L3Harris Technologies LHX · USD

NOTE 14: BUSINESS SEGMENTSWe structure our operations primarily around the capabilities we provide and report our financial results in the following four reportable segments:CS: including software defined communication products and waveforms for domestic and international customers; broadband communications; integrated vision solutions; and public safety radios, system applications and equipment; andIMS: including multi-mission ISR systems; passive sensing and targeting; electronic attack platforms; autonomy; power and communications; networks; and the CAS disposal group, which includes aviation products and pilot training operations and was divested on March 28, 2025; andSAS: including satellites and space payloads, sensors and full-mission solutions; classified intelligence and cyber; airborne combat systems; and mission networks for air traffic management operations; andAR: including missile solutions with propulsion technologies for strategic defense, missile defense, hypersonic, tactical and fuzing systems; and space propulsion and power systems for national security and space exploration missions. Chief Operating Decision Maker (“CODM”)Our Chairman and CEO serves as the CODM and is responsible for evaluating business segment performance and allocating resources across the Company. The CODM reviews periodic financial reporting packages that include segment revenues, operating income, and other key operational and financial metrics, and compares historical, actual, and forecasted information to assess segment performance. Segment information is prepared on a basis consistent with the internal reports provided to the CODM.

NOTE 15: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIESLegal ProceedingsIn 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. At January 2, 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 at January 2, 2026 were reserved against or would not have a material adverse effect on our financial condition, results of operations, cash flows or equity.Environmental MattersWe 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.

NOTE 8: DEBT AND CREDIT ARRANGEMENTS Long-Term DebtLong-term debt is summarized below:(In millions)January 2, 2026January 3, 2025Fixed-rate debt:(1) 3.832% notes, due April 2025(“3.832% 2025 Notes”)(2)(3)$— $600 7.00% debentures, due January 2026(4)100 100 3.85% notes, due December 2026(2)550 550 5.40% notes, due January 2027(2)(3)(5)1,250 1,250 6.35% debentures, due February 2028(2)26 26 4.40% notes, due June 2028(2)(3)1,850 1,850 5.05% notes, due June 2029 (“5.05% 2029 Notes”)(2)(3)(6)750 750 2.90% notes, due December 2029(2)400 400 1.80% notes, due January 2031(2)(3)650 650 5.25% notes, due June 2031 (“5.25% 2031 Notes”)(2)(3)(6)750 750 5.40% notes, due July 2033(2)(3)(5)1,500 1,500 5.35% notes, due June 2034 (“5.35% 2034 Notes”)(2)(3)(6)750 750 4.854% notes, due April 2035(2)(3)400 400 6.15% notes, due December 2040(2)(3)300 300 5.054% notes, due April 2045(2)(3)500 500 5.60% notes, due July 2053(2)(3)(5)500 500 5.50% notes, due August 2054 (“5.50% 2054 Notes”)(2)(3)600 600 Fixed-rate debt10,876 11,476 Finance lease obligations and other283 288 Unamortized discounts and issuance costs, net of bond premium(43)(43)Total long-term debt11,116 11,721 Less: current portion(7)673 640 Long-term debt, net of current portion$10,443 $11,081 _______________(1)All fixed-rate notes and debentures rank equally in right of payment.(2)We may redeem these notes, in whole or in part, at our option, at a pre-determined redemption price pursuant to their terms prior to the applicable maturity date. (3)Upon change of control combined with a below-investment-grade rating event, we may be required to make an offer to repurchase these notes at a pre-determined price pursuant to their terms. (4)The debentures are not redeemable prior to maturity.(5)Collectively, the “AJRD Notes”. The AJRD Notes were used to fund a portion of the purchase price for the AJRD acquisition, and to pay related fees and expenses. (6)Collectively, the “March Issued 2024 Notes”.(7)Included in the “Other current liabilities” line item in our Consolidated Balance Sheet.The maturities of long-term debt, including the current portion of long-term debt and excluding finance lease obligations, for the five years following the end of fiscal 2025 and, in total thereafter, are: $660 million in fiscal 2026; $1,256 million in fiscal 2027; $1,880 million in fiscal 2028; $1,155 million in fiscal 2029; $5 million in fiscal 2030; and $5,973 million thereafter.Long-Term Debt Issuances.

