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Item 1A. Risk Factors

2022-10-25 compared with 2022-07-26 · 81 added, 3 removed, 0 unchanged (100% of the section changed)

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A.

in our 2021 Annual Report on Form 10-K (2021 Form 10-K).

There have been no material changes from the factors disclosed in our 2021 Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission (SEC).

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A in our 2021 Annual Report on Form 10-K (2021 Form 10-K).

Except for the risk factors discussed below, there have been no material changes from the factors disclosed in our 2021 Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission (SEC).

Our international business is subject to economic, regulatory, competition and other risks.

Our international sales and operations are subject to risks associated with political and economic factors, regulatory requirements, competition and other risks.

A significant portion of our sales are from international sales and include U.S.

export sales.

In addition, transactions in our non-U.S.

operations may be denominated in local currencies.

Fluctuations in foreign currency exchange rates may negatively affect demand for our products and our reported profits, as well as our operating margins due to changing supplier prices.

In particular, a strengthening of the U.S.

Dollar against other major foreign currencies could adversely affect our results of operations.

The majority of our commercial aerospace sales are in U.S.

Dollars, while the majority of their non-U.S.

costs are incurred in the applicable local currency.

Pratt & Whitney Canada is especially susceptible to fluctuations in exchange rates for this reason.

In addition, because our financial statements are denominated in U.S.

Dollars, currency fluctuations may cause

translation gains or losses for non-U.S.

operating unit financial statements.

For the reasons above, currency fluctuations may adversely affect our results of operations.

To manage certain exposures, we employ long-term hedging strategies associated with U.S.

Dollar sales.

Our international sales are also subject to risks associated with local government laws, regulations and policies, including export-import controls, investments, taxation, exchange controls, capital controls, employment regulations and repatriation of earnings, and changes to these laws, regulations and policies.

Differing legal systems, customs and contract laws and regulations pose additional risk.

International transactions may include contractual terms that differ from those of similar contracts in the U.S.

or that may be interpreted differently in foreign countries.

Our international sales also require us to comply with U.S.

laws, regulations and policies, including the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign Corrupt Practices Act (FCPA), and other anti-corruption, sanctions and export laws and regulations.

In addition, in certain foreign countries, we engage foreign non-employee representatives and consultants for international sales and teaming with international subcontractors, partners and suppliers for international programs.

These engagements expose us to various challenges including risks associated with the FCPA and local antibribery laws and regulations.

From time to time, we have disputes with such representatives regarding claimed commissions and other matters which can result in litigation or arbitration.

In addition, we face risks related to the unintended or unauthorized use of our products.

Our international business faces substantial competition from both U.S.

companies and foreign companies.

In some instances, foreign companies may be owned by foreign governments or may receive loans, marketing subsidies and other assistance from their governments that may not be available to U.S.

companies or our foreign subsidiaries.

In addition, foreign companies may be subject to fewer restrictions on technology transfer than U.S.

Our international contracts, particularly for sales of defense products and services, may include offset or industrial cooperation obligations requiring specific local purchases, manufacturing agreements, technology transfer agreements or financial support obligations, sometimes in the form of in-country industrial participation (ICIP) agreements.

Approvals of offset or ICIP thresholds and requirements may be subjective and time-consuming and may delay contract awards.

Certain customers’ demands are increasing for greater offset or ICIP commitment levels, higher-value content, including the transfer of technologies and capabilities, and local production and economic development.

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

Geopolitical factors and changes in policies and regulations could adversely affect our business.

Our international sales and operations are sensitive to changes in foreign national priorities, foreign government budgets, and regional and local political and economic factors, including volatility in energy prices or supply, political or civil unrest, changes in threat environments and political relations, geopolitical uncertainties, and changes in U.S.

foreign policy.

Our international sales and operations are also sensitive to changes in foreign government laws, regulations and policies, including those related to tariffs, sanctions, embargoes, export and import controls and other trade restrictions.

Government policies on international trade and investments can affect demand for our products and services, the competitive position of our products, our supply chain, and our ability to manufacture or sell products in certain countries.

The implementation of more restrictive trade policies, including tariffs, or the renegotiation of existing trade agreements in countries where we have a major customer or supplier presence could negatively affect us.

Trends such as populism and economic nationalism, “buy national” policies, limiting exports of a material largely unavailable elsewhere (such as rare earth minerals), or subsequent retaliatory policies by another government (such as tariffs) could negatively affect us.

Further, regime change in a major customer’s government could decrease or eliminate its demand for our products and services, as well as adversely affect our supply of materials or components from that county.

We conduct business in numerous countries that carry high levels of currency, political, compliance and economic risk.

We expect that sales to customers in these countries will continue to account for a significant portion of our commercial aerospace sales as our businesses evolve and as these and other developing nations and regions around the world increase their demand for our products, particularly our aerospace products.

Operations in emerging market countries can present many risks, including volatility in gross domestic product and rates of economic growth, economic and government instability, cultural differences (such as employment and business practices), the imposition of exchange and capital controls, and risks associated with exporting components manufactured in those countries for incorporation into finished products completed in other countries.

While these factors and their impact are difficult to predict, any one or more of them could have a material adverse effect on our competitive position, results of operations, financial condition or liquidity.

In addition, given the role of our defense businesses in the support of the national security interests of the U.

and its allies, we are subject to risks and uncertainties relating to policies of the U.S.

and its allies, as well as other countries, including those who are or become regarded as potential adversaries or threats.

We engage in both direct commercial sales, which generally require

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, as well as potential human rights issues associated with the use of our defense products.

These risks and uncertainties may directly or indirectly impact our commercial businesses as well.

Of note, in 2019 the U.S.

government suspended Turkey’s participation in the F-35 Joint Strike Fighter program because Turkey accepted delivery of the Russian-built S-400 air and missile defense system.

has imposed, and may impose additional, sanctions on Turkey, as well as contractual restrictions on the use of Turkish sources for certain military programs, as a result of this or other political disputes.

Turkish companies supply components, some of which are sole-sourced, to our aerospace businesses for commercial and military engines and aerospace products, as well as to our defense businesses.

Depending upon the scope and timing of U.S.

sanctions or contractual prohibitions on Turkey and potential reciprocal actions, if any, such sanctions or actions could impact our sources of supply and could have a material adverse effect on our results of operations, financial condition or liquidity.

In addition, the People’s Republic of China (China) previously announced it may take measures against Raytheon Technologies Corporation (RTC) in connection with certain foreign military sales to Taiwan involving RTC products and services.

In addition, China has indicated that it decided to sanction our Chairman and Chief Executive Officer Gregory Hayes, in connection with another potential foreign military sale to Taiwan involving RTC products and services.

RTC is not aware of any specific sanctions against Mr.

Hayes or RTC, or the nature or timing of any future potential sanctions or countermeasures.

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

The impact of potential sanctions or other actions by China cannot be determined at this time.

From time to time, our businesses have sold, and are expected to sell in the future, additional defense products to Taiwan and we are unable to determine the potential impact, if any, of any future sanctions or other actions by China in response to these sales.

Moreover, the Chinese government has generally expanded its ability to restrict China-related import, export and investment activities, which may have an adverse impact on our ability to conduct business or sell our commercial aerospace products in China.

In addition, in response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S.

government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities and individuals in Russia.

The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities and individuals in the U.S.

and other jurisdictions in which we operate.

These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector.

These measures have adversely affected and could continue to adversely affect the Company and/or our supply chain, business partners or customers.

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What changed 10-Q

Item 1A. Risk Factors