# RTX Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [RTX Corp](/companies/rtx.md) (CIK 101829)
- Form: 10-Q
- Filed: 2022-10-25
- Accepted by EDGAR: Oct 25, 2022, 16:33 ET
- Period: 2022-09-30
- Accession: 0000101829-22-000056
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/101829/000010182922000056/rtx-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/101829/000010182922000056/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $662.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $2.00bn | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $1.39bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $4.28bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $1.48bn | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $3.91bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $311.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $958.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $242.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $518.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $1.39bn | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $3.77bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.94 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $2.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.94 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $2.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 1,479,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 1,488,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $2.34bn | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $2.40bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $5.38bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $41.82bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $158.22bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $38.37bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $86.46bn | us-gaap:Liabilities |
| Short-term borrowings | at 2022-09-30 | $2.19bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-09-30 | $70.19bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2022-09-30 | 1,470,060,775 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 91,257 characters.

### BUSINESS OVERVIEW

We are a global premier systems provider of high technology products and services to the aerospace and defense industries.

We operate in four principal business segments: Collins Aerospace Systems (Collins), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean Raytheon Technologies Corporation and its subsidiaries.

RIS and RMD follow a 4-4-5 fiscal calendar while Collins and Pratt & Whitney use a quarter calendar end. Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended September 30, 2022 and September 30, 2021 with respect to RIS or RMD, we are referring to their October 2, 2022 and October 3, 2021 fiscal quarter ends, respectively.

The current status of significant factors affecting our business environment in 2022 is discussed below. For additional discussion, refer to the “Business Overview” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2021 Annual Report on Form 10-K.

### Industry Considerations

Our worldwide operations can be affected by industrial, economic and political factors on both a regional and global level. Our operations include original equipment manufacturer (OEM) and extensive related aftermarket parts and services related to our aerospace operations. Our defense business serves both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business primarily at RIS, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization.

Government legislation, policies and regulations, including regulations related to global warming, carbon footprint and fuel efficiency, can have a negative impact on our worldwide operations. Government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses.

Collins and Pratt & Whitney serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), available seat miles and the general economic health of airline carriers are key barometers for our commercial aerospace operations. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Many of our aerospace operations’ customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services.

RIS, RMD, and the defense operations of Collins and Pratt & Whitney are affected by U.S. Department of Defense (DoD) budget and spending levels, changes in demand, changes in policy positions or priorities and the global political environment. In addition, our defense businesses engage in both direct commercial sales, which generally require U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S. government. Changes in these budget and spending levels, policies, or priorities, which are subject to geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions or other restrictions.

### Impact of the COVID-19 Pandemic

The coronavirus disease 2019 (COVID-19) pandemic continues to negatively affect the global economy, our business and operations, supply chains, and the industries in which we operate. However, we continue to see signs of ongoing recovery in commercial air travel. While we believe that the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, there continues to be uncertainty with respect to when commercial air traffic capacity will fully return to and/or exceed pre-COVID-19 levels. Our expectations regarding the COVID-19 pandemic and ongoing recovery and their potential financial impact are based on available information and assumptions that we believe are reasonable at this time; however, the actual financial impact is highly uncertain and subject to a wide range of factors and future developments.

### Other Matters

Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, foreign currency exchange rates, energy costs, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.

During August 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Sciences Act and the Inflation Reduction Act were signed into law, each effective as of January 1, 2023. This new legislation includes the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. We do not currently expect the legislation will have a material effect on our results of operations, financial condition or liquidity.

In response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities and individuals in the U.S. and other jurisdictions in which we operate. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected and could continue to adversely affect the Company and/or our supply chain, business partners or customers; however, based on information available to date, we do not currently expect these issues will have a material adverse effect on our financial results. In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog, which would have been recognized over a span of approximately 10 years, and recorded certain impairment charges and increases to reserves related to operations at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q. We will continue to monitor future developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners or customers.

In addition, the People’s Republic of China (China) previously announced that it may take measures against RTC in connection with certain foreign military sales to Taiwan. In addition, China has indicated that it decided to sanction our Chairman and Chief Executive Officer Gregory Hayes, in connection with another potential foreign military sale to Taiwan involving RTC products and services. RTC is not aware of any specific sanctions against Mr. Hayes or RTC, or the nature or timing of any future potential sanctions or countermeasures. If China were to impose sanctions or take other regulatory action against RTC, our suppliers, affiliates or partners, it could potentially disrupt our business operations. The impact of potential sanctions or other actions by China cannot be determined at this time.

Also, in July 2019, the U.S. government suspended Turkey’s participation in the F-35 Joint Strike Fighter program because Turkey accepted delivery of the Russian-built S-400 air and missile defense system. The U.S. has imposed, and may impose additional, sanctions on Turkey, as well as contractual restrictions on the use of Turkish sources on certain military programs, as a result of this or other political disputes. Turkish companies supply us with components, some of which are sole-sourced, primarily in our aerospace operations for commercial and military engines and aerospace products. Depending upon the scope and timing of U.S. sanctions or contractual prohibitions on Turkey and potential reciprocal actions, if any, such sanctions or actions could impact our sources of supply and could have a material adverse effect on our results of operations, cash flows or financial condition.

We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S. government review and approval have been pending. The U.S. government’s approval of these sales is subject to a range of factors, including its foreign policies related to these customers, which are subject to continuing review and potential changes. Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer. If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results. In particular, as of September 30, 2022, our Contract liabilities include approximately $355 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated.

See Part I, Item 1A, “Risk Factors” in our 2021 Annual Report on Form 10-K for further discussion of these items.

### CRITICAL ACCOUNTING ESTIMATES

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. See “Critical Accounting Estimates” within Item 7 and “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2021 Annual Report on Form 10-K, which describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2022.

### RESULTS OF OPERATIONS

As described in our “Cautionary Note Concerning Factors That May Affect Future Results” in this Form 10-Q, our interim period results of operations and period-to-period comparisons of such results, particularly at a segment level, may not be indicative of our future operating results. The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context.

We provide the organic change in Net sales and Cost of sales for our consolidated results of operations as well as the organic change in Net sales and Operating profit for our segments. We believe that these non-Generally Accepted Accounting Principles (non-GAAP) measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change in Net sales, Cost of sales and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation fluctuations and other significant non-recurring and non-operational items (“Other”). Additionally, the organic change in Cost of sales and Operating profit excludes restructuring costs, the FAS/CAS operating adjustment and costs related to certain acquisition accounting adjustments. Restructuring costs generally arise from severance related to workforce reductions and facility exit costs. Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired.

### Net Sales

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | **$16,951** | $16,213 | **$48,981** | $47,344 |

The factors contributing to the change year-over-year in total net sales for the quarter and nine months ended September 30, 2022 are as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | Nine Months Ended September 30, 2022 |
| --- | ---: | ---: |
| Organic(1) | **$1,021** | **$2,382** |
| Acquisitions and divestitures, net | **(185)** | **(539)** |
| Other | **(98)** | **(206)** |
| Total change | **$738** | **$1,637** |

(1) See “Results of Operations” for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

Net sales increased $1,021 million organically in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to higher organic sales of $0.7 billion at Pratt & Whitney and $0.6 billion at Collins, partially offset by lower organic sales of $0.2 billion at RMD.

The $185 million decrease in net sales related to Acquisitions and divestitures, net for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

The decrease in other net sales of $98 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily driven by the impact of foreign exchange.

Net sales increased $2,382 million organically in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to higher organic sales of $1.9 billion at Pratt & Whitney and $1.6 billion at Collins, partially offset by lower organic sales of $0.9 billion at RMD.

The $539 million decrease in net sales related to Acquisitions and divestitures, net for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

The decrease in other net sales of $206 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily driven by the impact of foreign exchange.

See “Segment Review” below for further information by segment.

*(dollars in millions)*

| Net Sales | Quarter Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Products | **$12,756** | $12,331 | **75.3%** | 76.1% |
| Services | **4,195** | 3,882 | **24.7%** | 23.9% |
| Total net sales | **$16,951** | $16,213 | **100%** | 100% |

Refer to “Note 17: Segment Financial Data” within Item 1 of this Form 10-Q for the composition of external net sales by products and services by segment.

Net products sales increased $425 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 due to increases in external products sales of $0.3 billion at Pratt & Whitney and $0.3 billion at Collins, partially offset by a decrease in external products sales of $0.2 billion at RMD.