NOTE 7: INCOME TAXESU.S. Federal Tax ReformOn July 4, 2025, the OBBBA was enacted, introducing amendments to the U.S. federal income tax code, including permanent reinstatement of immediate expensing for domestic research expenditures, a reduction in the benefit of the R&D tax credit, restoration of full expensing for qualified machinery, equipment and other short-lived assets, and several modifications to existing international tax provisions. Certain provisions are effective for fiscal 2025 and are recognized in the Consolidated Financial Statements and these Notes. Certain other provisions are effective in future fiscal years. Income Tax ProvisionOur provisions for current and deferred income taxes are as follows:Fiscal Year(In millions)202520242023Current:United States$(10)$(166)$328 International77 72 50 State and local53 5 66 Total current income taxes120 (89)444 Deferred:United States166 244 (380)International(14)(34)10 State and local54 (36)(51)Total deferred income taxes206 174 (421)Income taxes$326 $85 $23 The components of our income before income taxes included in our Consolidated Statement of Operations are as follows:Fiscal Year(In millions)202520242023United States$1,677 $1,406 $1,016 International255 191 205 Income before income taxes$1,932 $1,597 $1,221 A reconciliation of the U.S. statutory income tax rate to our effective income tax rate is as follows:Fiscal Year(In millions)2025U.S. federal statutory income tax rate$406 21.0 %State and local income taxes, net of federal income tax effect(1)(2)70 3.6 Foreign tax effects:Canada:Statutory tax rate difference between Canada and U.S.(11)(0.6)Local Provincial Taxes22 1.1 Other(3)(0.2)Various foreign jurisdictions3 0.2 Effect of cross-border tax laws:Foreign-derived intangible income(35)(1.8)Tax credits:R&D tax credits(226)(11.7)Advanced manufacturing credits(22)(1.1)Other(2)(0.1)Changes in unrecognized tax benefits20 1.1 Other adjustments:Impact of divestitures and reorganizations95 4.9 Other9 0.5 Effective income tax rate$326 16.9 %_______________(1)State taxes in Texas, New Jersey and New Hampshire make up the majority (greater than 50 percent) of the tax effect in this category.(2)Includes the impact of a change in Texas legislation, which required us to record a $32 million valuation allowance against our Texas R&D credit carryforwards.Fiscal Year(In millions)20242023U.S. statutory income tax rate21.0 %21.0 %State taxes2.1 1.4 International income0.

NOTE 10: SHARE-BASED COMPENSATION As of January 2, 2026, we had stock options and other share-based compensation outstanding under our 2024 Equity Incentive Plan and predecessor plans (collectively, the “L3Harris SIPs”). As part of our long-term incentive compensation program, we have made awards to employees in the form of RSUs, PSUs and non-qualified stock options under the L3Harris SIPs. We have also awarded RSUs in the form of deferred units to our non-employee directors. We believe that share-based awards more closely align the interests of participants with those of shareholders. Share-based compensation expense was $113 million, $97 million and $89 million for fiscal 2025, 2024 and 2023, respectively. The related tax benefit for share-based compensation expense was $28 million, $20 million, and $19 million for fiscal 2025, 2024, and 2023, respectively.Share-Based Compensation AwardsAs of January 2, 2026, a total of 19.6 million shares of common stock remained available under our L3Harris SIPs for future issuance (excluding shares to be issued in respect of outstanding stock options, with each full-value award (e.g., RSUs and PSUs) counting as 3.8 shares against the total remaining for future issuance). During fiscal 2025, we issued an aggregate of 1.1 million shares of common stock under the terms of our L3Harris SIPs, which is net of shares withheld for tax purposes.RSUs. RSUs granted under our L3Harris SIPs are not transferable until vested and the restrictions generally lapse upon the achievement of continued employment (or board membership) over a specified time period.The grant-date fair value of these awards was based on the closing price of our common stock on the grant date and is amortized to compensation expense over the vesting period. The following table summarizes the activity of RSUs during fiscal 2025:Units (In thousands)Weighted-AverageGrant-Date Price Per UnitRSUs outstanding as of January 3, 2025582 $210.28 Granted249 $218.06 Vested(208)$221.37 Forfeited(46)$210.14 RSUs outstanding as of January 2, 2026577 $211.19 As of January 2, 2026, there was $57 million of total unrecognized compensation expense related to these awards under our L3Harris SIPs. This expense is expected to be recognized over a weighted-average period of 2.19 years. The weighted-average grant-date price per unit was $218.06, $211.95 and $199.33 for awards granted in fiscal 2025, 2024 and 2023, respectively.

