What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-25 compared with 2022-07-26 · 245 added, 222 removed, 461 unchanged (50% of the section changed)

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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 June 30, 2022 and June 30, 2021 with respect to RIS or RMD, we are referring to their July 3, 2022 and July 4, 2021 fiscal quarter ends, respectively.

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.

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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.

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 that commercial air travel is recovering in certain areas of demand.

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.

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Other Matters

Global economic and political conditions, changes in raw material and commodity prices, labor costs, 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.

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.

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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 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;

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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, in October 2020, the People’s Republic of China (China) announced that it may sanction Raytheon in connection with a possible Foreign Military Sale to Taiwan of six MS-110 Reconnaissance Pods and related equipment manufactured by Collins.

Foreign Military Sales are government-to-government transactions that are initiated by, and carried out at the direction of, the U.S.

Similarly, in February 2022, China announced that it plans to take countermeasures against RTC in connection with an approved Foreign Military Sale of Patriot missile system upgrade services to Taiwan.

To date, the Chinese government has not imposed sanctions on RTC or indicated the nature or timing of any future potential sanctions or other countermeasures.

If China were to impose sanctions or take other regulatory action against any RTC entity, our suppliers, affiliates or partners, it could potentially disrupt our business operations.

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.

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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 June 30, 2022, our Contract liabilities include approximately $380 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.

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.

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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.

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 six months ended June 30, 2022.

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 Regarding Forward-Looking Statements” 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.

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.

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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.

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

Net sales $ 16,951 $ 16,213 $ 48,981 $ 47,344

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

(dollars in millions) Quarter Ended June 30, 2022 Six Months Ended June 30, 2022

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

$ 1,021 $ 2,382

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GAAP amount is provided in the table above.

Net sales increased $697 million organically in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 primarily due to higher organic sales of $0.7 billion at Pratt & Whitney and $0.5 billion at Collins, partially offset by lower organic sales of $0.4 billion at RMD.

The $186 million decrease in net sales related to Acquisitions and divestitures, net for the quarter ended June 30, 2022 compared to the quarter ended June 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 $77 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily driven by the impact of foreign exchange.

Net sales increased $1,361 million organically in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to higher organic sales of $1.2 billion at Pratt & Whitney and $1.0 billion at Collins, partially offset by lower organic sales of $0.7 billion at RMD.

The $354 million decrease in net sales related to Acquisitions and divestitures, net for the six months ended June 30, 2022 compared to the six months ended June 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 $108 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, was primarily driven by the impact of foreign exchange.

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.

Quarter Ended June 30, % of Total Net Sales

Quarter Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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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 $79 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 due to increases in external products sales of $0.4 billion at Pratt & Whitney and $0.2 billion at Collins, partially offset by decreases in external products sales of $0.4 billion at RMD and $0.1 billion at RIS.

Net services sales increased $355 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 primarily due to increases in external services sales of $0.3 billion at Pratt & Whitney and $0.2 billion at Collins, partially offset by a decrease in external services sales of $0.1 billion at RIS.

Six Months Ended June 30, % of Total Net Sales

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 .

Nine Months Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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Total net sales $ 48,981 $ 47,344 100 % 100 %

Net products sales increased $277 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to increases in external products sales of $0.6 billion at Pratt & Whitney and $0.5 billion at Collins, partially offset by decreases in external products sales of $0.7 billion at RMD and $0.2 billion at RIS.

Net services sales increased $622 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to increases in external services sales of $0.6 billion at Pratt & Whitney and $0.3 billion at Collins, partially offset by a decrease in external services sales of $0.3 billion at RIS.

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:

Quarter Ended June 30, % of Total Net Sales

Quarter Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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

Six Months Ended June 30, % of Total Net Sales

Nine Months Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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Cost of Sales

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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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 six months ended June 30, 2022 are as follows:

(dollars in millions) Quarter Ended June 30, 2022 Six Months Ended June 30, 2022

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

$ 650 $ 1,156

Acquisitions and divestitures, net (155) (448)

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GAAP amount is provided in the table above.

The organic increase in total cost of sales of $453 million for the quarter ended June 30, 2022 compared to the quarter ended June 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 $150 million decrease in cost of sales related to Acquisitions and divestitures, net for the quarter ended June 30, 2022 compared to the quarter ended June 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 $62 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily driven by the impact of foreign exchange.

