current liabilities” line items in our Condensed Consolidated Balance Sheet.

See Note H: Fair Value Measurements in these Notes for further information on fair value.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Defined Benefit Plans

The components of net periodic benefit income for our defined benefit pension plans and other postretirement benefit plans (“other benefits”) (collectively, “defined benefit plans”) were as follows:


	Second Quarter
	2026						2025
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total


Operating
Service cost(1)	$	5	$	1	$	6	$	6	$	1	$	7
Non-operating
Interest cost	70		2		72		77		2		79
Expected return on plan assets	(131)		(6)		(137)		(136)		(5)		(141)
Amortization of net actuarial gains	(1)		(3)		(4)		(2)		(4)		(6)
Amortization of prior service (credits) costs	(7)		1		(6)		(6)		1		(5)

Non-service cost net periodic benefit income(2)	(69)		(6)		(75)		(67)		(6)		(73)
Net periodic benefit income	$	(64)	$	(5)	$	(69)	$	(61)	$	(5)	$	(66)

	Year to Date
	2026						2025
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total


Operating
Service cost(1)	$	10	$	1	$	11	$	12	$	1	$	13
Non-operating
Interest cost	141		4		145		165		5		170
Expected return on plan assets	(264)		(11)		(275)		(287)		(10)		(297)
Amortization of net actuarial gains	(2)		(6)		(8)		(3)		(7)		(10)
Amortization of prior service (credits) costs	(13)		1		(12)		(13)		1		(12)
Effect of settlements	—		—		—		(14)		—		(14)
Non-service cost net periodic benefit income(2)	(138)		(12)		(150)		(152)		(11)		(163)
Net periodic benefit income	$	(128)	$	(11)	$	(139)	$	(140)	$	(10)	$	(150)

(1)Included in the “Cost of revenue” and “General and administrative expenses” line items in our Condensed Consolidated Statement of Operations.

(2)Included in the “Non-service FAS pension income and other, net” line item in our Condensed Consolidated Statement of Operations.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE K: SHARE-BASED COMPENSATION

As of July 3, 2026, we had stock options and other share-based compensation awards outstanding under our 2024 Equity Incentive Plan and predecessor plans (collectively, the “L3Harris SIPs”).

Awards granted to participants under the L3Harris SIPs and the weighted-average grant-date fair value per share or unit were as follows:


	Year to Date
	2026			2025
(In thousands, except per share/unit amounts)	Shares or Units	Weighted-Average Grant-Date Fair Value Per Share or Unit		Shares or Units	Weighted-Average Grant-Date Fair Value Per Share or Unit

Stock options(1)	221	$	91.53	388	$	49.20
RSUs(2)	96	$	340.28	229	$	210.15
PSUs(3)	114	$	418.67	185	$	217.67

(1)Other than certain stock options granted in connection with new hires, our stock options generally vest ratably in equal amounts over a three-year period.

(2)The majority of our RSUs, including those granted annually to executives under our long-term incentive plan, cliff vest after three years.

(3)Our PSUs are subject to performance criteria and generally vest after the three-year performance period.

The aggregate number of shares of our common stock issued under the L3Harris SIPs, net of shares withheld for tax purposes, was 0.1 million and 0.5 million for second quarter and year to date 2026, respectively, and 0.2 million and 0.4 million for second quarter and year to date 2025, respectively.

Share-based compensation expense was $28 million and $49 million for second quarter and year to date 2026, respectively, and $29 million and $48 million for second quarter and year to date 2025, respectively.

NOTE L: MEZZANINE EQUITY

The following table summarizes the activity in mezzanine equity:


	Second Quarter				Year to Date
(In millions, except for shares and per share amounts)	2026		2025		2026		2025

Beginning balance	$	—	$	—	$	—	$	—
Issuance of 10,000 Subsidiary Series A Preferred Stock, $0.0001 par value; $100,000 stated value(1)	954		—		954		—
Subsidiary preferred stock deemed dividend	14		—		14		—
Ending balance	$	968	$	—	$	968	$	—

(1)The Subsidiary Series A Preferred Stock was issued with an initial face value of $1.0 billion, recorded at the fair value of $1,070 million, net of $27 million of transaction costs and an $89 million deferred tax liability.