NOTE 11: LEASES Our operating and finance leases primarily consist of real estate leases for office space, warehouses, manufacturing, R&D facilities, telecommunication tower space and land and equipment leases. Lease Costs. Components of lease costs included in our Consolidated Statement of Operations are as follows:Fiscal Year(In millions)202520242023Operating lease cost$172 $164 $163 Other, net(1)75 75 60 Total lease cost$247 $239 $223 ______________(1) Includes short-term and equipment lease costs, variable lease costs, finance lease amortization, interest costs and sublease income.Balance Sheet. ROU assets and lease liabilities included in our Consolidated Balance Sheet are as follows:January 2, 2026January 3, 2025(In millions)Operating FinanceOperatingFinanceROU assets$717 $192 $684 $202 Current lease liabilities132 10 150 32 Non-current lease liabilities653 221 650 206 Total lease liabilities$785 $231 $800 $238 Supplemental Lease Information. Other supplemental lease information is as follows:Fiscal Year(In millions)20252024Net cash provided by operating activities - operating lease payments$178 $182 ROU assets obtained in exchange for new operating lease obligations215 96 Fiscal Year20252024Operating FinanceOperatingFinanceWeighted average remaining lease term7.51 years17.66 years7.59 years16.41 yearsWeighted average discount rate4.84 %4.23 %3.72 %4.43 %Maturities of operating and finance lease liabilities as of January 2, 2026 were as follows:January 2, 2026(In millions)OperatingFinance2026$174 $19 2027153 18 2028133 19 2029114 19 203095 42 Thereafter287 193 Total future lease payments956 310 Less: imputed interest171 79 Present value of lease liabilities$785 $231 On January 2, 2026, we had additional future payments of $1.1 billion related to leases that have not yet commenced. These leases will commence between 2026 and 2028 and have lease terms of 7 years to 20 years. Of this amount, approximately $700 million pertains to a lease associated with the expansion of our large solid rocket motor production facility in Camden, Arkansas. This lease is expected to commence in January 2028, upon completion of construction, with a lease term of 20 years.

NOTE 13: ACQUISITIONS AND DIVESTITURESAcquisitionsAcquisition of Viasat’s TDL. On January 3, 2023, we completed the acquisition of TDL. The acquisition enhances our networking capability and provides access to the ubiquitous Link 16 waveform, better positioning us to enable the DoW integrated architecture goal in JADC2, which is reported in our CS segment.Acquisition of AJRD. On July 28, 2023, we acquired AJRD, a technology-based engineering and manufacturing company that develops and produces missile solutions with technologies for strategic defense, missile defense, and hypersonic and tactical systems, as well as space propulsion and power systems for national security space and exploration missions, which is reported in our AR segment.DivestituresSpace 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. Under the agreement we will contribute certain of the assets and liabilities of the SPPS business, reported in our AR segment, and the SA&C business, reported in our IMS segment to a new entity in which we will retain a 40% noncontrolling interest. The Space Technology disposal group, which excludes our RS-25 rocket engine business, provides premier propulsion, power, space flight avionics and communications systems. Under the agreement, AE Industrial will acquire an approximately 60% controlling interest 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 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. Our share of earnings or losses from the equity method investment will be recognized in the “Non-service FAS pension income and other, net” line item in our Consolidated Statement of Operations, with a corresponding adjustment to the carrying value of the investment included in the “Other non-current assets” line item in our Consolidated Balance Sheet.

Risk Management and StrategyWe assess and identify material risks from cybersecurity threats primarily through the work of our Global Technology and Business Solutions organization, which is fully integrated in our enterprise risk management (“ERM”) process in close partnership with other functions such as Engineering, Industrial Security, Internal Audit, and Legal. The ERM process, administered by management with input from each business segment and function, continuously monitors material risks facing L3Harris, including cybersecurity threats. Our Global Technology and Business Solutions organization, is led by our Chief Information Officer (“CIO”), who has extensive experience leading information technology for global organizations across aerospace, defense and industrials, and works directly with our Chief Executive Officer (“CEO”) and other members of senior management to assess cybersecurity threats as part of the ERM process. The CIO oversees the internal cybersecurity organization of more than 100 full-time employees headed by our Chief Information Security Officer (our “Cybersecurity Team”). Risks related to cybersecurity threats are reflected in an enterprise risk “heat map,” along with other material risks identified through the ERM process, and any mitigation plans developed to manage such risks are reported to our Board of Directors (“Board”). The “heat map” includes risks related to cybersecurity threats to L3Harris and our customers, suppliers, vendors, subcontractors or other third parties, and the possibility of a data breach of our confidential, personal and proprietary information through a cybersecurity incident impacting L3Harris or any third party.To actively manage cybersecurity risks identified as part of the ERM process or otherwise and to manage emerging cybersecurity threats in real time, management has implemented an ISO 27001 certified Information Security Management System. Our Cybersecurity Team operates a Security Operations Center that continuously monitors activity, frequently scans applications and systems for vulnerabilities to risk from cybersecurity threats and creates action plans to address and track identified cybersecurity threats until they have been remediated. Activities and cybersecurity incidents are reported to our CIO, who briefs senior management, including our CEO, as well as our Board, as appropriate.