Net services sales increased $313 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to increases in external services sales of $0.3 billion at Pratt & Whitney and $0.1 billion at Collins, partially offset by a decrease in external services sales of $0.2 billion at RIS primarily driven by the sale of the global training and services business in the fourth quarter of 2021.

*(dollars in millions)*

| Net Sales | Nine Months Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Products | **$36,876** | $36,174 | **75.3%** | 76.4% |
| Services | **12,105** | 11,170 | **24.7%** | 23.6% |
| Total net sales | **$48,981** | $47,344 | **100%** | 100% |

Net products sales increased $702 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to increases in external products sales of $0.9 billion at Pratt & Whitney and $0.9 billion at Collins, partially offset by decreases in external products sales of $0.9 billion at RMD and $0.2 billion at RIS.

Net services sales increased $935 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to increases in external services sales of $0.9 billion at Pratt & Whitney and $0.4 billion at Collins, partially offset by a decrease in external services sales of $0.4 billion at RIS primarily driven by the sale of the global training and services business in the fourth quarter of 2021.

Our sales to major customers were as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Sales to the U.S. government(1) | **$7,555** | $7,737 | **44.6%** | 47.7% |
| Foreign military sales through the U.S. government | **1,275** | 1,364 | **7.5%** | 8.4% |
| Foreign government direct commercial sales | **1,064** | 1,242 | **6.3%** | 7.7% |
| Commercial aerospace and other commercial sales | **7,057** | 5,870 | **41.6%** | 36.2% |
| Total net sales | **$16,951** | $16,213 | **100%** | 100% |

(1) Excludes foreign military sales through the U.S. government.

*(dollars in millions)*

|  | Nine Months Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Sales to the U.S. government(1) | **$22,452** | $23,155 | **45.8%** | 48.9% |
| Foreign military sales through the U.S. government | **3,632** | 4,156 | **7.4%** | 8.8% |
| Foreign government direct commercial sales | **3,118** | 3,735 | **6.4%** | 7.9% |
| Commercial aerospace and other commercial sales | **19,779** | 16,298 | **40.4%** | 34.4% |
| Total net sales | **$48,981** | $47,344 | **100%** | 100% |

(1) Excludes foreign military sales through the U.S. government.

### Cost of Sales

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Total cost of sales | **$13,464** | $13,089 | **$38,880** | $38,281 |
| Percentage of net sales | **79.4%** | 80.7% | **79.4%** | 80.9% |

The factors contributing to the change year-over-year in total cost of sales for the quarter and nine months ended September 30, 2022 are as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | Nine Months Ended September 30, 2022 |
| --- | ---: | ---: |
| Organic(1) | **$650** | **$1,156** |
| Acquisitions and divestitures, net | **(155)** | **(448)** |
| Restructuring | **13** | **(5)** |
| FAS/CAS operating adjustment | **105** | **181** |
| Acquisition accounting adjustments | **(113)** | **(235)** |
| Other | **(125)** | **(50)** |
| Total change | **$375** | **$599** |

(1) See “Results of Operations” for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

The organic increase in total cost of sales of $650 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily driven by the organic sales increases at Pratt & Whitney and Collins, partially offset by the organic sales decrease at RMD noted above.

The $155 million decrease in cost of sales related to Acquisitions and divestitures, net for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

The decrease in other cost of sales of $125 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily driven by the impact of foreign exchange.

The organic increase in total cost of sales of $1,156 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily driven by the organic sales increases at Pratt & Whitney and Collins, partially offset by the organic sales decrease at RMD noted above.

The $448 million decrease in cost of sales related to Acquisitions and divestitures, net for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

The decrease in other cost of sales of $50 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily driven by the impact of foreign exchange, partially offset by charges recorded during the first quarter of 2022 at Pratt & Whitney and Collins related to impairment of customer financing assets for products under lease, inventory reserves, purchase order obligations, and the impairment of contract fulfillment costs that are no longer recoverable, all due to global sanctions on and export controls with respect to Russia. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

For further discussion on FAS/CAS operating adjustment see the “FAS/CAS operating adjustment” subsection under the “Segment Review” section below. For further discussion on Acquisition accounting adjustments, see the “Acquisition accounting adjustments” subsection under the “Segment Review” section below.

*(dollars in millions)*

| Cost of sales | Quarter Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Products | **$10,493** | $10,296 | **61.9%** | 63.5% |
| Services | **2,971** | 2,793 | **17.5%** | 17.2% |
| Total cost of sales | **$13,464** | $13,089 | **79.4%** | 80.7% |

Net products cost of sales increased $197 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to increases at Collins and Pratt & Whitney, partially offset by decreases at RMD and a decrease in Acquisition accounting adjustments. The changes at Collins, Pratt & Whitney, and RMD were related to the changes in products sales noted above.

Net services cost of sales increased $178 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to an increase in external services cost of sales at Pratt & Whitney, partially offset by a decrease in external services sales at RIS, both driven by the services sales changes noted above.

*(dollars in millions)*

| Cost of sales | Nine Months Ended September 30, 2022 | 2021 | % of Total Net Sales 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Products | **$30,353** | $30,267 | **62.0%** | 63.9% |
| Services | **8,527** | 8,014 | **17.4%** | 16.9% |
| Total cost of sales | **$38,880** | $38,281 | **79.4%** | 80.9% |

Net products cost of sales increased $86 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to increases at Collins and Pratt & Whitney, partially offset by decreases at RMD and RIS and in Acquisition Accounting Adjustments. The changes at RMD, RIS, Collins, and Pratt & Whitney were related to the changes in products sales noted above.

Net services cost of sales increased $513 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to increases in external services cost of sales at Pratt & Whitney and Collins, partially offset by a decrease in external services sales at RIS, all driven by the services sales changes noted above.

### Research and Development

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Company-funded | **$662** | $676 | **$1,995** | $1,922 |
| Percentage of net sales | **3.9%** | 4.2% | **4.1%** | 4.1% |
| Customer-funded (1) | **$1,125** | $1,125 | **$3,300** | $3,414 |
| Percentage of net sales | **6.6%** | 6.9% | **6.7%** | 7.2% |

(1) Included in cost of sales in our Condensed Consolidated Statement of Operations.

Research and development spending is subject to the variable nature of program development schedules and, therefore, year-over-year fluctuations in spending levels are expected.

Company-funded and customer-funded research and development in the quarter ended September 30, 2022 were relatively consistent with the quarter ended September 30, 2021.

Company-funded research and development as a percentage of net sales for the nine months ended September 30, 2022 was relatively consistent with the nine months ended September 30, 2021. The company-funded research and development increase was principally driven by increased spending at Pratt & Whitney on various commercial programs.

The decrease in customer-funded research and development of $114 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by lower expenses on various military programs at Collins and lower expenses spread across various programs at RMD, partially offset by an increase in expenses on the Next Generation Interceptor (NGI) program awarded in the second quarter of 2021 at RMD.

### Selling, General and Administrative

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | **$1,391** | $1,229 | **$4,284** | $3,817 |
| Percentage of net sales | **8.2%** | 7.6% | **8.7%** | 8.1% |

Selling, general and administrative expenses increased $162 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily driven by higher combined expenses of $0.1 billion at Collins and Pratt & Whitney principally driven by higher employee-related costs and by higher information technology (IT)-related costs at Corporate.

Selling, general and administrative expenses increased $467 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily driven by higher combined expenses of $0.4 billion at Collins and Pratt & Whitney principally driven by higher employee-related costs and by $71 million of charges related to increased estimates for credit losses due to global sanctions on and export controls with respect to Russia. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information on Russia sanctions.

We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive. As appropriate, the amounts reflected above include the beneficial impact of previous restructuring actions on Selling, general and administrative expenses.

### Other Income, Net

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Other income, net | **$46** | $124 | **$91** | $314 |

Other income, net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, and other ongoing and nonrecurring items.

The decrease in Other income, net of $78 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was spread across multiple items with no common or significant driver.

The decrease in Other income, net of $223 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $69 million of charges associated with the disposition of two non-core businesses at Collins in the second quarter of 2022, the absence of prior year foreign government wage subsidies related to COVID-19 at Pratt & Whitney of $52 million and a $23 million loss resulting from the exit of our investment in a Russia-based joint venture at Collins in the first quarter of 2022. The above items were partially offset by a net favorable year-over-year impact of foreign exchange gains and losses of $38 million with the remaining change spread across multiple items with no common or significant driver.

