L3harris Technologies, Inc 10-Q for FY2020 Q1

About this 10-Q

Headline figures

L3harris Technologies, Inc. (LHX)

10-Q 2020-05-07 For: 2020-04-03

Added on April 10, 2026

L3harris Technologies, Inc filed this 10-Q on May 7, 2020, covering the quarter ended April 3, 2020 (FY2020 Q1).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Quarter ended April 3, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.63B; up 167.7% from $1.73B a year earlier
Net income: $217M; down 10.7% from net income of $243M a year earlier
Diluted EPS: $0.99; down 51.0% from $2.02 a year earlier

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Delaware			34-0276860
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



1025 West NASA Boulevard
Melbourne,	Florida	32919
(Address of principal executive offices)		(Zip Code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	LHX	New York Stock Exchange



	Page No.
Part I. Financial Information:
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statement of Income for the Quarter Ended April 3, 2020 and March 29, 2019	1
Condensed Consolidated Statement of Comprehensive Income for the Quarter Ended April 3, 2020 and March 29, 2019	2
Condensed Consolidated Balance Sheet at April 3, 2020 and January 3, 2020	3
Condensed Consolidated Statement of Cash Flows for the Quarter Ended April 3, 2020 and March 29, 2019	4
Condensed Consolidated Statement of Equity for the Quarter Ended April 3, 2020 and March 29, 2019	5
Notes to Condensed Consolidated Financial Statements	6
Report of Independent Registered Public Accounting Firm	31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
Item 4. Controls and Procedures	53

Part II. Other Information:
Item 1. Legal Proceedings	54
Item 1A. Risk Factors	54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56

Signature	57



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _



	Quarter Ended
	April 3, 2020			March 29, 2019

	(In millions, except per share amounts)
Revenue from product sales and services	$	4,626		$	1,728
Cost of product sales and services	(3,298		)	(1,139		)
Engineering, selling and administrative expenses	(815		)	(310		)
Impairment of goodwill and other assets	(324		)	—
Non-operating income	95			46
Interest income	5			1
Interest expense	(68		)	(43		)
Income from continuing operations before income taxes	221			283
Income taxes	(26		)	(40		)
Income from continuing operations	195			243
Discontinued operations, net of income taxes	(1		)	—
Net income	194			243
Noncontrolling interests, net of income taxes	23			—
Net income attributable to L3Harris Technologies, Inc.	$	217		$	243
Amounts attributable to L3Harris Technologies, Inc. common shareholders
Income from continuing operations	$	218		$	243
Discontinued operations, net of income taxes	(1		)	—
Net income	$	217		$	243

Net income per common share attributable to L3Harris Technologies, Inc. common shareholders
Basic
Continuing operations	$	1.00		$	2.06
Discontinued operations	—			—
	$	1.00		$	2.06
Diluted
Continuing operations	$	0.99		$	2.02
Discontinued operations	—			—
	$	0.99		$	2.02

Basic weighted average common shares outstanding	217.3			117.9
Diluted weighted average common shares outstanding	219.3			120.3



	April 3, 2020			January 3, 2020

	(In millions, except shares)
Assets
Current Assets
Cash and cash equivalents	$	663		$	824
Receivables	1,278			1,216
Contract assets	2,467			2,459
Inventories	990			1,219
Income taxes receivable	205			202
Other current assets	400			392
Assets of disposal group held for sale	1,208			—
Total current assets	7,211			6,312
Non-current Assets
Property, plant and equipment	2,032			2,117
Operating lease right-of-use assets	784			837
Goodwill	19,265			20,001
Other intangible assets	8,171			8,458
Deferred income taxes	112			102
Other non-current assets	530			509
Total non-current assets	30,894			32,024
	$	38,105		$	38,336
Liabilities and Equity
Current Liabilities
Short-term debt	$	2		$	3
Accounts payable	1,422			1,261
Contract liabilities	1,138			1,214
Compensation and benefits	329			460
Other accrued items	1,095			790
Income taxes payable	37			24
Current portion of long-term debt, net	896			257
Liabilities of disposal group held for sale	204			—
Total current liabilities	5,123			4,009
Non-current Liabilities
Defined benefit plans	1,744			1,819
Operating lease liabilities	729			781
Long-term debt, net	6,294			6,694
Deferred income taxes	1,402			1,481
Other long-term liabilities	786			808
Total non-current liabilities	10,955			11,583
Equity
Shareholders’ Equity:
Preferred stock, without par value; 1,000,000 shares authorized; none issued	—			—
Common stock, $1.00 par value; 500,000,000 shares authorized; issued and outstanding 215,759,497 shares at April 3, 2020 and 218,226,614 shares at January 3, 2020	216			218
Other capital	20,182			20,694
Retained earnings	2,151			2,183
Accumulated other comprehensive loss	(651		)	(508		)
Total shareholders’ equity	21,898			22,587
Noncontrolling interests	129			157
Total equity	22,027			22,744
	$	38,105		$	38,336



	Common Stock			Other Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interests			Total Equity

	(In millions, except per share amounts)
Balance at January 3, 2020	$	218		$	20,694		$	2,183		$	(508	)	$	157		$	22,744
Net income	—			—			217			—			(23		)	194
Other comprehensive loss	—			—			—			(141		)	—			(141		)
Net gain from postretirement obligations and hedging derivatives reclassified to earnings	—			—			—			(2		)	—			(2		)
Shares issued under stock incentive plans	1			32			—			—			—			33
Shares issued under defined contribution plans	—			71			—			—			—			71
Share-based compensation expense	—			16			—			—			—			16
Repurchases and retirement of common stock	(3		)	(631		)	(66		)	—			—			(700		)
Cash dividends ($.85 per share)	—			—			(183		)	—			—			(183		)
Distributions to noncontrolling interests	—			—			—			—			(5		)	(5		)
Balance at April 3, 2020	$	216		$	20,182		$	2,151		$	(651	)	$	129		$	22,027

Balance at December 28, 2018	$	118		$	1,681		$	1,824		$	(211	)	$	—		$	3,412
Net income	—			—			243			—			—			243
Other comprehensive loss	—			—			—			(6		)	—			(6		)
Shares issued under stock incentive plans	—			7			—			—			—			7
Shares issued under defined contribution plans	—			23			—			—			—			23
Share-based compensation expense	—			14			—			—			—			14
Repurchases and retirement of common stock	—			(5		)	—			—			—			(5		)
Cash dividends ($.685 per share)	—			—			(81		)	—			—			(81		)
Balance at March 29, 2019	$	118		$	1,720		$	1,986		$	(217	)	$	—		$	3,607



(In millions, except exchange ratio and per share amounts)	June 29, 2019
Outstanding shares of L3 common stock as of June 28, 2019	79.63
L3 restricted stock unit awards settled in shares of L3Harris common stock	0.41
L3 performance unit awards settled in shares of L3Harris common stock	0.04
	80.08
Exchange Ratio	1.30
Shares of L3Harris common stock issued for L3 outstanding common stock	104.10
Price per share of L3Harris common stock as of June 28, 2019	$	189.13
Fair value of L3Harris common stock issued for L3 outstanding common stock	$	19,689
Fair value of replacement RSUs attributable to merger consideration	10
Fair value of L3Harris stock options issued for L3 outstanding stock options	101
Withholding tax liability incurred for converted L3 share-based awards	45
Fair value of replacement award consideration	156
Fair value of total consideration	19,845
Less cash acquired	(1,195		)
Total net consideration transferred	$	18,650



	Preliminary Fair Value			Measurement Period Adjustments			Adjusted Fair Value
	(In millions)
Receivables	$	849		$	(20	)	$	829
Contract assets	1,708			(56		)	1,652
Inventories	1,056			(74		)	982
Other current assets	517			(26		)	491
Property, plant and equipment	1,176			42			1,218
Operating lease right-of-use assets	704			—			704
Goodwill	15,423			(585		)	14,838
Other intangible assets	6,768			1,206			7,974
Other non-current assets	327			(9		)	318
Total assets acquired	$	28,528		$	478		$	29,006

Accounts payable	$	898		$	(17	)	$	881
Contract liabilities	722			2			724
Other current liabilities	772			199			971
Operating lease liabilities	715			—			715
Defined benefit plans	1,411			—			1,411
Long-term debt, net	3,548			—			3,548
Other long-term liabilities	1,661			290			1,951
Total liabilities assumed	9,727			474			10,201
Net assets acquired	18,801			4			18,805
Noncontrolling interests	(151		)	(4		)	(155		)
Total net consideration transferred	$	18,650		$	—		$	18,650



