LHX 10-K & 10-Q changes, risk factors and insider trading

We depend on winning profitable 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 DoDDoW 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 processes or 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. The DoW’s current procurement reform initiative, including the increased use of other transaction authority (“OTA”) agreements, could reduce barriers to entry and result in even greater competition and increased pricing pressure. OTAs are not subject to many traditional procurement laws, including the Federal Acquisition Regulation (“FAR”), and in some instances, an OTA award may require that a significant part of the work be carried out by a non-traditional defense contractor or that a portion of the prototype project's costs be covered by non-governmental sources. Some of our competitorscompetitors, including non-traditional new entrants to defense-related programs, 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.contracts, Further,especially competitivewith biddingincreased processes involve significant cost and managerial time to prepare bids 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.competition. We may choose not to bid in certain competitive bidding processes, which would result in the potential loss of opportunities.opportunities, or we may choose to partner with competitors, which could expose our business to additional factors beyond our control. 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. 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. This uncertainty could be exacerbated by procurement reform initiatives that could result in more frequent changes to program funding, scope, or priorities, increasing the risk of contract modifications, terminations, or delays, and making it more difficult to forecast revenue and resource needs. 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.

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 mixcontract of fixed-price, cost-type and time-and-material type contracts.mix. Fixed-price contracts, particularly for development programs, could subject us to losses from cost overruns or inflation. In fiscal 2024,2025, 73%75% 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-reimbursablecost-type 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-timeover 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.

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, we may not be successful in accurately accounting for all increased costs, and 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 measureswe are notunable effective.to account for and receive cost adjustments in our fixed-price contracts.

The application or impact of regulations,negative audit findings, contract termination, unilateral government action, termination or negativeregulation audit findings for one or more ofon our government 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 contractual 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.

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 in particular 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.conditions Inwhich particular,could U.S.experience federal,increasing stateprice andsensitivity local government spending priorities and levels remain uncertain and difficultdue to predicteconomic and are affected by numerous factors. In addition, certain of our non-U.S. customers, including in the Middle East and other oilconditions or naturalseek gas-producing countries, could be impacted by weakness or volatility in oil or natural gas prices, or negative expectations about future prices or volatility,solutions 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 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,world 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. TheseGeo-political typesevents and changes in foreign policy could cause isolationism or increased implementation of matterslocal causesolutions uncertaintyby international customers, which could adversely affect demand for our products, systems, services or technologies. Uncertainty in financial and insurance markets and may significantly increase the political, economic and social instability in the geographic areas in which we operate.operate which could further impact demand.

Unfavorable credit conditions in financial markets outside of the U.S. or changes in U.S. aid or financial support 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 the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), and U.S. Foreign Corrupt Practices Act (“FCPA”),. and fromFrom time to time agencies of the U.S. Government investigate whether we have been and are operating in accordance with these and/or applicable contractual 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 civil and/or criminal penalties, including fines, seizure of our products and 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.

•Laws, regulations and policies of foreign governments relating to investments and operationsoperations, including laws restricting our ability to transact in certain countries and/or markets;

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 certain components, which adds risk because that supplier may at times be unable to meet our needs and because we may have littlelimited negotiating leverage with sole-source suppliers. Identifying and qualifying dual and second-source suppliers can be difficult, time consumingtime-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 heightenedHeightened 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, export controls, 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.suppliers.

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,future. leadingAny tosupply untimelychain deliverydisruption could result in delayed deliveries, increased costs, loss of customers, contractual penalties or unsatisfactorydamages, qualityclaims or litigation, regulatory investigations or actions, loss of productsfuture business opportunities, or reputational harm, any of which could materially and services, and potentially adversely affectingaffect 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, or can obtain, 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.

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:

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 development and 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 competitorscompetitors, including non-traditional new entrants, 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 ourtheir existing products and services that either gain market acceptance in advance of our products and services or cause our existing products and services or 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, 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.

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). 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 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 portionAs 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 3,2, 2025,2026, we had $11.8$10.9 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.leases. 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.

If we are not able to repay or refinance our debt as it becomes due, 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.

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:

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 flowflows 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 engage in international transactions involving certain products and technologies.

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 several factors, including geopolitical and othernational factors.security considerations. We may be unsuccessful in obtaining necessary licenses or authorizations or Congress may prevent or delay certain sales. If we are not successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our salestransactions 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.

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 ensure compliance with, and 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,operate. includingSuch laws include laws governing payments to government officials, such as the FCPA, theexport protection of export-controlled or classified information,controls, such as ITAR,ITAR and the EAR, false claims, procurement integrity, cost accounting and billing, competition, information security and data privacy and the terms of our contracts.