### Operating Profit

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Operating profit | **$1,480** | $1,343 | **$3,913** | $3,638 |
| Operating profit margin | **8.7%** | 8.3% | **8.0%** | 7.7% |

The increase in Operating profit of $137 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily driven by the operating performance of our segments and a decrease in Acquisition accounting adjustments, partially offset by the change in our FAS/CAS operating adjustment, all of which are described below in “Segment Review.”

The increase in Operating profit of $275 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by the operating performance of our segments and a decrease in Acquisition accounting adjustments, partially offset by the change in our FAS/CAS operating adjustment, all of which are described below in “Segment Review.”

### Non-service Pension Income

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Non-service pension income | **$(468)** | $(491) | **$(1,422)** | $(1,472) |

The change in Non-service pension income of $23 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 included the impact of an increase in the discount rate, partially offset by prior years’ pension asset returns exceeding our expected return on assets (EROA) assumption.

The change in Non-service pension income of $50 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 included the impact of an increase in the discount rate, partially offset by prior years’ pension asset returns exceeding our EROA assumption.

### Interest Expense, Net

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | **$326** | $336 | **$968** | $1,008 |
| Interest income | **(10)** | (9) | **(54)** | (24) |
| Other non-operating expense (income)(1) | **(5)** | 31 | **44** | 62 |
| Interest expense, net | **$311** | $358 | **$958** | $1,046 |
| Average interest expense rate | **4.0%** | 4.2% | **4.0%** | 4.1% |

(1) Primarily consists of the gains or losses on assets associated with certain of our nonqualified deferred compensation and employee benefit plans, as well as the gains or losses on liabilities associated with certain of our nonqualified deferred compensation plans.

The decrease in interest expense, net of $47 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily due to the absence of $32 million of net debt extinguishment costs in connection with the early repayment of outstanding principal in the prior year.

The decrease in interest expense, net of $88 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a $40 million decrease in Interest expense, a $30 million increase in Interest income, and an $18 million decrease in Other non-operating expenses. The decrease in Interest expense was primarily due to repayments of higher interest rate long-term debt during 2021, partially offset by debt issuances with lower interest rates during 2021. The increase in Interest income was primarily due to adjustments of certain tax-related interest reserves in the first quarter of 2022. The decrease in Other non-operating expense (income) was primarily due to the absence of $32 million of net debt extinguishment costs in the prior year.

### Income Taxes

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Effective income tax rate | **14.8%** | 0.2% | **11.8%** | 17.0% |

The effective tax rate in the quarter ended September 30, 2022 includes a benefit of approximately 4 percentage points primarily related to an incremental Foreign Derived Intangible Income (FDII) benefit and other effects created by the capitalization of research or experimental expenditures for tax-purposes, which was enacted as part of the Tax Cuts and Jobs Act of 2017 and became effective on January 1, 2022. Tax expense in the quarter ended September 30, 2021 includes deferred tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter of 2021.

The effective tax rate in the nine months ended September 30, 2022 includes a benefit of approximately 5 percentage points primarily related to an incremental FDII benefit and other effects created by the capitalization of research or experimental expenditures for tax-purposes, which was enacted as part of the Tax Cuts and Jobs Act of 2017 and became effective on January 1, 2022. Tax expense in the nine months ended September 30, 2021 includes deferred tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter of 2021, tax charges incremental to the U.S. statutory rate of $148 million associated with the sale of the Forcepoint business, as described in “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q, and $73 million associated with the revaluation of deferred taxes resulting from the increase in the United Kingdom (U.K.) corporate tax rate to 25% enacted in 2021. Subsequently, in the fourth quarter of 2021, we recognized an incremental $104 million tax benefit due to the revaluation of the Forcepoint tax benefit as a result of completing the divestiture of RIS’s global training and services business.

### Net Income from Continuing Operations Attributable to Common Shareowners

*(dollars in millions, except per share amounts)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net income from continuing operations attributable to common shareowners | **$1,387** | $1,400 | **$3,794** | $3,212 |
| Diluted earnings per share from continuing operations | **$0.94** | $0.93 | **$2.55** | $2.13 |

Net income from continuing operations attributable to common shareowners for the quarter ended September 30, 2022 includes the following:

- acquisition accounting adjustments of $379 million, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) from continuing operations of $0.26; and
- income of $65 million related to the capitalization of research or experimental expenditures for tax purposes, which had a net favorable impact on diluted EPS from continuing operations of $0.04.

Net income from continuing operations attributable to common shareowners for the quarter ended September 30, 2021 includes the following:

- acquisition accounting adjustments of $456 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.30; and
- tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter 2021, which had a favorable impact on diluted EPS from continuing operations of $0.16.

Net income from continuing operations attributable to common shareowners for the nine months ended September 30, 2022 includes the following:

- acquisition accounting adjustments of $1,107 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.74;
- impairment charges and reserve adjustments related to the global sanctions on and export controls with respect to Russia of $210 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.14; and
- income of $159 million related to the capitalization of research or experimental expenditures for tax purposes, which had a net favorable impact on diluted EPS from continuing operations of $0.11.

Net income from continuing operations attributable to common shareowners for the nine months ended September 30, 2021 includes the following:

- acquisition accounting adjustments of $1,257 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.83;
- tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter 2021, which had a favorable impact on diluted EPS from continuing operations of $0.16; and
- tax expense of $148 million related to the sale of our Forcepoint business, which had an unfavorable impact on diluted EPS from continuing operations of $0.10.

### Net Income Attributable to Common Shareowners

*(dollars in millions, except per share amounts)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net income attributable to common shareowners | **$1,387** | $1,393 | **$3,775** | $3,178 |
| Diluted earnings per share from operations | **$0.94** | $0.93 | **$2.54** | $2.10 |

The decrease in net income attributable to common shareowners and diluted earnings per share from operations for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 and for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by the decreases in continuing operations, as discussed above in Net Income from Continuing Operations Attributable to Common Shareowners.

### SEGMENT REVIEW

Our operations, for the periods presented herein, are classified into four principal segments: Collins, Pratt & Whitney, RIS and RMD. Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. Segment total net sales and operating profit include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment and certain corporate expenses, as further discussed below.

Given the nature of our business, we believe that total net sales and operating profit (and the related operating profit margin percentage), which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our segment performance, as described below.

We provide the organic change in Net sales and Operating profit for our segments as discussed above in “Results of Operations.” We believe that these non-GAAP measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. For Pratt & Whitney only, Other also includes the transactional impact of foreign exchange hedging at Pratt & Whitney Canada due to its significance to Pratt & Whitney’s overall operating results.

*Total Net Sales.* Total net sales by segment were as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Collins Aerospace Systems | **$5,100** | $4,592 | **$14,935** | $13,507 |
| Pratt & Whitney | **5,380** | 4,725 | **14,878** | 13,035 |
| Raytheon Intelligence & Space | **3,626** | 3,740 | **10,768** | 11,310 |
| Raytheon Missiles & Defense | **3,678** | 3,902 | **10,763** | 11,680 |
| Total segment | **17,784** | 16,959 | **51,344** | 49,532 |
| Eliminations and other | **(833)** | (746) | **(2,363)** | (2,188) |
| Consolidated | **$16,951** | $16,213 | **$48,981** | $47,344 |

*Operating Profit.* Operating profit by segment was as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Collins Aerospace Systems | **$616** | $478 | **$1,602** | $1,298 |
| Pratt & Whitney | **316** | 187 | **769** | 319 |
| Raytheon Intelligence & Space | **371** | 391 | **1,064** | 1,194 |
| Raytheon Missiles & Defense | **408** | 490 | **1,143** | 1,518 |
| Total segment | **1,711** | 1,546 | **4,578** | 4,329 |
| Eliminations and other | **(50)** | (27) | **(131)** | (98) |
| Corporate expenses and other unallocated items | **(77)** | (89) | **(255)** | (319) |
| FAS/CAS operating adjustment | **378** | 499 | **1,135** | 1,347 |
| Acquisition accounting adjustments | **(482)** | (586) | **(1,414)** | (1,621) |
| Consolidated | **$1,480** | $1,343 | **$3,913** | $3,638 |

Included in segment operating profit are Estimate at Completion (EAC) adjustments, which relate to changes in operating profit and margin due to revisions to total estimated revenues and costs at completion. These changes may reflect improved or deteriorated operating performance, as well as changes in facts and assumptions related to contract options, contract modifications, incentive and award fees associated with program performance, customer activity levels, and other customer-directed changes. For a full description of our EAC process, refer to “Note 4: Changes in Contract Estimates at Completion” within Item 1 of this Form 10-Q. Given that we have thousands of individual contracts and given the types and complexity of the assumptions and estimates we must make on an on-going basis and the nature of the work required to perform under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course.

