What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-07 compared with 2022-02-11 · 392 added, 492 removed, 1775 unchanged (33% of the section changed)

49 unchanged sentences

The Company’s revenues from certain long-term aftermarket contracts within its Pratt & Whitney segment are recognized over the contract period as a series of daily performance obligations to stand ready to provide spare parts, product maintenance and aftermarket services.

For the performance obligations satisfied over time, revenue is recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress.

For these performance obligations satisfied over time, revenue is recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress.

Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment by management on a contract by contract basis.

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The risks and opportunities for the contracts relate to management’s ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels and related variable consideration.

Management also makes judgments about variables related to estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, the length of time to complete the performance obligation, execution by the Company’s subcontractors, the availability and timing of funding from the customer, overhead cost rates, and the estimated cost of satisfying the Company’s industrial cooperation agreements required under certain contracts.

Management also makes judgments about variables related to estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, including any impact from rising costs or inflation, the length of time to complete the performance obligation, execution by the Company’s subcontractors, the availability and timing of funding from the customer, overhead cost rates, and the estimated cost of satisfying the Company’s industrial cooperation agreements required under certain contracts.

Within the Pratt & Whitney segment, the variables and significant judgments relate to current and past maintenance cost and frequency experience.

Management reviews contract estimates at completion on a periodic basis and no less than annually or when a change in circumstances warrants a modification to a previous estimate.

The principal considerations for our determination that performing procedures relating to revenue recognition - contract estimates at completion is a critical audit matter are (i) the significant judgment by management in developing their estimates of total revenue and total costs at completion, including significant judgments and assumptions on a contract by contract basis, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence related to management’s estimates of total revenue and total cost at completion for contracts.

The principal considerations for our determination that performing procedures relating to revenue recognition - contract estimates at completion is a critical audit matter are (i) the significant judgment by management in developing their estimates of total revenue and total costs at completion, including significant judgments and assumptions on a contract by contract basis, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s estimates of total revenue and total costs at completion for contracts.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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Goodwill and Indefinite-lived Intangible Assets Impairment Assessments

As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated goodwill and indefinite-lived intangible asset balances were $54.4 billion and $8.7 billion, respectively, as of December 31, 2021.

A portion of the total goodwill balance relates to goodwill associated with certain reporting units in the Collins Aerospace Systems, Raytheon Missiles & Defense, and Raytheon Intelligence & Space segments.

As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated goodwill and indefinite-lived intangible assets balances were $53.8 billion and $8.6 billion, respectively, as of December 31, 2022.

A portion of the total goodwill balance relates to certain reporting units of the Collins Aerospace segment.

A portion of the total indefinite-lived intangible assets balance relates to the Collins Aerospace segment.

Goodwill and indefinite-lived intangible assets are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired.

For the quantitative assessments that are performed for goodwill and indefinite-lived intangible assets, fair value is primarily based on income approaches using a discounted cash flow method and relief from royalty method, respectively, which have significant assumptions related to sales growth rates, projected operating profit, terminal growth rates, discount rates, and royalty rates.

For the quantitative assessments that are performed, fair value is primarily based on market-based valuation methods, income-based methods using a discounted cash flow model, relief from royalty methods, or a combination of such.

These assessments utilize significant assumptions related to sales growth rates, projected operating profit, terminal growth rates, discount rates, royalty rates, and comparable multiples from publicly traded companies in the aerospace and defense industry.

The impairment testing compares carrying values to estimated fair values.

If the carrying value exceeds the fair value, then the carrying value is reduced to fair value.

The principal considerations for our determination that performing procedures relating to the goodwill and indefinite-lived intangible assets impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value of certain reporting units and indefinite-lived intangible assets, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to sales growth rates, terminal growth rates, and discount rates, as applicable, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

The principal considerations for our determination that performing procedures relating to the goodwill and indefinite-lived intangible assets impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of certain reporting units and indefinite-lived intangible assets of the Collins Aerospace segment, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to sales growth rates, discount rates, and comparable multiples from publicly traded companies in the aerospace and defense industry, as applicable, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill and indefinite-lived intangible assets impairment assessments, including controls over the valuation of certain reporting units and indefinite-lived intangible assets.

These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the discounted cash flow and relief from royalty methods, (iii) testing the completeness and accuracy of underlying data used in the estimates, and (iv) evaluating the reasonableness of the significant assumptions used by management related to sales growth rates, terminal growth rates, and discount rates, as applicable.

Evaluating management’s assumptions related to sales growth rates and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the relevant businesses (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow and relief from royalty methods, and the terminal growth rates and discount rates assumptions.

These procedures also included, among others (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the methodologies used to estimate fair value, (iii) testing the completeness and accuracy of underlying data used in developing the estimates, and (iv) evaluating the reasonableness of the significant assumptions used by management related to sales growth rates, discount rates, and comparable multiples from publicly traded companies in the aerospace and defense industry, as applicable.

Evaluating management’s assumptions related to sales growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the relevant businesses, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s discounted cash flow, market-based valuation, and relief from royalty methods, and (ii) the reasonableness of the discount rates and comparable multiples from publicly traded companies in the aerospace and defense industry assumptions.

/s/ PricewaterhouseCoopers LLP

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Interest expense, net 1,276 1,322 1,366

Total non-operating expense, net 27 464 762

Total non-operating expense (income), net ( 613 ) 27 464

Income (loss) from continuing operations before income taxes 6,027 4,931 ( 2,353 )

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Noncontrolling interest in subsidiaries’ earnings from continuing operations 111 248 181

Income (loss) from continuing operations attributable to common shareowners 3,897 ( 3,109 ) 3,510

Net income (loss) from continuing operations attributable to common shareowners 5,216 3,897 ( 3,109 )

Discontinued operations (Note 3)

Income (loss) from discontinued operations ( 10 ) ( 216 ) 4,091

Income tax expense from discontinued operations 23 151 1,874

Net income (loss) from discontinued operations ( 33 ) ( 367 ) 2,217

Loss from discontinued operations ( 30 ) ( 10 ) ( 216 )

Income tax expense (benefit) from discontinued operations ( 11 ) 23 151

Loss from discontinued operations ( 19 ) ( 33 ) ( 367 )

Noncontrolling interest in subsidiaries’ earnings from discontinued operations — — 43

Income (loss) from discontinued operations attributable to common shareowners ( 33 ) ( 410 ) 2,027

Loss from discontinued operations attributable to common shareowners ( 19 ) ( 33 ) ( 410 )

Net income (loss) attributable to common shareowners $ 5,197 $ 3,864 $ ( 3,519 )

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Income (loss) from continuing operations attributable to common shareowners $ 3.54 $ 2.60 $ ( 2.29 )

Income (loss) from discontinued operations ( 0.03 ) ( 0.30 ) 2.37

Loss from discontinued operations ( 0.02 ) ( 0.03 ) ( 0.30 )

Net income (loss) attributable to common shareowners $ 3.52 $ 2.57 $ ( 2.59 )

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Income (loss) from continuing operations attributable to common shareowners $ 3.51 $ 2.58 $ ( 2.29 )

Income (loss) from discontinued operations ( 0.02 ) ( 0.30 ) 2.35

Loss from discontinued operations ( 0.01 ) ( 0.02 ) ( 0.30 )

Net income (loss) attributable to common shareowners $ 3.50 $ 2.56 $ ( 2.59 )

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Foreign currency translation adjustments ( 1,048 ) ( 647 ) 609

Other comprehensive income (loss), before tax 2,567 3,087 ( 128 )

Income tax (expense) benefit related to items of other comprehensive income (loss) ( 748 ) ( 547 ) 43

Other comprehensive income, before tax 163 2,567 3,087

Income tax expense related to items of other comprehensive income ( 266 ) ( 748 ) ( 547 )

Other comprehensive income (loss), net of tax ( 103 ) 1,819 2,540

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CONSOLIDATED BALANCE SHEET

(dollars in millions, except per share amounts;

(dollars in millions;

shares in thousands) 2022 2021

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Depreciation and amortization 4,108 4,557 4,156

Deferred income tax (benefit) provision ( 88 ) ( 99 ) 38

Deferred income tax benefit ( 1,663 ) ( 88 ) ( 99 )

Stock compensation cost 420 442 330

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Dispositions of businesses, net of cash transferred (Note 2) 94 1,879 2,556

Increase in collaboration intangible assets ( 188 ) ( 172 ) ( 351 )