The organic increase in total cost of sales of $506 million for the six months ended June 30, 2022 compared to the six months ended June 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 $293 million decrease in cost of sales related to Acquisitions and divestitures, net for the six months ended June 30, 2022 compared to the six months ended June 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 increase in other cost of sales of $75 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, was primarily driven 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.

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.

Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

These charges were partially offset by the impact of foreign exchange.

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.

Quarter Ended June 30, % of Total Net Sales

Quarter Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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Total cost of sales $ 13,464 $ 13,089 79.4 % 80.7 %

Net products cost of sales increased $43 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 primarily due to increases at Collins and Pratt & Whitney, partially offset by decreases at RMD and RIS and a decrease in Acquisition Accounting Adjustments.

The changes at Collins, Pratt & Whitney, RMD and RIS were related to the changes in products sales noted above.

Net services cost of sales increased $158 million in the quarter ended June 30, 2022 compared to the quarter ended June 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.

Six Months Ended June 30, % of Total Net Sales

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.

Nine Months Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

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Total cost of sales $ 38,880 $ 38,281 79.4 % 80.9 %

Net products cost of sales decreased $111 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to decreases at RMD and RIS and in Acquisition Accounting Adjustments, partially offset by increases at Collins and Pratt & Whitney.

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 $335 million in the six months ended June 30, 2022 compared to the six months ended June 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.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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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 research and development as a percentage of net sales for the quarter ended June 30, 2022 was relatively consistent with the quarter ended June 30, 2021, with the increase principally driven by an increase in research and development spending at Pratt & Whitney on various commercial programs.

The decrease in customer-funded research and development of $68 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily driven by lower expenses on various military and commercial programs at Collins, and lower expenses on next generation technologies 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.

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

The decrease in customer-funded research and development of $114 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily driven by lower expenses on various military programs at Collins, and lower expenses on next generation technologies at RMD, partially offset by an increase in expenses on the NGI program awarded in the second quarter of 2021 at RMD.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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Percentage of net sales 8.2 % 7.6 % 8.7 % 8.1 %

Selling, general and administrative expenses as a percentage of net sales for the quarter ended June 30, 2022 was relatively consistent with the quarter ended June 30, 2021.

Included in the increase were higher expenses of $0.1 billion at Collins principally driven by higher employee-related costs.

Selling, general and administrative expenses increased $305 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily driven by higher expenses of $0.3 billion at Collins and Pratt & Whitney principally

driven by $71 million of charges related to increased estimates for credit losses due to global sanctions on and export controls with respect to Russia, and higher employee-related costs.

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.

Basis of Presentation” within Item 1 of this Form 10-Q for additional information on Russia sanctions.

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Other Income, Net

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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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 $65 million for the quarter ended June 30, 2022 compared to the quarter ended June 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 decrease in Other income, net of $145 million for the six months ended June 30, 2022 compared to the six months ended June 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 $44 million, and a loss resulting from the exit of our investment in a Russia-based joint venture at Collins in the first quarter of 2022.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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Operating profit margin 8.7 % 8.3 % 8.0 % 7.7 %

The increase in Operating profit of $71 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily driven by a decrease in Corporate expenses and other unallocated items and Acquisition accounting adjustments, partially offset by the operating performance of our segments, all of which are described below in “Segment Review.”

The increase in Operating profit of $138 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily driven by a decrease in Acquisition accounting adjustments and the operating performance of our segments, partially offset by our FAS/CAS operating adjustment, all of which are described below in “Segment Review.”

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

Non-service pension income $ (468) $ (491) $ (1,422) $ (1,472)

The change in Non-service pension income of $16 million for the quarter ended June 30, 2022 compared to the quarter ended June 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 $27 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 included the impact of an increase in the discount rate, partially offset by prior years’ pension asset returns exceeding our EROA assumption.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

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(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 $13 million and $41 million in the quarter and six months ended June 30, 2022 compared to the quarter and six months ended June 30, 2021, respectively, 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.

Interest income in the six months ended June 30, 2022 includes adjustments of certain tax-related interest reserves in the first quarter of 2022.

Quarter Ended June 30, Six Months Ended June 30,

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.

Quarter Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Effective income tax rate 14.8 % 0.2 % 11.8 % 17.0 %

The effective tax rate in the quarter ended June 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 June 30, 2021 includes tax charges incremental to the U.S.

tax rate of $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 and effective in 2023.

The effective tax rate in the six months ended June 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 six months ended June 30, 2021 includes tax charges incremental to the U.S.