We had the following aggregate EAC adjustments for the periods presented:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Gross favorable | **$339** | $334 | **$1,002** | $955 |
| Gross unfavorable | **(332)** | (309) | **(1,000)** | (891) |
| Total net EAC adjustments | **$7** | $25 | **$2** | $64 |

The change in net EAC adjustments of $18 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily due to unfavorable changes in net EAC adjustments of $21 million at RMD spread across numerous individual programs with no individual or common significant driver and includes the impact of continued supply chain and labor market constraints.

The change in net EAC adjustments of $62 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to unfavorable changes in net EAC adjustments of $143 million at RMD and $59 million at RIS, including the impact of acquisitions and dispositions, both spread across numerous individual programs with no individual or common significant driver. These unfavorable changes were partially offset by a favorable change in net EAC adjustments of $105 million at Collins, spread across numerous individual programs with no individual or common significant driver, and a favorable change in net EAC adjustments of $35 million at Pratt & Whitney primarily due to a $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket program in the second quarter of 2022.

Significant EAC adjustments, when they occur, are discussed in each business segment’s discussion below.

*Backlog and Defense Bookings.* Total backlog was approximately $168 billion and $156 billion as of September 30, 2022 and December 31, 2021, respectively, which includes defense backlog of $67 billion and $63 billion as of September 30, 2022 and December 31, 2021, respectively. In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q. Our defense operations consist primarily of our RIS and RMD businesses and operations in the defense businesses within our Collins and Pratt & Whitney segments. Defense bookings were approximately $12 billion and $10 billion for the quarters ended September 30, 2022 and 2021, respectively, and approximately $34 billion and $30 billion for the nine months ended September 30, 2022 and 2021, respectively.

Defense bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: the desired capability by the customer and urgency of customer needs, customer budgets and other fiscal constraints, political and economic and other environmental factors, the timing of customer negotiations, and the timing of governmental approvals and notifications. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis.

### Collins Aerospace Systems

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Change | Nine Months Ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$5,100** | $4,592 | 11% | **$14,935** | $13,507 | 11% |
| Operating profit | **616** | 478 | 29% | **1,602** | 1,298 | 23% |
| Operating profit margins | **12.1%** | 10.4% |  | **10.7%** | 9.6% |  |

### Quarter Ended September 30, 2022 Compared with Quarter Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change Organic(1) | Acquisitions / Divestitures, net | Restructuring Costs | Other | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $587 | $(21) | $— | $(58) | $508 |
| Operating profit | 158 | (3) | (12) | (5) | 138 |

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $0.6 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily relates to higher commercial aerospace aftermarket sales of $0.4 billion, including increases across all aftermarket sales channels, and higher commercial aerospace OEM sales of $0.2 billion. These increases were principally driven by the recovery of commercial air traffic which has resulted in an increase in flight hours, aircraft fleet utilization and narrow-body commercial OEM volume growth. This was partially offset by lower military sales of $0.1 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to lower material receipts and decreased volume.

The organic profit increase of $0.2 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily due to higher commercial aerospace operating profit of $0.3 billion, principally driven by the higher commercial aerospace aftermarket sales discussed above. This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.1 billion principally driven by lower military sales volume, and higher combined selling, general and administrative expenses and research and development costs of $0.1 billion.

### Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change Organic(1) | Acquisitions / Divestitures, net | Restructuring Costs | Other | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $1,576 | $(21) | $— | $(127) | $1,428 |
| Operating profit | 498 | (10) | 13 | (197) | 304 |

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $1.6 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily relates to higher commercial aerospace aftermarket sales of $1.3 billion, including increases across all aftermarket sales channels, and higher commercial aerospace OEM sales of $0.6 billion, both principally driven by the recovery of commercial air traffic which has resulted in an increase in flight hours, aircraft fleet utilization and narrow-body commercial OEM volume growth. These increases were partially offset by lower military sales of $0.4 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lower material receipts and expected declines in F-35 volume.

The organic profit increase of $0.5 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is primarily due to higher commercial aerospace operating profit of $1.0 billion principally driven by the higher commercial aerospace aftermarket sales discussed above, partially offset by the absence of a $33 million favorable impact from a contract related matter in the nine months ended September 30, 2021. This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.2 billion principally driven by the lower military sales discussed above, and higher selling, general and administrative expenses of $0.2 billion.

The decrease in Other operating profits of $197 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $141 million of pretax charges related to increased estimates for credit losses, inventory reserves, recognition of purchase order obligations and a loss resulting from the exit of our investment in a Russia-based joint venture, all due to global sanctions on and export controls with respect to Russia in the first quarter of 2022. In addition, we recognized $69 million of charges associated with the disposition of two non-core businesses in the second quarter of 2022. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information on Russia sanctions.

### Pratt & Whitney

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Change | Nine Months Ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$5,380** | $4,725 | 14% | **$14,878** | $13,035 | 14% |
| Operating profit | **316** | 187 | 69% | **769** | 319 | 141% |
| Operating profit margins | **5.9%** | 4.0% |  | **5.2%** | 2.4% |  |

### Quarter Ended September 30, 2022 Compared with Quarter Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change Organic(1) | Acquisitions / Divestitures, net | Restructuring Costs | Other | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $686 | $— | $— | $(31) | $655 |
| Operating profit | 137 | — | — | (8) | 129 |

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $0.7 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 reflects higher commercial aftermarket sales of $0.5 billion primarily due to an increase in shop visits and related spare part sales as the commercial aerospace environment continues to recover. The increase also includes higher commercial OEM sales of $0.2 billion primarily driven by favorable mix and higher volume on commercial engine shipments. These increases were partially offset by a slight decline in military sales reflecting expected lower F135 production volume, partially offset by higher F135 sustainment volume.

The organic profit increase of $0.1 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily driven by higher commercial aerospace operating profit of $0.2 billion principally due to the aftermarket sales increase discussed above and favorable commercial OEM mix. The increase also includes slightly higher military operating profit primarily driven by favorable mix. These increases were partially offset by a combined increase in selling, general and administrative expenses and research and development costs of $0.1 billion.

### Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change Organic(1) | Acquisitions / Divestitures, net | Restructuring Costs | Other | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $1,913 | $— | $— | $(70) | $1,843 |
| Operating profit | 624 | — | 1 | (175) | 450 |

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $1.9 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 reflects higher commercial aftermarket sales of $1.5 billion primarily due to an increase in shop visits and related spare part sales as the commercial aerospace environment continues to recover. The increase also includes higher commercial OEM sales of $0.5 billion driven by favorable mix and higher volume on commercial engine shipments. These increases were partially offset by lower military sales of $0.1 billion primarily due to lower sales on F135 production volume, partially offset by higher F135 sustainment volume.

The organic profit increase of $0.6 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by higher commercial aerospace operating profit of $1.0 billion principally due to the aftermarket sales volume increase discussed above and favorable OEM mix. The organic profit increase also includes slightly higher military operating profit primarily driven by favorable mix. These increases were partially offset by a combined increase in selling, general and administrative expenses and research and development costs of $0.2 billion. In the nine months ended September 30, 2022, our organic profit included a $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket program in the second quarter of 2022, which impacted our commercial aerospace operating profit. In the nine months ended September 30, 2021 our organic profit included $52 million related to foreign government wage subsidies due to COVID-19.

The decrease in Other operating profit of $175 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $155 million of pretax charges related to impairment of customer financing assets for products under lease, increased estimates for credit losses, inventory reserves and recognition of purchase order obligations, all due to global sanctions on and export controls with respect to Russia in the first quarter of 2022. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

*Defense Bookings –* In addition to a number of smaller bookings, in the quarter ended September 30, 2022, Pratt & Whitney booked $524 million for F135 sustainment and $278 million for expanded scope on F135 production Lots 15 and 16. In addition to these bookings, in the nine months ended September 30, 2022 Pratt & Whitney booked $4.0 billion for F135 production Lots 15 and 16, $408 million for F135 sustainment, and $251 million for tanker production Lots 7 and 8.