(Payments) receipts from settlements of derivative contracts, net ( 16 ) ( 32 ) 342

Increase in other intangible assets ( 487 ) ( 308 ) ( 312 )

Payments from settlements of derivative contracts, net ( 205 ) ( 16 ) ( 32 )

Other investing activities, net 94 145 49

5 unchanged sentences

Debt extinguishment costs — ( 649 ) —

(Decrease) increase in short-term borrowings, net ( 113 ) ( 2,041 ) 896

Proceeds from Common Stock issued under employee stock plans 7 15 27

Change in commercial paper, net (Note 10) 518 ( 160 ) 160

Change in other short-term borrowings, net ( 29 ) 47 ( 2,201 )

Dividends paid on common stock ( 3,128 ) ( 2,957 ) ( 2,732 )

Repurchase of common stock ( 2,803 ) ( 2,327 ) ( 47 )

Net transfer (to) from discontinued operations ( 71 ) ( 2,033 ) 2,387

Net transfers to discontinued operations — ( 71 ) ( 2,033 )

Other financing activities, net ( 415 ) ( 447 ) ( 136 )

1 unchanged sentence

Discontinued Operations:

Net cash (used in) provided by operating activities ( 71 ) ( 728 ) 3,062

Net cash used in operating activities — ( 71 ) ( 728 )

Net cash used in investing activities — — ( 241 )

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Restricted cash, included in Other assets 71 21 30

Cash, cash equivalents and restricted cash for discontinued operations — — 2,459

Cash and cash equivalents, end of year $ 6,220 $ 7,832 $ 8,802

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Balance at January 1 37,483 36,930 23,019

Common Stock employee plans activity 553 417 525

Common stock plans activity 485 553 417

Common stock issued for Raytheon Company outstanding common stock and equity awards — — 10,897

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Dividends on ESOP common stock ( 54 ) ( 50 ) ( 50 )

ASU 2018-02 adoption impact (Note 20) — — 745

Other, including the adoption impact of ASU 2016-13 (Note 1) ( 15 ) ( 65 ) 1

Other ( 11 ) ( 15 ) ( 65 )

Balance at December 31 52,269 50,265 49,423

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Balance at January 1 ( 38 ) ( 49 ) ( 64 )

Common Stock employee plans activity 11 15 12

Common Stock plans activity 10 11 15

Balance at December 31 ( 28 ) ( 38 ) ( 49 )

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Loss

Balance at January 1 ( 1,915 ) ( 3,734 ) ( 10,149 )

1 unchanged sentence

Separation of Carrier and Otis — — 3,875

ASU 2018-02 adoption impact (Note 20) — — ( 745 )

Balance at December 31 ( 2,018 ) ( 1,915 ) ( 3,734 )

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Redeemable noncontrolling interest net income (loss) ( 8 ) ( 8 ) ( 4 )

Other comprehensive income (loss), net of tax — — ( 12 )

Dividends attributable to noncontrolling interest ( 132 ) ( 332 ) ( 159 )

Sale of subsidiary shares from noncontrolling interest, net — 66 70

Sale (purchase) of subsidiary shares from noncontrolling interest, net ( 19 ) — 66

Acquisition (disposition) of noncontrolling interest, net ( 13 ) ( 1 ) 1

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Discontinued Operations” below for further details.

Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean United Technologies Corporation and its subsidiaries when referring to periods prior to the Raytheon Merger and to the combined company, Raytheon Technologies Corporation, when referring to periods after the Raytheon Merger.

Unless the context otherwise requires, the terms “Raytheon Company,” or “Raytheon” mean Raytheon Company and its subsidiaries prior to the Raytheon Merger.

UTC was determined to be the accounting acquirer in the Raytheon Merger and, as a result, the financial statements of Raytheon Technologies as of and for the year ended December 31, 2020 include Raytheon Company’s financial position and results of operations for the period subsequent to the completion of the Raytheon Merger on April 3, 2020.

Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean Raytheon Technologies Corporation and its subsidiaries.

UTC was determined to be the accounting acquirer in the Raytheon merger and, as a result, the financial statements of Raytheon Technologies for the year ended December 31, 2020 include Raytheon Company’s financial position and results of operations for the period subsequent to the completion of the Raytheon merger on April 3, 2020.

Russia Sanctions.

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, including certain members of the Company’s management team and Board of Directors.

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.

As a result of these sanctions on Russia and export controls, in the first quarter of 2022, we recorded pretax charges of $ 290 million, $ 210 million net of tax and the impact of noncontrolling interest, within our Collins Aerospace (Collins) and Pratt & Whitney businesses primarily related to increased estimates for credit losses on both our accounts receivables and contract assets, inventory reserves and purchase order obligations, impairment of customer financing assets for products under lease, impairment of contract fulfillment costs that are no longer recoverable, and a loss on the exit of our investment in a Russia-based joint venture.

Additionally, we reversed approximately $ 1.3 billion of remaining performance obligations (RPO) in the quarter ended March 31, 2022 related to our sales contracts in Russia at Pratt & Whitney and Collins.

We 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.

Coronavirus Disease 2019 (COVID-19) Pandemic.

The COVID-19 pandemic continues to negatively affect the global economy, our business and operations, supply chains, and the industries in which we operate.

The COVID-19 pandemic continues to negatively affect the global economy, our business and operations, the labor market, supply chains, inflation, and the industries in which we operate.

As a result of COVID-19, commercial air travel demand experienced an unprecedented downturn as governments, businesses and individuals reacted to the pandemic in ways such as lockdowns, quarantines, border closings and other travel restrictions and requirements, the adoption of remote working and decreased leisure travel.

The unprecedented decrease in air travel adversely affected our airline and airframer customers and their demand for our products and services of our Collins Aerospace Systems (Collins Aerospace) and Pratt & Whitney businesses.

The unprecedented decrease in air travel adversely affected our airline and airframer customers and their demand for our products and services of our Collins and Pratt & Whitney businesses.

In addition, the border closings, lockdowns and labor shortages resulting from COVID-19 negatively impacted global supply and distribution capabilities.

Decreases in the availability, cost and delivery of supplies have caused shortages and delays for the procurement of raw materials, components and other supplies required for our performance.

As a result of all of these factors, we expect our future operating results, particularly those of our Collins Aerospace and Pratt & Whitney businesses, to continue to be negatively impacted when compared to pre-COVID-19 (2019) results.

Our Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) businesses, although experiencing some negative impacts, primarily from supply chain pressures and labor shortages, have not experienced significant business disruptions as a result of the COVID-19 pandemic.

In 2020, we recorded write-downs of assets and significant unfavorable Estimate at Completion (EAC) adjustments in our Collins Aerospace and Pratt & Whitney businesses primarily related to:

• Goodwill impairment charges of $ 3.2 billion related to two of our Collins Aerospace reporting units.

Decreases in the availability of supplies, increases in the cost of supplies and delivery issues have caused shortages and delays for the procurement of raw materials, components and other supplies required for our performance, although 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, uncertainty continues with respect to when commercial air traffic capacity will fully return to and/or exceed pre-COVID-19 levels.

The pace of the commercial aerospace recovery is tied to general economic conditions and may be impacted by inflation, an economic downturn, or government budget deficits, among other factors, and may also be impacted by a resurgence of the pandemic and corresponding travel restrictions and protocols.

Our expectations regarding the COVID-19 pandemic and

ongoing recovery and their potential financial impact are based on available information and assumptions that we believe are reasonable at this time;

however, the actual financial impact is highly uncertain and subject to a wide range of factors and future developments.

In 2020, we recorded write-downs of assets and significant unfavorable Estimate at Completion (EAC) adjustments in our Collins and Pratt & Whitney businesses primarily related to:

• goodwill impairment charges of $ 3.2 billion related to two of our Collins reporting units.

Refer to “Note 2:

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• an unfavorable EAC adjustment on a Pratt & Whitney commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period of $ 334 million;

• contract asset and inventory impairments at Collins Aerospace due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a certain commercial aircraft type of $ 146 million;

• contract asset and inventory impairments at Collins due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a certain commercial aircraft type of $ 146 million;

• an unfavorable EAC adjustment of $ 129 million related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney;

• an $ 89 million impairment of commercial aircraft program assets at Pratt & Whitney;

• the impairment of a Collins Aerospace trade name of $ 57 million;

• the impairment of a Collins trade name of $ 57 million;

• net unfavorable EAC adjustments on commercial aftermarket contracts at Pratt & Whitney based on a change in estimated future customer activity of $ 75 million;

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• reserves related to a commercial financing arrangement at Pratt & Whitney of $ 43 million.