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 enactment of the U.K.

corporate tax rate change discussed above.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions, except per share amounts) 2022 2021 2022 2021

1 unchanged sentence

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 June 30, 2022 includes the following:

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;

• 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 June 30, 2021 includes the following:

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;

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

• 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;

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• 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 six months ended June 30, 2021 includes the following:

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 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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions, except per share amounts) 2022 2021 2022 2021

1 unchanged sentence

Diluted earnings per share from operations $ 0.94 $ 0.93 $ 2.54 $ 2.10

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

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

2 unchanged sentences

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 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.

4 unchanged sentences

Total net sales by segment were as follows:

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

8 unchanged sentences

Operating profit by segment was as follows:

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

15 unchanged sentences

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

2 unchanged sentences

Total net EAC adjustments $ 7 $ 25 $ 2 $ 64

The change in net EAC adjustments of $68 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily due to unfavorable changes in net EAC adjustments of $80 million at RMD and $61 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 $46 million at Collins, spread across numerous individual programs with no individual or common significant driver, and a favorable change in net EAC adjustments of $27 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.

The change in net EAC adjustments of $44 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to unfavorable changes in net EAC adjustments of $122 million at RMD and $56 million at RIS, including the impact of acquisitions and dispositions, both spread across numerous individual programs with no individual or common significant driver.

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.

1 unchanged sentence

Backlog and Defense Bookings.

Total backlog was approximately $161 billion and $156 billion as of June 30, 2022 and December 31, 2021, respectively, which includes defense backlog of $65 billion and $63 billion as of June 30, 2022 and December 31, 2021, respectively.

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:

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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 $13 billion and $12 billion for the quarters ended June 30, 2022 and 2021, respectively, and approximately $22 billion and $20 billion for the six months ended June 30, 2022 and 2021, respectively.

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:

2 unchanged sentences

Collins Aerospace Systems

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

2 unchanged sentences

Operating profit margins 12.1 % 10.4 % 10.7 % 9.6 %

Quarter Ended June 30, 2022 Compared with Quarter Ended June 30, 2021

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

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $0.5 billion in the quarter ended June 30, 2022 compared to the quarter ended June 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, 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.

This was partially offset by lower military sales of $0.1 billion in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 primarily due to lower material receipts and expected declines in F-35 volume.

The organic profit increase of $0.1 billion in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily due to higher commercial aerospace operating profit of $0.2 billion principally driven by the higher commercial aerospace aftermarket sales discussed above, slightly offset by the absence of a $33 million favorable impact from a contract related matter in the quarter ended June 30, 2021.

This increase in commercial aerospace operating profit was partially offset by higher selling, general and administrative expenses of $0.1 billion primarily due to higher employee-related costs, and slightly lower military operating profit principally driven by the lower military sales volume discussed above.

The decrease in Other operating profits of $59 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily due to $69 million of charges associated with the disposition of two non-core businesses.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

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

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $1.0 billion in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily relates to higher commercial aerospace aftermarket sales of $0.9 billion, including increases across all aftermarket sales channels, and higher commercial aerospace OEM sales of $0.4 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.

This was partially offset by lower military sales of $0.3 billion in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to expected declines in F-35 volume and lower material receipts.

The organic profit increase of $0.3 billion in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to higher commercial aerospace operating profit of $0.6 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 quarter ended June 30, 2021.

This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.1 billion principally driven by the lower military sales volume discussed above, and higher selling, general and administrative expenses of $0.1 billion primarily due to higher employee-related costs.

The decrease in Other operating profits of $192 million in the six months ended June 30, 2022 compared to the six months ended June 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.

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.

1 unchanged sentence

Pratt & Whitney

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

2 unchanged sentences

Operating profit margins 5.9 % 4.0 % 5.2 % 2.4 %

Quarter Ended June 30, 2022 Compared with Quarter Ended June 30, 2021

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

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $0.7 billion in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 reflects higher commercial aftermarket sales of $0.4 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 large commercial engine shipments, and higher military sales of $0.1 billion primarily due to the timing of an F135 production contract award, resulting in the recognition of previously inventoried costs, and higher F135 sustainment volume.

The organic profit increase of $0.2 billion in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily driven by higher commercial aerospace operating profit of $0.3 billion principally due to the aftermarket sales volume increase discussed above and favorable OEM mix .

The increase also includes higher military operating profit primarily driven by the military sales volume increase discussed above.