### Raytheon Intelligence & Space

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Change | Nine Months Ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$3,626** | $3,740 | (3)% | **$10,768** | $11,310 | (5)% |
| Operating profit | **371** | 391 | (5)% | **1,064** | 1,194 | (11)% |
| Operating profit margins | **10.2%** | 10.5% |  | **9.9%** | 10.6% |  |
| Bookings | **$3,897** | $2,894 | 35% | **$9,469** | $10,572 | (10)% |

43

### Quarter Ended September 30, 2022 Compared with Quarter Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change in Net Sales Organic(1) | Acquisitions / Divestitures, net | Other | Total Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $68 | $(164) | $(18) | $(114) |

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

*(dollars in millions)*

|  | Factors Contributing to Change in Operating Profit Volume | Net change in EAC adjustments | Acquisitions / Divestitures, net | Mix and other performance | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating profit | $5 | $9 | $(28) | $(6) | $(20) |

Organic sales in the quarter ended September 30, 2022 were relatively consistent with the quarter ended September 30, 2021. Included in the organic change in sales were higher Sensing and Effects sales of $0.2 billion due to certain development programs transitioning into production and an increase in sales on classified programs, partially offset by lower Command, Control and Communications sales of $0.1 billion primarily driven by an anticipated decrease in production volumes on certain tactical communications systems programs.

The decrease in operating profit of $20 million, and the related decrease in operating profit margins, in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, were primarily due to acquisitions / divestitures, net described below, partially offset by the net favorable change in EAC adjustments of $9 million, which was spread across numerous programs.

The decrease in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the sale of the global training and services business in the fourth quarter of 2021.

### Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change in Net Sales Organic(1) | Acquisitions / Divestitures, net | Other | Total Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $15 | $(518) | $(39) | $(542) |

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

*(dollars in millions)*

|  | Factors Contributing to Change in Operating Profit Volume | Net change in EAC adjustments | Acquisitions / Divestitures, net | Mix and other performance | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating profit | $4 | $(29) | $(92) | $(13) | $(130) |

Organic sales in the nine months ended September 30, 2022 were relatively consistent with the nine months ended September 30, 2021. Included in the organic change in sales were higher Sensing and Effects sales of $0.1 billion, and higher Cyber, Training and Services sales of $0.1 billion on certain classified cyber programs, offset by lower Command, Control and Communications sales of $0.2 billion. The higher Sensing and Effects sales includes an increase due to certain development programs transitioning into production, an increase in sales on classified programs, and a decrease in surveillance and targeting systems due to lower production volume. The lower Command, Control and Communications sales were primarily driven by an anticipated decrease in production volumes on certain tactical communications systems programs.

The decrease in operating profit of $130 million, and the related decrease in operating profit margins, in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, were primarily due to acquisition / divestitures, net described below and the net unfavorable change in EAC adjustments of $29 million, which was spread across numerous programs.

The decrease in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the sale of the global training and services business in the fourth quarter of 2021.

*Backlog and Bookings–* Backlog was $17 billion at September 30, 2022 and $18 billion at December 31, 2021. In addition to a number of smaller bookings, in the quarter ended September 30, 2022, RIS booked $1.6 billion on a number of classified contracts. In addition to these bookings, in the nine months ended September 30, 2022, RIS booked $2.3 billion on a number of classified contracts, $311 million on the Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) GEO missile warning and defense contract for the U.S. Space Force, and $253 million on the Development, Operations and Maintenance (DOMino) cyber program for the Department of Homeland Security (DHS).

### Raytheon Missiles & Defense

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Change | Nine Months Ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | **$3,678** | $3,902 | (6)% | **$10,763** | $11,680 | (8)% |
| Operating profit | **408** | 490 | (17)% | **1,143** | 1,518 | (25)% |
| Operating profit margins | **11.1%** | 12.6% |  | **10.6%** | 13.0% |  |
| Bookings | **$5,415** | $3,901 | 39% | **$14,052** | $12,487 | 13% |

### Quarter Ended September 30, 2022 Compared with Quarter Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change in Net Sales Organic(1) | Acquisitions / Divestitures, net | Other | Total Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $(209) | $— | $(15) | $(224) |

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

*(dollars in millions)*

|  | Factors Contributing to Change in Operating Profit Volume | Net change in EAC adjustments | Acquisitions / Divestitures, net | Mix and other performance | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating profit | $(19) | $(21) | $— | $(42) | $(82) |

The organic sales decrease of $209 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily due to lower net sales of $0.2 billion from our Land Warfare and Air Defense programs, including certain international air and missile defense programs, primarily driven by lower material receipts as a result of supply chain constraints and anticipated decreases in production, and lower net sales of $0.1 billion from our Naval Power programs due to lower volumes across multiple programs, partially offset by higher net sales on SPY-6 programs. These declines were partially offset by higher net sales of $0.2 billion from our Strategic Missile Defense programs, which included higher net sales on the NGI program.

The decrease in operating profit of $82 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was due to a change in mix and other performance of $42 million, a net unfavorable change in EAC adjustments of $21 million, and lower volume of $19 million. The changes in mix and other performance and volume were principally driven by the lower net sales on the Land Warfare and Air Defense programs discussed above. The net unfavorable change in EAC adjustments was spread across numerous programs and includes the impact of continued supply chain and labor market constraints. The decrease in operating profit margins in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily due to the change in mix and other performance and the net change in EAC adjustments.

### Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

*(dollars in millions)*

|  | Factors Contributing to Total Change in Net Sales Organic(1) | Acquisitions / Divestitures, net | Other | Total Change |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $(883) | $— | $(34) | $(917) |

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

*(dollars in millions)*

|  | Factors Contributing to Change in Operating Profit Volume | Net change in EAC adjustments | Acquisitions / Divestitures, net | Mix and other performance | Total Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating profit | $(77) | $(143) | $— | $(155) | $(375) |

The organic sales decrease of $883 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to lower net sales of $0.7 billion from our Land Warfare and Air Defense programs, including certain international air and missile defense programs, primarily driven by lower material receipts as a result of supply chain constraints and anticipated decreases in production; lower net sales of $0.3 billion from our Air Power programs, including lower net sales on the Paveway program and the Advanced Medium Range Air-to-Air Missile (AMRAAM) program; and lower net sales of $0.3 billion on our Naval Power programs due to lower volumes across multiple programs, partially offset by higher net sales from SPY-6 programs. These decreases were partially offset by higher net sales of $0.3 billion from our Strategic Missile Defense programs which included higher net sales from the NGI program.

The decrease in operating profit of $375 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a change in mix and other performance of $155 million, a net unfavorable change in EAC adjustments of $143 million, and lower volume of $77 million. The changes in mix and other performance and volume were principally driven by the lower net sales on the Land Warfare and Air Defense programs discussed above. The net unfavorable change in EAC adjustments was spread across numerous programs and includes the impact of continued supply chain and labor market constraints. The decrease in operating profit margins in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily due to the change in mix and other performance and the net change in EAC adjustments.

*Backlog and Bookings–* Backlog was $32 billion at September 30, 2022 and $29 billion at December 31, 2021. In addition to a number of smaller bookings, in the quarter ended September 30, 2022, RMD booked $1 billion for the first Hypersonic Attack Cruise Missile (HACM) for the U.S. Air Force, $972 million for AMRAAM for the U.S. Air Force and Navy and international customers, $353 million for the Lower Tier Air and Missile Defense Sensor (LTAMDS) Pre-planned Product Improvement program for the U.S. Army, $226 million for systems improvement program hardware for the Air Intercept Missile (AIM-9X) Sidewinder short-range air- to-air missiles for the U.S. Navy, and $207 million for integrated effectors and sensors for Counter-Unmanned Aircraft Systems (C-UAS) defense system for the U.S. Army. In addition to these bookings, in the nine months ended September 30, 2022, RMD booked $1.6 billion on a number of classified contracts, including a strategic competitive award. RMD also booked $662 million on Stinger for the U.S. Army, $651 million for the SPY-6 Hardware Production and Sustainment contract for the U.S. Navy, $648 million for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA), $423 million on the SPY-6 Hardware Production and Sustainment contract for the U.S. Navy, $384 million for Excalibur Rapid Demonstration Phase 2 for the U.S. Army, $219 million for AIM-9X Sidewinder short-range air-to-air missiles for the U.S. Navy and Air Force and international customers, $218 million to provide Patriot engineering support services for the U.S. Army and international customers, and $217 million on Tomahawk for the U.S. Navy.