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 the point at which commercial air traffic capacity will return to and/or exceed pre-COVID-19 levels.

We have seen indications that commercial air travel is recovering in certain areas of demand;

however, other areas continue to lag.

In addition, while global vaccination rates have increased, infection from COVID-19 variants have continued, which may impact the pace of the commercial aerospace recovery.

Further, the commercial air travel recovery is tied to general economic conditions and may be impacted by inflation or government budget deficits, among other factors.

However, we continue to estimate that a full recovery may occur in 2023 or 2024.

As our commercial aerospace business recovers, we have seen increases in certain employee-related and discretionary costs, which had decreased in the aftermath of COVID-19 due to one-time cost reduction actions in 2020.

A recovery may also impact our judgments around credit risk related to estimated credit losses.

On September 24, 2021, in furtherance of an executive order, the U.S.

Safer Federal Workforce Task Force issued guidance requiring federal contractors and subcontractors to comply with COVID-19 safety protocols, including requiring certain employees to be fully vaccinated against COVID-19 except in limited circumstances.

The implementation of this mandate may result in attrition, including attrition of critically skilled labor and difficulty in securing future labor needs, for our workforce, as well as the workforces of our subcontractors, suppliers and customers.

The mandate is currently subject to various legal proceedings.

As a result, the impact of mandate on our operations and performance, as well as on our subcontractors, suppliers and customers, is uncertain.

However, if ultimately required, the mandate could affect our performance on contracts, particularly due to disruptions in subcontractor or supplier performance or deliveries, and have a material adverse effect on our results of operations.

Our expectations regarding the COVID-19 pandemic and ongoing recovery and their potential financial impact are based on available information and assumptions that we believe are reasonable at this time;

however, the actual financial impact is highly uncertain and subject to a wide range of factors and future developments.

New information may continue to emerge concerning the scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the effect of additional variants, the efficacy, acceptance, distribution and availability of vaccines, new or continued actions to contain the pandemic’s spread or treat its impact, and governmental, business and individual actions taken in response to the pandemic (including restrictions and limitations on travel and transportation, and changes in leisure and business travel patterns and work environments) among others.

Some of these actions and related impacts may be trends that continue in the future even after the pandemic no longer poses a significant public health risk.

Summary of Accounting Principles.

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Included within our Current assets and liabilities are Contract assets and liabilities related to our aftermarket and development arrangements, which can generally span up to fifteen years.

We reclassified certain prior period amounts to conform to our current period presentation.

These reclassifications include the reclassification of assets and liabilities related to discontinued operations to Other assets, current and Other accrued liabilities, respectively, and the reclassification of debt extinguishment costs, which were previously included in Interest expense, net.

We reclassified certain immaterial prior period amounts within the Consolidated Statement of Cash Flows to conform to our current period presentation.

Use of Estimates.

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Generally Accepted Accounting Principles (GAAP), which require us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes.

As discussed above, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition, and liquidity, including sales, expenses, reserves and allowances, asset recoverability and EAC adjustments, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and related containment and treatment actions, as well as the economic impact on local, regional, national and international customers and markets.

We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods.

Other future events, including COVID-19, and their effects cannot be determined with certainty.

Therefore, the

determination of estimates requires the exercise of judgment.

Actual results could differ from those estimates, and any such differences may be material to our Consolidated Financial Statements.

Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in our Consolidated Financial Statements in the period they are determined.

Cash and Cash Equivalents.

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We conduct a review of customer credit ratings, published historical credit default rates for different rating categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness of the allowance for expected credit losses on a quarterly basis, or when events and circumstances warrant.

A credit limit is established for each customer based on the outcome of this review and consideration of the other factors discussed above.

A credit limit is established for each

customer based on the outcome of this review and consideration of the other factors discussed above.

In certain cases, we may require collateral or prepayment to mitigate credit risk.

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Accounts receivable as of December 31, 2022 and 2021 includes unbilled receivables of $ 298 million and $ 342 million, respectively, which primarily includes unbilled receivables with commercial aerospace customers.

Other unbilled receivables where payment is subject to factors beyond just the passage of time are included in Contract assets in the Consolidated Balance Sheet, and are generally classified as current.

Other unbilled receivables where payment is subject to factors beyond just the passage of time are included in Contract assets in the Consolidated Balance Sheet.

Contract Assets and Liabilities.

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In our commercial aerospace businesses, excess costs beyond standard manufacturing costs are expensed when they meet certain thresholds.

Equity Method Investments.

Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in Other assets on the Consolidated Balance Sheet.

Under this method of accounting, our share of the net earnings or losses of the investee is included in Other income, net on the Consolidated Statement of Operations since the activities of the investee are closely aligned with the operations of the business segment holding the investment.

We evaluate our equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired.

Equity Investments.

Investments in entities we do not control are included in Other assets on the Consolidated Balance Sheet.

For investments where we have significant influence, we apply the equity method of accounting, and as such, our share of the net earnings or losses of the investee is recorded.

For investments where we do not have significant influence, we record them at cost under the measurement alternative and record adjustments for observable price changes.

Equity investment income and losses are included in Other income, net on the Consolidated Statement of Operations since the activities of the investee are closely aligned with our operations.

We evaluate our equity investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired.

If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Our sales to and

purchases from unconsolidated entities accounted for under the equity method, which are considered related parties, are not material.

Our sales to and purchases from unconsolidated entities accounted for under the equity method, which are considered related parties, are not material.

Customer Financing Assets .

Customer financing assets (CFA) relate to our commercial aerospace businesses in which we provide financing to airline customers.

Our financing predominately relates to products under lease, and to a lesser extent, notes and lease receivables.

Our financing predominantly relates to products under lease, and to a lesser extent, notes and lease receivables.

In certain limited circumstances, we pay deposits on behalf of our airline customers to secure production slots with the airframers, and such pre-delivery payments are included in Accounts receivable, net, if current, and Customer financing assets, if non-current, in our Consolidated Balance Sheet.

Any unfunded pre-delivery payments are included within our commercial aerospace financing commitments as further discussed in “Note 18:

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Notes and lease receivables are valued at the net amount expected to be collected.

For notes and lease receivables, we determine a specific reserve for exposure based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral in connection with the evaluation of credit risk and collectability.

the evaluation of credit risk and collectability.

As of December 31, 2022 and 2021, the reserves related to CFA were not material.

At December 31, 2022 and 2021, we did not have any significant balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be impaired.

Fixed Assets, Net.

Fixed assets, net, are stated at cost less accumulated depreciation.

Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements are expensed.

For asset sales or retirements, the assets and related accumulated depreciation and amortization are eliminated from the accounts.

Gains and losses on sales of our Fixed assets, net, are generally recorded in operating income.

Business Combinations.

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In developing our estimates for the fair value of our reporting units and indefinite-lived intangible assets, significant judgment is required in the determination of the appropriateness of using a qualitative assessment or quantitative assessment.

For the quantitative assessments that are performed, fair value is primarily based on income approaches using a discounted cash flow method or relief from royalty method, which have significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates and royalty rates.

These assessments utilize significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates, royalty rates, and comparable multiples from publicly traded companies in our industry.

Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions.

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For both our commercial aerospace collaboration assets and exclusivity arrangements, the pattern of economic benefit generally results in no amortization during the development period with amortization beginning as programs enter full rate production and aftermarket cycles.

If a pattern of economic benefit cannot be reliably determined or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used.

If a pattern of economic benefit cannot be reliably determined or if straight-

line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used.

The range of estimated useful lives is as follows:

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We determine if an arrangement contains a lease at inception.

Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities on our Consolidated Balance Sheet.

Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities, non-current on our Consolidated Balance Sheet.

The current portion of our operating lease liabilities is included in Accrued liabilities on our Consolidated Balance Sheet.

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For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

For those income tax positions where it is not more-likely-than-not

that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

Where applicable, associated interest expense has also been recognized.

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State income tax amounts are generally included in income tax expense;

however state income tax payments related to our Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) segments are generally recoverable through the pricing of products and services to the U.S.

however state income tax payments related to our Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) segments are generally recoverable through the pricing of products and

services to the U.S.

government, and, accordingly, we have recorded the future recovery of these costs from the U.S.

government within Other assets, current in the Consolidated Balance Sheet.

Accordingly, these state income taxes are generally allocated to contracts and then classified as Selling, general and administrative expenses when paid (recovered) or otherwise agreed as allocable with the U.S.