See Note B: Strategic Investment in Subsidiary in these Notes for further information.

NOTE M: SHAREHOLDERS' EQUITY

Common Stock

Authorized common stock consists of 500,000,000 shares, with a $1 par value per share, of which 186,155,804 shares and 186,844,093 shares were issued and outstanding as of July 3, 2026 and January 2, 2026, respectively.

Share Repurchase Program. On October 21, 2022, we announced that our Board of Directors (“Board”) approved a $3.0 billion share repurchase authorization under our repurchase program. Our previous $6.0 billion share repurchase authorization was fully utilized during the first quarter 2025. 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.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During year to date 2026, we repurchased 1.5 million shares of our common stock under our share repurchase program for $525 million and had remaining unused authorizations of $1.7 billion as of July 3, 2026. During year to date 2025, we repurchased 3.9 million shares of our common stock under our share repurchase program for $822 million and had remaining unused authorizations of $2.6 billion as of June 27, 2025.

Preferred Stock

Authorized preferred stock consists of 1,000,000 shares, without par value, of which no shares were issued and outstanding as of both July 3, 2026 and January 2, 2026.

Accumulated Other Comprehensive Income (Loss) (“AOCI”)

Changes in the components of AOCI, net of tax were as follows:


(In millions)	Foreign Currency Translation and Other, Net(1)		Pension and Other Postretirement Benefits(2)		Total AOCI

Balance as of January 2, 2026	$	(234)	$	353	$	119
Other comprehensive loss before reclassifications	(17)		—		(17)
Losses (gains) reclassified to earnings	5		(16)		(11)
Other comprehensive loss	(12)		(16)		(28)
Balance as of July 3, 2026	$	(246)	$	337	$	91

Balance as of January 3, 2025	$	(331)	$	358	$	27
Other comprehensive income (loss) before reclassifications	68		(43)		25
Losses (gains) reclassified to earnings	14		(35)		(21)
Other comprehensive income (loss)	82		(78)		4
Balance as of June 27, 2025	$	(249)	$	280	$	31

(1)Other, net consists of hedging derivatives.

(2)See Note J: Retirement Benefits in these Notes for additional information.

NOTE N: CHANGES IN ESTIMATES

Many of our contracts utilize the POC cost-to-cost method of revenue recognition. A single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion in line with those expectations. Due to the long-term nature of many of these contracts, developing the estimated total cost at completion and total transaction price often requires judgment. After establishing the estimated total cost at completion, we follow a standard estimate at completion (“EAC”) process in which we review the progress and performance on our ongoing contracts. If we successfully retire risks associated with the technical, schedule and cost aspects of a contract, we may lower our estimated total cost at completion commensurate with the retirement of these risks. Conversely, there are many reasons estimated contract costs can increase, including: (i) supply chain disruptions, inflation and labor issues; (ii) design or other development challenges; and (iii) program execution challenges (including technical schedule or quality issues and other performance concerns). Additionally, as the contract progresses, our estimates of total transaction price may increase or decrease if, for example, we receive incentive or award fees that are higher or lower than expected.

The following table presents the effect of aggregate net EAC adjustments:


	Second Quarter				Year to Date
(In millions, except per share amounts)	2026		2025		2026		2025

Revenue	$	55	$	37	$	141	$	74
Operating income	23		(20)		41		(41)
Net income(1)	17		(15)		31		(31)
Diluted EPS	0.10		(0.08)		0.17		(0.16)

(1)Based on a 25 percent federal and state statutory tax rate.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE O: CONTRACTUAL BACKLOG

Contractual backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Contractual backlog comprises both funded backlog (i.e., firm orders for which funding is authorized and appropriated) and unfunded backlog (i.e., orders for which funds have not been appropriated and/or incrementally funded). Contractual backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite-delivery, indefinite-quantity contracts.

As of July 3, 2026, our contractual backlog was $42.0 billion. We expect to recognize approximately 40% of our contractual backlog as revenue over the next twelve months and 65% as revenue over the next twenty-four months, with the remainder to be recognized thereafter.

