L3Harris(LHX) - 2024 Q2 - Quarterly Report

Part I. Financial Information ITEM 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements reflect results for the recent quarter and year-to-date periods Condensed Consolidated Statement of Operations Highlights (Q2 2024 vs Q2 2023) | Financial Metric | Q2 2024 (In millions) | Q2 2023 (In millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $5,299 | $4,693 | +13.0% | | Gross Margin | $1,360 | $1,187 | +14.6% | | Operating Income | $476 | $400 | +19.0% | | Net Income Attributable to L3Harris | $366 | $349 | +4.9% | | Diluted EPS | $1.92 | $1.83 | +4.9% | Condensed Consolidated Balance Sheet Highlights (As of June 28, 2024) | Balance Sheet Item | June 28, 2024 (In millions) | Dec 29, 2023 (In millions) | | :--- | :--- | :--- | | Total Current Assets | $8,047 | $8,055 | | Total Assets | $41,657 | $41,687 | | Total Current Liabilities | $8,981 | $8,004 | | Long-Term Debt, net | $10,533 | $11,160 | | Total Liabilities | $22,753 | $22,858 | | Total Equity | $18,904 | $18,829 | Condensed Consolidated Statement of Cash Flows Highlights (YTD 2024 vs YTD 2023) | Cash Flow Item | Two Quarters Ended June 28, 2024 (In millions) | Two Quarters Ended June 30, 2023 (In millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $650 | $764 | | Net cash used in investing activities | ($58) | ($2,074) | | Net cash (used in) provided by financing activities | ($600) | $794 | | Net decrease in cash and cash equivalents | ($13) | ($514) | Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, acquisitions, debt, and segment information supporting the financial statements - The financial statements have been prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the company's Fiscal 2023 Form 10-K[12] - Acquisition of AJRD: On July 28, 2023, the company acquired Aerojet Rocketdyne (AJRD) for a total net purchase price of $4.715 billion, with results reported in the new AR segment[116] - Pending Divestiture of CAS: The company has a definitive agreement to sell its Commercial Aviation Solutions (CAS) Disposal Group for $700 million, with the transaction expected to close in fiscal 2024[123] - Divestiture of Antenna Group: On May 31, 2024, the company completed the divestiture of its Antenna Disposal Group for net cash proceeds of $166 million and a $25 million note receivable[182] - Debt and Credit: In Q1 2024, the company issued $2.25 billion in new fixed-rate notes, using the proceeds to repay its Term Loan 2025 and $350 million of its 3.95% 2024 Notes[47][298][300] - Total backlog was $31.7 billion at June 28, 2024, with approximately 45% expected to be recognized as revenue over the next twelve months[59] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, segment results, liquidity, and capital allocation strategies Results of Operations Consolidated revenue grew due to the AR acquisition, while higher G&A and interest expenses impacted net income Consolidated Results of Operations (YTD 2024 vs YTD 2023) | Financial Metric | Two Quarters Ended June 28, 2024 (In millions) | Two Quarters Ended June 30, 2023 (In millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $10,510 | $9,164 | +14.7% | | Gross Margin | $2,708 | $2,353 | +15.1% | | Operating Income | $854 | $793 | +7.7% | | Net Income Attributable to L3Harris | $649 | $686 | -5.4% | | Diluted EPS | $3.40 | $3.60 | -5.6% | - The increase in revenue was primarily driven by the inclusion of $1.1 billion from the AR segment for the first two quarters of 2024[213] - General and Administrative (G&A) expenses increased mainly due to higher LHX NeXt implementation costs, increased amortization of acquisition-related intangibles, and losses on divestitures[150][176] - Interest expense, net, increased by $135 million for the two quarters ended June 28, 2024, primarily due to debt related to the AJRD acquisition[178] Discussion of Business Segment Results of Operations Performance is detailed across four segments, highlighting the new AR segment's contribution and varied results elsewhere Segment Revenue and Operating Income (Q2 2024 vs Q2 2023) | Segment | Revenue (Q2'24, $M) | Revenue (Q2'23, $M) | % Change | Op. Income (Q2'24, $M) | Op. Income (Q2'23, $M) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SAS | 1,707 | 1,715 | 0% | 215 | 168 | +28% | | IMS | 1,729 | 1,735 | 0% | 206 | 162 | +27% | | CS | 1,346 | 1,289 | +4% | 329 | 325 | +1% | | AR | 581 | N/A | N/A | 75 | N/A | N/A | - SAS: Flat revenue was due to lower legacy airborne