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The vast majority of our revenues are from long-term contracts associated with the design, development, manufacture or modification of complex aerospace or defense equipment or related services.

Collins Aerospace and Pratt & Whitney primarily serve commercial and government customers in both the OEM and aftermarket parts and services markets of the aerospace industry, while RIS and RMD primarily provide products and services to government customers in the defense industry.

Collins and Pratt & Whitney primarily serve commercial and government customers in both the original equipment manufacturer (OEM) and aftermarket parts and services markets of the aerospace industry, while RIS and RMD primarily provide products and services to government customers in the defense industry.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

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We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace OEM and aftermarket contracts.

Substantially all of our defense business revenue, which primarily relates to our RIS and RMD segments, and to a lesser extent Pratt & Whitney and Collins Aerospace, is recognized over time because of the continuous transfer of control to our customers.

Substantially all of our defense business revenue, which primarily relates to our RIS and RMD segments, and to a lesser extent Pratt & Whitney and Collins, is recognized over time because of the continuous transfer of control to our customers.

For performance obligations satisfied over time, revenue is recognized on a percentage of completion basis generally using costs incurred to date relative to total estimated costs at completion to measure progress.

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Our contracts with the U.S.

government are typically subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or

providing services.

government are typically subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services.

The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S.

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government fixed-price contracts, the customer pays us either performance-based payments (PBPs) or progress payments.

PBPs are interim payments equal to a negotiated percentage of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones.

PBPs are interim payments equal to a negotiated percentage of the

contract price based on quantifiable measures of performance or on the achievement of specified events or milestones.

Progress payments are interim payments up to 80-90% of costs incurred as the work progresses.

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In our commercial engine and wheels and brakes businesses, when the OEM product is sold for a loss, but the combined OEM and aftermarket arrangement for each individual sales campaign is profitable, we record OEM product losses at the time of product delivery.

We review our Estimate at Completion (EACs) on significant contracts on a periodic basis and for others, no less than annually or when a change in circumstances warrant a modification to a previous estimate.

We review our Estimates at Completion (EACs) at least annually or when a change in circumstances warrants a modification to a previous estimate.

For significant contracts, we review our EACs more frequently.

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The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration.

Management’s judgment related to these considerations has become increasingly more significant given the economic environment primarily caused by the COVID-19 pandemic.

Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others.

Cost estimates may also include the estimated cost of satisfying our industrial cooperation agreements, sometimes in the form of either offset obligations or in-country industrial participation (ICIP) agreements, required under certain contracts primarily within our RIS and RMD

Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, including any impact from rising costs or inflation, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others.

In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost changes.

These obligations may or may not be distinct depending on their nature.

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Changes in estimates of net sales, cost of sales and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based on a performance obligation’s percentage of completion in the current period.

A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations.

Our EAC adjustments also include the establishment of loss provisions for our contracts accounted for on a percentage of completion basis.

A significant change in one or

more of these estimates could affect the profitability of one or more of our performance obligations.

Our EAC adjustments also include the establishment of and changes to loss provisions for our contracts accounted for on a percentage of completion basis.

Net EAC adjustments had the following impact on our operating results:

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For additional discussion on significant unfavorable EAC adjustments in 2020, see the COVID-19 Pandemic discussion above.

As a result of the Raytheon Merger, Raytheon Company’s contracts accounted for on a percentage of completion basis were reset to zero percent complete as of the date of completion of the Raytheon Merger, because only the unperformed portion of the contract at such date represents an obligation of the Company.

This had the impact of reducing EAC adjustments for these segments in the short term, most notably in 2020.

As a result of the Raytheon merger, Raytheon Company’s contracts accounted for on a percentage of completion basis were reset to zero percent complete as of the merger date, because only the unperformed portion of the contract at the merger date represented the obligation of the Company.

This had the impact of reducing EAC adjustments for these segments in the short term period following the merger, most notably in 2020.

For additional information related to the Raytheon merger, see “Note 2:

Business Acquisitions, Dispositions, Goodwill and Intangible Assets.”

In our Collins Aerospace and Pratt & Whitney businesses, we may offer customers incentives to purchase our products, which may result in payments made to those customers, which are treated as a reduction in sales.

In our Collins Aerospace and Pratt & Whitney businesses, we incur contract fulfillment costs for engineering and development of aerospace OEM products directly related to existing or anticipated contracts with customers.

In our Collins and Pratt & Whitney businesses, we may offer customers incentives to purchase our products, which may result in payments made to those customers, which are treated as a reduction in sales.

In our Collins and Pratt & Whitney businesses, we incur contract fulfillment costs for engineering and development of aerospace products directly related to existing or anticipated contracts with customers.

Such costs generate or enhance our ability to satisfy our performance obligations under these contracts.

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In instances where intellectual property does not transfer to the customer, we generally defer the customer funding of product engineering and development and recognize revenue when the related performance obligations are satisfied.

Capitalized contract fulfillment costs were $ 1,974 million and $ 1,981 million as of December 31, 2021 and 2020, respectively, and are classified in Other assets in our Consolidated Balance Sheet and are included in Other operating activities, net in our Consolidated Statement of Cash Flows.

We regularly assess capitalized contract fulfillment costs for impairment and recognized $ 111 million of impairment for contract fulfillment costs in 2020.

Capitalized contract fulfillment costs were $ 2.3 billion and $ 2.0 billion as of December 31, 2022 and 2021, respectively, and are classified in Other assets, current in our Consolidated Balance Sheet and are included in Other current assets in our Consolidated Statement of Cash Flows.

We regularly assess capitalized contract fulfillment costs for impairment and recognized $ 111 million of impairment for contract fulfillment costs in 2020 in conjunction with the related impacts of the COVID-19 pandemic.

Costs to obtain contracts are not material.

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As of December 31, 2022, the collaborators’ interests in all commercial engine programs ranged from 13 % to 49 %, inclusive of a portion of Pratt & Whitney’s interests held by other participants.

Pratt & Whitney is the principal participant in all existing collaborative arrangements, with the exception of the Engine Alliance (EA), a joint venture with GE Aviation, which markets and manufactures the GP7000 engine for the Airbus A380 aircraft.

There are no individually significant collaborative arrangements, and none of the collaborators individually have more than a 25 % share in an individual

Pratt & Whitney is the principal participant in all existing collaborative arrangements, with the exception of the Engine Alliance (EA), a joint venture with GE Aviation, which provides aftermarket support, spare parts, and service for the GP7000 engine for the Airbus A380 aircraft.

There are no individually significant collaborative arrangements, and none of the collaborators individually have more than a

25 % share in an individual program.

The following table illustrates the Consolidated Statement of Operations classification and amounts attributable to transactions arising from the collaborative arrangements between participants for each period presented.

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Total RPO was $ 175 billion as of December 31, 2022.

In the quarter ended March 31, 2022, we reversed approximately $ 1.3 billion of RPO related to our sales contracts in Russia due to global sanctions on and export controls with respect to Russia, as further discussed above.

Of the total RPO as of December 31, 2022, we expect approximately 25 % will be recognized as sales over the next 12 months.

This percentage of RPO to be recognized as sales over the next 12 months depends on our current estimates of future developments, which are highly uncertain, and cannot be predicted, including new information which may emerge concerning the scope, severity and duration of the COVID-19 pandemic, actions to contain its spread or treat its impact, and governmental, business and individuals’ actions taken in response to the pandemic, which may result in customer delays or order cancellations.

Approximately 45 % of our RPO relates to long-term commercial aerospace maintenance contracts at Pratt & Whitney, which are generally expected to be realized over a span of up to 15 years.

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Dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods.

The aggregate effects of translating the balance sheets of these subsidiaries are deferred as a separate component of accumulated other comprehensive loss (AOCL) in shareowners’ equity.

The aggregate effects of translating the balance sheets of these subsidiaries are deferred as a separate component of Accumulated other comprehensive loss (AOCL) in Shareowners’ equity on our Consolidated Balance Sheet.

Foreign exchange transaction gains and losses are recorded in Other income, net on our Consolidated Statement of Operations.

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Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases may be accounted for as cash flow hedges, as deemed appropriate.

Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings as a component of products sales or expenses, as applicable, when the hedged transaction occurs.

Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and reclassified to earnings as a component of products sales or expenses, as applicable, when the hedged transaction occurs.

Cash payments or receipts on derivatives designated as cash flow hedges are recorded in Other operating activities, net within the Consolidated Statement of Cash Flows.

