L3Harris(LHX) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for L3Harris Technologies, Inc., including the statements of operations, comprehensive income, balance sheet, cash flows, and equity for the second quarter and year-to-date periods of 2025 and 2024, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Statement of Operations This statement provides a summary of the company's revenues, expenses, and net income for the reported periods | (In millions, except per share amounts) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------------------------------ | :------------------ | :------------------ | :---------------- | :---------------- | | Revenue | $5,426 | $5,299 | $10,558 | $10,510 | | Operating income | $571 | $476 | $1,096 | $854 | | Net income attributable to L3Harris | $458 | $366 | $844 | $649 | | Basic EPS | $2.45 | $1.93 | $4.50 | $3.42 | | Diluted EPS | $2.44 | $1.92 | $4.48 | $3.40 | - Revenue increased by 2.4% in Q2 2025 ($5,426M vs $5,299M) and 0.5% YTD 2025 ($10,558M vs $10,510M) compared to the prior year[15] - Operating income saw a significant increase of 19.9% in Q2 2025 ($571M vs $476M) and 28.3% YTD 2025 ($1,096M vs $854M)[15] - Diluted EPS grew by 27.1% in Q2 2025 ($2.44 vs $1.92) and 31.8% YTD 2025 ($4.48 vs $3.40)[15] Condensed Consolidated Statement of Comprehensive Income This statement details the company's net income and other comprehensive income components, leading to total comprehensive income | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- | | Net income | $458 | $367 | $844 | $652 | | Other comprehensive income (loss) | $45 | $0 | $4 | $(36) | | Total comprehensive income attributable to L3Harris | $503 | $366 | $848 | $613 | - Total comprehensive income attributable to L3Harris increased by 37.4% in Q2 2025 ($503M vs $366M) and 38.3% YTD 2025 ($848M vs $613M)[18] - Other comprehensive income (loss) significantly improved from a loss of $36M YTD 2024 to an income of $4M YTD 2025, primarily due to foreign currency translation and other, net[18] Condensed Consolidated Balance Sheet This statement presents the company's financial position, including assets, liabilities, and equity, at specific points in time | (In millions, except shares) | June 27, 2025 | January 3, 2025 | | :--------------------------- | :------------ | :-------------- | | Total assets | $41,240 | $42,001 | | Total liabilities | $21,962 | $22,422 | | Total equity | $19,278 | $19,579 | | Cash and cash equivalents | $482 | $615 | | Receivables, net | $1,437 | $1,072 | | Contract assets | $3,857 | $3,230 | | Assets of business held for sale | $0 | $1,131 | | Short-term debt | $985 | $515 | | Current portion of long-term debt, net | $141 | $640 | | Long-term debt, net | $10,976 | $11,081 | - Total assets decreased by $761 million from January 3, 2025, to June 27, 2025, largely due to the divestiture of assets held for sale[21] - Cash and cash equivalents decreased by $133 million, while receivables and contract assets increased by $365 million and $627 million, respectively[21] - Short-term debt increased by $470 million, and the current portion of long-term debt decreased by $499 million, reflecting debt management activities[21] Condensed Consolidated Statement of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the reported periods | (In millions) | Year to Date 2025 | Year to Date 2024 | | :------------ | :---------------- | :---------------- | | Operating Activities | $598 | $650 | | Investing Activities | $666 | $(58) | | Financing Activities | $(1,415) | $(600) | | Net decrease in cash and cash equivalents | $(133) | $(13) | | Cash and cash equivalents, end of period | $482 | $547 | - Net cash from operating activities decreased by $52 million YTD 2025 compared to YTD 2024, mainly due to higher working capital usage and legal settlement costs[23][175] - Net cash from investing activities significantly improved by $724 million, shifting from a net outflow of $58 million YTD 2024 to a net inflow of $666 million YTD 2025, driven by proceeds from business sales[23][176] - Net cash used in financing activities increased by $815 million YTD 2025, mainly due to higher common stock repurchases and increased long-term debt repayments[23][177] Condensed Consolidated Statement of Equity This statement details changes in the company's equity, including retained earnings, other comprehensive income, and share transactions | (In millions, except per share amounts) | Year to Date 2025 | Year to Date 2024 | | :------------------------------------ | :---------------- | :---------------- | | Total Equity (Ending balance) | $19,278 | $18,904 |\n| Retained Earnings (Ending balance) | $3,970 | $3,368 |\n| Cash dividends per share | $2.40 | $2.32 | - Total equity increased by $374 million YTD 2025 compared to YTD 2024, reaching $19,278 million[25] - Retained earnings increased by $602 million YTD 2025, reflecting net income generation partially offset by cash dividends and stock repurchases[25] - Cash dividends per share increased to $2.40 YTD 2025 from $2.32 YTD 2024, marking the 24th consecutive annual dividend increase[25][184] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE A: BASIS OF PRESENTATION This note describes the accounting principles, fiscal periods, and segment reporting structure used in preparing the financial statements - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, and reflect all necessary adjustments for fair presentation[28][29] - The company's fiscal year is 52- or 53-week period ending on the Friday nearest December 31. Second quarter 2025 and 2024 both included 13 weeks, while year-to-date 2025 included 25 weeks and 2024 included 26 weeks[30] - L3Harris operates in four reportable segments: Communication Systems (CS), Integrated Mission Systems (IMS), Space & Airborne Systems (SAS), and Aerojet Rocketdyne (AR)[31] - Effective Q1 2025, the Fuzing and Ordnance (FOS) business was realigned from IMS to AR, with historical results adjusted for comparability[32][33] NOTE B: EARNINGS PER SHARE ("EPS") This note details the calculation of basic and diluted earnings per share, including weighted-average shares outstanding | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- | | Basic weighted-average common shares outstanding | 187.0 | 189.7 | 187.7 | 189.8 | | Diluted weighted-average common shares outstanding | 187.8 | 190.6 | 188.5 | 190.8 | - Diluted EPS calculation excludes 1.0 million and 2.0 million weighted-average share-based awards for second quarter and year-to-date 2025, respectively, due to their antidilutive impact[38] NOTE C: CONTRACT ASSETS AND CONTRACT LIABILITIES This note provides information on unbilled revenue (contract assets) and deferred revenue (contract liabilities) from customer contracts - Contract assets represent unbilled amounts where revenue recognized exceeds amounts billed, primarily from percentage of completion contracts[39] | (In millions) | June 27, 2025 | January 3, 2025 | | :------------ | :------------ | :-------------- | | Contract assets | $3,857 | $3,230 | | Contract liabilities, current | $(2,317) | $(2,142) | | Contract liabilities, non-current | $(103) | $(91) | | Net contract assets | $1,437 | $997 | - Net contract assets increased by $440 million from January 3, 2025, to June 27, 2025[40] - Revenue recognized from contract liabilities outstanding at the prior fiscal year-end was $517 million for Q2 2025 and $1,215 million YTD 2025, an increase from $353 million and $1,048 million in the respective 2024 periods[41] NOTE D: INVENTORIES, NET This note presents the breakdown of inventories, including finished products, work in process, and materials and supplies | (In millions) | June 27, 2025 | January 3, 2025 | | :------------ | :------------ | :-------------- |\n| Finished products | $258 | $211 |\n| Work in process | $323 | $332 |\n| Materials and supplies | $677 | $787 |\n| Inventories, net | $1,258 | $1,330 | - Net inventories decreased by $72 million from January 3, 2025, to June 27, 2025, primarily due to a reduction in materials and supplies[43] NOTE E: GOODWILL AND INTANGIBLE ASSETS This note details the company's goodwill and intangible assets, including changes due to currency translation and amortization | (In millions) | CS | IMS | SAS | AR | Total | | :------------ | :---- | :---- | :---- | :---- | :------ | | Balance as of January 3, 2025 | $4,938 | $6,422 | $5,999 | $2,966 | $20,325 | | Currency translation adjustments | $1 | $20 | $26 | $0 | $47 | | Balance as of June 27, 2025 | $4,939 | $6,442 | $6,025 | $2,966 | $20,372 | - Total goodwill increased by $47 million due to currency translation adjustments, reaching $20,372 million as of June 27, 2025[44] - IMS accumulated goodwill impairment losses decreased by $759 million in Q1 2025 due to the CAS disposal group divestiture[45] | (In millions) | June 27, 2025 Net Carrying Amount | January 3, 2025 Net Carrying Amount | | :------------ | :-------------------------------- | :---------------------------------- | | Customer relationships | $5,009 | $5,347 | | Developed technologies | $335 | $367 | | Trade names and other | $114 | $122 | | Indefinite-lived Trade name | $1,803 | $1,803 | | Intangible assets, net | $7,261 | $7,639 | - Net intangible assets decreased by $378 million from January 3, 2025, to June 27, 2025, primarily in customer relationships[46] - Amortization expense for intangible assets was $193 million for Q2 2025 and $387 million YTD 2025, down from $215 million and $432 million in the respective 2024 periods[46] NOTE F: INCOME TAXES This note explains the company's income tax expense and effective tax rates, highlighting key factors influencing tax provisions | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- |\n| Income tax expense | $(66) | $(23) | $(139) | $(28) |\n| Effective tax rate ("ETR") | 12.6% | 5.9% | 14.1% | 4.1% | - The ETR increased significantly in Q2 2025 to 12.6% from 5.9% in Q2 2024, and YTD 2025 to 14.1% from 4.1% in YTD 2024[49] - Q2 2025 ETR benefited from audit uncertainty resolution, R&D credits, and FDII deductions, but was partially offset by a state legislative change requiring a valuation allowance on R&D credit carryforwards and the CAS disposal group divestiture[50] - YTD 2025 ETR was unfavorably impacted by the CAS disposal group divestiture and the state legislative change, while YTD 2024 ETR benefited from excess tax benefits from equity-based compensation[51] NOTE G: DEBT AND CREDIT ARRANGEMENTS This note provides details on the company's long-term debt, short-term debt, and available credit facilities | (In millions) | June 27, 2025 | January 3, 2025 | | :------------ | :------------ | :-------------- |\n| Long-term debt, net | $10,976 | $11,081 |\n| Short-term debt (CP Program) | $985 | $515 | - Long-term debt, net decreased by $105 million to $10,976 million as of June 27, 2025[52] - The company repaid $600 million of 3.832% notes due April 27, 2025, using proceeds from 5.50% notes issued in fiscal 2024[53] - Outstanding notes under the Commercial Paper Program increased to $985 million as of June 27, 2025, from $515 million as of January 3, 2025, with a weighted-average interest rate of 4.68%[57][58] - L3Harris established a new $2.5 billion five-year revolving credit facility and a new $500 million 364-day revolving credit facility in February 2025, replacing prior agreements[59][61] - As of June 27, 2025, there were no outstanding borrowings under the new credit facilities, with $2,015 million available borrowing capacity[64] NOTE H: RETIREMENT BENEFITS This note outlines the financial impact of the company's defined benefit pension plans and other postretirement benefits | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- |\n| Net periodic benefit income | $(66) | $(71) | $(150) | $(143) |\n| Non-service cost net periodic benefit income | $(73) | $(81) | $(163) | $(161) | - Net periodic benefit income for defined benefit plans was $(66) million for Q2 2025 and $(150) million YTD 2025[65] - In Q1 2025, L3Harris transferred $1.2 billion of its Consolidated Pension Plan benefit obligation to an insurance provider through nonparticipating single premium group annuity contracts[66] NOTE I: SHARE-BASED COMPENSATION This note describes the company's share-based compensation plans, including stock options, RSUs, and PSUs granted | (In thousands, except per share/unit amounts) | Year to Date 2025 Shares or Units | Year to Date 2025 Weighted-Average Grant-Date Fair Value | Year to Date 2024 Shares or Units | Year to Date 2024 Weighted-Average Grant-Date Fair Value | | :-------------------------------------------- | :-------------------------------- | :------------------------------------------------------- | :-------------------------------- | :------------------------------------------------------- |\n| Stock option shares granted | 388 | $49.20 | 415 | $50.99 |\n| RSUs granted | 229 | $210.15 | 142 | $212.80 |\n| PSUs granted | 185 | $217.67 | 172 | $230.09 | - Share-based compensation expense was $29 million for Q2 2025 and $48 million YTD 2025, compared to $27 million and $53 million in the respective 2024 periods[70] - The aggregate number of common stock shares issued under L3Harris SIPs, net of tax withholdings, was 0.4 million YTD 2025, down from 0.8 million YTD 2024[70] NOTE J: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note details the components of accumulated other comprehensive income, including foreign currency translation and pension adjustments | (In millions) | Balance at January 3, 2025 | Other comprehensive income (loss) YTD 2025 | Balance at June 27, 2025 | | :------------ | :------------------------- | :----------------------------------------- | :----------------------- |\n| Foreign currency translation and other, net | $(331) | $82 | $(249) |\n| Pension and other postretirement benefits | $358 | $(78) | $280 |\n| Total accumulated other comprehensive income (loss) | $27 | $4 | $31 | - Total accumulated other comprehensive income increased from $27 million at January 3, 2025, to $31 million at June 27, 2025[71] - Foreign currency translation and other, net, showed an improvement from a loss of $(331) million to $(249) million, while pension and other postretirement benefits decreased from $358 million to $280 million[71] NOTE K: FAIR VALUE MEASUREMENTS This note explains the company's fair value measurements for financial instruments, categorized by a three-level hierarchy - Fair value is measured using a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[73][78] | (In millions) | June 27, 2025 Total | June 27, 2025 Level 1 | January 3, 2025 Total | January 3, 2025 Level 1 | | :------------ | :------------------ | :-------------------- | :-------------------- | :-------------------- |\n| Deferred compensation plan assets | $273 | $238 | $260 | $219 |\n| Deferred compensation plan liabilities | $378 | $11 | $367 | $10 | - Deferred compensation plan assets increased to $273 million as of June 27, 2025, with $238 million classified as Level 1[75] - Deferred compensation plan liabilities increased to $378 million, with $11 million classified as Level 1[75] NOTE L: CHANGES IN ESTIMATES This note discusses the impact of changes in estimates, particularly for long-term contracts using the percentage of completion method - Many contracts use the percentage of completion (POC) cost-to-cost method, requiring judgment in estimating total cost at completion and transaction price due to long-term nature and potential risks[80] | (In millions, except per share amounts) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------------------------------ | :------------------ | :------------------ | :---------------- | :---------------- |\n| Operating income (net EAC adjustments) | $(20) | $0 | $(41) | $19 |\n| Net income (net EAC adjustments) | $(15) | $0 | $(31) | $15 |\n| Diluted EPS (net EAC adjustments) | $(0.08) | $0 | $(0.16) | $0.08 | - Net EAC adjustments unfavorably impacted operating income by $20 million