NOTE P: DIVESTITURES

Space Technology Disposal Group

During fourth quarter 2025, we entered into an agreement with AE Industrial Partners (“AE Industrial”) to establish a new space technology company (“Space Technology disposal group”). Under the agreement we will contribute certain assets and liabilities of the Space Propulsion and Power Systems business (“SPPS business”) and the Space Avionics & Communications division (“SA&C business”), both reported in our Missile Solutions segment, to a new entity in which we will retain approximately 40% noncontrolling interest. The Space Technology disposal group, which excludes our RS-25 rocket engine and hypersonics businesses, provides premier propulsion, power, space flight avionics and communications systems. AE Industrial will acquire a controlling interest of approximately 60% in the new space technology company, at a net enterprise value of $825 million, subject to regulatory approvals and other customary closing conditions. The transaction is expected to close early in the second half of 2026.

Upon closing, we will derecognize the assets and liabilities of the Space Technology disposal group and record an equity method investment at the fair value of our retained noncontrolling interest in the newly formed entity.

The carrying amounts of the assets and liabilities of the Space Technology disposal group classified as held for sale in our Condensed Consolidated Balance Sheet were as follows:



(In millions)	July 3, 2026		January 2, 2026

Receivables, net	$	122	$	26
Contract assets	124		94
Inventories, net	10		8
Other current assets	8		11
Property, plant and equipment, net	125		115
Goodwill	285		285
Intangible assets, net	372		373
Other non-current assets	26		26
Valuation allowance	(62)		(54)
Total assets held for sale	$	1,010	$	884

Accounts payable	$	28	$	9
Contract liabilities	41		59
Compensation and benefits	8		7
Other current liabilities	18		19
Other non-current liabilities	18		19
Total liabilities held for sale	$	113	$	113

Income before income taxes attributable to the Space Technology disposal group was $28 million and $59 million for second quarter and year to date 2026, respectively, and $24 million and $38 million for second quarter and year to date 2025, respectively.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In fiscal 2026, we recorded an additional valuation allowance due to an increase in the carrying value of the disposal group and recognized a pre-tax loss of $10 million for year to date 2026, which was incremental to the previously recorded Space Technology disposal group loss recognized in fiscal 2025. The pre-tax loss is included in the “General and administrative expenses” line item in our Condensed Consolidated Statement of Operations for year to date 2026.

CAS Disposal Group

On March 28, 2025, we completed the sale of our CAS disposal group, which provided integrated aircraft avionics, pilot training and data analytics services for the commercial aviation industry, for cash proceeds, net of cash divested, of $831 million as of year to date 2025. The operating results of the CAS disposal group are reported in other non-reportable businesses, within Unallocated corporate items and other, net in Note Q: Business Segment Information, through the date of sale. For additional information on the CAS disposal group, see Note 13: Acquisitions and Divestitures in our Fiscal 2025 Form 10-K.

NOTE Q: BUSINESS SEGMENT INFORMATION

Description of Business Segments

We structure our operations primarily around the capabilities we provide, with each segment consisting of similar end products and technologies, and report our financial results in the following three operating segments, which are also our reportable segments or business segments, consistent with the manner in which our chief operating decision maker (“CODM”) manages the business, evaluates performance, and allocates resources. In second quarter 2026, we enhanced our business segment disclosure to clarify the manner in which our CODM evaluates segment performance and allocates resources. Gains and losses, net of impairments, associated with investments in companies with dual-use technologies that accelerate our capabilities, improve go-to-market efforts and are operationally aligned with our business segments are included in the respective segments’ operating income. There were no material changes to the historical results, discussion and presentation of our business segments in the accompanying Condensed Consolidated Financial Statements and the Notes. Our three business segments are:

Space & Mission Systems: Supplies full mission solutions as a prime and subsystem integrator in the space, airborne, maritime, and cyber domains. We provide top-tier capabilities in the design, development, integration, production and sustainment of weapons systems for national security, civil government and international customers in the following business sectors:

Intelligence, Surveillance and Reconnaissance (“ISR”): Airborne passive sensing and targeting, mission systems development, integration and life-cycle management for strategic reconnaissance and air superiority platforms, national command and control, tactical surveillance, electronic attack, agile strike, mobility, and classified platforms.

Space Systems: End-to-end mission solutions to support intelligence, surveillance and reconnaissance; missile defense; positioning, navigation and timing; weather and climate monitoring; and ground-based space surveillance networks.