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To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur.

Cash receipts or payments related to the settlement of derivatives not designated as hedging instruments are recorded as investing cash flows within the Consolidated Statement of Cash Flows.

receipts or payments related to the settlement of derivatives not designated as hedging instruments are recorded as investing cash flows within the Consolidated Statement of Cash Flows.

Additional information pertaining to foreign currency forward contracts and net investment hedging is included in “Note 14:

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We consider such recovery probable based on government contracting regulations and our history of receiving reimbursement for such costs, and accordingly have recorded the future recovery of these costs from the U.S.

government within Other assets in the Consolidated Balance Sheet.

government within Other assets, current in the Consolidated Balance Sheet.

Accrued environmental liabilities are not reduced by potential insurance reimbursements or potential recoveries from pursuing other parties.

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Guarantees” for further discussion.

Government Grants.

We may receive grants from various federal, state, local, and foreign governments in exchange for compliance with certain conditions relating to our activities in a specific jurisdiction.

Grants are often structured to encourage investment, job creation, job retention, employee training, and other related activities.

We recognize government grants when there is reasonable assurance that the Company will comply with the conditions of the grant and the grant is received or is probable of receipt and the amount is determinable.

Government grants are recorded as a reduction to the related expense or

asset to which the grant relates or recorded in Other income, net in our Consolidated Statement of Operations.

Government grant transactions are not material to our financial position, results of operations or liquidity.

Accounting Pronouncements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss

methodology for financial instruments, including trade receivables, contract assets and off-balance sheet credit exposures.

The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period.

This ASU requires that the statement of operations reflect estimates of expected credit losses for newly recognized financial assets as well as changes in the estimate of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses.

We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach.

A cumulative-effect non-cash adjustment to retained earnings as of January 1, 2020 was recorded in the amount of $ 59 million.

The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The amendments in this update remove certain exceptions of Topic 740 including:

the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items;

the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

There are also additional areas of guidance in regards to franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes.

We adopted the new standard effective January 1, 2021.

The adoption of this standard did not have an impact on our Consolidated Financial Statements.

Other new pronouncements issued but not effective until after December 31, 2021 did not and are not expected to have a material impact on our results of operations, financial condition or liquidity.

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose the key terms of supplier finance programs, the amount of obligations outstanding at the end of the reporting period that the entity has confirmed as valid to the finance provider, where these obligations are recorded in the balance sheet, and a roll forward of the obligations.

The new standard is effective for fiscal years beginning after December 15, 2022, on a retrospective basis, including interim periods within those fiscal years.

We are currently evaluating the impact of adopting this new pronouncement.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance, which requires business entities to make specific annual disclosures about transactions with a government.

The new standard is effective for fiscal years beginning after December 15, 2021.

The adoption of this standard did not have an impact on our disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to apply the guidance in ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities in a business combination, rather than using fair value.

The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.

Effective January 1, 2022, we elected to early adopt the requirements of the new standard on a prospective basis.

The adoption of the standard did not have an impact on our financial position, results of operations or liquidity.

Other new pronouncements issued but not effective until after December 31, 2022 are not expected to have a material impact on our results of operations, financial condition or liquidity.

BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLE ASSETS

Business Acquisitions.

Our investments in businesses, net of cash acquired, in 2021, 2020 and 2019 totaled $ 1.1 billion, $ 35.1 billion and $ 9 million, respectively.

Our investments in business in 2021 primarily consisted of the acquisitions discussed below.

Our investments in businesses in 2020 primarily consisted of the acquisition of Raytheon Company.

Our investments in businesses, net of cash acquired, in 2022, 2021 and 2020 totaled $ 66 million, $ 1.1 billion and $ 35.1 billion, respectively.

Our investments in business in 2022 consisted of immaterial acquisitions.

Our investments in business in 2021 and 2020 primarily consisted of the acquisitions discussed below.

In November 2021, we completed the acquisitions of FlightAware and SEAKR Engineering Inc., for a total of approximately $ 1.1 billion, net of cash received.

FlightAware is a leading digital aviation company providing global flight tracking solutions, predictive technology, analytics and decision-making tools, and is reported in the Collins Aerospace segment.

FlightAware is a leading digital aviation company providing global flight tracking solutions, predictive technology, analytics and decision-making tools, and is reported in the Collins segment.

SEAKR Engineering Inc.

is a leading supplier of advanced space electronics and is reported in the RIS segment.

In connection with these acquisitions, we have preliminarily recorded $ 0.8 billion of goodwill and $ 0.3 billion of intangibles assets.

The purchase price allocation processes for these acquisitions are expected to be complete in 2022 after the conclusion of our final reviews.

In connection with these acquisitions, we recorded $ 0.8 billion of goodwill and $ 0.3 billion of intangible assets.

In December 2020, we completed the acquisition of Blue Canyon Technologies, a leading provider of small satellites and spacecraft systems components for $ 425 million, net of cash received.

Blue Canyon Technologies is reported in the RIS segment.

In connection with this acquisition, we recorded $ 281 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, which is deductible for tax purposes, and $ 149 million of intangible assets, primarily related to customer relationships.

In connection with this acquisition, we recorded $ 281 million of goodwill and $ 149 million of intangible assets.

Pro forma financial information and revenue from the date of acquisition have not been provided for these acquisitions as they are not material either individually or in the aggregate.

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Long-term debt, including current portion 4,700

Operating lease liabilities, non-current portion 738

Future pension and postretirement benefit obligation 11,607

Operating lease liabilities, non-current 738

Future pension and postretirement benefit obligations 11,607

Other long-term liabilities 2,368

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$ 1.1 billion and an increase to future pension and postretirement benefit obligations of $ 3.6 billion, primarily related to remeasurement of the liability based on market conditions on the Raytheon merger closing date.

For further information, see “Note 11:

Employee Benefit Plans.” In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the closing date.

In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the closing date.

The assessment did not note any material contingencies related to existing legal or government action.

The Separation Transactions included the transfer of certain defined benefit plans from UTC to Carrier and Otis.

The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies.

Upon separation, the pension participants within Carrier and Otis were effectively terminated from Raytheon Technologies.

The terminations triggered a mid-year remeasurement of the UTC domestic plans.

The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020 (using March 31, 2020 as a practical expedient), resulted in a $ 2.4 billion increase to our pension liability, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019.

All service cost previously associated with Carrier and Otis was reclassified to discontinued operations.

For non-service pension (income) expense and pension liabilities, generally only the portions related to the defined benefit plans transferred to Carrier and Otis as part of the Separation Transactions were reclassified to discontinued operations.

The fair values of the customer relationship intangible assets were determined by using a discounted cash flow valuation method, which is a form of the income approach.

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The following unaudited supplemental pro-forma data presents consolidated information as if the Raytheon merger had been completed on January 1, 2019.

The pro-forma results were calculated by combining the results of Raytheon Technologies with the stand-alone results of Raytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period.

The results below reflect Raytheon Technologies on a continuing operations basis, in order to more

accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions, the Distributions and the Raytheon Merger.

this pre-acquisition period.

The results below reflect Raytheon Technologies on a continuing operations basis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions, the Distributions and the Raytheon merger.

(dollars in millions, except per share amounts) 2020

Net sales $ 64,087

Income (loss) from continuing operations attributable to common shareowners ( 2,167 ) 6,544

Basic earnings (loss) per share of common stock from continuing operations $ ( 1.43 ) $ 4.34

Diluted earnings (loss) per share of common stock from continuing operations ( 1.43 ) 4.31

Loss from continuing operations attributable to common shareowners ( 2,167 )

Basic loss per share of common stock from continuing operations $ ( 1.43 )

Diluted loss per share of common stock from continuing operations ( 1.43 )

The unaudited supplemental pro-forma data above includes the following significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on January 1, 2019, as adjusted for the applicable tax impact.

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Amortization of acquired Raytheon Company intangible assets, net (1)

$ ( 270 ) $ ( 1,048 )

Amortization of fixed asset fair value adjustment (2)

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Elimination of deferred commission amortization (8)

$ 112 $ ( 308 )

(1) Reflects the additional amortization of the acquired Raytheon Company’s intangible assets recognized at fair value in purchase accounting and eliminates the historical Raytheon Company intangible asset amortization expense.

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Dispositions.

In 2021, 2020 and 2019 cash inflows related to dispositions were $ 1,879 million, $ 2,556 million and $ 134 million, respectively.