in Q2 2025 and $41 million YTD 2025, compared to no impact in Q2 2024 and a favorable impact of $19 million YTD 2024[81] - Revenue recognized from performance obligations satisfied in prior periods was $37 million for Q2 2025 and $74 million YTD 2025[82] NOTE M: BACKLOG This note provides information on the company's backlog, representing remaining performance obligations from customer contracts - Backlog, representing remaining performance obligations, was $35.4 billion as of June 27, 2025[84] - Approximately 45% of the backlog is expected to be recognized as revenue over the next twelve months, and 70% over the next twenty-four months[84] NOTE N: DIVESTITURES This note details the company's divestiture activities, including the sale of the Commercial Aviation Solutions disposal group - On March 28, 2025, L3Harris completed the sale of its Commercial Aviation Solutions (CAS) disposal group for $831 million in cash proceeds, net of cash divested[85] - The CAS disposal group divestiture resulted in a pre-tax loss of $17 million in YTD 2025, incremental to previously recorded losses[87] | (In millions) | March 28, 2025 | | :------------ | :------------- |\n| Total assets divested | $1,229 |\n| Total liabilities divested | $252 |\n| Net assets divested | $977 | - The divestiture included $535 million in goodwill, with $759 million of accumulated goodwill impairment losses reported in the IMS segment[86] - The Antenna disposal group from the SAS segment was divested on May 31, 2024[89] NOTE O: BUSINESS SEGMENT INFORMATION This note presents financial results and other key data for the company's four reportable business segments - L3Harris reports financial results in four segments: Communication Systems (CS), Integrated Mission Systems (IMS), Space & Airborne Systems (SAS), and Aerojet Rocketdyne (AR)[92] | (In millions) | Second Quarter 2025 Revenue | Second Quarter 2024 Revenue | Year to Date 2025 Revenue | Year to Date 2024 Revenue | | :------------ | :-------------------------- | :-------------------------- | :------------------------ | :------------------------ |\n| CS | $1,376 | $1,346 | $2,728 | $2,640 |\n| IMS | $1,622 | $1,671 | $3,214 | $3,298 |\n| SAS | $1,787 | $1,707 | $3,398 | $3,458 |\n| AR | $698 | $633 | $1,327 | $1,217 |\n| Total revenue | $5,426 | $5,299 | $10,558 | $10,510 | | (In millions) | Second Quarter 2025 Operating Income | Second Quarter 2024 Operating Income | Year to Date 2025 Operating Income | Year to Date 2024 Operating Income | | :------------ | :----------------------------------- | :----------------------------------- | :--------------------------------- | :--------------------------------- |\n| CS | $336 | $329 | $681 | $639 |\n| IMS | $214 | $200 | $417 | $385 |\n| SAS | $220 | $215 | $396 | $431 |\n| AR | $93 | $81 | $169 | $158 |\n| Total operating income | $571 | $476 | $1,096 | $854 | - Unallocated corporate expenses include amortization of intangibles, M&A expenses, divestiture losses, impairment, LHX NeXt implementation costs, and other corporate overhead[96] - LHX NeXt initiative, aimed at transforming functions and systems, is expected to continue into 2026 with non-recurring costs for workforce optimization, IT expenses, and consulting[97] | (In millions) | June 27, 2025 Total Assets | January 3, 2025 Total Assets | | :------------ | :------------------------- | :--------------------------- |\n| CS | $7,106 | $7,060 |\n| IMS | $9,667 | $10,389 |\n| SAS | $9,317 | $8,705 |\n| AR | $4,823 | $4,826 |\n| Corporate | $10,327 | $11,021 |\n| Total assets | $41,240 | $42,001 | - Revenue disaggregation by customer relationship, contract type, and geographical region is provided for all segments[101] NOTE P: LEGAL PROCEEDINGS AND CONTINGENCIES This note outlines the company's involvement in legal actions, claims, and environmental liabilities - L3Harris is routinely involved in legal actions and claims, accruing for probable and estimable losses. As of June 27, 2025, the accrual for potential unfavorable resolutions was not material[104] - The estimated environmental liability was $648 million as of June 27, 2025, with $472 million considered probable of recovery from the U.S. Government[106][107] NOTE Q: SUBSEQUENT EVENTS This note discloses significant events occurring after the balance sheet date, such as new tax legislation - On July 4, 2025, new U.S. federal income tax legislation was enacted, including permanent reinstatement of immediate expensing for domestic R&D and full expensing for qualified machinery[108] - L3Harris expects favorable cash tax benefits of $150 million and an increase to its ETR between 200 and 300 basis points for fiscal 2025, with effects to be recognized starting Q3 2025[108] Report of Independent Registered Public Accounting Firm This report provides the independent auditor's opinion on the fairness of the condensed consolidated interim financial statements - Ernst & Young LLP reviewed the condensed consolidated interim financial statements and found no material modifications needed for conformity with U.S. GAAP[111] - The firm previously issued an unqualified audit opinion on the Company's consolidated financial statements as of January 3, 2025[112] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on L3Harris's financial condition and operational results, highlighting key performance