ITEM 1A. RISK FACTORS.
Our business, financial condition, results of operations, cash flows and equity are subject to, and could be
materially adversely affected by, various risks and uncertainties, including, without limitation, those set forth below,
any one of which could cause our actual results to vary materially from recent results or our anticipated future
results.
Macroeconomic, Industry and Governmental Risks
We depend on winning business in competitive markets from U.S. Government customers for a significant
portion of our revenue.We are highly dependent on revenue from U.S. Government customers, primarily defense-
related programs with the DoD and other government agencies.
The market for sales to U.S. Government customers is highly competitive and the U.S. Government may choose
to use other contractors as part of competitive bidding processesor otherwise. The U.S. Government has
increasingly relied on certain types of contracts that are subject to multiple competitive bidding processes, including
multi-vendor indefinite-delivery, indefinite-quantity (“IDIQ”), government-wide acquisition contracts, General
Services Administration Schedules and other multi-award contracts, which has resulted in greater competition and
increased pricing pressure. Some of our competitors have greater financial resources than we do and may have
more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some
areas. We may not be able to continue to win competitively awarded contracts or to obtain task orders under multi-
award contracts. Further, competitive bidding processes involve significant cost and managerial time to prepare bids
_____________________________________________________________________
6
and proposals for contracts and the risk that we may fail to accurately estimate the resources and costs required to
fulfill any contract awarded to us. We may choose not to bid in certain competitive bidding processes, which would
result in the potential loss of opportunities. Additionally, bid protests from unsuccessful bidders can result in
significant expense or delay, contract modification or contract rescission as a result of our competitors protesting or
challenging contracts awarded to us.
A reduction in U.S. Government funding or a change in U.S. Government spending priorities could have an
adverse impact on our business, financial condition, results of operations, cash flows and equity. We expect
changes in policy positions and spending priorities from the new Administration. Our U.S. Government programs
must compete with programs managed by other government contractors and with other policy imperatives for
consideration for limited resources and for uncertain levels of funding during the budget and appropriations process.
Although multi-year contracts may be authorized and appropriated in connection with major procurements,
Congress generally appropriates funds on a U.S. Government fiscal year (“GFY”) basis. Procurement funds are
typically disbursed over the course of one to three years. Consequently, programs often initially receive only partial
funding, and additional funds are obligated only as Congress authorizes further appropriations.
We cannot predict the extent to which total funding and/or funding for individual programs will be changed as
part of the annual appropriations process ultimately approved by Congress and the President or in separate
supplemental appropriations or continuing resolutions, as applicable. Budget and appropriations decisions made by
the U.S. Government are outside of our control and may have long-term consequences for our business. U.S.
Government spending priorities and levels remain uncertain and difficult to predict, especially with a new
administration, and are affected by numerous factors, including the U.S. Government’s budget deficit and the
national debt. A change in U.S. Government spending priorities or an increase in non-procurement spending at the
expense of our programs, or a reduction in total U.S. Government spending on an absolute or inflation-adjusted
basis, could have material adverse consequences on our current or future business.
If Congress does not enact a full-year GFY 2025 appropriations bill, the U.S. Government may not be able to
fulfill its funding obligations, and there could be significant disruption to all discretionary programs and
corresponding impacts on the entire defense industry, which could adversely affect our business, results of
operations, financial condition and cash flow. Any inability of the U.S. Government to complete its budget process
for any GFY and resulting operation on funding levels equivalent to its prior fiscal year pursuant to a Continuing
Resolution (“CR”) or shut down, also could have material adverse consequences on our current or future business.
For more information see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations - U.S. and International Budget Environment” of this Report.
Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-type and
time-and-material type contracts. Fixed-price contracts, particularly for development programs, could subject us to
losses from cost overruns or inflation.In fiscal 2024, 73%of our revenue was derived from fixed-price contracts
that allow us to benefit from cost savings, but subject us to the risk of potential cost overruns, including due to
greater than anticipated or a sustained period of increased inflation or unexpected delays because we assume all of
the cost burden. If our initial estimates are incorrect, we can lose money (or make more or less money than
estimated) on these contracts. Fixed-price U.S. Government contracts can expose us to potentially large losses
because the U.S. Government can hold us responsible for completing a project or, in limited circumstances, paying
the entire cost of its replacement by another provider.
Contracts for development programs include complex design and technical requirements and are generally
contracted on a cost-reimbursable basis, however, some existing development programs are contracted on a fixed-
price basis or include cost-type contracting for the development phase with fixed-price production options. Because
many of these contracts involve new technologies and applications and can last for years, unforeseen events, such
as technological difficulties, increases in the price of materials, a significant increase in or a sustained period of
increased inflation, problems with our suppliers, labor market conditions and cost overruns, can result in less
favorable economics or even losses over-time (which, especially in the case of sharp and significant sustained
inflation, could happen quickly and have long lasting impacts). Furthermore, if we do not meet contract deadlines or
specifications, we may need to renegotiate contracts on less favorable terms, be forced to pay penalties or
liquidated damages or suffer losses if the customer exercises its right to terminate. Some of our contracts have
provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we
may not realize their full benefits. Cost overruns would adversely impact our results of operations, which are
dependent on our ability to maximize our earnings from our contracts, and the potential risk would be greater if our
contracts shifted toward a greater percentage of fixed-price contracts, particularly firm fixed-price contracts, as
opposed to cost-type and time-and-material contracts.