### Corporate and Eliminations and other

Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller non-reportable business segments. Corporate expenses and other unallocated items consists of costs and certain other unallowable corporate costs not considered part of management’s evaluation of reportable segment operating performance including restructuring costs related to the Raytheon merger, net costs associated with corporate research and development, including the LTAMDS program and certain reserves.

*(dollars in millions)*

|  | Net Sales Quarter Ended September 30, 2022 | 2021 | Operating Profit Quarter Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Eliminations and other | **$(833)** | $(746) | **$(50)** | $(27) |
| Corporate expenses and other unallocated items | **—** | — | **(77)** | (89) |

The increase in eliminations and other sales of $87 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily due to an increase in intersegment eliminations, principally driven by Collins.

Eliminations and other operating profit in the quarter ended September 30, 2022 was relatively consistent with the quarter ended September 30, 2021.

Corporate expenses and other unallocated items in the quarter ended September 30, 2022 were relatively consistent with the quarter ended September 30, 2021. Included in the change in corporate expenses and other unallocated items were a decrease in expenses related to the LTAMDS project and lower restructuring costs, partially offset by an increase in IT-related costs.

*(dollars in millions)*

|  | Net Sales Nine months ended September 30, 2022 | 2021 | Operating Profit Nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Eliminations and other | **$(2,363)** | $(2,188) | **$(131)** | $(98) |
| Corporate expenses and other unallocated items | **—** | — | **(255)** | (319) |

The increase in eliminations and other sales of $175 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to an increase in intersegment eliminations, principally driven by Collins.

Eliminations and other operating profit in the nine months ended September 30, 2022 was relatively consistent with the nine months ended September 30, 2021.

The decrease in Corporate expenses and other unallocated items of $64 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily due to a decrease in expenses related to the LTAMDS project and lower restructuring costs, partially offset by an increase in IT-related costs.

### FAS/CAS operating adjustment

We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and postretirement benefit (PRB) expense under the Financial Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting Principles (GAAP) and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related RIS and RMD pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis.

The components of the FAS/CAS operating adjustment were as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| FAS service cost (expense) | **$(91)** | $(102) | **$(274)** | $(304) |
| CAS expense | **469** | 601 | **1,409** | 1,651 |
| FAS/CAS operating adjustment | **$378** | $499 | **$1,135** | $1,347 |

The change in our FAS/CAS operating adjustment of $121 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was driven by a $132 million decrease in CAS expense, partially offset by an $11 million decrease in FAS service cost. The decrease in CAS expense was primarily due to our 2021 actuarial estimate update in the third quarter of 2021 and an increase in applicable discount rates as a result of U.S. qualified pension plan funding relief included in the American Rescue Plan Act of 2021 (ARPA).

The change in our FAS/CAS operating adjustment of $212 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was driven by a $242 million decrease in CAS expense, partially offset by a $30 million decrease in FAS service cost. The decrease in CAS expense was primarily due to an increase in applicable discount rates as a result of U.S. qualified pension plan funding relief included in ARPA.

### Acquisition accounting adjustments

Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired. These adjustments are not considered part of management’s evaluation of segment results.

The components of Acquisition accounting adjustments were as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Amortization of acquired intangibles | **$(486)** | $(610) | **$(1,421)** | $(1,789) |
| Amortization of property, plant and equipment fair value adjustment | **(20)** | (21) | **(73)** | (84) |
| Amortization of customer contractual obligations related to acquired loss-making and below-market contracts | **24** | 45 | **80** | 252 |
| Acquisition accounting adjustments | **$(482)** | $(586) | **$(1,414)** | $(1,621) |

47

Acquisition accounting adjustments related to acquisitions in each segment were as follows:

*(dollars in millions)*

|  | Quarter Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Collins Aerospace Systems | **$(201)** | $(196) | **$(604)** | $(466) |
| Pratt & Whitney | **(72)** | (47) | **(168)** | (98) |
| Raytheon Intelligence & Space | **(73)** | (132) | **(231)** | (433) |
| Raytheon Missiles & Defense | **(136)** | (211) | **(411)** | (624) |
| Total segment | **(482)** | (586) | **(1,414)** | (1,621) |
| Eliminations and other | **—** | — | **—** | — |
| Acquisition accounting adjustments | **$(482)** | $(586) | **$(1,414)** | $(1,621) |

The change in the Acquisition accounting adjustments of $104 million for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was primarily driven by a decrease in RIS and RMD intangibles amortization related to the Raytheon merger in 2020.

The change in the Acquisition accounting adjustments of $207 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, is primarily driven by a decrease in RIS and RMD intangibles amortization related to the Raytheon merger in 2020, partially offset by the absence of $116 million of amortization of customer contractual obligations due to the accelerated liquidation of a below-market contract reserve at Collins driven by the termination of two customer contracts recognized in the nine months ended September 30, 2021.

### LIQUIDITY AND FINANCIAL CONDITION

*(dollars in millions)*

|  | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Cash and cash equivalents | **$5,381** | $7,832 |
| Total debt | **33,447** | 31,485 |
| Total equity | **71,735** | 74,664 |
| Total capitalization (total debt plus total equity) | **105,182** | 106,149 |
| Total debt to total capitalization | **32%** | 30% |

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is cash flows from operating activities. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in and divestitures of businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms.

At September 30, 2022, we had cash and cash equivalents of $5.4 billion, of which approximately 38% was held by RTC’s foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The Company does not intend to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. Taxes associated with the future remittance of these earnings have been recorded. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTC will continue to permanently reinvest these earnings.

Historically, our strong credit ratings and financial position have enabled us to issue long-term debt at favorable interest rates.

As of September 30, 2022, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion, consisting of a $5.0 billion revolving credit agreement, which expires in April 2025, and a $2.0 billion revolving credit agreement, which was renewed in September 2022 and expires in September 2023. As of September 30, 2022, there were no borrowings outstanding under these agreements.

From time to time, we use commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments and repurchases of our common stock. The commercial paper notes have original maturities of not more than 364 days from the date of issuance. As of September 30, 2022, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. We had $2.1 billion of commercial paper outstanding at September 30, 2022. The proceeds from these borrowings have primarily been used to fund payments related to the impact of a provision enacted in the Tax Cuts and Jobs Act of 2017 requiring the capitalization of research and experimental expenditures for tax purposes. The daily average amount of short-term commercial paper borrowings outstanding during the nine months ended September 30, 2022 was $815 million. At September 30, 2022 short-term commercial paper borrowings outstanding had a weighted-average interest rate of 3.6%.

Proceeds from issuance of commercial paper with maturities greater than 90 days were $1.4 billion during the nine months ended September 30, 2022. There were no repayments of commercial paper with maturities greater than 90 days during the nine months ended September 30, 2022. During the nine months ended September 30, 2021, commercial paper borrowings had original maturities of not more than 90 days from the date of issuance.

We have an existing universal shelf registration statement, which we filed with the Securities and Exchange Commission (SEC) on September 22, 2022, for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement.

The Company offers a voluntary supply chain finance (SCF) program with a global financial institution which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institution at a rate that leverages our credit rating, which might be beneficial to them. Our suppliers’ participation in the SCF program does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the program. In addition, we provide no guarantees or otherwise pay for any of the costs of the program incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institution, as it relates to the program. As such, the SCF program does not impact our overall liquidity.

We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate.

### Cash Flow - Operating Activities

*(dollars in millions)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash flows provided by operating activities from continuing operations | **$2,540** | $3,981 |

Cash generated by operating activities from continuing operations in the nine months ended September 30, 2022 was $1.4 billion lower than the same period in 2021, primarily driven by the net increase in tax payments discussed below and an unfavorable impact to cash flow from inventory principally due to current year increases to support sales volume growth. These unfavorable impacts to cash flow were partially offset by increases in accounts payable and accrued liabilities primarily driven by deferred revenue and advanced payments. Included in the change in accounts payable and accrued liabilities is a decrease in collaborator payables at Pratt & Whitney, which was mostly offset by a decrease in collaborator receivables due to the timing of settlements.

The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Factoring activity resulted in an increase of approximately $1.5 billion in cash provided by operating activities during the nine months ended September 30, 2022, compared to a minimal impact on cash flows provided by operating activities during the nine months ended September 30, 2021. Factoring activity includes amounts factored on certain aerospace receivables at the customers’ request for which we may be compensated by the customer.