drivers, economic influences, and strategic initiatives. It covers consolidated and segment-specific financial performance, liquidity, capital resources, and critical accounting estimates OVERVIEW This section provides a general business context, including the company's market position, customer base, and government funding environment - L3Harris is a defense industry technology solutions provider, serving government customers in over 100 countries, with 76% of YTD 2025 revenue from U.S. Government customers[117] - The U.S. government was funded through September 30, 2025, with $893 billion for defense, including $851 billion for DoD, under a full-year Continuing Resolution[119] - A preliminary GFY 2026 budget proposes a flat national defense topline of $893 billion, with an additional $119 billion from reconciliation funding, totaling $1 trillion[120] - The recently signed reconciliation package includes $155 billion for national defense, $165 billion for DHS, $12.5 billion for FAA, and $10 billion for NASA, with DoD expected to access $113 billion in GFY 2026[121] U.S. Federal Tax Reform This section discusses the impact of recent U.S. federal income tax legislation on the company's financial outlook - Congress' reconciliation package, enacted July 4, 2025, permanently reinstates immediate expensing for domestic R&D and full expensing for qualified machinery and equipment[124] - L3Harris anticipates favorable cash tax benefits of $150 million and an increase to its ETR between 200 and 300 basis points for fiscal 2025, to be recognized in Q3 2025[125] Economic Environment This section analyzes the broader economic factors, such as inflation and interest rates, affecting the company's operations and government spending - Ongoing inflation, interest rate environment, and federal deficits could impact U.S. Government spending priorities[126] - The company is monitoring trade policies and tariffs, seeking exemptions, evaluating alternative suppliers, and considering price adjustments to manage cost impacts, with no material impact expected on 2025 results[127] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's consolidated and segment-specific financial performance for the reported periods Consolidated Results of Operations This section analyzes the overall financial performance of the company, including revenue, operating income, and diluted EPS | (Dollars in millions, except per share amounts) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :-------------------------------------------- | :------------------ | :------------------ | :---------------- | :---------------- |\n| Total revenue | $5,426 | $5,299 | $10,558 | $10,510 |\n| Gross margin | $1,335 | $1,360 | $2,685 | $2,708 |\n| General and administrative expenses | $(764) | $(884) | $(1,589) | $(1,854) |\n| Operating Income | $571 | $476 | $1,096 | $854 |\n| Net income attributable to L3Harris | $458 | $366 | $844 | $649 |\n| Diluted EPS | $2.44 | $1.92 | $4.48 | $3.40 | - Consolidated revenue increased by 2% in Q2 2025 and 0.5% YTD 2025[130] - Operating income increased by 20% in Q2 2025 and 28% YTD 2025[130] - Diluted EPS increased by 27% in Q2 2025 and 32% YTD 2025[130][149] Revenue This section details the company's revenue performance, disaggregated by product and service categories across segments | (In millions) | Second Quarter 2025 Products | Second Quarter 2024 Products | Year to Date 2025 Products | Year to Date 2024 Products | | :------------ | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- |\n| CS | $1,167 | $1,062 | $2,313 | $2,069 |\n| IMS | $938 | $1,009 | $1,887 | $1,997 |\n| SAS | $1,101 | $1,189 | $2,122 | $2,399 |\n| AR | $502 | $424 | $952 | $818 |\n| Products revenue | $3,708 | $3,684 | $7,274 | $7,283 | | (In millions) | Second Quarter 2025 Services | Second Quarter 2024 Services | Year to Date 2025 Services | Year to Date 2024 Services | | :------------ | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- |\n| CS | $192 | $262 | $386 | $535 |\n| IMS | $662 | $649 | $1,292 | $1,277 |\n| SAS | $673 | $505 | $1,246 | $1,031 |\n| AR | $191 | $199 | $360 | $384 |\n| Services revenue | $1,718 | $1,615 | $3,284 | $3,227 | - Products revenue increased 1% in Q2 2025, driven by CS and AR segments, but was flat YTD 2025 due to offsets from SAS and IMS[131][132] - Services revenue increased 6% in Q2 2025 and 2% YTD 2025, primarily due to higher SAS segment revenue[132][133] Cost of Revenue This section analyzes the costs directly associated with generating revenue from products and services across segments | (In millions) | Second Quarter 2025 Products | Second Quarter 2024 Products | Year to Date 2025 Products | Year to Date 2024 Products | | :------------ | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- |\n| CS | $(705) | $(612) | $(1,395) | $(1,214) |\n| IMS | $(746) | $(800) | $(1,458) | $(1,556) |\n| SAS | $(854) | $(909) | $(1,680) | $(1,837) |\n| AR | $(399) | $(325) | $(744) | $(619) |\n| Cost of products revenue | $(2,716) | $(2,660) | $(5,312) | $(5,254) | | (In millions) | Second Quarter 2025 Services | Second Quarter 2024 Services | Year to Date 2025 Services | Year to Date 2024 Services | | :------------ | :--------------------------- | :--------------------------- | :------------------------- | :------------------------- |\n| CS | $(148) | $(242) | $(302) | $(463) |\n| IMS | $(528) | $(479) | $(1,007) | $(960) |\n| SAS | $(539) | $(407) | $(977) | $(830) |\n| AR | $(145) | $(153) | $(279) | $(297) |\n| Cost of services revenue | $(1,375) | $(1,279) | $(2,561) | $(2,548) | - Cost of products revenue increased 2% in Q2 2025 and 1% YTD 2025, primarily driven by CS and AR segments[134][136] - Cost of services revenue increased 8% in Q2 2025, mainly due to SAS and IMS, and 1% YTD 2025, primarily due to SAS and IMS, partially offset by CS and AR[135][137] Gross Margin This section discusses the factors influencing the company's gross profit margin, including divestitures and contract adjustments - Gross margin decreased by $25 million in Q2 2025, primarily due to a $62 million decrease from the CAS disposal group divestiture and $20 million unfavorable net EAC adjustments, partially offset by favorable mix[138] - Gross margin decreased by $23 million YTD 2025, mainly due to a $67 million decrease from the CAS disposal group divestiture and $60 million unfavorable net EAC adjustments, partially offset by favorable higher margin revenue mix[139] G&A Expenses This section analyzes general and administrative expenses, including amortization, R&D, and strategic initiative costs | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- |\n| G&A expenses | $(764) | $(884) | $(1,589) | $(1,854) |\n| Amortization of intangibles | $(177) | $(194) | $(354) | $(391) |\n| Company-funded R&D costs | $(132) | $(124) | $(244) | $(238) |\n| LHX NeXt implementation costs | $(39) | $(48) | $(74) | $(175) |\n| Business divestiture-related losses | $0 | $(24) | $(17) | $(24) | - G&A expenses decreased by $120 million (14%) in Q2 2025, primarily due to a $75 million gain from asset monetization in IMS and a $24 million decrease in business divestiture-related losses[142] - G&A expenses decreased by $265 million (14%) YTD 2025, driven by $101 million lower LHX NeXt implementation costs, the $75 million IMS asset monetization gain, and lower amortization and M&A expenses[143] Non-service FAS Pension Income and Other, net This section explains the impact of non-service pension income and other related items on the company's financial results - Non-service FAS pension income and other, net, increased by $19 million in Q2 2025 and $15 million YTD 2025, reflecting changes in non-service cost components of net periodic benefit income and market value of rabbi trust assets[144] Interest Expense, net This section details the company's net interest expense, reflecting borrowing costs and debt management activities - Interest expense, net, decreased by $20 million in Q2 2025 and $46 million YTD 2025, primarily due to lower average outstanding notes under the Commercial Paper Program[145] Income Taxes This section analyzes the company's income tax expense and effective tax rate, highlighting key drivers and adjustments - The effective tax rate (ETR) was 12.6% for Q2 2025 (vs 5.9% in Q2 2024) and 14.1% for YTD 2025 (vs 4.1% in YTD 2024)[147][148] - Q2 2025 ETR benefited from audit uncertainty resolution, R&D credits, and FDII deductions, but was partially offset by a state legislative change and the CAS disposal group divestiture[147] - YTD 2025 ETR was unfavorably impacted by the CAS disposal group divestiture and a state legislative change, while YTD 2024 ETR benefited from excess tax benefits from equity-based compensation[148] Diluted EPS This section discusses the company's diluted earnings per share performance and the factors contributing to its changes - Diluted EPS increased by 27% in Q2 2025 and 32% YTD 2025, driven by higher net income[149] Business Segment Results of Operations This section provides a detailed analysis of the financial performance for each of the company's four reportable business segments CS Segment This section analyzes the revenue, operating income, and backlog for the Communication Systems segment - CS segment ending backlog was $7.0 billion as of June 27, 2025[150] | (Dollars in millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :-------------------- | :------------------ | :------------------ | :---------------- | :---------------- |\n| Revenue | $1,376 | $1,346 | $2,728 | $2,640 |\n| Operating income | $336 | $329 | $681 | $639 |\n| Operating margin | 24.4% | 24.4% | 25.0% | 24.2% | - CS revenue increased 2% in Q2 2025 and 3% YTD 2025, primarily due to higher international demand for tactical communications[151][152] - CS operating income increased 2% in Q2 2025 and 7% YTD 2025, driven by LHX NeXt cost savings and favorable mix, partially offset by the absence of a $15 million legal settlement in Q2 2024[152][153] IMS Segment This section analyzes the revenue, operating income, and backlog for the Integrated Mission Systems segment - IMS segment ending backlog was $9.9 billion as of June 27, 2025[154] | (Dollars in millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :-------------------- | :------------------ | :------------------ | :---------------- | :---------------- |\n| Revenue | $1,622 | $1,671 | $3,214 | $3,298 |\n| Operating income | $214 | $200 | $417 | $385 |\n| Operating margin | 13.2% | 12.0% | 13.0% | 11.7% | - IMS revenue decreased 3% in Q2 2025 and YTD 2025, primarily due to the CAS disposal group divestiture. Excluding this, revenue increased due to classified