_____________________________________________________________________
7
To the extent feasible, we have consistently followed the practice of contractually adjusting our prices to reflect
the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and
services and in some cases seeking the inclusion of adjustment clauses to incorporate certain cost adjustments in
fixed-price contracts for unexpected inflation. However, our fixed-price contracts could subject us to losses in the
event of cost overruns or a significant increase in or a sustained period of increased inflation if these measures are
not effective.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of
operations, cash flows and equity.
The application or impact of regulations, unilateral government action, termination or negative audit findings
for one or more of our contracts could have an adverse impact on our business, financial condition, results of
operations, cash flows and equity.U.S. Government contracts are generally subject to U.S. Government oversight
audits, which could result in adjustments to our contract costs. Any costs found to be improperly allocated to a
specific contract will not be reimbursed, and such costs already reimbursed must be refunded. We have recorded
contract revenue based on costs we expect to realize upon final audit. However, we do not know the outcome of any
future audits and adjustments, and we may be required to materially reduce our revenue or profits upon completion
and final negotiation of audits. Negative audit findings could also result in termination of a contract, forfeiture of
profits, suspension of payments, fines or suspension or debarment from U.S. Government contracting or
subcontracting for a period of time.
In addition, U.S. Government contracts generally contain provisions permitting termination, in whole or in part,
without prior notice at the U.S. Government’s convenience upon payment only for work done and commitments
made at the time of termination. For some contracts, we are a subcontractor and the U.S. Government could
terminate the prime contractor for convenience without regard for our performance as a subcontractor. We may be
unable to secure new contracts to offset revenue or backlog lost as a result of any termination of our
U.S. Government contracts. Because a significant portion of our revenue is dependent on our performance and
payment under our U.S. Government contracts, the loss of one or more large contracts could have an adverse impact
on our business, financial condition, results of operations, cash flows and equity.
From time to time, we may begin performance of a U.S. Government contract under an undefinitized contract
action with a not-to-exceed price before the terms, specifications or price areagreed to between the parties. In
these arrangements, the U.S. Government has the ability to unilaterally definitize the contract if a mutual agreement
regarding terms, specifications and price cannot be reached. These uncertainties or loss of negotiating leverage
associated with long delays could have a material adverse impact on our business, financial condition, results of
operations, cash flows and equity.
Our U.S. Government business also is subject to specific procurement regulations and a variety of
socioeconomic and other requirements that, although customary in U.S. Government contracts, increase our
performance and compliance costs. These costs might increase in the future, thereby reducing our margins, which
could have an adverse effect on our business, financial condition, results of operations, cash flows and equity. In
addition, the U.S. Government has and may continue to implement initiatives focused on efficiencies, affordability
and cost growth and other changes to its procurement practices. These initiatives and changes to procurement
practices may change the way U.S. Government contracts are solicited, negotiated and managed, which may affect
whether and how we pursue opportunities to provide our products and services to the U.S. Government, including
the terms and conditions under which we do so, which may have an adverse impact on our business, financial
condition, results of operations, cash flows and equity.
Failure to comply with applicable regulations and requirements could lead to fines, penalties, repayments or
compensatory or treble damages, or suspension or debarment from U.S. Government contracting or subcontracting
for a period of time. The termination of a U.S. Government contract or relationship as a result of any of these acts
would have an adverse impact on our operations and could have an adverse effect on our standing and eligibility for
future U.S. Government contracts.
We participate in markets that are often subject to uncertain economic conditions, which makes it difficult to
estimate growth in our markets and, as a result, future income and expenditures.We participate in U.S. and
international markets that are subject to uncertain economic conditions. In particular, U.S. federal, state and local
government spending priorities and levels remain uncertain and difficult to predict and are affected by numerous
factors. In addition, certain of our non-U.S. customers, including in the Middle East and other oil or natural gas-
producing countries, could be impacted by weakness or volatility in oil or natural gas prices, or negative
expectations about future prices or volatility, which could adversely affect demand for our products, systems,
services or technologies. As a result of that uncertainty, it is difficult to develop accurate estimates of the level of
_____________________________________________________________________
8
growth in the markets we serve. Because those estimates underpin all components of our budgeting and
forecasting, our estimates or guidance for future revenue, income and expenditures may be inaccurate, and we may
make significant investments and expenditures but never realize the anticipated benefits.