We made net tax payments of $2,168 million and $906 million in the nine months ended September 30, 2022 and 2021, respectively. A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. As this provision was not deferred legislatively, we have made incremental tax payments of $1.5 billion in the nine months ended September 30, 2022, and expect to pay an additional amount in the fourth quarter of 2022.

### Cash Flow - Investing Activities

*(dollars in millions)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash flows used in investing activities from continuing operations | **$(1,891)** | $(139) |

Our investing activities primarily include capital expenditures, cash investments in customer financing assets, investments/dispositions of businesses, payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms, and settlements of derivative contracts not designated as hedging instruments.

The $1.8 billion change in cash flows used in investing activities from continuing operations in the nine months ended September 30, 2022 compared to September 30, 2021 primarily relates to the absence of the proceeds of the prior year sale of our Forcepoint business, the timing of our derivative contract settlements, and an increase in capital expenditures, all of which are described below.

Capital expenditures in the nine months ended September 30, 2022 increased by $253 million from the nine months ended September 30, 2021 primarily due to investments in production facilities at Pratt & Whitney.

Dispositions of businesses were $94 million and $1.1 billion in nine months ended September 30, 2022 and 2021, respectively. The nine months ended September 30, 2022 consisted of immaterial dispositions. In the nine months ended September 30, 2021, dispositions of businesses primarily related to the sale of our Forcepoint business. For additional detail, see “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q.

Customer financing assets receipts, net were receipts of $25 million and $24 million in nine months ended September 30, 2022 and 2021, respectively, and include purchases and sales of engines in our leased asset pool as well as customer financing activity.

During the nine months ended September 30, 2022 and 2021, we made payments which increased our collaboration intangible assets by $169 million and $138 million, respectively, primarily related to our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE).

As discussed in “Note 11: Financial Instruments” within Item 1 of this Form 10-Q, we enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures. During the nine months ended September 30, 2022 and 2021, we had net cash payments of $259 million and net cash receipts of $42 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

### Cash Flow - Financing Activities

*(dollars in millions)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash flows used in financing activities from continuing operations | **$(3,010)** | $(5,182) |

Our financing activities primarily include the issuance and repayment of commercial paper and other short-term and long-term debt, payment of dividends and stock repurchases.

Financing activities were a cash outflow of $3.0 billion in the nine months ended September 30, 2022 compared to a cash outflow of $5.2 billion in the nine months ended September 30, 2021. This change was primarily driven by an increase in commercial paper borrowings, net of $2.1 billion, and the absence of the prior year repayments of long-term debt, net of issuances of $0.6 billion, partially offset by an increase in share repurchases of $0.4 billion. Refer to “Note 8: Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on commercial paper and debt issuances and repayments.

At September 30, 2022, management had remaining authority to repurchase approximately $3.5 billion of our common stock under the December 7, 2021 share repurchase program. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan. Our ability to repurchase shares is subject to applicable law.

Our share repurchases were as follows:

*(dollars in millions; shares in thousands)*

|  | Nine Months Ended September 30, 2022 $Shares |  | 2021 $Shares |  |
| --- | ---: | ---: | ---: | ---: |
| Shares of common stock repurchased (1) | **$2,395** | **25,452** | $2,000 | 24,152 |

(1) Relates to share repurchases that were settled in cash during the period.

Our Board of Directors authorized the following cash dividends:

*(dollars in millions, except per share amounts)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Dividends paid per share of common stock | **$1.610** | $1.495 |
| Total dividends paid | **$2,337** | $2,212 |

On June 6, 2022, the Board of Directors declared a dividend of $0.55 per share payable September 8, 2022 to shareowners of record at the close of business on August 19, 2022. Also, on October 12, 2022, the Board of Directors declared a dividend of $0.55 per share payable December 15, 2022 to shareowners of record at the close of business on November 18, 2022.

## Market risk

As filed, 285 characters.

There has been no significant change in our exposure to market risk during the nine months ended September 30, 2022. For discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our 2021 Form 10-K.

## Controls and procedures

As filed, 10,382 characters.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, we carried out an evaluation under the supervision and with the participation of our management, including the President and Chief Executive Officer (CEO), the Executive Vice President and Chief Financial Officer (CFO) and the Corporate Vice President and Controller (Controller), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our CEO, CFO and Controller concluded that, as of September 30, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO, CFO and Controller, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Cautionary Note Concerning Factors That May Affect Future Results

This Form 10-Q contains statements which, to the extent they are not statements of historical or present fact, constitute “forward-looking statements” under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid, and are not statements of historical fact. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “outlook,” “goals,” “objectives,” “confident,” “on track” and other words of similar meaning. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, tax payments and rates, research and development spending, costs savings, other measures of financial performance, potential future plans, strategies or transactions, credit ratings and net indebtedness, and other statements that are not solely historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation:

- the effect of changes in economic, capital market and political conditions in the U.S. and globally, such as from the global sanctions and export controls with respect to Russia, and any changes therein, including related to financial market conditions, fluctuations in commodity prices or supply (including energy supply), inflation, interest rates and foreign currency exchange rates, disruptions in global supply chain and labor markets, and geopolitical risks;
- risks associated with U.S. government sales, including changes or shifts in defense spending due to budgetary constraints, spending cuts resulting from sequestration, a continuing resolution, a government shutdown, or otherwise, and uncertain funding of programs;
- challenges in the development, production, delivery, and support of Raytheon Technologies Corporation (RTC) advanced technologies and new products and services, as well as the challenges of operating in RTC’s highly-competitive industries;
- the effect of and risks relating to coronavirus disease 2019 (COVID-19) on RTC’s business, supply chain, operations and the industries in which it operates, including the decrease in global air travel, and the timing and extent of the recovery from COVID-19;
- risks relating to RTC international operations from, among other things, changes in trade policies and implementation of sanctions, foreign currency fluctuations, economic conditions, political factors, sales methods, and U.S. or local government regulations;
- the condition of the aerospace industry;
- risks relating to RTC’s reliance on U.S. and non-U.S. suppliers and commodity markets, including the effect of sanctions, delays and disruptions in the delivery of materials and services to RTC or its suppliers and price increases;
- the scope, nature, timing and challenges of managing acquisitions, investments, divestitures and other transactions, including the realization of synergies and opportunities for growth and innovation, the assumption of liabilities and other risks and incurrence of related costs and expenses;
- compliance with legal, environmental, regulatory and other requirements, including, among other things, export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anticorruption requirements, such as the Foreign Corrupt Practices Act, industrial cooperation agreement obligations, and procurement and other regulations in the U.S. and other countries in which RTC and its businesses operate;
- the outcome of pending, threatened and future legal proceedings, investigations and other contingencies, including those related to U.S. government audits and disputes or otherwise;
- factors that could impact RTC’s ability to engage in desirable capital-raising or strategic transactions, including its capital structure, levels of indebtedness, capital expenditures and research and development spending, and the availability of credit, credit market conditions and other factors;
- uncertainties associated with the timing and scope of future repurchases by RTC of its common stock or declarations of cash dividends, which may be discontinued, accelerated, suspended or delayed at any time due to various factors, including market conditions and the level of other investing activities and uses of cash;
- risks relating to realizing expected benefits from RTC strategic initiatives such as cost reduction, restructuring, digital transformation and other operational initiatives;
- risks relating to the integration of the legacy businesses of United Technologies Corporation (UTC) and Raytheon Company in connection with the Raytheon merger, and the realization of the anticipated benefits of those transactions;
- risks of additional tax exposures due to new tax legislation or other developments in the U.S. and other countries in which RTC and its businesses operate;
- the ability of RTC to attract, train and retain qualified personnel and maintain its culture and high ethical standards, and ability of our personnel to continue to operate our facilities and businesses around the world;
- risks relating to a RTC product safety failure or other failure affecting RTC’s or its customers’ or suppliers’ products or systems;
- risks relating to cyber-attacks on RTC’s information technology infrastructure, products, suppliers, customers and partners, threats to RTC facilities and personnel, as well as other events outside of RTC’s control such as public health crises, damaging weather or other acts of nature;
- the effect of changes in accounting estimates for our programs on our financial results;
- the effect of changes in pension and other postretirement plan estimates and assumptions and contributions;
- risks relating to an impairment of goodwill and other intangible assets;
- the effects of climate change and changing or new climate-related regulations, customer and market demands, products and technologies; and
- the intended qualification of (1) the Raytheon merger as a tax-free reorganization and (2) the Carrier and Otis separation transactions and other internal restructurings as tax-free to UTC and former UTC shareowners, in each case, for U.S. federal income tax purposes.