program ramp in ISR[155][157][158] - IMS operating income increased 7% in Q2 2025 and 8% YTD 2025, driven by a $75 million gain from asset monetization, improved program performance, and LHX NeXt cost savings, partially offset by an unfavorable EAC adjustment and the CAS divestiture impact[156][159] SAS Segment This section analyzes the revenue, operating income, and backlog for the Space & Airborne Systems segment - SAS segment ending backlog was $10.6 billion as of June 27, 2025[160] | (Dollars in millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :-------------------- | :------------------ | :------------------ | :---------------- | :---------------- |\n| Revenue | $1,787 | $1,707 | $3,398 | $3,458 |\n| Operating income | $220 | $215 | $396 | $431 |\n| Operating margin | 12.3% | 12.6% | 11.7% | 12.5% | - SAS revenue increased 5% in Q2 2025 due to higher FAA volume in Mission Networks and improved performance in Airborne Combat Systems, partially offset by program timing and the Antenna disposal group divestiture[161] - SAS revenue decreased 2% YTD 2025, primarily due to lower Space Systems volume and negative EAC adjustments on classified development programs, and the Antenna disposal group divestiture, partially offset by higher FAA volume in Mission Networks[163] - SAS operating income increased 2% in Q2 2025, driven by a $19 million asset monetization gain, improved program performance, and LHX NeXt cost savings. YTD 2025 operating income decreased 8% due to unfavorable EAC adjustments and mix[162][164] AR Segment This section analyzes the revenue, operating income, and backlog for the Aerojet Rocketdyne segment - AR segment ending backlog was $7.9 billion as of June 27, 2025[165] | (Dollars in millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :-------------------- | :------------------ | :------------------ | :---------------- | :---------------- |\n| Revenue | $698 | $633 | $1,327 | $1,217 |\n| Operating income | $93 | $81 | $169 | $158 |\n| Operating margin | 13.3% | 12.8% | 12.7% | 13.0% | - AR revenue increased 10% in Q2 2025 and 9% YTD 2025, primarily due to increased production volume and new program ramp in Missile Solutions[166][167] - AR operating income increased 15% in Q2 2025 and 7% YTD 2025, driven by higher volume, improved performance from LHX NeXt cost savings, and a favorable contract resolution[167][168] Unallocated Corporate Expenses This section details corporate-level expenses not allocated to business segments, including amortization and strategic initiative costs | (In millions) | Second Quarter 2025 | Second Quarter 2024 | Year to Date 2025 | Year to Date 2024 | | :------------ | :------------------ | :------------------ | :---------------- | :---------------- |\n| Unallocated corporate expenses | $(292) | $(349) | $(567) | $(759) |\n| Amortization of intangibles | $(193) | $(215) | $(387) | $(432) |\n| LHX NeXt implementation costs | $(39) | $(48) | $(74) | $(175) |\n| Merger, acquisition, and divestiture-related expenses | $(13) | $(21) | $(30) | $(61) |\n| Business divestiture-related losses | $0 | $(24) | $(17) | $(24) | - Unallocated corporate expenses decreased by $57 million in Q2 2025 and $192 million YTD 2025, primarily due to lower amortization of intangibles, LHX NeXt implementation costs, and M&A/divestiture-related expenses[169] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's ability to generate and manage cash, including capital resources and cash flow activities Capital Resources This section outlines the company's available cash, credit facilities, and short-term financing options - As of June 27, 2025, L3Harris had $482 million in cash and cash equivalents, with $327 million held by foreign subsidiaries, largely repatriable with minimal tax cost[170] - Outstanding notes under the Commercial Paper Program were $985 million, serving as a short-term financing source up to $3.0 billion, supported by credit facilities[171] - The company had no outstanding borrowings under its new $2.5 billion five-year and $500 million 364-day credit facilities, with $2,015 million available borrowing capacity as of June 27, 2025[172][173][174] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities | (In millions) | Year to Date 2025 | Year to Date 2024 | | :------------ | :---------------- | :---------------- |\n| Operating Activities | $598 | $650 |\n| Investing Activities | $666 | $(58) |\n| Financing Activities | $(1,415) | $(600) |\n| Net decrease in cash and cash equivalents | $(133) | $(13) | - Net cash from operating activities decreased by $52 million YTD 2025, mainly due to higher working capital usage and legal settlement costs[175] - Net cash from investing activities significantly improved by $724 million, shifting to a net inflow of $666 million YTD 2025, driven by proceeds from business sales (CAS disposal group divestiture)[176] - Net cash used in financing activities increased by $815 million YTD 2025, primarily due to $500 million more cash used for common stock repurchases and $245 million increase in net long-term debt repayments[177] - L3Harris repurchased 3.9 million shares for $822 million YTD 2025, with $2.6 billion remaining authorization[178] - The company repaid $600 million of long-term debt repayments in YTD 2025 and had $11.1 billion outstanding long-term debt, net, as of