Maritime: Power, electrical, imaging, communication and sensor systems for naval platforms; autonomous solutions for surface and undersea operations; high-assurance encryption; in-service support; missionization prototyping; and naval integration.

Mission Networks: Integrator of large-scale, highly secure, and resilient mission critical infrastructure and enterprise systems for communications, air traffic surveillance, and enterprise information management.

Airborne Solutions: Integrated and multi-function processors, memory, communication, displays, and other hardened electronics, for airborne and ground platforms.

Intel & Cyber: Situational awareness, optical networks and advanced wireless solutions for classified intelligence and defense customers.

Communications & Spectrum Dominance: Enables warfighters across all domains with solutions critical to mission success even in the most contested environments. We are a leading provider of resilient communication solutions for the DoW and international, federal, and state agency customers in the following business sectors:

Mission Critical Communications: Design, manufacture and sustainment of resilient and interoperable secure communication solutions that includes software defined radios, waveforms, satellite terminals and end-to-end battlefield systems for the warfighter and government agencies.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Spectrum Superiority: Design, manufacture and sustainment of resilient and secure communication solutions that include ISR and tactical data links, software and integrated broadband networks and electronic warfare.

Targeting & Sensor Systems: Multi-domain, multi-spectral electro-optical and infrared sensor systems supporting ISR and target acquisition missions; manufacturing of specialty laser transmitters and filter glass materials; manufacturing of counter unmanned aircraft integrated systems; and specialized mission management software solutions.

Integrated Vision Solutions: Design, manufacture and sustainment of a full suite of helmet-mounted integrated night vision goggles with leading-edge image intensifier tubes, as well as weapon-mounted sights, aiming lasers, and range finders.

Missile Solutions: Provides a comprehensive portfolio of missile technologies spanning the full mission lifecycle, as well as critical space propulsion capabilities to the U.S. Government and its allies, including the DoW, NASA and major aerospace and defense prime contractors in the following business sectors:

Propulsion Systems: Provides propulsion, maneuvering, and control technologies as well as fuzing systems that support missile defense interceptors, strategic deterrence systems, and precision strike weapons; and space propulsion and power systems for national security and space exploration missions.

Advanced Effects: Provides advanced systems that improve missile performance, accuracy, and mission effectiveness across four capability areas including advanced sensing and targeting systems, guidance systems, weapons release systems, and complete weapons systems.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business Segment Financial Results

The following table presents operating results by business segment and a reconciliation to total income before income taxes:


	Second Quarter				Year to Date
(In millions)	2026		2025		2026		2025

Revenue
Space & Mission Systems	$	2,966	$	2,770	$	5,956	$	5,181
Communications & Spectrum Dominance	1,943		1,861		3,798		3,670
Missile Solutions	1,054		925		2,044		1,765
Intersegment	(82)		(130)		(173)		(204)
Segment revenue	5,881		5,426		11,625		10,412
Other(1)	—		—		—		146
Total revenue	5,881		5,426		11,625		10,558

Cost of revenue
Space & Mission Systems	(2,442)		(2,287)		(4,881)		(4,235)
Communications & Spectrum Dominance	(1,177)		(1,185)		(2,340)		(2,342)
Missile Solutions	(827)		(722)		(1,634)		(1,378)
Intersegment	82		130		173		204
Segment cost of revenue	(4,364)		(4,064)		(8,682)		(7,751)
Other(2)	(15)		(27)		(39)		(122)
Total cost of revenue	(4,379)		(4,091)		(8,721)		(7,873)

Other segment items(3)
Space & Mission Systems	(234)		(194)		(472)		(419)
Communications & Spectrum Dominance	(244)		(218)		(471)		(427)
Missile Solutions	(97)		(87)		(156)		(175)
Total other segment items	(575)		(499)		(1,099)		(1,021)
Other(2)	15		27		39		(24)
Total other items	(560)		(472)		(1,060)		(1,045)









Operating income
Space & Mission Systems	290		289		603		527
Communications & Spectrum Dominance	522		458		987		901
Missile Solutions	130		116		254		212
Segment operating income	942		863		1,844		1,640
Unallocated corporate items and other, net	(288)		(292)		(538)		(544)
Total operating income	654		571		1,306		1,096


Non-service FAS pension income and other, net	185		105		258		189
Interest expense, net	(129)		(152)		(265)		(302)
Income before income taxes	$	710	$	524	$	1,299	$	983

(1)Includes other non-reportable businesses, which consists of the CAS disposal group.