This increase was partially offset by an increase in selling, general and administrative expenses and research and development costs of $0.1 billion combined, which includes higher employee-related

In the quarter ended June 30, 2022, our organic profit included a $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket program, which impacted our commercial aerospace operating profit.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

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

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $1.2 billion in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 reflects higher commercial aftermarket sales of $1.0 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 $0.3 billion primarily driven by favorable mix on large commercial engine shipments.

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 $0.5 billion in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily driven by higher commercial aerospace operating profit of $0.7 billion principally due to the aftermarket sales volume increase discussed above and favorable OEM mix .

This increase was partially offset by an increase in selling, general and administrative expenses and research and development costs of $0.1 billion combined, which includes higher employee-related costs.

This increase was also offset by slightly lower military operating profit .

In the six months ended June 30, 2021, our organic profit included other income of $44 million related to foreign government wage subsidies due to COVID-19.

The decrease in Other operating profit of $167 million in the six months ended June 30, 2022 compared to the six months ended June 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.

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.

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 June 30, 2022, Pratt & Whitney booked $4.0 billion for F135 production Lots 15 and 16 and $408 million for F135 sustainment.

In addition to these bookings, in the six months ended June 30, 2022 Pratt & Whitney booked $251 million for tanker production Lots 7 and 8.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

3 unchanged sentences

Bookings $ 3,897 $ 2,894 35 % $ 9,469 $ 10,572 (10) %

Quarter Ended June 30, 2022 Compared with Quarter Ended June 30, 2021

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

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ 5 $ 9 $ (28) $ (6) $ (20)

Organic sales in the quarter ended June 30, 2022 were relatively consistent with the quarter ended June 30, 2021.

Included in the organic change in sales were 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, and lower Sensing and Effects sales driven by a decrease in surveillance and targeting systems due to lower production volume, partially offset by an increase in Cyber, Training and Services sales on certain classified cyber programs.

The decrease in operating profit of $100 million, and the related decrease in operating profit margins, in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, were primarily due to the net unfavorable change in EAC adjustments of $54 million, which was spread across numerous programs and includes unfavorable adjustments on certain development programs, as well as acquisitions / divestitures, net.

Included in mix and other performance is an $18 million gain on a real estate transaction in the quarter ended June 30, 2021.

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.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

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

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ 4 $ (29) $ (92) $ (13) $ (130)

Organic sales in the six months ended June 30, 2022 were relatively consistent with the six months ended June 30, 2021.

Included in the organic change in sales were lower Command, Control and Communications sales of $0.1 billion, lower Sensing and Effects sales of $0.1 billion, and higher Cyber, Training and Services sales of $0.1 billion on certain classified cyber programs.

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 lower Sensing and Effects sales includes an increase in certain classified programs and a decrease in surveillance and targeting systems due to lower production volume, with the remaining change spread across numerous programs.

The decrease in operating profit of $110 million, and the related decrease in operating profit margins, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, were primarily due to acquisition / divestitures, net described below, and the net unfavorable change in EAC adjustments of $38 million, which was spread across numerous programs and includes unfavorable adjustments on certain development programs.

Included in mix and other performance is an $18 million gain on a real estate transaction in the quarter ended June 30, 2021.

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 $16 billion at June 30, 2022 and $18 billion at December 31, 2021.

In addition to a number of smaller bookings, in the quarter ended June 30, 2022, RIS booked $1.2 billion on a number of classified contracts and $253 million on the Development, Operations and Maintenance (DOMino) cyber program for the Department of Homeland Security (DHS).

In addition to these bookings, in the six months ended June 30, 2022, RIS booked $1.1 billion on a number of classified contracts and $311 million on the Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) GEO missile warning and defense contract for the U.S.

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

3 unchanged sentences

Bookings $ 5,415 $ 3,901 39 % $ 14,052 $ 12,487 13 %

Quarter Ended June 30, 2022 Compared with Quarter Ended June 30, 2021

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

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ (19) $ (21) $ — $ (42) $ (82)

The organic sales decrease of $414 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily due to lower net sales of $0.3 billion on our Land Warfare and Air Defense programs, primarily driven by lower material receipts as a result of supply chain constraints and anticipated decreases in production.

Included in the decrease in organic sales were higher net sales of $75 million on SPY-6 programs and higher net sales of $66 million on the NGI program.

The decrease in operating profit of $184 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was due to a net unfavorable change in EAC adjustments of $80 million, a change in mix and other performance of $70 million, and a change in volume of $34 million.