June 27, 2025[180][182] - The Board increased the quarterly cash dividend rate to $1.20 per share, marking the 24th consecutive annual increase[184] Cash Requirements This section details the company's anticipated cash needs for operations, capital expenditures, and debt obligations - No material changes to cash requirements or commercial commitments, except for CP Program levels and new credit facilities[185] - L3Harris does not expect to make material contributions to defined benefit pension plans in fiscal 2025 and plans to continue evaluating pension de-risking opportunities[186][187] - The company expects sufficient liquidity for the next 12 months and foreseeable future, with capital expenditures for fiscal 2025 projected at approximately 2% of revenue[189][190] CRITICAL ACCOUNTING ESTIMATES This section highlights accounting estimates that require significant judgment and could materially impact financial results - No material changes to critical accounting estimates were disclosed, except for goodwill impairment tests[191] - Interim goodwill impairment tests for fiscal 2025 indicated no impairment[193] Impact of Recently Issued Accounting Pronouncements This section discusses the effect of new accounting standards on the company's financial statements - No new accounting pronouncements effective YTD 2025 had a material impact on the condensed consolidated financial statements[194] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes to the company's exposure to market risk during year-to-date 2025, apart from the repayment of long-term debt - No material changes to market risk exposure during YTD 2025, other than long-term debt repayment[195] ITEM 4. Controls and Procedures This section confirms the effectiveness of L3Harris's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the second quarter of 2025 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 27, 2025[196] - No material changes in internal control over financial reporting occurred during Q2 2025[197] Part II. Other Information This section provides additional disclosures on legal proceedings, risk factors, equity sales, and other relevant corporate information ITEM 1. Legal Proceedings This section refers to the detailed discussion of legal proceedings and contingencies in Note P of the financial statements, indicating no new material developments since the prior fiscal year's 10-K filing - No material developments in legal proceedings beyond what is discussed in Note P and the Fiscal 2024 Form 10-K[200] ITEM 1A. Risk Factors This section directs investors to review risk factors detailed in the Fiscal 2024 Form 10-K and the first quarter 2025 Form 10-Q, noting no material changes beyond those previously disclosed - No material changes to risk factors beyond those disclosed in the Fiscal 2024 Form 10-K and the Q1 2025 Form 10-Q[201] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the second quarter of 2025 under its authorized repurchase programs and confirms no unregistered equity securities were issued or sold | Period (Fiscal Month) | Total shares purchased | Average price paid per share | | :-------------------- | :--------------------- | :--------------------------- |\n| March 29, 2025 - April 25, 2025 | 928,362 | $211.03 |\n| April 26, 2025 - May 23, 2025 | 211,340 | $218.46 |\n| May 24, 2025 - June 27, 2025 | 44,623 | $246.90 |\n| Total | 1,184,325 | | - As of June 27, 2025, $2.559 billion remained under the share repurchase authorization[202] - No unregistered equity securities were issued or sold during Q2 2025[205] ITEM 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[206] ITEM 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[207] ITEM 5. Other Information This section provides information on securities trading plans (10b5-1 Plans) adopted or terminated by executive officers and directors during the second quarter of 2025 - Executive officers and directors are required to use 10b5-1 Plans for L3Harris securities transactions[208] | Name and title | Date of adoption of 10b5-1 Plan | Scheduled expiration date of 10b5-1 Plan | Aggregate number of shares of common stock to be purchased or sold | | :------------------ | :------------------------------ | :--------------------------------------- | :--------------------------------------------------------------- |\n| Christopher E. Kubasik, Chair and CEO | April 28, 2025 | September 9, 2025 | Up to 147,411 shares underlying options expiring in 2027 |\n| Christopher E. Kubasik, Chair and CEO | June 13, 2025 | December 11, 2025 | Up to 97,171 shares underlying options expiring in 2028 | ITEM 6. Exhibits This section lists all exhibits filed with the report, including amendments to retirement savings plans, certifications, and XBRL formatted financial information - Exhibits include amendments to the L3Harris Technologies, Inc. Retirement Savings Plan, certifications (CEO, CFO, Section 1350), and Inline XBRL formatted financial information[211] Signatures This section contains the signature of the duly authorized officer, Kenneth L. Bedingfield, Senior Vice President, Chief Financial Officer, and President, Aerojet Rocketdyne, confirming the filing of the report - The report was signed by Kenneth L. Bedingfield, Senior Vice President, Chief Financial Officer and President, Aerojet Rocketdyne, on July 24, 2025[213]