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 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.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations for fiscal 20242025 compared with fiscal 2023.2024. A discussion of fiscal 20232024 compared to fiscal 20222023 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended DecemberJanuary 29,3, 20232025 (our “Fiscal 20232024 Form 10-K”). This MD&A is provided as a supplement to, should be read in conjunction with and is qualified in its entirety by reference to, our Consolidated Financial Statements and accompanying Notes appearing elsewhere in this Report. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I. Item 1A. Risk Factors of this Report. For additional information, see Part I. Item 1. Business - Cautionary Statement Regarding Forward-Looking Statements of this Report.

We are the Trusted Disruptor in the defense industry. With customers’ mission-critical needs in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of globalnational security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products and servicescapabilities have defense and civil government applications, as well as commercial applications. As of January 3,2, 2025,2026, we had approximately 47,00045,000 employees, including approximately 18,000 engineers and scientists.

The percentage of our revenue that was derived from sales to U.S. Government customers, whether directly or through prime contractors, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 76%,75%, 76% and 74%,76%, in fiscal 2024,2025, 20232024 and 2022,2023, respectively.

For a discussion of U.S. Government funding risks and international business risks see “Item 1. Business - International Business,” “Item 1A. Risk Factors” and “ItemNote 3.15: Legal Proceedings”Proceedings, Commitments and Contingencies in the Notes of this Report.

The ongoing uncertainty related to the impacts of inflation, as well as the interest rate environment and ongoing federal deficits could in the future impact U.S. Government spending priorities and the demand for our products.products and services. For a discussion of inflation-related risks, see “Item 1A. Risk Factors” of this Report.

As a proven alternative to traditional primes and new entrants, our flexible business model allows us to operate as either a prime, merchant supplier, or subcontractor, offering both commercial pricing and traditional government acquisition approaches. Our products are used across many customer platforms and this platform-agnostic approach gives us a unique advantage in rapidly adapting to the changing threat environment while effectively partnering with new entrants and non-traditional contractors. Customer demand for our solutions remains robust, and we ended fiscal 20242025 with contractual backlog of $34.2$38.7 billion, a 5%13% increase over the prior year. Also in fiscal 2024,2025, we invested $515$536 million (2% of total revenue) in company-funded R&D focused on technologies that expand our capabilities across our domains.

In fiscal 2024,2025, we madecontinued considerableto make progress with our LHX NeXt initiative, our targeted three-year program designed to enhance organizational agility and performance by leveraging our scale and relationships across segments, driving operational efficiency and competitiveness for the enterprise. With this program weWe are investing in enterprise tools and optimized, revamped processes to unlock further opportunities for margin expansion and create additional value for our shareholders. Beginning fiscal 2026, LHX NeXt will be fully integrated within our operations as standard practice, with ongoing cost savings measured as operational improvement, which we refer to as e3 (excellence, everywhere, everyday).

We use these measures, along with other performance measures that are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”), to assess the success of our business and our ability to create shareholder value. We believe these measures are balanced among long-term and short-term performance, growth and innovation. We also use some of these and other performance metrics for executive compensation purposes.

______________ (1)“FAS” is defined as Financial Accounting Standards.

Gross Margin. Gross margin for fiscal 2025 increased compared to fiscal 2024, largely due to higher volumes, primarily in our AR and CS segments, partially offset by a $204 million decrease reflecting the absence of the CAS disposal group as a result of the March 2025 divestiture. Gross margin as a percentage of revenue remained flat compared to fiscal 2023.2024. For discussion of operating income by segment see “Business Segment Results of Operations” below in this MD&A for further information.

______________ (1)CostsIncludes costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness, including third-party consulting, workforce optimization and incremental IT expenses for implementation of new systems. See Note 14: Business Segments in the Notes and the “Operating Environment, Strategic Priorities and Key Performance Measures” section for more detail on our LHX NeXt initiative and implementation costs.

(1)Includes interestthe cost, expected return on plan assets, amortization of net actuarial gain, and amortization of prior service (credit)non-service cost components of net periodic benefit income under our defined benefit plans.pension and other postretirement benefit plans (collectively, “defined benefit plans”). See Note 9: Retirement Benefits in the Notes for morefurther information on the composition of non-service FAS pension income.information.

(2)Other, net primarilyPrimarily includes changes in the market value of our rabbi trust assets, gains and losses on our equity investments in nonconsolidated affiliates and royalty income.

