L3HARRIS TECHNOLOGIES, INC. /DE/

Current report

Our multi-year capacity expansion in our Missile Solutions segment involves substantial capital commitments and is reliant on our multi-year procurement contracts. In response to the Munitions Acceleration Council (“MAC”) framework initiatives and increased demand, we are executing a multi-year capacity expansion and modernization plan involving more than $3 billion of capital investments through 2030 across our Missile Solutions segment to materially increase annual production capacity for solid rocket motors, divert and attitude control systems, and precision fuzes across priority MAC programs.

Current report

These large-scale facility build-outs and advanced manufacturing expansions are subject to complex execution and commissioning risks, including: delays in permitting, site preparation, engineering, and construction; extended lead times, delivery delays, or integration challenges for specialized tooling, large-scale propellant mixers, robotics, and automated production systems; technical difficulties in scaling manufacturing processes; and delays in completing rigorous customer and government validation, testing, and qualification milestones required before expanded facilities can achieve full-rate production authorization. The expansions also increase our existing risk of supply chain disruption because of increased production volumes.

Current report

While we have agreed to multi-year contracts for minimum production volumes for priority MAC missile programs, these contracts require sustained government appropriations across the multi-year performance periods. Although cancellation fees under these multi-year contracts are designed to cover facilitization charges and are higher than our standard terms, cancellation fees may not cover all of our incurred capital expenditures, site preparation costs, long-lead supply commitments, and ongoing facility operating expenses. Furthermore, if orders are canceled, we may be unable to fully utilize this specialized manufacturing footprint or redirect these custom facilities to alternative programs, resulting in unabsorbed overhead, facility underutilization, and unrecovered capital investments.

Current report

Additionally, achieving target production rates requires rapidly scaling our specialized workforce at these expansion sites, including engineering, assembly, quality assurance, and Environmental, Health and Safety personnel with active security clearances. Bottlenecks in recruitment, training, or government security clearance processing, as well as operational constraints associated with increased energetic mixing volumes and hazardous waste disposal limits, could impede facility ramp milestones.

Current report

Our long-term funding and production volumes could also be adversely affected by proposed legislative initiatives, including second-source mandates for certain of our missile products and subsystems for which we are the sole supplier. If enacted into law or implemented into DoW procurement strategy, mandatory second sourcing could redirect government funding or future contract awards to competitors or new entrants, reduce our share of program quantities, and undermine the economic assumptions underlying our capital investments, leaving our expanded production lines with excess capacity.

Current report

Any failure to successfully execute our facility expansion and modernization plans on schedule and within budget, or any cancellation, reduction in appropriations, or legislative reallocation of procurement funding to second sources that leaves capital investments unrecovered, could impair our ability to meet customer delivery commitments on priority missile programs, undermine our competitive position, and adversely affect our business, financial condition, results of operations, cash flows and equity.

Current report

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 limited negotiating leverage with sole-source suppliers. Identifying and qualifying dual and second-source suppliers can be difficult, time-consuming and may result in increased costs. Any inability to timely develop cost-effective alternative sources of supply could materially impact our ability to manufacture and deliver products and services to our customers.

Current report

In particular, we rely on subcontractors and suppliers for our multi-year contracts in our Missile Solutions segment to materially increase production capacity for solid rocket motors, divert and attitude control systems, and precision fuzes across priority MAC programs. Some of these suppliers are currently sole-source, and we cannot guarantee that all of our suppliers will be able to increase their capacity to the levels required under our multi-year contracts.

Current report

In addition, we are required to procure certain materials and components, including rare earth minerals, such as tungsten, and microelectronic components, from U.S. Government-approved supply sources. Heightened regulatory requirements that may apply to these sources can further limit the subcontractors and suppliers we may utilize. Legislation, regulatory changes or other governmental actions, including product certification or stewardship requirements, sourcing restrictions, tariffs, export controls, embargoes, product authenticity, cybersecurity regulation, and environmental standards may all impact our subcontractors and suppliers. These impacts may be worsened by increased demand.

Current report

From time to time, our subcontractors and suppliers experience financial and operational difficulties outside of our direct control, which may impact their ability to deliver the materials, components, subsystems and services we need.

Current report

In recent years, global supply chains, including ours, have experienced significant disruption from material availability and supplier performance, as well as extended lead times, pricing volatility, inflationary pressures and labor issues. We and our subcontractors and suppliers have also experienced difficulties in the timely procurement of necessary materials and components, including rare earth minerals and microelectronics. Current geopolitical conditions, including sanctions and other trade restrictive activities and strained inter-country relations, have contributed to issues procuring necessary materials and components. For example, some materials and components in our supply chain have previously been sourced from areas now under sanctions or other trade restrictions, such as specialty metals from Russia and certain raw materials and equipment from China, or are currently sourced from areas which are at risk of sanctions or other trade restrictive actions, not just by the United States but by other nations or groups, such as the European Union.

Current report

While we continuously work to implement supply chain resiliency initiatives, including investment in our supply chain for priority MAC programs, we cannot guarantee the success of any of these efforts. Material supply disruptions may still occur in the future. Any supply chain disruption could result in delayed deliveries, increased costs, loss of customers, contractual penalties or damages, claims or litigation, regulatory investigations or actions, loss of future business opportunities, or reputational harm, any of which could materially and adversely affect our business, results of operations, financial condition and cash flows.