The net unfavorable change in EAC adjustments was spread across numerous programs and includes the impact of continued supply chain constraints.

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 decrease in operating profit margins in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily due to the net change in EAC adjustments and change in mix and other performance.

Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

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

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ (77) $ (143) $ — $ (155) $ (375)

The organic sales decrease of $674 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to lower net sales of $0.5 billion on our Land Warfare and Air Defense programs, primarily driven by lower material receipts as a result of supply chain constraints and anticipated decreases in production.

Included in the total decrease in organic sales were lower net sales of $122 million on the Advanced Medium Range Air-to-Air Missile (AMRAAM) program, higher net sales of $146 million on the NGI program and higher net sales of $122 million on SPY-6 programs.

The decrease in operating profit of $293 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to a net unfavorable change in EAC adjustments of $122 million, a change in mix and other performance of $113 million, and a change in volume of $58 million.

The net unfavorable change in EAC adjustments was spread across numerous programs and includes the impact of continued supply chain constraints.

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 decrease in operating profit margins in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, was primarily due to the net change in EAC adjustments and change in mix and other performance.

Backlog and Bookings – Backlog was $30 billion at June 30, 2022 and $29 billion at December 31, 2021.

In addition to a number of smaller bookings, in the quarter ended June 30, 2022, RMD booked $662 million on Stinger for the U.S.

Army, $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, and $217 million on Tomahawk for the U.S.

In addition to these bookings, in the six months ended June 30, 2022, RMD booked $1.2 billion on a number of classified contracts, including a strategic competitive award.

RMD also booked $651 million for the SPY-6 Hardware Production and Sustainment contract for the U.S.

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.

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 Air Intercept Missile (AIM-9X) Sidewinder short-range air-to-air missiles for the U.S.

Navy and Air Force and international customers and $218 million to provide Patriot engineering support services for the U.S.

Army and international customers.

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.

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 Lower Tier Air and Missile Defense Sensor (LTAMDS) program and certain reserves.

Net Sales Operating Profit

Quarter Ended June 30, Quarter Ended June 30,

Quarter Ended September 30, Quarter Ended September 30,

(dollars in millions) 2022 2021 2022 2021

1 unchanged sentence

Corporate expenses and other unallocated items — — (77) (89)

The increase in eliminations and other sales of $59 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was primarily due to an increase in intersegment eliminations, principally driven by Collins.

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

The decrease in Corporate expenses and other unallocated items of $107 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily due to lower restructuring costs of $51 millio n, th e allocation of $30 million of state taxes to the segments related to the impact of capitalization of research or experimental expenditures for tax-purposes and a decrease in expenses related to the LTAMDS project.

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.

Net Sales Operating Profit

Six months ended June 30, Six months ended June 30,

Nine months ended September 30, Nine months ended September 30,

(dollars in millions) 2022 2021 2022 2021

1 unchanged sentence

Corporate expenses and other unallocated items — — (255) (319)

The increase in eliminations and other sales of $88 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to an increase in intersegment eliminations, principally driven by Collins.

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

The decrease in Corporate expenses and other unallocated items of $52 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, was primarily due to a decrease in expenses related to the LTAMDS project.

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

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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.

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.

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:

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

2 unchanged sentences

FAS/CAS operating adjustment $ 378 $ 499 $ 1,135 $ 1,347

The change in our FAS/CAS operating adjustment of $46 million in the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was driven by a $55 million decrease in CAS expense, partially offset by a $9 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.

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 $91 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was driven by a $110 million decrease in CAS expense, partially offset by a $19 million decrease in FAS service cost.

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 the American Rescue Plan Act of 2021 (ARPA).

qualified pension plan funding relief included in ARPA.

Acquisition accounting adjustments

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The components of Acquisition accounting adjustments were as follows:

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

4 unchanged sentences

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

Quarter Ended June 30, Six Months Ended June 30,

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 2022 2021

6 unchanged sentences

Acquisition accounting adjustments $ (482) $ (586) $ (1,414) $ (1,621)

The change in the Acquisition accounting adjustments of $71 million for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, was primarily driven by a decrease in RIS and RMD intangibles amortization related to the Raytheon merger in 2020, partially offset by the absence of $69 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 a customer contract recognized in the quarter ended June 30, 2021.

The change in the Acquisition accounting adjustments of $103 million for the six months ended June 30, 2022 compared to the six months ended June 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 six months ended June 30, 2021.