(2)Includes corporate headquarters. Additionally, year to date 2025 includes other non-reportable businesses, which consists of the CAS disposal group.

(3)Other segment items include company-funded R&D costs, selling and marketing costs, $39 million of gains and losses, net of impairments, on investments associated with companies developing dual-use technologies that accelerate our capabilities, improve go-to-market efforts and are operationally aligned with our business segments in second quarter and year to date 2026, and other G&A expenses, which includes a portion of capital expenditure and depreciation and amortization costs that are disaggregated by segment under the “Disaggregation of Revenue” heading below in this Note.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unallocated Corporate Items and Other, Net. Unallocated corporate items include expenses not included in management’s evaluation of segment operating performance, such as amortization of acquisition-related intangibles; acquisition, divestiture and transaction-related expenses; business divestiture-related losses; LHX NeXt implementation costs, and a portion of management and administration, legal, environmental, compensation and retiree benefits, and the FAS/Cost Accounting Standards (“CAS”) operating adjustment.

Other, net includes the operating results of other non-reportable businesses, which consists of the CAS disposal group, eliminations and other. Additionally, includes an adjustment for gains and losses, net of impairments, associated with investments in companies with dual-use technologies that accelerate our capabilities and improve go-to-market efforts to reconcile segment operating income to operating income. Net investment gains are included in the “Non-service FAS pension income and other, net” line item in our Condensed Consolidated Statement of Operations. See the “Investments” section in Note A: Basis of Presentation in these Notes for further information.

Assets

Total assets by business segment were as follows:


(In millions)	July 3, 2026		January 2, 2026

Space & Mission Systems	$	14,485	$	13,736
Communications & Spectrum Dominance	10,972		10,862
Missile Solutions	7,245		6,605
Corporate(1)	10,236		9,992
Total assets	$	42,938	$	41,195

(1)Includes intangible assets acquired in connection with business combinations that benefit the entire Company. See the “Intangible Assets” section in Note F: Goodwill and Intangible Assets in these Notes for further information.

Other Financial Information

Other financial information by business segment is summarized below:


	Second Quarter				Year to Date
(In millions)	2026		2025		2026		2025

Capital expenditures
Space & Mission Systems	$	33	$	28	$	62	$	63
Communications & Spectrum Dominance	17		20		35		28
Missile Solutions	38		23		71		37
Corporate	20		17		39		19
Total capital expenditures	$	108	$	88	$	207	$	147

Depreciation and amortization
Space & Mission Systems	$	42	$	40	$	84	$	80
Communications & Spectrum Dominance	21		18		39		35
Missile Solutions	15		18		29		34
Corporate	210		227		418		455
Total depreciation and amortization	$	288	$	303	$	570	$	604

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Disaggregation of Revenue

We disaggregate revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.


	Second Quarter
	2026						2025
(In millions)	SMS		CSD		MSL			SMS		CSD		MSL

Revenue by customer relationship
Prime contractor	$	2,177	$	1,300	$	245		$	2,021	$	1,204	$	245
Subcontractor	767		595		797			721		563		672
Intersegment	22		48		12			28		94		8
Total segment	$	2,966	$	1,943	$	1,054		$	2,770	$	1,861	$	925

Revenue by contract type
Fixed-price	$	2,138	$	1,585	$	704		$	1,957	$	1,518	$	576
Cost-type	806		310		338			785		249		341
Intersegment	22		48		12			28		94		8
Total segment	$	2,966	$	1,943	$	1,054		$	2,770	$	1,861	$	925

Revenue by geographical region
United States	$	2,505	$	1,076	$	922		$	2,380	$	1,113	$	809
International	439		819		120			362		654		108
Intersegment	22		48		12			28		94		8
Total segment	$	2,966	$	1,943	$	1,054		$	2,770	$	1,861	$	925


	Year to Date
	2026						2025
(In millions)	SMS		CSD		MSL			SMS		CSD		MSL		Other(1)