We cannot predict the consequences of future geo-political events, but they may adversely affect the markets in
which we operate, our ability to insure against risks, our operations or our profitability.Ongoing instability and
current conflicts in global markets, including in the Ukraine and Eastern Europe, the Middle East and Asia, and the
potential for other conflicts and future terrorist activities and geo-political events throughout the world, including
new or increased economic and trade sanctions, including tariffs, have created and may continue to create economic
and political uncertainties and impacts that could have a material adverse effect on our business, operations and
profitability. These types of matters cause uncertainty in financial and insurance markets and may significantly
increase the political, economic and social instability in the geographic areas in which we operate.
Unfavorable credit conditions in financial markets outside of the U.S. could adversely affect the ability of our
international customers and suppliers to obtain financing and could result in a decrease in or cancellation of orders
for our products and services or impact the ability of our customers to make payments. These matters also may
cause us to experience increased costs, such as for insurance coverage and performance bonds (or for them to be
unavailable altogether), as well as difficulty with financing our operating, investing or financing (or refinancing)
activities.
We are subject to government investigations, which could have a material adverse effect on our business,
financial condition, results of operations, cash flows and equity.U.S. Government contractors are subject to
extensive legal and regulatory requirements, including International Traffic in Arms Regulations (“ITAR”) and U.S.
Foreign Corrupt Practices Act (“FCPA”), and from time to time agencies of the U.S. Government investigate whether
we have been and are operating in accordance with these requirements. Under U.S. Government regulations, an
indictment of L3Harris by a federal grand jury, or an administrative finding against us as to our present responsibility
to be a U.S. Government contractor or subcontractor, could result in us being suspended for a period of time from
eligibility for awards of new government contracts or task orders or in a loss of export privileges, which could have a
material adverse effect on our business, financial condition, results of operations, cash flows and equity. A
conviction, or an administrative finding against us that satisfies the requisite level of seriousness, could result in
debarment from contracting with the U.S. Government for a specific term, which could have a material adverse
effect on our business, financial condition, results of operations, cash flows and equity.
We derive a significant portion of our revenue from international operations and are subject to the risks of doing
business internationally.We are dependent on sales to customers outside the U.S. We expect that international
revenue will continue to account for a significant portion of our total revenue. Also, a portion of our international
revenue is from, and a portion of our business activity is being conducted with or in, less-developed countries and
sometimes countries with unstable governments, or in areas of military conflict or at military installations. Other
risks of doing business internationally include:
•Laws, regulations and policies of foreign governments relating to investments and operations;
•Unforeseen changes in export controls and other trade regulations;
•Changes in regulatory requirements, including business or operating license requirements, currency
exchange controls or embargoes;
•Uncertainties and restrictions concerning the availability of funding, credit or guarantees;
•Risk of non-payment or delayed payment by non-U.S. customers;
•Contractual obligations to non-U.S. customers that may include specific in-country purchases, investments,
manufacturing agreements or financial or other support obligations, known as offset obligations, that may
extend for years, require teaming with local companies and result in significant penalties if not satisfied;
•Issues related to involving international dealers, distributors, sales representatives and consultants;
•Difficulties of managing a geographically dispersed organization and culturally diverse workforces, including
compliance with local laws and practices;
•Fluctuations of currency, currency revaluations, difficulties with repatriating cash generated or held abroad
in a tax-efficient manner and changes in tax laws;
•Uncertainties as to local laws and enforcement of contract and intellectual property rights and occasional
requirements for onerous contract terms;
•Changes in government, economic and political policies, political or civil unrest, acts of terrorism, threats of
international boycotts, U.S. anti-boycott legislation or sanctions against U.S. defense companies; and
•Increased risk of an incident resulting in damage or destruction to our facilities or products or resulting in
injury or loss of life to our employees, subcontractors or other third parties.
_____________________________________________________________________
9
Business and Operational Risks
We depend on our subcontractors and suppliers, and failures in or disruptions to our supply chain could cause
our products and or services to be produced or delivered in an untimely or unsatisfactory manner.Our ability to
manufacture and deliver products and services to our customers requires our U.S. and non-U.S. subcontractors and
suppliers to provide a variety of materials, components, subsystems and services. In some instances, we depend
upon a single supplier for components, which adds risk because that supplier may at times be unable to meet our
needs and because we may have little negotiating leverage with sole-source suppliers. Identifying and qualifying
dual and second-source suppliers can be difficult, time consuming and may result in increased costs. Any inability to
timely develop cost-effective alternative sources of supply could materially impact our ability to manufacture and
deliver products and services to our customers.
In addition, we are required to procure certain materials and components, including certain microelectronic
components, from U.S. Government-approved supply sources. Certain heightened regulatory requirements that may
apply to these sources can further limit the subcontractors and suppliers we may utilize. Legislation, regulatory
changes or other governmental actions, including product certification or stewardship requirements, sourcing
restrictions, tariffs, embargoes, product authenticity, cybersecurity regulation, and environmental standards (e.g.,
greenhouse gas emission limitations) may all impact our subcontractors and suppliers, and there continues to be
uncertainty about actions that may be implemented by the new Administration.
From time to time, our subcontractors and suppliers experience financial and operational difficulties outside of
our direct control, which may impact their ability to deliver the materials, components, subsystems and services we
need.
