L3Harris Technologies Reports Fourth Quarter and Full-Year 2023 Results; Initiates 2024 Guidance
- FY23 orders of $22.8 billion with a book-to-bill of 1.18x.
- 17% increase in 4Q23 revenue and 14% increase in FY23 revenue.
- 4Q23 operating margin of 2.9% and FY23 of 7.3%.
- Record backlog of $33 billion.
- Initiated 2024 financial guidance.
- 4Q23 EPS decreased to $0.83.
- FY23 non-GAAP EPS1 decreased 4% to $12.36.
- Full year segment operating margin1 decreased 60 bps to 14.8%.
Insights
The reported financial results from L3Harris Technologies, Inc. provide a mixed picture characterized by robust revenue growth but accompanied by a decline in operating margin and an overall decrease in earnings per share (EPS). The 17% increase in fourth quarter revenue and 14% increase for the full year, including a significant contribution from acquisitions such as Aerojet Rocketdyne (AR) and Tactical Data Links (TDL), indicate successful expansion into high-growth markets. However, this expansion has come at a cost, with increased interest expenses due to funding these acquisitions and a notable goodwill impairment charge related to the pending sale of the Commercial Aviation Solutions (CAS) business.
The book-to-bill ratio of 1.18x suggests a healthy order intake relative to revenue, which is a positive indicator for future revenue sustainability. Furthermore, the reported record backlog of $33 billion provides a strong foundation for future earnings. The emphasis on aligning the portfolio with Department of Defense and U.S. allied partner priorities could enhance the company's strategic positioning. However, the increase in net interest expense by 131% year-over-year raises concerns about the cost of capital and its impact on net income. The reported operating margin contraction from 10.8% to 2.9% in the fourth quarter, primarily due to the CAS business impairment, underscores the importance of closely monitoring portfolio adjustments and divestitures.
Investors should note the company's focus on operational improvements and margin expansion through the LHX NeXt program, which targets $1 billion in cost savings. While the program's success could be a significant driver for future profitability, the upfront costs and execution risks associated with such initiatives warrant careful consideration.
L3Harris Technologies' strategic focus on becoming the industry's 'Trusted Disruptor' and its agility in innovation are reflected in its revenue growth. The company's entry into high-growth markets and emphasis on aligning with Department of Defense and allied partner priorities suggest a targeted approach to market expansion. This strategy has likely contributed to the company's reported organic growth, particularly in the Space & Airborne Systems (SAS) and Communication Systems (CS) segments.
Despite the positive revenue trends, the decrease in full year non-GAAP EPS by 4% to $12.36, driven by increased interest expenses and lower pension income, indicates potential pressure on profitability. The flat to slightly increasing average diluted shares implies a stable equity base, which could be favorable for EPS if net income trends improve. The guidance for 2024, with revenue projected between $20.7 billion and $21.3 billion, reflects anticipated growth but also sets expectations for stakeholders to monitor.
The segment analysis reveals that the acquisitions of AR and TDL have been accretive to revenue, particularly in the CS segment, which saw a full year revenue increase of 20%. However, the Integrated Mission Systems (IMS) segment experienced a decline in operating margin due to an impairment and unfavorable net changes in Estimates-at-Completion (EAC). These segment-specific trends highlight the importance of evaluating the company's performance on a granular level to understand the underlying drivers of financial results.
The financial results of L3Harris Technologies are indicative of broader trends in the defense industry, where companies are seeking to consolidate and expand their capabilities through strategic acquisitions. The integration of Aerojet Rocketdyne and Tactical Data Links into L3Harris' portfolio represents a significant expansion into missile and space programs, as well as communication systems, which are areas of growing importance in modern defense strategies.
The reported impairment associated with the pending sale of the CAS business within the IMS segment suggests a strategic repositioning away from commercial aviation solutions towards areas more closely aligned with national defense priorities. This realignment could be beneficial in the context of increased defense spending and a heightened focus on national security.
However, the increased net interest expense highlights the financial burden of such acquisitions and the importance of effective capital management in the defense sector. The emphasis on cost savings through the LHX NeXt program is a response to the need for operational efficiency and margin improvement in an industry characterized by high development costs and long procurement cycles. The program's success will be critical for maintaining competitiveness and shareholder value in a sector that is both capital-intensive and subject to geopolitical influences.
