L3Harris(US:LHX)2024-10-25 13:20Part I Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for the quarter and three quarters ended September 27, 2024, detailing operations, balance sheet, cash flows, and equity Condensed Consolidated Statement of Operations Highlights (Q3 & YTD 2024 vs 2023) | (In millions, except per share amounts) | Quarter Ended Sep 27, 2024 | Quarter Ended Sep 29, 2023 | Three Quarters Ended Sep 27, 2024 | Three Quarters Ended Sep 29, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5,292 | $4,915 | $15,802 | $14,079 | | Operating Income | $495 | $479 | $1,349 | $1,272 | | Net Income Attributable to L3Harris | $400 | $383 | $1,049 | $1,069 | | Diluted EPS | $2.10 | $2.02 | $5.50 | $5.61 | Condensed Consolidated Balance Sheet Highlights | (In millions) | Sep 27, 2024 | Dec 29, 2023 | | :--- | :--- | :--- | | Total Current Assets | $8,302 | $8,055 | | Goodwill | $20,433 | $19,979 | | Total Assets | $41,889 | $41,687 | | Total Current Liabilities | $7,973 | $8,004 | | Long-term Debt, net | $11,093 | $11,160 | | Total Liabilities | $22,827 | $22,858 | | Total Equity | $19,062 | $18,829 | Condensed Consolidated Statement of Cash Flows Highlights (YTD) | (In millions) | Three Quarters Ended Sep 27, 2024 | Three Quarters Ended Sep 29, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,430 | $1,307 | | Net cash used in investing activities | ($151) | ($6,938) | | Net cash (used in) provided by financing activities | ($1,309) | $5,254 | | Net decrease in cash and cash equivalents | ($21) | ($381) | Notes to Condensed Consolidated Financial Statements Details accounting policies and financial figures, including earnings per share, goodwill, debt, segment performance, and legal contingencies - Total backlog was $33.8 billion at September 27, 2024, with approximately 45% expected to be recognized as revenue over the next twelve months44 - The LHX NeXt initiative incurred $69 million in additional provisions for employee severance costs during the first three quarters of 20244547 - The company's effective tax rate was 6.0% for Q3 2024 and 4.9% for YTD 2024, benefiting from R&D credits, FDII deductions, and favorable adjustments from 2023 tax return finalization25 Goodwill Changes by Segment (YTD 2024) | (In millions) | Balance at Dec 29, 2023 | Goodwill from AJRD acquisition | Impairment/Divestitures | Currency Adjustments | Balance at Sep 27, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | SAS | $6,110 | $0 | ($93) | $14 | $6,031 | | IMS | $6,564 | $0 | $0 | ($3) | $6,561 | | CS | $4,940 | $0 | $0 | ($1) | $4,939 | | AR | $2,365 | $537 | $0 | $0 | $2,902 | | Total | $19,979 | $537 | ($93) | $10 | $20,433 | Note O: Acquisitions and Divestitures Details significant transactional activities, including finalized AJRD acquisition goodwill, pending CAS divestiture, and completed Antenna Disposal Group sale - The accounting for the Aerojet Rocketdyne Holdings, Inc. (AJRD) acquisition was finalized in Q3 2024, with final goodwill recognized at $2,902 million, an increase of $554 million from the preliminary estimate485255 - The company has a definitive agreement to sell its Commercial Aviation Solutions (CAS) Disposal Group for $700 million cash, plus up to $100 million in contingent consideration, expected to close in fiscal 202456 - The divestiture of the Antenna Disposal Group was completed on May 31, 2024, for net cash proceeds of $166 million and a $25 million note receivable, resulting in a pre-tax loss of $9 million for the three quarters ended September 27, 202459 Note P: Business Segment Information Provides a breakdown of financial performance across the company's four segments, highlighting year-over-year revenue growth, especially in the AR segment post-acquisition Segment Revenue (YTD 2024 vs 2023) | (In millions) | Three Quarters Ended Sep 27, 2024 | Three Quarters Ended Sep 29, 2023 | | :--- | :--- | :--- | | SAS | $5,141 | $5,056 | | IMS | $5,069 | $5,003 | | CS | $4,022 | $3,707 | | AR | $1,719 | $455 | | Total Revenue | $15,802 | $14,079 | Segment Operating Income (YTD 2024 vs 2023) | (In millions) | Three Quarters Ended Sep 27, 2024 | Three Quarters Ended Sep 29, 2023 | | :--- | :--- | :--- | | SAS | $626 | $565 | | IMS | $600 | $534 | | CS | $998 | $873 | | AR | $222 | $56 | | Total Segment Operating Income | $2,446 | $2,028 