In recent years, global supply chains, including ours, have experienced significant disruption from material
availability and supplier performance, as well as extended lead times, pricing volatility, inflationary pressures and
labor issues. We and our subcontractors and suppliers have also experienced difficulties in the timely procurement
of necessary materials and components, including microelectronics. Current geopolitical conditions, including
sanctions and other trade restrictive activities and strained inter-country relations, have contributed to issues
procuring necessary materials and components. For example, some materials and components in our supply chain
have previously been sourced from areas now under sanctions or other trade restrictions, such as specialty metals
from Russia and certain equipment from China, or are currently sourced from areas which are at risk of sanctions or
other trade restrictive actions, not just by the United States but by other nations or groups, such as the European
Union.
While we continuously work to implement supply chain resiliency initiatives, we cannot guarantee the success of
any of these efforts. Material supply disruptions may still occur in the future, leading to untimely delivery or
unsatisfactory quality of products and services, and potentially adversely affecting our business, operational results,
financial condition and cash flow.
We must attract and retain key employees, and any failure to do so could harm us.Our future success depends
to a significant degree upon the continued contributions of our management and our ability to attract and retain
highly-qualified management and technical personnel, including engineers and employees who have U.S.
Government security clearances, particularly clearances of top secret and above. To the extent that the demand for
qualified personnel exceeds supply in certain areas, we could experience higher labor, recruiting or training costs in
order to attract and retain such employees. Failure to attract and retain such personnel would damage our future
prospects and could adversely affect our ability to succeed in our human capital goals and priorities, as well as
negatively impact our business and operating results.
We could be negatively impacted by a security breach of our Information Technology (“IT”) networks and
related systems.We face the risk of a security breach, whether through cyber-attack on our IT infrastructure, insider
threat, or threats to the physical security of our facilities and employees or other significant disruption of our IT
networks and related systems or those of our suppliers or subcontractors. The risk of a security breach or disruption,
particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber
terrorists, is persistent. The volume, intensity and sophistication of threats from around the world remains elevated.
These risks may increase as AI capabilities improve.
As a government contractor with access to national security or other sensitive government information, we face
a heightened risk of a security breach or disruption from threats to gain unauthorized access to our and our
customers’ proprietary information on our IT networks and related systems, our classified networks, and to the IT
networks and related systems that we operate, maintain and secure for certain of our customers. We have
implemented various measures to manage the risk of a security breach or disruption. See “Item 1C. Cybersecurity"
in this Report for further discussion of our risk management and strategy related to cybersecurity threats.
_____________________________________________________________________
10
Our efforts and measures have not been entirely effective in the case of every cyber security incident, but no
incident has had a material negative impact on us to date. Even the most well-protected information, networks,
systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-
attacks and cyber intrusions, or disruptions will occur in the future, and because the techniques used in such
attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases
are designed not to be detected and, in fact, may not be detected. In some cases, the resources of foreign
governments may be behind such attacks due to the nature of our business and the industries in which we operate.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security controls or other
preventative measures and future cyber security incidents may have a material negative impact on us. A security
breach or other significant disruption involving these types of information and IT networks and related systems
could:
•Disrupt proper functioning of these networks and systems and, therefore, our operations and/or those of
certain of our customers;
•Result in unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary,
confidential, sensitive or otherwise valuable information of ours, our customers or our employees, including
trade secrets, which could be used to compete against us or for disruptive, destructive or otherwise harmful
purposes and outcomes;
•Compromise national security and other sensitive government functions;
•Require significant management attention and resources to remedy damages that result;
•Result in costs which exceed our insurance coverage and/or indemnification arrangements;
•Subject us to claims for contract breach, damages, credits, penalties or termination; and
•Damage our reputation with our customers and the general public.
We must also rely on the safeguards of varying levels put in place by customers, suppliers, vendors,
subcontractors or other third parties to minimize the impact of cyber threats, other security threats or business
disruptions. These third parties may have varying levels of cybersecurity expertise and safeguards. Our commercial
arrangements with these third parties include processes designed to require that the third parties and their
employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential,
personal and proprietary information. However, we remain at risk of a data breach due to the intentional or
unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection
processes, which may not be as sophisticated as ours, or a cyber-attack on a third party’s information network and
systems.
Any or all of the foregoing could have a negative impact on our business, financial condition, results of
operations, cash flows and equity, reputation, ability to protect data, assets, and intellectual property, maintenance
of customer and vendor relationships, competitive posture, and could lead to litigation or regulatory investigations
or actions.
Our future success will depend on our ability to develop new products and services that achieve market
acceptance in our current and future markets.Our businesses are characterized by rapidly changing technologies
and evolving industry standards. To remain competitive, we need to continue to design, develop, manufacture,
assemble, test, market and support new products and services, which will require the investment of significant
financial resources in new technologies such as AI.
We have allocated funds for such investments through customer-funded and internal R&D, strategic alliances
and other teaming arrangements, but we may not be able to successfully identify new opportunities and may not
have the necessary resources to develop new products and services in a timely or cost-effective manner.