	Weighted Average Amortization Period	Total

	(In years)	(In millions)
Identifiable intangible assets acquired:
Customer relationships (Government)	15	$	4,769
Customer relationships (Commercial)	15	648
Trade names — Divisions	9	123
Developed technology	7	562
Total identifiable intangible assets subject to amortization	14	6,102
Trade names — Corporate	indefinite	1,803
In-process research and development	n/a	69
Total identifiable intangible assets		$	7,974


•	$15 million of additional cost of sales related to the fair value step-up in inventory sold; and


•	$31 million of integration costs, recognized as incurred.


(1)	The non-current portion of contract liabilities is included as a component of the “Other long-term liabilities” line item in our Condensed Consolidated Balance Sheet (Unaudited).



	April 3, 2020			January 3, 2020

	(In millions)
Unbilled contract receivables, gross	$	3,781		$	3,690
Progress payments and advances	(1,314		)	(1,231		)
	$	2,467		$	2,459



	April 3, 2020		January 3, 2020

	(In millions)
Finished products	$	197	$	216
Work in process	307		386
Raw materials and supplies	486		617
	$	990	$	1,219



	April 3, 2020			January 3, 2020

	(In millions)
Land	$	90		$	90
Software capitalized for internal use	333			287
Buildings	1,044			1,073
Machinery and equipment	2,120			2,194
	3,587			3,644
Less accumulated depreciation and amortization	(1,555		)	(1,527		)
	$	2,032		$	2,117



	March 29, 2019

	(In millions)
Revenue from product sales and services — as reported	$	1,728
Revenue from product sales and services — pro forma	$	4,386
Income from continuing operations — as reported	$	243
Income from continuing operations — pro forma	$	400



	Employee severance-related costs			Facilities consolidation and other exit costs		Total

	(In millions)
Balance at January 3, 2020	$	58		$	7	$	65
Additional provisions	3			—		3
Payments	(20		)	—		(20		)
Balance at April 3, 2020	$	41		$	7	$	48



	Foreign currency translation			Net unrealized (losses) gains on hedging derivatives			Unrecognized postretirement obligations			Total AOCI

	(In millions)
Balance at January 3, 2020	$	(81	)	$	(55	)	$	(372	)	$	(508	)
Other comprehensive loss, before income taxes	(67		)	(98		)	(1		)	(166		)
Income taxes	—			25			—			25
Other comprehensive loss	(67		)	(73		)	(1		)	(141		)
Amounts reclassified to earnings from AOCI, before income taxes	—			3			(5		)	(2		)
Income taxes	—			(1		)	1			—
Amounts reclassified to earnings from AOCI	—			2			(4		)	(2		)
Balance at April 3, 2020	$	(148	)	$	(126	)	$	(377	)	$	(651	)

Balance at December 28, 2018	$	(107	)	$	(19	)	$	(85	)	$	(211	)
Other comprehensive income (loss), before income taxes	3			(11		)	(2		)	(10		)
Income taxes	—			3			1			4
Other comprehensive income (loss)	3			(8		)	(1		)	(6		)
Balance at March 29, 2019	$	(104	)	$	(27	)	$	(86	)	$	(217	)



	Integrated Mission Systems			Space and Airborne Systems			Communication Systems			Aviation Systems			Total

	(In millions)
Balance at January 3, 2020	$	5,768		$	5,131		$	4,243		$	4,859		$	20,001
Decrease from reclassification to assets of disposal group held for sale⁽¹⁾	—			(2		)	(9		)	(588		)	(599		)
Impairment of goodwill	—			(5		)	—			(296		)	(301		)
Currency translation adjustments	(2		)	(9		)	(3		)	(10		)	(24		)
Other (including adjustments to previously estimated fair value of assets acquired and liabilities assumed)	22			55			38			73			188
Balance at April 3, 2020	$	5,788		$	5,170		$	4,269		$	4,038		$	19,265


(1)	During the quarter ended April 3, 2020, we assigned $599 million of goodwill to “Assets of disposal groups held for sale” in our Condensed Consolidated Balance Sheet (Unaudited) associated with three pending divestitures. See Note C — Business Divestitures and Assets Sales in these Notes for additional information.