Interest Expense, Net. Our net interest expense increaseddecreased $132$78 millionmillion, or 12%, in fiscal 20242025 compared with fiscal 20232024 primarily due to a full year of interest on the $3.25 billion aggregate principal amount of fixed-rate debt issued in July 2023 in connection with the AJRD acquisition, the issuance of $2.25 billion aggregate principal amount of long-term fixed-rate debt in March 2024 and higherlower average outstanding notes under our commercial paper program (“CP Program”) during fiscal 2024, partially offset by repayment of the entire outstanding $2.25 billion, three-year senior unsecured term loan facility (“Term Loan 2025”) in March 2024.2025. See the “Liquidity and Capital Resources” discussion below in this MD&A and Note 8: Debt and Credit Arrangements in the Notes for further information.

Diluted EPS. Diluted EPS increased 22%8% in fiscal 20242025 compared with fiscal 20232024 primarily due to higher net income from the combined effects of reasons noted in the sections above, notably the absence of a prior year CAS disposal group goodwill impairment and an increase in fiscal 2024 gross margin, partially offset by increases in G&A expenses and interest expense, net.above.

We are the Trusted Disruptor in the defense industry. With customers’ mission-critical needs always in mind, we deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security. We support government customers in more than 100 countries, with our largest customers being various departments and agencies of the U.S. Government, their prime contractors and international allies. Our products, systems and services have defense and civil government applications, as well as commercial applications. The percentage of our revenue that was derived from sales to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, was 75%74% for firstyear quarterto date 2026.

The U.S. and international budget environments are evolving rapidly within a dynamic geopolitical context, influenced by the Administration and Congress, heightened geopolitical tensions, global security concerns, inflationary pressures,pressures and overall macroeconomic conditions.

On April 3, 2026, the President submitted the U.S. Government fiscal year (“GFY”) 2027 President’s Budget Request (“PBR”) wasto introducedCongress. andIt called for a ~$1.5 trillion topline for national defense programs, comprised of $1.1 billiontrillion for the DoW base budget and $350 billion in another reconciliation bill.funding. This total request represents a $441 millionbillion increase, or 44%, over the GFY 2026 enacted value. Further, the PBR requested $18.8 billion for NASA, a $5.6 billion or 23% decrease from the GFY 2026 enacted level; $4.5 billion for NOAA,National Oceanic and Atmospheric Administration (“NOAA”), a decrease from $6.1 billion in GFY 2026 enacted; and $22.4 billion for FAA,Federal Aviation Administration (“FAA”), a moderate increase above the $22.1 billion enacted in GFY 2026. Additionally, on June 24, 2026, the White House submitted an $88 billion supplemental funding request for GFY 2026, of which $67 billion is intended for defense spending.

The ongoing uncertainty related to the impacts of inflation, supply chain disruptions, constraints in the availability of critical materials, including rare earth minerals and metals, as well as the interest rate environment and ongoing federal deficits could in the future impact U.S. Government spending priorities for our products and services. For a discussion of inflation-related risks, see Part I. Item 1A. Risk Factors in our Fiscal 2025 Form 10-K.

FirstSecond quarter 2026 and 2025 both include thirteen weeks, while year to date 2026 and twelve2025 include twenty-six and twenty-five weeks, respectively. Outcomes for specific periods, or year-over-year comparisons of results of operations and segment performance should be considered in this context.

Second Quarter Comparison. Revenue increased $612$455 million, or 12%8% reflecting higher revenues across all segments, primarily from higher volumes, driven by new program ramps, including a milestone related to material procurement in support of classified contracts, and increasedstrong international deliveries.execution.

Second Quarter Comparison. Gross margin increased $52$167 million, primarily due to higher volumes across all segments and a $39$43 million favorable change in net EAC adjustments, partially offset by the absence of the CAS disposal group as a result of the March 2025 divestiture.adjustments.

(2)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned MSLAXYV public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.

(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in first quarter 2026 and 2025, respectively. See Note NP: Divestitures in the Notes for further information.

(54)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, eliminations and other. Year to date 2025 also includes the CAS disposal group. See Note P: Divestitures in the Notes for further information.

(65)Includes other segment G&A expenses, primarily payroll and benefits, outside services, facilities and insurance. First quarter 2026 includes a $20 million favorable settlement of a legal matter in CSD.

Second Quarter Comparison. G&A expenses decreasedincreased $75$84 million, or 9%,11%, primarily due to anthe increaseabsence inof gainsa $75 million and $17 million gain recognized in connection with the monetizationsale of certainassets legacy assets, including recognition offrom a $39product millionline gainin second quarter 2025 in our MSLSpace segmentand Mission Systems and Communications and Spectrum Dominance segments, respectively, and an increase in 2026,company-funded R&D costs. Such impacts were partially offset by the absence of LHX NeXt implementation costs, as the LHX NeXt implementation phase was completed in fiscal 2025, and the absence of the CAS disposal group expenses. Such impacts were partially offset by an increase in company-funded R&D costs.2025.