Our dispositions of businesses in 2021, 2020 and 2019 consisted of the dispositions discussed below and other immaterial dispositions in our aerospace businesses.

In September 2021, we entered into a definitive agreement to divest our global training and services business within our RIS segment, which we completed in December 2021, for approximately $ 0.9 billion in cash and other consideration, resulting in an aggregate pre-tax gain, net of transaction costs, of $ 251 million ($ 135 million after tax), which includes a $ 12 million pre-tax gain recognized in Non-service pension income.

In October 2020, we entered into a definitive agreement to sell our Forcepoint business, which we completed on January 8, 2021, for proceeds of $ 1.1 billion, net of cash transferred.

At December 31, 2020, the related assets of approximately $ 1.9 billion and liabilities of approximately $ 855 million were accounted for as held for sale at fair value less cost to sell;

however, Forcepoint did not qualify for presentation as discontinued operations.

These held for sale assets and liabilities are presented in Other assets, current and Other accrued liabilities, respectively, on our December 31, 2020 Consolidated Balance Sheet.

Assets held for sale included $ 1.4 billion of goodwill and intangible assets.

In 2022, 2021 and 2020 cash inflows related to dispositions were $ 94 million, $ 1.9 billion and $ 2.6 billion, respectively.

Our dispositions of businesses in 2022 were immaterial.

Our dispositions of businesses in 2021 and 2020 consisted of the dispositions discussed below and other immaterial dispositions.

In December 2021, we divested our global training and services business within our RIS segment for approximately $ 0.9 billion in cash and other consideration, resulting in an aggregate pre-tax gain, net of transaction costs, of $ 251 million ($ 135 million after tax), which includes a $ 12 million pre-tax gain recognized in Non-service pension income within the Consolidated Statement of Operations.

In January 2021, we sold our Forcepoint business for proceeds of $ 1.1 billion, net of cash transferred.

We did not recognize a pre-tax gain or loss within the Consolidated Statement of Operations related to the sale of Forcepoint.

The results of Forcepoint were included in Eliminations and other in our segment results.

In the third quarter of 2020, in accordance with conditions imposed for regulatory approval of the Raytheon Merger, we completed the sale of our Collins Aerospace military Global Positioning System (GPS) and space-based precision optics businesses for $ 2.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction costs, of $ 580 million ($ 253 million after tax), of which $ 608 million was included in Other income (expense), net partially offset by $ 20 million of aggregate transaction costs included in Selling, general and administrative costs and an $ 8 million expense included in Non-service pension income within our Consolidated Statement of Operations.

In the third quarter of 2020, in accordance with conditions imposed for regulatory approval of the Raytheon merger, we completed the sale of our Collins military Global Positioning System (GPS) and space-based precision optics businesses for $ 2.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction costs, of $ 580 million ($ 253 million after tax), of which $ 608 million was included in Other income, net partially offset by $ 20 million of aggregate transaction costs included in

Selling, general and administrative costs and an $ 8 million expense included in Non-service pension income within our Consolidated Statement of Operations.

In May 2020, in order to meet the requirements for regulatory approval of the Raytheon merger, we completed the sale of our airborne tactical radios business within our RIS segment for $ 231 million in cash, net of transaction-related costs.

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Changes in our goodwill balances for the year ended in 2022 were as follows:

(dollars in millions) Balance as of January 1, 2021 (1)

Acquisitions and Divestitures Foreign currency

(dollars in millions) Balance as of January 1, 2022 Acquisitions and Divestitures Foreign currency

translation and other Balance as of

December 31, 2022

Collins Aerospace Systems $ 31,571 $ 228 $ ( 415 ) $ 31,384

Collins Aerospace $ 31,384 $ ( 36 ) $ ( 629 ) $ 30,719

Pratt & Whitney 1,563 — — 1,563

Raytheon Intelligence & Space 9,813 26 2 9,841

9,522 286 5 9,813

Raytheon Missiles & Defense 11,659 41 — 11,700

11,608 52 ( 1 ) 11,659

Total Segment 54,419 31 ( 627 ) 53,823

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Total $ 54,436 $ 31 $ ( 627 ) $ 53,840

(1) In connection with the previously announced January 1, 2021 reorganization of RIS and RMD, goodwill of $ 282 million was allocated from RMD to RIS on a relative fair value basis and is reflected in the revised balances at January 1, 2021.

The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.

We completed our annual goodwill impairment testing as of October 1, 2021, where we compared the fair value of all of our reporting units to their respective carrying values (step 1) and determined that no adjustments to the carrying value of goodwill were necessary.

We estimated the fair value of our reporting units using a discounted cash flow (DCF) model based on our most recent long-range plan in place at the time of our impairment testing.

The key assumptions used in the DCF analysis include our business projections, including revenue growth rates and operating profit margins, the long-term growth rate used to calculate the terminal value of the reporting unit, and the discount rate.

We completed our annual goodwill impairment testing as of October 1, 2022 and determined that no adjustments to the carrying value of goodwill were necessary.

For those reporting units where we performed a quantitative test, we estimated the fair value of our reporting units using a combination of discounted cash flows and market-based valuation methodologies.

As noted above, these methodologies involve significant assumptions that are subject to variability.

The key assumptions used in our quantitative analysis include our business projections, including revenue growth rates and operating profit margins, the long-term growth rate used to calculate the terminal value of the reporting unit, the discount rate, and comparable multiples from publicly traded companies in our industry.

We consider both internal and external factors and refresh key assumptions annually or as considered necessary.

As part of our 2021 analysis, we used a slightly higher long-term growth rate assumption as compared to our 2020 analysis, based on our review of historical growth rates for our business and industry, long-term inflation estimates, and industry reports on projected future long-term growth for the industry.

Material changes in these estimates could occur and result in impairments in future periods.

Based on our annual impairment analysis as of October 1, 2021, the reporting unit that was closest to impairment was a Collins Aerospace reporting unit with a fair value in excess of book value, including goodwill, of 15 %.

All other factors being equal, a 10% decrease in expected future cash flows, either due to a delay in the return to pre-pandemic revenue levels or other factors, would result in an excess of fair value over net book value of approximately 3 %.

Alternatively, all other factors being equal, a 50 basis points decrease in the assumed long-term growth rate would result in an excess of fair value over net book value of approximately 7 %.

The discount rate that we used in our 2021 analysis was consistent with the discount rate used in our 2020 analysis.

All other factors being equal, a 50 basis points increase in the discount rate would result in an excess of fair value over net book value of approximately 4 %.

Based on our annual impairment analysis as of October 1, 2022, the reporting units that were closest to impairment were two previously combined Collins reporting units with fair values in excess of book values, including goodwill, of 15 % and 17 %.

The combined value of goodwill allocated to these two reporting units is approximately $ 9.5 billion as of the date testing was performed.

All other reporting units had a fair value substantially in excess of book value.

We considered the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic to be a triggering event in the first and second quarters of 2020, requiring an impairment evaluation of goodwill, intangible assets, net and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney.

Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules and we experienced significant unfavorable EAC adjustments at our Collins Aerospace and Pratt & Whitney businesses due to a decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries.

Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules and we experienced significant unfavorable EAC adjustments at our Collins and Pratt & Whitney businesses due to a decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries.

These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our future sales and cash flows expectations.

second quarter of 2020, we evaluated the Collins Aerospace and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins Aerospace reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $ 3.2 billion.

In the second quarter of 2020, we evaluated the Collins and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $ 3.2 billion.

Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios.

The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the key assumptions in determining the fair value of our reporting units, including long-term revenue growth projections, profitability and expectations for net cash flows, discount rates including changes to U.S.

The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the significant assumptions noted above, including changes to U.S.

treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market and macro-economic conditions.

It is possible that future changes in such circumstances, including significant future negative developments in the COVID-19 pandemic, or future changes in the inputs and assumptions used in estimating the fair value of our reporting units, including the expected long-term recovery of airline travel to pre-COVID-19 levels, would require the Company to record a non-cash impairment charge.

It is possible that future changes in such circumstances or in the inputs and assumptions used in estimating the fair value of our reporting units, could require the Company to record a non-cash impairment charge.

Intangible Assets.

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Amount Accumulated

Patents and trademarks $ 96 $ ( 37 ) $ 48 $ ( 35 )

Collaboration assets $ 5,536 $ ( 1,408 ) $ 5,319 $ ( 1,173 )

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Total $ 48,065 $ ( 11,242 ) $ 47,884 $ ( 9,368 )

We completed our annual indefinite-lived intangible assets impairment testing as of October 1, 2021.