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Full year (FY) 2023 orders1 of
$22.8 billion
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4Q23 revenue of
$5.3 billion $19.4 billion 17% and14% respectively
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4Q23 operating margin of
2.9% and FY23 of7.3% , reflecting goodwill impairment for pending business sale
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4Q23 segment operating margin1 of
15.1% and FY23 of14.8%
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4Q23 earnings per share (EPS) of
$0.83 $6.44 $3.35 $12.36
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FY23 cash from operations of
$2.1 billion $2.0 billion
“We delivered on our 2023 financial commitments and reported record backlog of
Kubasik continued, “We are confident on achieving the financial framework that we shared in early December at our investor day, while we execute on our 2024-2026 capital allocation priorities of reducing leverage and returning excess cash to shareholders. Entering 2024, we remain focused on driving towards the
SUMMARY FINANCIAL RESULTS AND 2024 GUIDANCE
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Fourth Quarter |
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Full Year |
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2024* |
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($ millions, except per share data) |
2023 |
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2022 |
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Change |
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2023 |
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2022 |
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Change |
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Guidance |
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Revenue |
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Space & Airborne Systems |
$ |
1,800 |
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$ |
1,702 |
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$ |
6,856 |
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$ |
6,384 |
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Integrated Mission Systems |
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1,627 |
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1,729 |
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6,630 |
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6,626 |
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Communication Systems |
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1,363 |
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1,193 |
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5,070 |
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4,217 |
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Aerojet Rocketdyne |
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597 |
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— |
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1,052 |
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— |
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Corporate eliminations |
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(47 |
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(46 |
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(189 |
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(165 |
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Revenue |
$ |
5,340 |
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$ |
4,578 |
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$ |
19,419 |
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$ |
17,062 |
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Operating income (loss) |
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Space & Airborne Systems |
$ |
191 |
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$ |
193 |
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$ |
756 |
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$ |
665 |
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Integrated Mission Systems |
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(75 |
) |
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179 |
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459 |
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494 |
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Communication Systems |
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356 |
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297 |
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1,229 |
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667 |
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Aerojet Rocketdyne |
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66 |
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— |
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122 |
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— |
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Unallocated items |
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(384 |
) |
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(174 |
) |
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(1,140 |
) |
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(699 |
) |
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Operating income |
$ |
154 |
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$ |
495 |
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(69)% |
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$ |
1,426 |
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$ |
1,127 |
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Operating margin |
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2.9 |
% |
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10.8 |
% |
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nm |
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7.3 |
% |
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6.6 |
% |
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70 bps |
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Segment operating income1 |
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Space & Airborne Systems |
$ |
191 |
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$ |
193 |
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$ |
783 |
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$ |
745 |
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Integrated Mission Systems |
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194 |
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179 |
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740 |
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861 |
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Communication Systems |
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356 |
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297 |
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1,229 |
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1,022 |
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Aerojet Rocketdyne |
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66 |
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— |
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122 |
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— |
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Unallocated items |
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— |
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— |
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— |
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— |
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Segment operating income1 |
$ |
807 |
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$ |
669 |
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$ |
2,874 |
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$ |
2,628 |
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Segment operating margin1 |
15.1 |
% |
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14.6 |
% |
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50 bps |
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14.8 |
% |
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15.4 |
% |
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(60) bps |
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~ |
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Non-service FAS pension income and other |
$ |
93 |
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$ |
112 |
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(17)% |
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$ |
338 |
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$ |
425 |
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(20)% |
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Interest expense, net |
$ |
(171 |
) |
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$ |
(74 |
) |
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$ |
(543 |
) |
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$ |
(279 |
) |
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Effective tax rate (GAAP) |
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(66.7 |
%) |
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21.8 |
% |
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nm |
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1.9 |
% |
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16.7 |
% |
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nm |
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Effective tax rate (non-GAAP1) |
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12.4 |
% |
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13.6 |
% |
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(120) bps |
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13.0 |
% |
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13.9 |
% |
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(90) bps |
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EPS |
$ |
0.83 |
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$ |
2.17 |
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(62)% |
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$ |
6.44 |
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$ |
5.49 |
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Non-GAAP EPS1 |
$ |
3.35 |
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$ |
3.27 |
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$ |
12.36 |
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$ |
12.90 |
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(4)% |
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Diluted shares outstanding |
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190.6 |
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192.1 |
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(1)% |
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190.6 |
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193.5 |
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(1)% |
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Cash from operations |
$ |
789 |
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$ |
782 |
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$ |
2,096 |
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$ |
2,158 |
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(3)% |
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Free cash flow1 |
$ |
747 |
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$ |
748 |
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—% |
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$ |
2,009 |
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$ |
2,029 |
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(1)% |
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nm = not meaningful |
* When we provide our expectation for segment operating margin, effective tax rate on non-GAAP income, non-GAAP EPS and free cash flow on a forward-looking basis, a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort due to the unavailability of items for exclusion from the GAAP measure. We are unable to address the probable significance of this information, the variability of which may have a significant impact on future GAAP results. See Non-GAAP Financial Measures on page 6 for more information. |
Revenue: Fourth quarter revenue increased
Operating Margin: Fourth quarter operating margin decreased, primarily from the impairment associated with the pending sale of the Commercial Aviation Solutions (CAS) business within the Integrated Mission Systems (IMS) segment. Segment operating margin1 expanded 50 bps to
Earnings Per Share (EPS): Fourth quarter EPS decreased to
Cash Flows: Fourth quarter cash from operations increased
SEGMENT RESULTS AND GUIDANCE:
This section contains reporting segment drivers of fourth quarter and full year for revenue, operating margin, a GAAP measure, and segment operating margin1, a non-GAAP measure, which excludes unallocated items, impairments to goodwill or other assets and the gain on the sale of plant, property and equipment.