(1)Includes the non-service cost components of net periodic benefit income under our defined benefit plans. See Note HJ: Retirement Benefits in the Notes for further information.

(23)Primarily includes changes in the market value of our rabbi trust assets, gains and losses on our equity investments in nonconsolidated affiliatesassets and royalty income.

Interest expense, net decreased $14$23 million and $37 million for second quarter and year to date, respectively, primarily due to lower total outstanding debt, which reflects reductions in both long-term debt and average outstanding notes under our CP Program during 2026. See Note GI: Debt and Credit Arrangements in the Notes and the “Liquidity and Capital Resources” section below in this MD&A for further information.

Second Quarter Comparison. Our ETR was 13.1%15.5% and 15.9%12.6% for firstsecond quarter 2026 and 2025, respectively. FirstSecond quarter 2026 and 2025 ETR decreasedboth comparedbenefited tofrom firstR&D quartercredits, 2025, primarily due to highertax deductions associated withfor FDII from exporting products and services, the favorable resolution of audit mattersuncertainties. andSecond quarter 2026 ETR increased primarily due to larger second quarter 2025 favorable impactaudit of excess tax benefits from share based-compensation,settlements, partially offset by unfavorable return-to-provision adjustments, while first quarter 2025 ETR included an unfavorable impactimpacts from the CAS disposal group divestiture.divestiture and establishment of a state valuation allowance on R&D credit carryforwards.

Diluted EPS increased 33%28% and 31% for second quarter and year to date, respectively, primarily due to higher net income from the combined effects of reasons noted in the sections above.above, partially offset by the subsidiary preferred stock deemed dividend for the accretion on the Subsidiary Series A Preferred Stock.

See Note OQ: Business Segment Information in the Notes for a description of the sectors in each segment.

SMSSpace & Mission Systems Segment

SMSSecond Quarter Comparison. Space and Mission Systems revenue increased primarily due to higher revenues of $420$81 million in ISR associatedfrom withhigher a milestone related to material procurement in support of classified contracts and rampvolumes on classified and international missionized aircraft programs, $65$76 million in Space Systems from higher volumes on Space Development Agency (“SDA”) Tracking Tranche 3 and classified space programs, $59$40 million in Mission Networks from higher FAA volume, $57and $34 million in MaritimeAirborne Solutions from higher volumeF-35 on international programs associated with program timing,volumes, partially offset by lower revenue of $24 million in Intel and Cyber from lower classified program volume.

SMSSpace and Mission Systems operating income increased primarily due to $101 million of net improved program performance, higher volume and improveda program$23 performance,million net gain on investments in technologies operationally aligned with the business segment recognized in second quarter 2026, partially offset by a shift in mix reflecting higher volume in lower margin programs associated with program timing.timing and the absence of a $75 million gain recognized in connection with the sale of assets from a product line sale, in second quarter 2025, which also impacted operating margin.

CSDSecond Quarter Comparison. Communications and Spectrum Dominance revenue increased primarily due to higher revenuesrevenue of $21 million in Integrated Vision Solutions from higher volumes, $18$70 million in Mission Critical Communications associated with increased international deliveries for our software-defined resilient communications equipment,equipment and $16higher millionrevenue in Spectrum Superiority from program ramps, including the Next Generation Jammer Electronic Warfare program, partially offset by $13lower millionrevenue in Targeting and Sensor Systems from lower volumes.

CSDCommunications and Spectrum Dominance operating income increased primarily due to higher margininternational product mixvolume and a $20$16 million favorablegain settlementon ofinvestments ain legaltechnologies matter,operationally aligned with the business segment recognized in second quarter 2026, partially offset by a $17$27 million increase in R&D costs and higher selling and marketing expenses.expenses, and the absence of a $17 million gain recognized in connection with the sale of assets from a product line in second quarter 2025.

MSLYear to Date Comparison. Communications and Spectrum Dominance revenue increased primarily due to higher revenues of $84$88 million in MissileMission PropulsionCritical fromCommunications associated with increased productioninternational volumesdeliveries onfor keyour missilesoftware-defined andresilient munitionscommunications programsequipment, and $28 million and $21$38 million in SpaceSpectrum PropulsionSuperiority from program ramps and Power$22 Systemsmillion andin AdvancedIntegrated Effects,Vision respectively,Solutions from higher volumesvolumes, partially offset by lower revenue of $19 million in Targeting and newSensor programSystems ramps.from lower volumes.