Based on this analysis, all of our indefinite-lived intangible assets had a fair value substantially in excess of book value.

In 2020, given the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic, we performed an assessment of our indefinite-lived intangible assets and recorded charges of $ 57 million related to the impairment of an indefinite-lived tradename intangible assets at Collins Aerospace.

We will continue to evaluate the impact of the COVID-19 pandemic on our customers and our business in future periods which may result in a different conclusion.

We also completed our annual indefinite-lived intangible assets impairment testing as of October 1, 2022 and determined that no adjustments to the carrying value of these assets were necessary.

Amortization of intangible assets was $ 1,957 million, $ 2,439 million and $ 2,125 million in 2022, 2021 and 2020, respectively.

The following is the expected amortization of total intangible assets for 2022 through 2026, which reflects the pattern of expected economic benefit on certain aerospace intangible assets:

The following is the expected amortization of total intangible assets for 2023 through 2027:

(dollars in millions) 2023 2024 2025 2026 2027

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Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

Income (loss) from discontinued operations is as follows:

Loss from discontinued operations is as follows:

(dollars in millions) 2022 2021 2020

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Separation related and other discontinued operations transactions ( 19 ) ( 33 ) ( 793 )

Income (loss) from discontinued operations attributable to common shareowners $ ( 33 ) $ ( 410 ) $ 2,027

Loss from discontinued operations attributable to common shareowners $ ( 19 ) $ ( 33 ) $ ( 410 )

The following summarized financial information related to discontinued operations has been reclassified from Income from continuing operations and included in Income (loss) from discontinued operations:

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Loss from discontinued operations, net of tax ( 19 ) ( 33 ) ( 793 )

Total income (loss) from discontinued operations attributable to common shareowners $ ( 33 ) $ ( 410 ) $ 2,027

(1) Reflects unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.

Total loss from discontinued operations attributable to common shareowners $ ( 19 ) $ ( 33 ) $ ( 410 )

(1) Primarily reflects unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.

In addition, 2020 includes debt extinguishment costs related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon merger agreement.

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(dollars in millions) 2022 2021 2020

Net cash (used in) provided by operating activities $ ( 71 ) $ ( 728 ) $ 3,062

Net cash used in investing activities — ( 241 ) ( 416 )

Net cash provided by (used in) financing activities 71 ( 1,414 ) ( 2,651 )

Net cash (used in) provided by operating activities includes the net operating cash flows of Carrier and Otis prior to the Separation Transactions, as well as costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities.

Net cash used in financing activities primarily consists of net cash transfers from Carrier and Otis to the Company, as well as debt extinguishment costs related to the early repayment of debt in 2020.

Net cash flows used in operating activities from discontinued operations $ — $ ( 71 ) $ ( 728 )

Net cash flows used in investing activities from discontinued operations — — ( 241 )

Net cash flows provided by (used in) financing activities from discontinued operations — 71 ( 1,414 )

Net cash flows used in operating activities from discontinued operations includes the net operating cash flows of Carrier and Otis prior to the Separation Transactions, as well as costs incurred by the Company primarily related to professional services pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities.

Net cash flows provided by (used in) financing activities from discontinued operations primarily consists of net cash transfers from Carrier and Otis to the Company, as well as debt extinguishment costs related to the early repayment of debt in 2020.

The Separation of Carrier was treated as a return on capital and recorded as a reduction to retained earnings, as it was in a net asset position, while the Separation of Otis was treated as a return of capital and recorded as an adjustment to Common stock, as it was in a net liability position.

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Income (loss) from continuing operations $ 5,216 $ 3,897 $ ( 3,109 )

Income (loss) from discontinued operations ( 33 ) ( 410 ) 2,027

Loss from discontinued operations ( 19 ) ( 33 ) ( 410 )

Net income (loss) attributable to common shareowners $ 5,197 $ 3,864 $ ( 3,519 )

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Income (loss) from continuing operations $ 3.54 $ 2.60 $ ( 2.29 )

Income (loss) from discontinued operations ( 0.03 ) ( 0.30 ) 2.37

Loss from discontinued operations ( 0.02 ) ( 0.03 ) ( 0.30 )

Net income (loss) attributable to common shareowners $ 3.52 $ 2.57 $ ( 2.59 )

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Income (loss) from continuing operations $ 3.51 $ 2.58 $ ( 2.29 )

Income (loss) from discontinued operations ( 0.02 ) ( 0.30 ) 2.35

Loss from discontinued operations ( 0.01 ) ( 0.02 ) ( 0.30 )

Net income (loss) attributable to common shareowners $ 3.50 $ 2.56 $ ( 2.59 )

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For 2022 and 2021, there were 6.2 million and 13.4 million stock awards excluded from the computation, respectively.

For 2020, all stock awards were excluded from the computation of diluted EPS because their effect was antidilutive due to the loss from continuing operations, and amounted 32.5 million stock awards.

For 2020, all stock awards were excluded from the computation of diluted EPS because their effect was antidilutive due to the loss from continuing operations, and amounted to 32.5 million stock awards.

ACCOUNTS RECEIVABLE, NET

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Balance as of December 31 $ 452 $ 475

(1) The current provision for expected credit losses for 2020 includes $ 248 million of reserves driven by customer bankruptcies and additional reserves for credit losses primarily due to the economic environment primarily caused by the COVID-19 pandemic.

(2) Other, net for 2020 includes a $ 34 million impact related to the January 1, 2020 adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The activity in the allowance for doubtful accounts was not material in 2019.

CONTRACT ASSETS AND LIABILITIES

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Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract.

We receive payments from customers based on the terms established in our contracts.

We receive payments

from customers based on the terms established in our contracts.

Total contract assets and contract liabilities as of December 31, 2022 and 2021 are as follows:

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Net contract liabilities $ ( 3,064 ) $ ( 2,359 )

Contract assets increased $ 1,430 million during 2021 primarily due to sales in excess of billings at Pratt & Whitney and contractual billing terms on U.S.

Contract assets increased $ 173 million during 2022 primarily due to sales in excess of billings at Pratt & Whitney, partially offset by contractual billing terms on U.S.

government and foreign military sales contracts at RMD.

Contract liabilities increased $ 831 million during 2021 primarily due to billings in excess of sales at Pratt & Whitney and timing of milestone payments on certain international contracts at RMD, partially offset by $ 381 million of contract liability reduction related to a contract termination at Collins Aerospace.

In 2021, 2020 and 2019, we recognized revenue of $ 4,301 million, $ 2,763 million and $ 2,850 million related to our Contract liabilities at January 1, 2021, January 1, 2020 and January 1, 2019, respectively.

Contract liabilities increased $ 878 million during 2022 primarily due to billings in excess of sales at Pratt & Whitney and RMD.

In 2022, 2021 and 2020, we recognized revenue of $ 4.8 billion, $ 4.3 billion and $ 2.8 billion related to our Contract liabilities at January 1, 2022, January 1, 2021 and January 1, 2020, respectively.

As of December 31, 2022, our Contract liabilities include approximately $ 385 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.

In addition, as of December 31, 2022, our Contract liabilities include advance payments, in immaterial amounts, received from Russian customers on contracts we are currently unable to perform on due to global sanctions on Russia and export controls.

Depending on the contractual terms and as allowed by sanctions, certain of these advance payments may become refundable.

Contract assets consisted of the following at December 31:

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Contract assets are net of an allowance for expected credit losses of $ 318 million and $ 251 million as of December 31, 2022 and 2021, respectively.

The allowance for expected credit losses activity was not material in 2021.

In 2020, we recognized incremental credit loss reserves of $ 132 million related to a number of airline customers that have filed for bankruptcy and additional reserves due to the economic environment primarily caused by the COVID-19 pandemic.

In addition, in 2020, we recognized an impairment of $ 111 million of contract assets at Collins Aerospace due to the impact of lower estimated future customer activity principally driven by the expected acceleration of fleet retirements of a certain commercial aircraft type, and we recognized an impairment of $ 129 million of contract assets as a result of an unfavorable EAC adjustment related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney.

The allowance for expected credit losses activity was not material in 2022 or 2021.

INVENTORY, NET

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COMMERCIAL AEROSPACE INDUSTRY ASSETS AND COMMITMENTS

The ongoing COVID-19 pandemic has negatively affected our business, supply chains, operations and the industries in which we operate.