Space & Airborne Systems (SAS) |
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Fourth Quarter |
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Full Year |
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Guidance |
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($ millions) |
2023 |
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2022 |
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Change |
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2023 |
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2022 |
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Change |
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2024 |
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Revenue |
$ |
1,800 |
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$ |
1,702 |
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$ |
6,856 |
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$ |
6,384 |
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Operating margin |
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10.6 |
% |
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11.3 |
% |
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(70) bps |
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11.0 |
% |
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10.4 |
% |
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60 bps |
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Segment operating margin1 |
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10.6 |
% |
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11.3 |
% |
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(70) bps |
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11.4 |
% |
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11.7 |
% |
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(30) bps |
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mid-high |
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* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 6 for more information. |
Revenue: Fourth quarter revenue increased
Operating Margin: Fourth quarter operating margin and segment operating margin1 decreased 70 bps largely due to an increase in lower margin space revenue. Full year operating margin increased 60 bps. 2022 had a higher level of impairments. 2023 was negatively impacted by mix and net unfavorable EAC. Full year segment operating margin1 decreased 30 bps from the factors noted above, excluding impairments.
Integrated Mission Systems (IMS) |
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Fourth Quarter |
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Full Year |
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Guidance |
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($ millions) |
2023 |
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2022 |
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Change |
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2023 |
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2022 |
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Change |
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2024 |
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Revenue |
$ |
1,627 |
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$ |
1,729 |
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(6)% |
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$ |
6,630 |
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$ |
6,626 |
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—% |
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Operating margin |
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(4.6 |
%) |
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10.4 |
% |
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nm |
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6.9 |
% |
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7.5 |
% |
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(60) bps |
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Segment operating margin1 |
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11.9 |
% |
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10.4 |
% |
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150 bps |
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11.2 |
% |
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13.0 |
% |
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(180) bps |
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low-mid |
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nm = not meaningful |
* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 6 for more information. |
Revenue: Fourth quarter revenue decreased
Operating Margin: Fourth quarter operating margin was down primarily from the impairment associated with the pending sale of the CAS business. Fourth quarter segment operating margin1 increased 150 bps from improved program performance. Full year operating margin declined 60 bps primarily due to an unfavorable net change in EACs, the sale of end-of-life inventory in the prior year and higher volume of lower-margin domestic ISR aircraft revenue, partially offset by lower impairments and research and development expenses. Full year segment operating margin1 decreased 180 bps from the factors noted above excluding impairments.
Communication Systems (CS) |
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Fourth Quarter |
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Full Year |
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Guidance |
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($ millions) |
2023 |
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2022 |
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Change |
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2023 |
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2022 |
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Change |
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2024 |
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Revenue |
$ |
1,363 |
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$ |
1,193 |
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$ |
5,070 |
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$ |
4,217 |
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Operating margin |
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26.1 |
% |
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24.9 |
% |
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120 bps |
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24.2 |
% |
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15.8 |
% |
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840 bps |
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Segment operating margin1 |
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26.1 |
% |
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24.9 |
% |
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120 bps |
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24.2 |
% |
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24.2 |
% |
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— bps |
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low-mid |
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* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 6 for more information. |
Revenue: Fourth quarter revenue increased
Operating Margin: Fourth quarter operating margin and segment operating margin1 increased 120 bps primarily from the acquisition of TDL and efficiencies realized from higher volume. Full year segment operating margin increased 840 bps primarily from an impairment in the prior year. Full year segment operating margin1 was comparable.