Furthermore, we cannot be sure that these expenditures ultimately will lead to the timely development of new
products and services. Due to the design complexity of some of our products and services, we may experience
delays in completing developmentand introducing new products and services or incorporating new technologies
into our existing products and services in the future. Any delays could result in increased costs of development or
divert resources from other projects.
In addition, the markets for our products and services may not develop as we currently anticipate, we may not
be as successful in newly identified markets as anticipated, and joint ventures, partnerships, strategic alliances or
other teaming arrangements we may enter into to pursue developing new products and services may not be
successful. Our competitors may incorporate AI technologies into their products or services more quickly or more
successfully than us, which could impair our ability to compete. Furthermore, competitors may develop competing
products and services or incorporate new technologies into our existing products and services that either gain
market acceptance in advance of our products and services or cause our existing products and services or
_____________________________________________________________________
11
technologies to become non-competitive or obsolete, which could adversely affect our results of operations and
harm our business.
We have significant operations in locations that could be materially and adversely impacted in the event of a
natural disaster or other significant disruption.Our corporate headquarters and significant business operations are
located in Florida, which is subject to the risk of major hurricanes. Our worldwide operations and operations of our
suppliers and customers could be subject to natural disasters (including those as a result of climate change) or other
significant disruptions, including hurricanes, typhoons, tsunamis, floods, earthquakes, fires, water shortages, other
extreme weather conditions, epidemics, pandemics, acts of terrorism, power shortages and blackouts,
telecommunications failures and other natural and man-made disasters or disruptions. In the event of such a natural
disaster or other disruption, we could experience disruptions or interruptions to our operations or the operations of
our suppliers, subcontractors, distributors, resellers or customers, including inability of employees to work;
destruction of facilities; and/or loss of life, all of which could materially increase our costs and expenses, delay or
decrease orders and revenue from our customers and have a material adverse effect on the continuity of our
business and our business, financial condition, results of operations, cash flows and equity.
Risk of the release, unplanned ignition, explosion, or improper handling of dangerous materials used in our
business could disrupt our operations and adversely affect our financial results.Our business operations are
subject to risk in connection with the handling, production, and disposition of potentially explosive and ignitable
energetic materials and other dangerous chemicals, including motors and other materials used in rocket propulsion.
The handling, production, transport, and disposition of hazardous materials could result in incidents that temporarily
shut down or otherwise disrupt our manufacturing operations and could cause production delays. A release of these
chemicals or an unplanned ignition or explosion could result in death or significant injuries to employees and others.
Material property damage to us or third parties could also occur.
The use of these products in applications by our customers could also result in liability if an explosion,
unplanned ignition or fire were to occur. Extensive regulations apply to the handling of explosive and energetic
materials, including but not limited to, regulations governing hazardous substances and hazardous waste. The
failure to properly store and ultimately dispose of such materials could create significant liability and/or result in
regulatory sanctions. Any release, unplanned ignition or explosion could expose us to adverse publicity or liability for
damages or cause production delays, any of which could have a material adverse effect on our business, financial
condition, results of operations, cash flows and equity.
Failure to achieve the expected results of LHX NeXt could adversely affect our future financial condition and
results of operations.In fiscal 2023, we announced LHX NeXt, a targeted three-year program designed to enhance
organizational agility and performance by leveraging our scale and relationships across segments to drive
operational efficiency and competitiveness for the enterprise. We have seen significant progress on LHX NeXt in
fiscal 2024, however, there can be no assurances that such progress will continue in fiscal 2025, that the initiatives
that are part of LHX NeXt will achieve their desired results or that costs savings achieved as a result of LHX NeXt will
impact our results of operations on the time frame or in the manner we currently expect.
Financial Risks
Changes in estimates we use in accounting for many of our programs could adversely affect our future financial
condition and results of operations.Accounting for our contracts requires judgment relative to assessing risks,
including estimating contract revenue and costs and assumptions for schedule and technical issues. Due to the size
and nature of many of our contracts, the estimation of total revenue and cost at completion is complicated and
subject to many variables. For example, we must make assumptions regarding: (i) the nature and complexity of the
work to be performed; (ii) subcontractors’ and suppliers’ expected performance; (iii) availability and costs of labor,
materials, components subsystems and services (including expected increases in wages and prices); (iv) the length
of time to complete the contract; (v) the allocation of transaction price to one or more performance obligations
based on the products and services promised to the customer; (vi) incentives or penalties related to performance on
contracts in estimating revenue and profit rates, and recording them when there is sufficient information for us to
assess anticipated performance; and (vii) estimates of award fees in estimating revenue and profit rates based on
actual and anticipated awards.
Our profitability can be adversely affected when estimated contract costs increase from our initial estimates,
especially without comparable increases in revenue. 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 from technical or quality issues and other performance concerns).
However, because of the significance of the judgments and the difficulties inherent in estimating future costs, we
cannot guarantee that estimated revenues and contract costs will not change in the future. Any cost growth or
_____________________________________________________________________
12
changes in estimated contract revenues and costs may adversely affect results of operations and financial condition.