Revenue by customer relationship
Prime contractor	$	4,463	$	2,492	$	495		$	3,746	$	2,377	$	467	$	72
Subcontractor	1,448		1,201		1,526			1,381		1,170		1,272		73
Intersegment	45		105		23			54		123		26		1
Total segment	$	5,956	$	3,798	$	2,044		$	5,181	$	3,670	$	1,765	$	146

Revenue by contract type
Fixed-price	$	4,048	$	3,105	$	1,347		$	3,615	$	3,011	$	1,081	$	145
Cost-type	1,863		588		674			1,512		536		658		—
Intersegment	45		105		23			54		123		26		1
Total segment	$	5,956	$	3,798	$	2,044		$	5,181	$	3,670	$	1,765	$	146

Revenue by geographical region
United States	$	5,045	$	2,113	$	1,796		$	4,408	$	2,204	$	1,604	$	61
International	866		1,580		225			719		1,343		135		84
Intersegment	45		105		23			54		123		26		1
Total segment	$	5,956	$	3,798	$	2,044		$	5,181	$	3,670	$	1,765	$	146

(1)Includes revenue associated with other non-reportable businesses, which consists of the CAS disposal group. These amounts are included to reconcile total revenue.

_____________________________________________________________________

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE R: LEGAL PROCEEDINGS AND CONTINGENCIES

In the ordinary course of business, we are routinely defendants in, parties to or otherwise subject to many pending and threatened legal actions, claims, disputes, arbitrations and other legal proceedings incident to our business, arising from or related to matters, including but not limited to: product liability; personal injury; patents, trademarks, trade secrets or other intellectual property; labor and employment disputes; commercial or contractual disputes; strategic acquisitions or divestitures; the prior sale or use of former products allegedly containing asbestos or other restricted materials; breach of warranty; or environmental matters. Claimed amounts against us may be substantial, but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred. As of July 3, 2026, our accrual for the potential resolution of lawsuits, claims or proceedings that we consider probable of being decided unfavorably to us was not material. We cannot at this time estimate the reasonably possible loss or range of loss in excess of our accrual due to the inherent uncertainties and speculative nature of contested proceedings. Although it is not feasible to predict the outcome of these matters with certainty, based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence as of July 3, 2026 were reserved against or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.

Environmental Matters

We are subject to numerous U.S. federal, state, local and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues. We or companies we have acquired are responsible, or alleged to be responsible, for environmental investigation and/or remediation of multiple sites, including sites owned by us and third-party sites. These sites are in various stages of investigation and/or remediation, and in some cases our liability is considered de minimis. Notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies allege that several sites formerly or currently owned and/or operated by us or companies we have acquired, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances of being identified as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”), the Resource Conservation Recovery Act and/or equivalent state and international laws, and in some instances, our liability and proportionate share of costs that may be shared among other PRPs have not been determined largely due to uncertainties as to the nature and extent of site conditions and our involvement.

Based on an assessment of relevant factors, we estimated that our liability under applicable environmental statutes and regulations for identified sites was $660 million and $659 million as of July 3, 2026 and January 2, 2026, respectively. The current and non-current portions of our estimated environmental liability are included in the “Other current liabilities” and “Other non-current liabilities” line items, respectively, in our Condensed Consolidated Balance Sheet.

Certain environmental costs are eligible for future recovery in the pricing of our products and services to the U.S. Government and based on U.S. Government contracting regulations, we consider the recovery probable. We had recoverable assets of $485 million and $483 million, as of July 3, 2026 and January 2, 2026, respectively. The current and non-current portions of the recoverable costs are included in the “Other current assets” and “Other non-current assets” line items, respectively, in our Condensed Consolidated Balance Sheet.

_____________________________________________________________________

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of L3Harris Technologies, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of L3Harris Technologies, Inc. and subsidiaries (the Company) as of July 3, 2026, the related condensed consolidated statements of operations, comprehensive income and equity for the quarter and two quarters ended July 3, 2026 and June 27, 2025, the condensed consolidated statements of cash flows for the two quarters ended July 3, 2026 and June 27, 2025, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of January 2, 2026, the related consolidated statements of operations, comprehensive income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February 12, 2026, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 2, 2026, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Orlando, Florida

July 30, 2026

_____________________________________________________________________

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.