Aerojet Rocketdyne (AR) |
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Fourth Quarter |
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Full Year |
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Guidance |
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($ millions) |
2023 |
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2022 |
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Change |
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2023 |
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2022 |
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Change |
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2024 |
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Revenue |
$ |
597 |
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$ |
1,052 |
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Operating margin |
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11.1 |
% |
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11.6 |
% |
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high |
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* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 6 for more information. |
Revenue and Operating Margin: Fourth quarter and full year (5-month post acquisition period) results are attributed to program execution across missile and space programs.
SUPPLEMENTAL INFORMATION:
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Other Information |
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2024 |
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2023 |
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FAS/CAS operating adjustment |
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Non-service FAS pension income |
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Net interest expense* |
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Effective tax rate on GAAP income |
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Effective tax rate on non-GAAP income1* |
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Average diluted shares |
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Flat - up slightly |
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190.6 |
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Capital expenditures |
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~ |
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* A reconciliation is not available. See the note on page 2 and Non-GAAP Financial Measures on page 6 for more information. |
Non-GAAP Financial Measures
This press release contains Non-GAAP Financial Measures ("NGFMs") (as listed on page 16) within the meaning of Regulation G promulgated by the Securities and Exchange Commission (SEC). Management believes excluding the adjustments listed on page 16 for the purposes of calculating certain non-GAAP measures is useful to investors because these costs do not reflect our ongoing operating performance; however there is no guarantee that items excluded from non-GAAP financial measures will not reoccur in future periods. These adjustments, when considered together with the unadjusted GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. Management also believes that these adjustments to our NGFMs enhance the ability of investors to analyze L3Harris business trends, to understand L3Harris performance and to evaluate our initiatives to drive improved financial performance. We utilize NGFMs as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for compensation purposes. NGFMs should be considered in addition to, and not as a substitute for, financial measures presented in accordance with GAAP. See “Reconciliation of Non-GAAP Financial Measures” beginning on page 11 for detail on the adjustments to our NGFMs. We also provide our expectation of forward-looking NGFMs. A reconciliation of forward-looking NGFMs to comparable GAAP measures is not available without unreasonable effort because of inherent difficulty in forecasting and quantifying the comparable GAAP measures and the applicable adjustments and other amounts that would be necessary for such a reconciliation, including due to potentially high variability, complexity and low visibility as to the applicable adjustments and other amounts, which may, or could, have a disproportionate impact on future GAAP results, such as the impact of Aerojet Rocketdyne and costs associated with LHX NeXt on our results and other potential business divestiture-related gains and losses, other unusual gains and losses, or their probable significance and extent of tax deductibility. The variability of adjustments and other amounts may have a significant, unpredictable impact on future GAAP results.
Conference Call and Webcast
L3Harris Technologies will host a call tomorrow, January 26, 2024, at 8:30 a.m. Eastern Time (ET).
The dial-in numbers for the teleconference are (
About L3Harris Technologies
L3Harris Technologies is the Trusted Disruptor in the defense industry. With customers’ mission-critical needs always in mind, our 50,000 employees deliver end-to-end technology solutions connecting the space, air, land, sea and cyber domains in the interest of national security.
Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions and estimates of future performance and economic conditions. Such statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this press release include but are not limited to: 2024 guidance; 2024-2026 capital deployment priorities; the LHX NeXt program costs and savings targets and their impacts on operational performance, margin expansion and accelerating free cash flow growth; supplemental financial information for 2024; and other statements regarding the business outlook and financial performance guidance that are not historical facts. The company cautions investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those matters expressed in or implied by such forward-looking statements. The company's consolidated results, future trends and forward-looking statements could be affected by many factors, risks and uncertainties, including but not limited to: competitive markets and
Financial Tables
To see the entire earnings tables, please see: www.l3harris.com/resources/fourth-quarter-and-full-year-2023-results
1Key terms and Non-GAAP measures - see definitions at the end of this earnings release |
Non-GAAP Terms and Definitions
Description |
Definition |
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Amortization of acquisition-related intangibles |
Consists of amortization of identifiable intangible assets acquired in connection with business combinations. Amortization charges are recorded over the estimated useful life of the related acquired intangible asset, and thus are generally recorded over multiple years. |
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Additional cost of revenue related to the fair value step-up in inventory sold |
Difference between the balance sheet value of inventory from the acquiree and the acquisition date fair value. |
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Merger, acquisition, and divestiture-related expenses |
In 2023, transaction and integration expenses associated with TDL and AR acquisitions. In 2022, transaction and integration expenses associated with the L3Harris merger. Also, includes external costs related to pursuing acquisition and divestiture portfolio optimization, non-transaction costs related to divestitures and salaries of employees in roles established for and dedicated to planned divestiture and acquisition activity. |
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Sale of asset group and business divestiture-related gains, net |
In 2023, related to gains or losses associated with business divestitures. In 2022, related to an asset sale in our IMS segment. |
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Impairment of goodwill and other assets |
In 2023, charges for goodwill impairment recorded at our IMS segment related to the pending divestiture of our CAS business and charges at our IMS and SAS segment related to restructuring of a customer contract impacting both segments and facility closures in IMS. In 2022, charges for goodwill impairment recorded at our IMS and SAS segments related to a weakened outlook for precision weapons and other solutions and higher interest rates, and charges recorded at our CS segment related to a lower outlook on legacy platforms and higher interest rates. |
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Gain on sale of property, plant and equipment |
In 2023, related to the sale of a building in our IMS segment. |
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LHX NeXt implementation costs |
Costs associated with transforming multiple functions, systems and processes to increase agility and competitiveness. Costs related to the LHX NeXt effort are expected to continue through 2025, and are expected to include workforce optimization costs, incremental IT expenses for implementation of new systems, third party consulting expenses and other related costs totaling |
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Non-operating income adjustments |
2022 includes an |
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Other |
Other includes charges associated with a formal restructuring plan and primarily related to employee severance and benefit arrangements. In 2022 we incurred charges associated with severance and other benefits related to employees that accepted a voluntary retirement plan with an effective retirement date of September 30, 2022. Other also includes an accrual associated with an ongoing legal matter that is disproportionately large related to our routine legal expenses or accruals. |
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Orders |
Represents the total value of funded and unfunded contract awards received from the |
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Organic revenue |
Organic revenue excludes the impact of completed divestitures and first year revenue associated with acquisitions; refer to non-GAAP financial measure (NGFM) reconciliations in the tables accompanying this press release and to the disclosures in the non-GAAP section of this press release for more information. Organic revenue is reconciled in table 4. |
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Segment operating income and margin |
Segment operating income and margin for each segment represents each such segment's operating income and margin (GAAP measures), excluding impairment of goodwill and other assets and gain on sale of property, plant and equipment, as reconciled in table 5.
Segment operating income and margin on a consolidated basis represents operating income and margin (GAAP measures) excluding the FAS/CAS operating adjustment, corporate expenses and other unallocated items, impairment of goodwill and other assets, and a gain on sale of property, plant and equipment, and eliminations, as reconciled in table 6. |
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Non-GAAP EPS |
Non-GAAP EPS represents EPS (net income per common share attributable to L3Harris Technologies, Inc. common shareholders, a GAAP measure) adjusted for amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; asset group and business divestiture-related (losses) gains, net; impairment of goodwill and other assets; gain on sale of property, plant and equipment; LHX NeXt implementation costs; other (charges for severance and other termination costs and charges related to an additional pre-merger legal contingency); and non-operating income adjustments. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Non-GAAP EPS is reconciled in table 8. |
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Free Cash Flow (FCF) |
FCF represents net cash provided by operating activities (a GAAP measure) less capital expenditures (additions to property, plant and equipment less proceeds from sale of property, plant and equipment, net) and cash used for merger, acquisition, and divestiture-related expenses. FCF is reconciled in table 9. |
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Effective tax rate on non-GAAP income |
Effective tax rate on non-GAAP earnings represents the effective tax rate (tax expense as a percentage of income before income taxes, a GAAP measure) adjusted for the tax effect associated with amortization of acquisition-related intangibles; additional cost of revenue related to the fair value step-up in inventory sold; merger, acquisition, and divestiture-related expenses; asset group and business divestiture-related (losses) gains, net; impairment of goodwill and other assets; gain on sale of property, plant and equipment; LHX NeXt implementation costs; other (charges for severance and other termination costs and charges related to an additional pre-merger legal contingency); and non-operating income adjustments. Refer to the disclosures in the non-GAAP financial measures section of this press release for more information. Non-GAAP effective tax rate is reconciled in table 7. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240124826434/en/
Investor Relations Contact:
Mark Kratz, 321-724-3170
investorrelations@l3harris.com
Media Relations Contact:
Sara Banda, 321-306-8927
sara.banda@l3harris.com
Source: L3Harris Technologies
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