For additional information regarding our critical accounting estimates applicable to our accounting for our contracts,
see “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical
Accounting Estimates” of this Report.
Our level of indebtedness and our ability to make payments on or service our indebtedness and our unfunded
defined benefit plans liability may materially adversely affect our financial and operating activities or our ability to
incur additional debt.A substantial portion of our retired employee population and a portion of our current
employee population are covered by defined benefit pension and other postretirement defined benefit plans
(collectively, “defined benefit plans”). At January 3, 2025, we had $11.8 billion in aggregate principal amount of
outstanding fixed-rate debt, which reflects our total long-term debt, including current portion but excluding finance
leases, and $205 million of unfunded defined benefit plan liabilities. Our ability to make payments on and to
refinance our current or future indebtedness, and our ability to make contributions to our unfunded defined benefit
plans liability, will depend on our ability to generate cash from operations, financings and investments, which may
be subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control.
While our outstanding long-term debt is all fixed rate and our repayment schedule is known, the costs and
returns related to our defined benefit plans are variable. Accordingly, our defined benefit plan liabilities could
increase, which could require us to make significant funding contributions to our defined benefit plans and affect
cash flows in future periods.
If we are not able to repay or refinance our debt as it becomes due or make contributions to our unfunded
defined benefit plans liability, we may be forced to divest businesses, sell assets or take other disadvantageous
actions, including reducing financing for working capital, capital expenditures and general corporate purposes;
reducing our cash dividend rate and/or share repurchases; or dedicating an unsustainable level of our cash flow
from operations to the payment of principal and interest on our indebtedness. In addition, our ability to withstand
competitive pressures and to react to changes in the defense technology industry could be impaired. The lenders
who hold such debt could also accelerate amounts due, which could potentially trigger a default or acceleration of
any of our other debt.
Legal, Tax and Regulatory Risks
Changes in our effective tax rate or additional tax exposures may have an adverse effect on our results of
operations and cash flows. We are subject to income taxes in the U.S. and numerous international jurisdictions.
There are transactions and calculations in the ordinary course of business where the application of tax law may be
uncertain, require significant judgment or be subject to differing interpretations. Our worldwide income tax provision
may be adversely affected by a number of factors, which include:
•Changes in domestic or international tax laws or the interpretation of such tax laws;
•The jurisdictions in which profits are determined to be earned and taxed;
•Adjustments to estimated taxes upon finalization of various tax returns;
•Increases in expenses not fully deductible for tax purposes, including impairment of goodwill or other long-
term assets acquired in connection with mergers or acquisitions;
•Changes in available tax credits;
•Changes in share-based compensation expense;
•Changes in the valuation of our deferred tax assets and liabilities; and
•The resolution of issues arising from tax audits with various tax authorities.
Any significant increase in our future effective tax rates, or timing of deductions, credits, or payments, could
adversely impact our results of operations and cash flow for future periods.
We may not be successful in obtaining the necessary export licenses and Congress may prevent proposed sales
to certain foreign governments.We must first obtain export and other licenses and authorizations from various
U.S. Government agencies before we are permitted to sell certain products and technologies outside of the U.S. For
example, the U.S. Department of State must notify Congress at least 15 to 60 days, depending on the size and
location of the proposed sale, prior to authorizing certain sales of defense equipment and services to foreign
governments. During that time, Congress may take action to block the proposed sale. We may be unsuccessful in
obtaining necessary licenses or authorizations or Congress may prevent or delay certain sales.
Our ability to obtain necessary licenses and authorizations timely or at all is subject to risks and uncertainties,
including changing U.S. Government policies or laws or delays in Congressional action due to geopolitical and other
factors. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely
_____________________________________________________________________
13
manner, our sales relating to those approvals may be reversed, prevented or delayed, and any significant
impairment of our ability to sell products or technologies outside of the U.S. could negatively impact our business,
financial condition, results of operations, cash flows and equity.
Environmental issues could have a material adverse effect on our business, financial condition, results of
operations, cash flows and equity.Our operations are subject to various U.S. federal, state and local, as well as
certain foreign, environmental laws and regulations within the countries in which we operate relating to the
discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used
in our operations. Our real estate assets in particular are subject to various risks, including that our reserves for
estimated future environmental obligations may prove to be insufficient, we may be unable to complete
environmental remediation or, we may be unable to have state and federal environmental restrictions lifted.
Compliance with current and future environmental laws and regulations may require significant operating and
capital costs. Environmental laws and regulations may institute substantial fines and criminal sanctions as well as
facility shutdowns to address violations and may require the installation of costly pollution control equipment or
operational changes to limit emissions or discharges. Our suppliers may face similar business interruptions and
incur additional costs that may increase the price of materials needed for manufacturing. We also incur, and expect
to continue to incur, costs to comply with current environmental laws and regulations related to remediation of
conditions in the environment. In addition, if violations of environmental laws result in us, or in one or more of our
operations, being identified as an excluded party in the U.S. Government’s System for Award Management, then we
or one or more of our operations would become ineligible to receive certain contracts, subcontracts and other
benefits from the federal government or to perform work under a government contract or subcontract. Generally,
such ineligibility would continue until the basis for the listing has been appropriately addressed.