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) June 30, 2022 December 31, 2021

(dollars in millions) September 30, 2022 December 31, 2021

Cash and cash equivalents $ 5,381 $ 7,832

7 unchanged sentences

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 June 30, 2022, we had cash and cash equivalents of $4.8 billion, of which approximatel y 47% was held by RTC’s foreign subsidiaries.

At September 30, 2022, we had cash and cash equivalents of $5.4 billion, of which approximatel y 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.

3 unchanged sentences

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 June 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.

The daily average amount of short-term commercial paper borrowings outstanding during the six months ended June 30, 2022 was $150 million.

We had no commercial paper outstanding at June 30, 2022.

As of June 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 May 2022 and expires in May 2023.

As of June 30, 2022, there were no borrowings outstanding under these agreements.

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.

6 unchanged sentences

Cash Flow - Operating Activities

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in millions) 2022 2021

1 unchanged sentence

$ 2,540 $ 3,981

Cash generated by operating activities from continuing operations in the six months ended June 30, 2022 was $0.3 billion lower than the same period in 2021, primarily driven by an unfavorable impact to cash flow from inventory principally due to current year increases to support sales volume growth, partially offset by a favorable impact to cash flow from accounts payable and accrued liabilities primarily driven by advances.

The remaining favorable impact from accounts payable and accrued liabilities was primarily driven by an increase in collaborator payables at Pratt & Whitney, which was mostly offset by an increase in collaborator receivables due to the timing of settlements.

In addition, accounts payable and accrued liabilities also reflects a $1.0 billion increase related to the impact of the capitalization of research and experimental expenditures for tax purposes, with a related $1.0 billion reduction to our deferred tax liability.

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 six months ended June 30, 2022, compared to an increase in cash flows provided by operating activities of approximately $0.8 billion during the six months ended June 30, 2021.

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 $530 million and $618 million in the six months ended June 30, 2022 and 2021, respectively.

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.

If this provision is not deferred legislatively, our full year 2022 tax payments are expected to increase by an estimated $2 billion.

Payments on the increased taxes may begin in the third quarter of 2022, using cash on hand or other sources of liquidity.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in millions) 2022 2021

Net cash flows (used in) provided by investing activities from continuing operations

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 $1.4 billion change in cash flows (used in) provided by investing activities from continuing operations in the six months ended June 30, 2022 compared to June 30, 2021 primarily relates to the absence of the prior year sale of our Forcepoint business described below.

Capital expenditures in the six months ended June 30, 2022 increased by $171 million from the six months ended June 30, 2021 primarily due to investments in production facilities at Pratt & Whitney.

Dispositions of businesses were $88 million and $1.1 billion in six months ended June 30, 2022 and 2021, respectively.

In the six months ended June 30, 2022, dispositions of businesses consisted of immaterial dispositions in our aerospace businesses.

In the six months ended June 30, 2021, dispositions of businesses primarily related to the sale of our Forcepoint business.

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 payments, net were $7 million and $102 million in six months ended June 30, 2022 and 2021, respectively, and include purchases and sales of engines in our leased asset pool as well as customer financing.

The decrease in customer financing assets payments, net was primarily due to decreased customer financing payments, the absence of a payment on a prior year sale and leaseback transaction for the sale of equipment, and fewer engines added to our leased asset pool.

During the six months ended June 30, 2022 and 2021, we increased our collaboration intangible assets by $91 million and $60 million, respectively, which primarily relates to payments made under our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE).

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:

1 unchanged sentence

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.

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 six months ended June 30, 2022 and 2021, we had net cash payments of $151 million and net cash receipts of $50 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in millions) 2022 2021

1 unchanged sentence

$ (3,010) $ (5,182)

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

Financing activities were a cash outflow of $3.6 billion in the six months ended June 30, 2022 compared to a cash outflow of $3.1 billion in the six months ended June 30, 2021.

This change was primarily driven by an increase in share repurchases of $0.8 billion, partially offset by the absence of the prior year repayment of long-term debt of $0.3 billion.

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 debt issuances and repayments.

At June 30, 2022, management had remaining authority to repurchase approximately $4.1 billion of our common stock under the December 7, 2021 share repurchase program.

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.

2 unchanged sentences

Our share repurchases were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in millions;

5 unchanged sentences

Our Board of Directors authorized the following cash dividends:

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in millions, except per share amounts) 2022 2021

2 unchanged sentences

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.

Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change in our exposure to market risk during the six months ended June 30, 2022.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis