L3Harris Technologies, Inc.LHX

Capital structure and performance · Financial performance volatility

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.

International and currency · International operations and emerging markets

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.

Cybersecurity and data protection · Data breaches and cyber attacks

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.

Digital transformation and innovation · Artificial intelligence and automation

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. Our competitors, 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.

Project and contract management · Large contract concentration

Because a significant portion of our revenue is dependent on our performance and payment under our government contracts, the loss of one or more large contracts could have a significant adverse impact on our business, financial condition, results of operations, cash flows and equity.

Project and contract management · Project execution and delivery risks

Fixed-price contracts, particularly for development programs, could subject us to losses from cost overruns or inflation. 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.

Human capital and workforce · Talent acquisition and retention

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.

Supply chain and procurement · Geographic concentration of suppliers

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.

Project and contract management · Government contract dependency

We are highly dependent on revenue from U.S. Government customers, primarily defense-related programs with the DoW and other government agencies. We depend on winning profitable business in competitive markets from U.S. Government customers for a significant portion of our revenue.

Industry regulation · Regulatory compliance and changes

Our business with government customers is also subject to a variety of procurement regulations and a variety of socioeconomic, environmental and other requirements that increase our operational and compliance costs, including governmental action through Executive Orders. 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.

Legal and litigation · Intellectual property disputes

We may become subject to intellectual property infringement claims, and third parties may infringe upon our intellectual property rights. Third parties have claimed in the past, and may claim in the future, that we are infringing upon their intellectual property rights. Such claims may result in us having potential defense costs, royalty agreements, damage awards or injunctions granted against certain capabilities.

Tax and financial reporting · Tax compliance and changes in tax law

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.

Tax and financial reporting · Transfer pricing and international tax

Our worldwide income tax provision may be adversely affected by a number of factors, which include: The jurisdictions in which profits are determined to be earned and taxed; Adjustments to estimated taxes upon finalization of various tax returns; The resolution of issues arising from tax audits with various tax authorities.

Geopolitical and trade · Trade policies tariffs and sanctions

Beginning in first quarter 2025, we observed a significant shift in U.S. trade policy, with increased tariffs and the imposition of new tariffs that could impact our supply chain and our business. Changes in trade policies, such as new tariffs or increases in tariffs, or reactionary measures including retaliatory tariffs, legal challenges, or currency manipulation, could adversely impact us.

Economic and market conditions · Economic recession and downturns

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 which could experience increasing price sensitivity due to economic conditions.

Geopolitical and trade · Political instability and government changes

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 are risks of doing business internationally that could adversely affect our business, financial condition, results of operations, cash flows and equity.

Economic and market conditions · Credit market conditions

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.

Geopolitical and trade · Government funding and budget changes

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.

Strategic execution · Merger acquisition and divestiture risks

Strategic transactions, including mergers, acquisitions and divestitures, and the planned initial public offering ('IPO') of the Missile Solutions business, involve significant risks and uncertainties that could adversely affect our business, financial condition, results of operations, cash flows and equity. Strategic transactions in which we have engaged and may engage in the future, including mergers, acquisitions and divestitures, and the planned IPO of the Missile Solutions business, present significant risks and uncertainties.

Market position and competition · Competitive pressure and market share loss

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, which has resulted in greater competition and increased pricing pressure.