If our responses to new or evolving legal and regulatory requirements or other sustainability concerns are
unsuccessful or perceived as inadequate for the U.S. or our international markets, we also may suffer damage to our
reputation, which could adversely affect our business.Developments such as the adoption of new environmental
laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and
regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental
impacts, our inability to recover costs associated with any such developments under previously priced contracts or
financial insolvency of other responsible parties could have a material adverse effect on our business, financial
condition, results of operations, cash flows and equity.
Our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or
business partners.We have implemented compliance controls, training, policies and procedures designed to
prevent and detect reckless or criminal acts from being committed by our employees, agents or business partners
that would violate the laws of the jurisdictions in which we operate, including laws governing payments to
government officials, such as the FCPA, the protection of export-controlled or classified information, such as ITAR,
false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy
and the terms of our contracts.
We cannot ensure, however, that our controls, training, policies and procedures will prevent or detect all such
reckless or criminal acts, and we have been adversely impacted by such acts in the past. If not prevented, such acts
could subject us to civil or criminal investigations, monetary and non-monetary penalties and suspension and
debarment by the U.S. Government and could have a material adverse effect on our business, results of operations
and reputation. In addition, misconduct involving data security lapses resulting in the compromise of personal
information or the improper use of our customers’ sensitive or classified information could result in remediation
costs, regulatory sanctions against us and serious harm to our reputation and could adversely impact our ability to
continue to contract with the U.S. Government.
The outcome of litigation or arbitration in which we are involved from time to time is unpredictable, and an
adverse decision in any such matter could have a material adverse effect on our financial condition, results of
operations, cash flows and equity.The size, nature and complexity of our business make us susceptible to
investigations, claims, disputes, enforcement actions, litigation and other legal proceedings, particularly those
involving governments. From time to time, we are defendants in a number of litigation matters and are involved in a
number of arbitration matters. These actions may divert financial and management resources that would otherwise
be used to benefit our operations. The results of these or new matters may be unfavorable to us. Although we
maintain insurance policies, they may not be adequate to protect us from all material judgments and expenses
related to current or future claims and may not cover the conduct that is the subject of the litigation or arbitration.
Desired levels of insurance may not be available in the future at economical prices or at all. In addition, the results of
litigation or arbitration can be difficult to predict, including litigation involving jury trials. Accordingly, our current
_____________________________________________________________________
14
judgment as to the likelihood of our loss (or our current estimate as to the potential range of loss, if applicable) with
respect to any particular litigation or arbitration matter may be wrong. A significant judgment or arbitration award
against us arising out of any of our current or future litigation or arbitration matters could have a material adverse
effect on our business, financial condition, results of operations, cash flows and equity.
We may become subject to intellectual property infringement claims, and third parties may infringe upon our
intellectual property rights.Many of the markets we serve are characterized by vigorous protection and pursuit of
intellectual property rights, which often has resulted in protracted and expensive litigation. Our competitive position
in the market depends in part on our ability to ensure that our intellectual property is protected, that our intellectual
property rights are not diluted or subject to misuse, and that we are able to license certain third-party intellectual
property on reasonable terms. Third parties have claimed in the past, and may claim in the future, that we are
infringing directly or indirectly upon their intellectual property rights, and we may be found to be infringing or to have
infringed directly or indirectly upon those intellectual property rights. Claims of infringement might also require us to
enter into costly royalty or license agreements. Our patents and other intellectual property may be challenged,
invalidated, misappropriated or circumvented by third parties. Moreover, we may not be able to obtain royalty or
license agreements on terms acceptable to us, or at all.
We also may be subject to significant damages or injunctions against development and sale of certain of our
products, services and solutions. Our success depends in large part on our proprietary technology. We rely on a
combination of patents, copyrights, trademarks, trade secrets, know-how, confidentiality provisions and licensing
arrangements to establish and protect our intellectual property rights. In addition, the laws concerning intellectual
property vary among nations and the protection provided to our intellectual property by the laws and courts of
foreign nations may differ from those of the U.S. If we fail to successfully protect and enforce these rights, our
competitive position could suffer. Our pending patent and trademark registration applications may not be allowed,
or competitors may challenge the validity or scope of our patents or trademark registrations. We may be required to
spend significant resources to monitor and enforce our intellectual property rights. Litigation to determine the scope
of intellectual property rights, even if ultimately successful, could be costly and could divert management’s
attention away from other aspects of our business. We may not be able to detect infringement, and our competitive
position may be harmed before we do so. In addition, competitors may design around our technology or develop
competing technologies.
We face certain significant risk exposures and potential liabilities that may not be covered adequately by
insurance or indemnity.We are exposed to liabilities that are unique to the products and services we provide. A
significant portion of our business relates to designing, developing and manufacturing advanced defense, technology
and communications systems and products. New technologies associated with these systems and products may be
untested or unproven. Components of certain defense systems and products we develop are inherently dangerous.