platform volume, offset by growth in Intel & Cyber and Space Systems, while operating income increased from improved program performance[207] - IMS: Flat revenue resulted from higher Maritime volume being offset by lower Commercial Aviation volume, with operating income growth from improved performance and cost savings[74] - CS: Revenue growth was driven by higher volumes in Broadband and Tactical Communications, while operating income increased due to a favorable legal settlement and cost savings[75] - AR: The new segment reported revenue of $581 million and operating income of $75 million for the quarter, driven by Missile Solutions and Space Propulsion[79][217] Liquidity, Capital Resources and Financial Strategies The company maintains a solid liquidity position despite lower operating cash flow, managing debt and capital returns - Net cash from operating activities decreased by $114 million in the first two quarters of 2024 compared to 2023, primarily due to a higher use of cash for net working capital[82] - Net cash used in investing activities decreased by $2.0 billion, mainly because the prior-year period included $1.97 billion in cash paid for acquisitions[83] - Financing activities saw a $1.4 billion swing from cash provided to cash used, driven by a $1.5 billion increase in debt repayments[84] - The company established a new $1.5 billion, 364-day senior unsecured revolving credit facility, with no borrowings outstanding as of June 28, 2024[40][44] - During the first two quarters of 2024, the company used $322 million to repurchase 1.5 million shares of its common stock[91] - The quarterly cash dividend was increased from $1.14 to $1.16 per share, commencing in the first quarter of fiscal 2024[95] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Market risk exposures related to currency, interest rates, and benefit plans remain materially unchanged from fiscal 2023 - There were no material changes to the market risk disclosures from the Fiscal 2023 Form 10-K, with key risks including foreign currency exchange rates, interest rates, and defined benefit plan returns[156] ITEM 4. Controls and Procedures Disclosure controls and procedures were deemed effective, with integration of AJRD's internal controls underway - Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[112] - The company is incorporating internal controls for the AJRD acquisition and will include them in the fiscal 2024 year-end assessment of internal control over financial reporting (ICFR)[190] Part II. Other Information ITEM 1. Legal Proceedings A stockholder class action lawsuit was resolved and dismissed after the company paid attorneys' fees to avoid litigation - A putative class action lawsuit filed by a stockholder regarding a cooperation agreement with D. E. Shaw was dismissed as moot after the company entered into a waiver[193] - The company agreed to pay $500,000 in attorneys' fees and expenses to resolve the claim and avoid further litigation[193] ITEM 1A. Risk Factors Risk factors remain materially unchanged from those disclosed in the Fiscal 2023 Form 10-K - There have been no material changes to the risk factors disclosed in the company's Fiscal 2023 Form 10-K[219] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company continued its share repurchase program and did not issue any unregistered equity securities during the quarter Issuer Purchases of Equity Securities (Q2 2024) | Period (Fiscal Months) | Total Shares Purchased (Program) | Average Price Paid per Share | Approx. Value Remaining ($M) | | :--- | :--- | :--- | :--- | | Month 1 | 0 | N/A | $3,702 | | Month 2 | 30,000 | $217.05 | $3,696 | | Month 3 | 378,000 | $220.59 | $3,612 | | Total | 408,000 | - | $3,612 | - As of June 28, 2024, the company had a remaining unused authorization of $3.6 billion under its share repurchase program[93][220] - No unregistered equity securities were sold during the quarter ended June 28, 2024[195] ITEM 5. Other Information An executive officer adopted a Rule 10b5-1 trading plan for the potential sale of company shares - Ross Niebergall, President of the AR segment, adopted a Rule 10b5-1 trading plan on June 3, 2024, for the potential sale of up to 12,214 shares[224][228] ITEM 6. Exhibits A list of filed exhibits includes corporate governance documents, incentive plans, and required certifications - Exhibits filed include the L3Harris Technologies, Inc. 2024 Equity Incentive Plan, various award agreements, and CEO/CFO certifications[229]