In addition, this Form 10-Q includes important information as to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See “Note 15: Commitments and Contingencies” within Item 1 of this Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Results of Operations,” and “Liquidity and Financial Condition,” within Item 2 of this Form 10-Q. Additional important information as to these factors is included in our Annual Report on Form 10-K in the sections titled Item 1, “Business” under the headings “General,” “Business Segments” and “Other Matters Relating to Our Business,” Item 1A, “Risk Factors,” Item 3, “Legal Proceedings,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Business Overview,” “Critical Accounting Estimates,” and “Government Matters.” The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the Securities and Exchange Commission (SEC).

## Risk factors

As filed, 12,127 characters.

### Risk Factors

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A in our 2021 Annual Report on Form 10-K (2021 Form 10-K). Except for the risk factors discussed below, there have been no material changes from the factors disclosed in our 2021 Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission (SEC).

***Our international business is subject to economic, regulatory, competition and other risks.*** Our international sales and operations are subject to risks associated with political and economic factors, regulatory requirements, competition and other risks. A significant portion of our sales are from international sales and include U.S. export sales. In addition, transactions in our non-U.S. operations may be denominated in local currencies. Fluctuations in foreign currency exchange rates may negatively affect demand for our products and our reported profits, as well as our operating margins due to changing supplier prices. In particular, a strengthening of the U.S. Dollar against other major foreign currencies could adversely affect our results of operations. The majority of our commercial aerospace sales are in U.S. Dollars, while the majority of their non-U.S. costs are incurred in the applicable local currency. Pratt & Whitney Canada is especially susceptible to fluctuations in exchange rates for this reason. In addition, because our financial statements are denominated in U.S. Dollars, currency fluctuations may cause translation gains or losses for non-U.S. operating unit financial statements. For the reasons above, currency fluctuations may adversely affect our results of operations. To manage certain exposures, we employ long-term hedging strategies associated with U.S. Dollar sales.

Our international sales are also subject to risks associated with local government laws, regulations and policies, including export-import controls, investments, taxation, exchange controls, capital controls, employment regulations and repatriation of earnings, and changes to these laws, regulations and policies. Differing legal systems, customs and contract laws and regulations pose additional risk. International transactions may include contractual terms that differ from those of similar contracts in the U.S. or that may be interpreted differently in foreign countries. Our international sales also require us to comply with U.S. laws, regulations and policies, including the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign Corrupt Practices Act (FCPA), and other anti-corruption, sanctions and export laws and regulations. In addition, in certain foreign countries, we engage foreign non-employee representatives and consultants for international sales and teaming with international subcontractors, partners and suppliers for international programs. These engagements expose us to various challenges including risks associated with the FCPA and local antibribery laws and regulations. From time to time, we have disputes with such representatives regarding claimed commissions and other matters which can result in litigation or arbitration. In addition, we face risks related to the unintended or unauthorized use of our products.

Our international business faces substantial competition from both U.S. companies and foreign companies. In some instances, foreign companies may be owned by foreign governments or may receive loans, marketing subsidies and other assistance from their governments that may not be available to U.S. companies or our foreign subsidiaries. In addition, foreign companies may be subject to fewer restrictions on technology transfer than U.S. companies.

Our international contracts, particularly for sales of defense products and services, may include offset or industrial cooperation obligations requiring specific local purchases, manufacturing agreements, technology transfer agreements or financial support obligations, sometimes in the form of in-country industrial participation (ICIP) agreements. Approvals of offset or ICIP thresholds and requirements may be subjective and time-consuming and may delay contract awards. Certain customers’ demands are increasing for greater offset or ICIP commitment levels, higher-value content, including the transfer of technologies and capabilities, and local production and economic development.

As a result of the above factors, we could experience financial penalties and award and funding delays on international programs, our profitability on these programs could be negatively affected, and we could incur losses on these programs that could negatively impact our results of operations, financial condition and liquidity.

***Geopolitical factors and changes in policies and regulations could adversely affect our business.*** Our international sales and operations are sensitive to changes in foreign national priorities, foreign government budgets, and regional and local political and economic factors, including volatility in energy prices or supply, political or civil unrest, changes in threat environments and political relations, geopolitical uncertainties, and changes in U.S. foreign policy. Our international sales and operations are also sensitive to changes in foreign government laws, regulations and policies, including those related to tariffs, sanctions, embargoes, export and import controls and other trade restrictions. Government policies on international trade and investments can affect demand for our products and services, the competitive position of our products, our supply chain, and our ability to manufacture or sell products in certain countries. The implementation of more restrictive trade policies, including tariffs, or the renegotiation of existing trade agreements in countries where we have a major customer or supplier presence could negatively affect us. Trends such as populism and economic nationalism, “buy national” policies, limiting exports of a material largely unavailable elsewhere (such as rare earth minerals), or subsequent retaliatory policies by another government (such as tariffs) could negatively affect us. Further, regime change in a major customer’s government could decrease or eliminate its demand for our products and services, as well as adversely affect our supply of materials or components from that county.

We conduct business in numerous countries that carry high levels of currency, political, compliance and economic risk. We expect that sales to customers in these countries will continue to account for a significant portion of our commercial aerospace sales as our businesses evolve and as these and other developing nations and regions around the world increase their demand for our products, particularly our aerospace products. Operations in emerging market countries can present many risks, including volatility in gross domestic product and rates of economic growth, economic and government instability, cultural differences (such as employment and business practices), the imposition of exchange and capital controls, and risks associated with exporting components manufactured in those countries for incorporation into finished products completed in other countries. While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity.

In addition, given the role of our defense businesses in the support of the national security interests of the U. S. and its allies, we are subject to risks and uncertainties relating to policies of the U.S. and its allies, as well as other countries, including those who are or become regarded as potential adversaries or threats. We engage in both direct commercial sales, which generally require

U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S. government. Changes in these budget and spending levels, policies, or priorities, which are subject to geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions or other restrictions, as well as potential human rights issues associated with the use of our defense products. These risks and uncertainties may directly or indirectly impact our commercial businesses as well.

Of note, in 2019 the U.S. government suspended Turkey’s participation in the F-35 Joint Strike Fighter program because Turkey accepted delivery of the Russian-built S-400 air and missile defense system. The U.S. has imposed, and may impose additional, sanctions on Turkey, as well as contractual restrictions on the use of Turkish sources for certain military programs, as a result of this or other political disputes. Turkish companies supply components, some of which are sole-sourced, to our aerospace businesses for commercial and military engines and aerospace products, as well as to our defense businesses. Depending upon the scope and timing of U.S. sanctions or contractual prohibitions on Turkey and potential reciprocal actions, if any, such sanctions or actions could impact our sources of supply and could have a material adverse effect on our results of operations, financial condition or liquidity. In addition, the People’s Republic of China (China) previously announced it may take measures against Raytheon Technologies Corporation (RTC) in connection with certain foreign military sales to Taiwan involving RTC products and services. In addition, China has indicated that it decided to sanction our Chairman and Chief Executive Officer Gregory Hayes, in connection with another potential foreign military sale to Taiwan involving RTC products and services. RTC is not aware of any specific sanctions against Mr. Hayes or RTC, or the nature or timing of any future potential sanctions or countermeasures. If China were to impose sanctions or take other regulatory action against RTC, our suppliers, affiliates or partners, it could potentially disrupt our business operations. The impact of potential sanctions or other actions by China cannot be determined at this time. From time to time, our businesses have sold, and are expected to sell in the future, additional defense products to Taiwan and we are unable to determine the potential impact, if any, of any future sanctions or other actions by China in response to these sales. Moreover, the Chinese government has generally expanded its ability to restrict China-related import, export and investment activities, which may have an adverse impact on our ability to conduct business or sell our commercial aerospace products in China. In addition, in response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities and individuals in the U.S. and other jurisdictions in which we operate. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected and could continue to adversely affect the Company and/or our supply chain, business partners or customers.

Filed Oct 25, 2022.
Source: SEC EDGAR, the filing index for accession 0000101829-22-000056. Last ingested by Listed: Nov 3, 2026, 21:25 ET. No prices; not investment advice.