	April 3, 2020						January 3, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(In millions)
Customer relationships	$	6,454	$	769	$	5,685	$	6,518	$	653	$	5,865
Developed technologies	689		194		495		768		183		585
Trade names	139		36		103		165		35		130
Other	32		16		16		10		4		6
Total intangible assets subject to amortization	7,314		1,015		6,299		7,461		875		6,586
In process research and development	69		—		69		69		—		69
L3 trade name	1,803		—		1,803		1,803		—		1,803
Total intangibles assets	$	9,186	$	1,015	$	8,171	$	9,333	$	875	$	8,458



	(In millions)
Year 1	$	554
Year 2	622
Year 3	604
Year 4	580
Year 5	551
Thereafter	3,388
Total	$	6,299



	(In millions)
Balance at January 3, 2020	$	112
Adjustments to previously estimated fair value of warranty liabilities assumed	19
Decrease from reclassification to liabilities of disposal group held for sale	(8		)
Accruals for product warranties issued during the period	17
Settlements made during the period	(21		)
Other, including foreign currency translation adjustments	(2		)
Balance at April 3, 2020	$	117



	Aggregate Principal Amount of L3 Notes (prior to debt exchange)		Aggregate Principal Amount of New L3Harris Notes Issued		Aggregate Principal Amount of Remaining L3 Notes

	(In millions)
4.95% notes due February 15, 2021 (“4.95% 2021 Notes”)	$	650	$	501	$	149
3.85% notes due June 15, 2023 (“3.85% 2023 Notes”)	800		741		59
3.95% notes due May 28, 2024 (“3.95% 2024 Notes”)	350		326		24
3.85% notes due December 15, 2026 (“3.85% 2026 Notes”)	550		535		15
4.40% notes due June 15, 2028 (“4.40% 2028 Notes”)	1,000		918		82
Total	$	3,350	$	3,021	$	329



	Quarter Ended April 3, 2020
	Pension			Other Benefits

	(In millions)
Net periodic benefit income
Service cost	$	16		$	—
Interest cost	69			2
Expected return on plan assets	(158		)	(5		)
Amortization of net actuarial loss	2			—
Amortization of prior service credit	(7		)	—
Contractual termination benefits⁽¹⁾	1			—
Net periodic benefit income	$	(77	)	$	(3	)


(1)	Contractual termination benefits related to facility rationalization as part of restructuring activities in connection with the L3Harris Merger integration. See Note E — Restructuring and Other Exit Costs in these Notes for additional information regarding restructuring activities.



	Quarter Ended March 29, 2019
	Pension			Other Benefits

	(In millions)
Net periodic benefit income
Service cost	$	9		$	1
Interest cost	52			2
Expected return on plan assets	(95		)	(4		)
Amortization of net actuarial gain	—			(2		)
Net periodic benefit income	$	(34	)	$	(3	)


(1)	Pension adjustment recorded as “Non-operating income” in our Condensed Consolidated Statement of Income (Unaudited) represents the non-service component of net periodic pension and postretirement benefit costs, which includes interest cost, expected return on plan assets, amortization of net actuarial gain and effect of curtailments or settlements.


•	Level 1 — Quoted prices in active markets for identical assets or liabilities.


•	Level 3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets or liabilities, and reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed using the best information available in the circumstances.


(1)	Represents diversified assets held in a “rabbi trust” associated with our non-qualified deferred compensation plans, which we include in the “Other current assets” and “Other non-current assets” line items in our Condensed Consolidated Balance Sheet (Unaudited) and which are measured at fair value.



	April 3, 2020				January 3, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(In millions)
Long-term debt (including current portion)⁽¹⁾	$	7,190	$	7,485	$	6,951	$	7,536


(1)	Fair value was estimated using a market approach based on quoted market prices for our debt traded in the secondary market. If our long-term debt in our balance sheet were measured at fair value, it would be categorized in Level 2 of the fair value hierarchy.


(1)	See Note R — Fair Value Measurements in these Notes for a description of the fair value hierarchy related to our foreign currency forward contracts.


•	Integrated Mission Systems, including multi-mission ISR and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-optical and infrared solutions;