Failures of satellites, missile systems, air traffic control systems, electronic warfare systems, space superiority
systems, command, control, computers, communications, cyber, ISR, homeland security applications and aircraft
have the potential to cause loss of life and extensive property damage. Other examples of unforeseen problems that
could result, either directly or indirectly, in the loss of life or property or otherwise negatively affect revenue and
profitability include loss on launch of spacecraft, premature failure of products that cannot be accessed for repair or
replacement, problems with quality and workmanship, country of origin, delivery of subcontractor components or
services and unplanned degradation of product performance. In addition, problems and delays in development or
delivery as a result of issues with respect to design, technology, licensing and patent rights, labor, learning curve
assumptions or materials and components could prevent us from achieving contractual requirements. In many
circumstances, we may receive indemnification from the U.S. Government. We generally do not receive
indemnification from foreign governments. Although we maintain insurance for certain risks, including certain
cybersecurity exposures, the amount of our insurance coverage may not be adequate to cover all claims or liabilities,
and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain
insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in
excess of U.S. Government indemnity and our insurance coverage would harm our financial condition, results of
operations, cash flows and equity. Other factors that may affect revenue and profits include loss of follow-on work,
and, in the case of certain contracts, liquidated damages, penalties and repayment to the customer of contract cost
and fee payments we previously received. Moreover, any accident or incident for which we are liable, even if fully
insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for
us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.
Strategic Transactions and Investments Risks
Strategic transactions, including mergers, acquisitions and divestitures, involve significant risks and
uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and
_____________________________________________________________________
15
equity.Strategic mergers, acquisitions and divestitures we have made in the past and may make in the future
present significant risks and uncertainties that could adversely affect our business, financial condition, results of
operations, cash flows and equity, which include:
•Difficulty in identifying and evaluating potential mergers and acquisitions, including the risk that our due
diligence does not identify or fully assess valuation issues, potential liabilities or other merger or acquisition
risks;
•Difficulty, delays and expense in integrating newly merged or acquired businesses and operations, including
combining product and service offerings, and in entering into new markets in which we are not experienced,
in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures,
and the risk that we encounter significant unanticipated costs or other problems associated with integration;
•Differences in business backgrounds, corporate cultures and management philosophies that may delay
successful integration;
•Difficulty, delays and expense in consolidating and rationalizing IT infrastructure, which may include
multiple legacy systems from various mergers and acquisitions and integrating software code;
•Challenges in achieving strategic objectives, cost savings and other expected benefits;
•Risk that our markets do not evolve as anticipated and that the strategic mergers, acquisitions and
divestitures do not prove to be those needed to be successful in those markets;
•Risk that we assume or retain, or that companies we have merged with or acquired have assumed or
retained or otherwise become subject to, significant liabilities that exceed the limitations of any applicable
indemnification provisions or the financial resources of any indemnifying parties;
•Risk that indemnification related to businesses divested or spun off that we may be required to provide or
otherwise bear may be significant and could negatively impact our business;
•Risk that mergers, acquisitions, divestitures, spin offs and other strategic transactions fail to qualify for the
intended tax treatment for U.S. federal income tax purposes and the possibility that the full tax benefits
anticipated to result from such transactions may not be realized;
•Risk that we are not able to complete strategic divestitures on satisfactory terms and conditions, including
non-competition arrangements applicable to certain of our business lines, or within expected timeframes;
•Potential loss of key employees or customers of the businesses acquired or to be divested; and
•Risk of diverting the attention of senior management from our existing operations.
Changes in future business or other market conditions could cause business investments and/or recorded
goodwill or other intangible assets to become impaired, resulting in substantial losses and write-downs that would
materially adversely affect our results of operations and financial condition. A significant portion of our assets
consist of goodwill and other intangible assets, primarily recorded as the result of acquisitions. Assumptions and
judgments in determining initial acquisition price may subsequently prove to have been inaccurate and unforeseen
issues could arise, which could adversely affect the anticipated returns or which are otherwise not recoverable as an
adjustment to the purchase price. We evaluate the recoverability of recorded goodwill annually, as well as when we
change reporting units (either as a result of a reorganization or as the result of divestiture activity) and when events
or circumstances indicate there may be an impairment. If an impairment exists, we record the charge in the period
of determination. Because of the significance of our goodwill and other intangible assets, any future impairment of
these assets could have a material adverse effect on our results of operations and financial condition. For additional
information on our accounting policies related to impairment of goodwill, see our discussion under “Critical
Accounting Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Report and Note 1: Significant Accounting Policies and Note 6: Goodwill and Intangible Assets in
the Notes.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 1C. CYBERSECURITY.
Risk Management and Strategy
We assess and identify material risks from cybersecurity threats primarily through the work of our Information
Security 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 Information Security organization, is led by our
Chief Information Officer (“CIO”), who has extensive experience leading information technology for global
_____________________________________________________________________
16
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