MSLMissile Solutions operating income increased primarily due to higher volumesvolume and higher margin. Operating income was also impacted by a gain of $39 million recognized in connection with the monetizationsale of certain legacy assets alignedfrom witha ourproduct transformationline andsale valuein creationfirst priorities,quarter 2026, partially offset by a $31 million unfavorable EAC adjustment on a legacy domestic naval sensor program.program in first quarter 2026.

(3)Includes losses associated with the Space Technology disposal group and the CAS disposal group in first quarter 2026 and 2025, respectively. See Note NP: Divestitures in the Notes for further information.

(4)Includes costs related to pursuing acquisition and divestiture portfolio optimization; non-transaction costs related to divestitures; costs related to the carve-out and planned MSLAXYV public offering; salaries of employees in roles dedicated to planned strategic transaction activity; and resolution of a procurement contract matter.

(56)Includes a portion of management and administration, legal, environmental, compensation, retiree benefits, the FAS/CAS operating adjustment, corporate eliminations and other. Year to date 2025 also includes the divested CAS disposal group. See Note P: Divestitures in the Notes for further information.

As of AprilJuly 3, 2026, we had cash and cash equivalents of $590$1,521 million, of which $329$349 million was held by our foreign subsidiaries, a significant portion of which we believe can be repatriated to the U.S. with minimal tax cost.

CP Program. As of AprilJuly 3, 2026, we had $350 million inno outstanding notes under our CP Program. Our CP Program serves as a source of short-term financing under which we may issue unsecured commercial paper notes supported by amounts available under our $2.5 billion 2025 Five-Year Credit Agreement,Facility, discussed below. From time to time, we use borrowings under the CP Program for general corporate purposes, including funding acquisitions, repaying debt, paying dividends, and repurchasing our common stock. See the “Financing Activities” discussion below in this MD&A for further information about our CP Program.

Credit Facilities. As of AprilJuly 3, 2026, we had no outstanding borrowings under our 2025 Five-Year Credit Facility, had available borrowing capacity of $2.2$2.5 billion, net of outstanding notes under our CP Program, and were in compliance with all covenants. Our previous $500 million 2025 364-Day Credit AgreementFacility matured on February 17, 2026 and our CP Program capacity was reduced accordingly.

See Note GI: Debt and Credit Arrangements in the Notes for further information regarding our credit facilities.

Operating Activities. The $53$186 million increase in net cash usedprovided inby operating activities for year to date 2026 compared withto year to date 2025 was primarily due to timing of tax planning strategies and a settlement of a procurement contract matter, partially offset by an increase in net income and $105$135 million less cash used to fund working capital, largely driven by timing of billing and collection activity.activity, Thepartially netoffset cash used in operating activities in first quarter is consistent with our historical pattern, whereby operating cash flows are typically lowest in the first quarter due toby timing of ourtax businessplanning cycles and expenditure activities.strategies.

Investing Activities. The $841$877 million change in net cash used in investing activities for year to date 2026 compared with net cash provided by investing activities for year to date 2025 was primarily due to a $831 million decrease in proceeds from sale of businesses, net of cash divested, reflecting the March 2025 CAS disposal group divestiture.divestiture, and a $60 million increase in capital expenditures.

Financing Activities. The $521$1,298 million decrease in net cash used in financing activities for year to date 2026 compared withyear to date 2025 was primarily due to a$973 $273million of net proceeds from issuance of Subsidiary Series A Preferred Stock in connection with the DoW strategic investment transaction, $499 million decrease in repayments of long-term debt, and $297 million decrease in cash used to repurchase common stockstock, andpartially offset by a $330$470 million increasedecrease in net issuances of commercial paper, partially offset by an increase in repayments of long-term debt of $101 million.paper. Our primary financing activities are further discussed below.

Common Stock Repurchases. On January 28, 2021 and October 21, 2022, we announced that our Board approved a $3.0 billion share repurchase authorizationsauthorization under our repurchase programprogram. ofOur previous $6.0 billion andshare $3.0repurchase billion, respectively. The $6.0 billion programauthorization was fully utilized during thein first quarter 2025.

During firstyear quarterto date 2026, we used $296$525 million of cash to repurchase 0.81.5 million shares of our common stock under our share repurchase program. As of AprilJuly 3, 2026, we had $1.9$1.7 billion of remaining unused authorizations under our repurchase program. During firstyear quarterto date 2025, we used $569$822 million of cash to repurchase 2.73.9 million shares of our common stock under our share repurchase program.