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting year-to-date revenue growth, segment performance, LHX NeXt impact, liquidity, and capital resources Results of Operations Consolidated revenue increased in Q3 and YTD, driven by AJRD acquisition and segment growth, while higher G&A and interest expenses impacted profitability - Q3 2024 revenue increased 8% YoY, driven by a full quarter of contribution from the AR segment ($141 million) and growth in the CS ($127 million) and IMS ($103 million) segments81 - YTD G&A expenses increased by $390 million YoY, primarily due to higher LHX NeXt implementation costs ($216 million vs $68 million), increased amortization of intangibles, and business divestiture-related losses8990 - YTD interest expense increased to $514 million from $372 million in the prior year, mainly due to debt issued for the AJRD acquisition and new notes issued in March 202492 Discussion of Business Segment Results of Operations Discusses varied segment performance, highlighting strong Q3 growth in CS and IMS, flat SAS revenue, and significant post-acquisition growth in AR Q3 2024 Segment Performance vs Q3 2023 | Segment | Revenue (in millions) | % Change | Operating Income (in millions) | % Change | Operating Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | SAS | $1,683 | 0% | $195 | (7)% | 11.6% | | IMS | $1,671 | 7% | $204 | 9% | 12.2% | | CS | $1,382 | 10% | $359 | 27% | 26.0% | | AR | $596 | 31% | $75 | 34% | 12.6% | Liquidity, Capital Resources and Financial Strategies Details the company's strong liquidity, increased YTD operating cash flow, significant debt refinancing, common stock repurchases, and dividend increase - Net cash from operating activities increased by $123 million YTD, reaching $1.43 billion103105 - In March 2024, the company issued $2.25 billion of new fixed-rate notes and used the proceeds to repay its variable-rate Term Loan 20252729110 - The company used $512 million to repurchase 2.3 million shares of common stock during the first three quarters of 2024, with $3.4 billion remaining in share repurchase authorization112 - The quarterly cash dividend was increased from $1.14 to $1.16 per share in February 2024113 Item 3. Quantitative and Qualitative Disclosures About Market Risk Reports no material changes to market risk exposures, including foreign currency, interest rates, and pension plan returns, beyond debt refinancing - There were no material changes to market risk exposures concerning foreign currency, interest rates, or pension plan returns during the period, other than those related to new debt issuances and repayments119 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 27, 2024, with AJRD internal controls being integrated for year-end ICFR assessment - Management concluded that disclosure controls and procedures were effective as of September 27, 2024120 - The company is incorporating internal controls for the acquired AJRD operations into the fiscal 2024 year-end ICFR assessment121 Part II Item 1. Legal Proceedings Reports no material developments in legal proceedings beyond prior disclosures, detailing ordinary course litigation and environmental liabilities - There have been no material developments in legal proceedings since the Fiscal 2023 Form 10-K122 Item 1A. Risk Factors Reports no material changes to the risk factors previously disclosed in the Fiscal 2023 Form 10-K - No material changes to the risk factors disclosed in the Fiscal 2023 Form 10-K were reported123 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's common stock repurchases during the third quarter of 2024, including shares bought under the program and remaining authorization Issuer Purchases of Equity Securities (Q3 2024) | Period (Fiscal Month) | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | Month 1 | 359,573 | - | 359,300 | $3,529 | | Month 2 | 428,845 | - | 424,935 | $3,432 | | Month 3 | 47,965 | - | 45,000 | $3,422 | | Total | 836,383 | - | 829,235 | $3,422 | Item 5. Other Information Discloses executive officers and directors conduct L3Harris securities transactions under Rule 10b5-1 trading plans, with new plans adopted by key executives - Chair and CEO Christopher E. Kubasik adopted a 10b5-1 plan to sell up to 56,624 shares, and AR President Ross Niebergall adopted a plan to sell up to 14,517 shares126