As a result of COVID-19, governments, businesses and individuals have taken actions such as instituting lockdowns, quarantines, border closings and other travel restrictions and requirements, adopting remote working and reducing business and leisure travel, which collectively led to an unprecedented decline in demand for commercial air travel.

The unprecedented decrease in air travel adversely affected our airline and airframer customers and their demand for our products and services of our Collins Aerospace and Pratt & Whitney businesses.

The COVID-19 pandemic continues to negatively affect the global economy, our business and operations, and the industries in which we operate.

The pandemic and government, business and individual actions in response, including lockdowns, quarantines, border closings and other travel restrictions and requirements, remote working, facilities closures and reduced business and leisure travel, led to significant declines in demand for commercial air travel.

The decrease in commercial air travel decreased demand for our commercial aerospace products and services of our Collins and Pratt & Whitney businesses.

Refer to “Note 1:

Basis of Presentation and Summary of Accounting Principles” for further details.

While we have seen indications that commercial air travel is recovering, we continue to closely monitor our commercial aerospace assets for recoverability and our off-balance sheet exposures.

The following summarizes certain significant assets and off-balance sheet exposures specifically related to our commercial aerospace customers:

While we have seen indications that commercial air travel is recovering, we continue to closely monitor our commercial aerospace assets for

recoverability and our off-balance sheet exposures.

The following summarizes certain significant assets and off-balance sheet exposures specifically related to our commercial aerospace customers as of December 31:

(dollars in millions) 2022 2021

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FIXED ASSETS, NET

Fixed assets, net, are stated at cost less accumulated depreciation.

Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements are expensed.

For sales or asset retirements, the assets and related accumulated depreciation and amortization are eliminated from the accounts.

Gains and losses on sales of our Fixed assets, net, are generally recorded in operating income;

however, for our RIS and RMD segments, gains and losses that are allocable to our contracts are

included in overhead, as we are required to allocate gains or losses and generally can recover these costs through the pricing of products and services to the U.S.

Fixed assets, net, consisted of the following:

(dollars in millions) Estimated

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BORROWINGS AND LINES OF CREDIT

(dollars in millions) 2021 2020

Commercial paper $ — $ 160

Other borrowings 134 87

Total short-term borrowings $ 134 $ 247

As of December 31, 2021, 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 use our 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 90 days from the date of issuance.

Interest rates on our commercial paper borrowings are considered variable due to their short-term duration and high-frequency of turnover.

As of December 31, 2021, 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 matures in April 2025, and a $ 2.0 billion revolving credit agreement, which we renewed in May 2021 and expires in May 2022.

As of December 31, 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 December 31, 2022, there were no borrowings outstanding under these agreements.

In addition, at December 31, 2022, approximately $ 0.8 billion was available under short-term lines of credit with local banks at our various domestic and international subsidiaries.

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 December 31, 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 $ 524 million of commercial paper outstanding at December 31, 2022, which is reflected in Short-term borrowings in our Consolidated Balance Sheet.

At December 31, 2022, short-term commercial paper borrowings outstanding had a weighted-average interest rate of 4.4 %.

There was no commercial paper outstanding at December 31, 2021.

Proceeds from issuance of commercial paper with maturities greater than 90 days were $ 1.4 billion during 2022.

There were $ 1.2 billion repayments of commercial paper with maturities greater than 90 days during 2022.

During 2021, we had no commercial paper borrowings with original maturities more than 90 days from the date of issuance.

On November 17, 2021, we completed a cash tender offer for the notes included in the repayments table below (the Tender Offer Notes), resulting in a partial repayment of approximately $ 1.5 billion of aggregate principal on these notes.

In connection with this transaction, we recorded debt extinguishment costs of $ 617 million, primarily related to premiums.

We had de minimis issuances and repayments of long-term debt during 2022.

We had the following issuances of long-term debt during 2021:

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(1) The net proceeds received from these debt issuances were used to fund the purchase of the Tender Offer Notes.

(2) The net proceeds received from these debt issuances, along with cash on hand, were used to fund the repayment of our 2.800% and 2.500% notes due 2022.

(2) The net proceeds received from these debt issuances, along with cash on hand, were used to fund the repayment of our 2.800 % and 2.500 % notes due in 2022.

We made the following repayments of long-term debt during 2021:

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7.500 % notes due 2029 (1)

6.700 % notes due 2028

7.000 % notes due 2028 (1)

4.125 % notes due 2028 (1)

7.500 % notes due 2029 (1)

2.150 % notes due 2030 (€ 500 million principal value) (1)

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Long-term debt, net of current portion $ 30,694 $ 31,327

(1) We may redeem these notes at our option pursuant to their terms.

The weighted-average interest rate related to total debt as of December 31, 2021 and 2020 was 4.0 % and 4.2 %, respectively.

(1) We may redeem these notes, in whole or in part, at our option pursuant to their terms prior to the applicable maturity date.

The weighted-average interest rate related to total debt was 4.0 % at both December 31, 2022 and 2021.

The average maturity of our long-term debt at December 31, 2022 is approximately 14 years.

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Participants may choose to have their ESOP dividends reinvested or distributed in cash.

Common stock allocated to ESOP participants is included in the average number of common

shares outstanding for both basic and diluted EPS.

Common stock allocated to ESOP participants is included in the average number of common shares outstanding for both basic and diluted EPS.

At December 31, 2022, 24.7 million common shares had been allocated to employees, leaving 5.1 million unallocated common shares in the ESOP Trust, with a fair value of $ 512 million.

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Our plans use a December 31 measurement date consistent with our fiscal year.

On April 3, 2020, UTC completed the Separation Transactions, which included the transfer of certain defined benefit plans from UTC to Carrier and Otis.

The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies.

Upon separation, the pension participants within Carrier and Otis were effectively terminated from Raytheon Technologies.

The terminations triggered a mid-year remeasurement of the UTC domestic plans.

All service cost previously associated with Carrier and Otis was reclassified to discontinued operations.

Raytheon Company has both funded and unfunded domestic and foreign defined benefit pension and PRB plans.

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Amounts prior to the merger date of April 3, 2020 do not include the Raytheon Company pension plan results.

In December 2020, we approved a change to the Raytheon Company domestic benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation effective December 31, 2022.

The plan change does not impact participants’ historical benefit accruals.

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We utilized a practical expedient and measured the plan assets and pension benefit obligations for the effected pension plans as of the nearest month end, December 31, 2020, resulting in a prior service credit of $ 2.1 billion.

In September 2019, we amended the UTC domestic defined benefit pension plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019.

Beginning January 1, 2020, these participants began receiving additional contributions under the UTC domestic defined contribution plan.

The plan change did not impact participants’ historical benefit accruals.

We utilized the practical expedient and remeasured plan assets and pension benefit obligations for the affected pension plans as of the nearest month-end, August 31, 2019, resulting in a net actuarial loss of $ 425 million.

We recorded a curtailment gain of $ 98 million in the Consolidated Statement of Operations during the third quarter of 2019 due to the recognition of previously unrecognized prior service credits for the affected pension plans.

For non-union employees in the UTC domestic pension plans, benefits for service up to December 31, 2014 are generally based on the employee’s years of service and compensation.

Benefits for service after December 31, 2014 and through December 31, 2019 are based on the existing cash balance formula that was adopted in 2003 for newly hired non-union employees and for non-union employees who made a one-time voluntary election to have future benefit accruals determined under this formula.

Beginning January 1, 2020, these participants began receiving additional contributions under the UTC domestic defined contribution

Benefits for union employees in the UTC domestic pension plans are generally based on a stated amount for each year of service.

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Service cost attributable to continuing operations 470 523 6 7

Service cost attributable to discontinued operations — 1 — —

Interest cost 1,520 1,249 29 24

Actuarial loss (gain) ( 1,643 ) 7,029 ( 73 ) 114

Actuarial gain ( 15,466 ) ( 1,643 ) ( 294 ) ( 73 )

Total benefits paid (1)

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( 516 ) ( 92 ) 47 53

( 92 ) 397 53 48

Ending balance $ 49,028 $ 67,214 $ 984 $ 1,370

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Settlements ( 4 ) ( 85 ) ( 8 ) ( 11 )

Business combinations and divestitures (2)

( 496 ) ( 84 ) 52 53

( 84 ) 352 53 45

Ending balance $ 47,960 $ 63,323 $ 302 $ 389

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(1) Includes benefit payments paid directly by the company.

(2) Consists primarily of liabilities and assets acquired as a part of the Raytheon Merger in 2020.

(3) The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K.

and Canada, and participant contributions.

(2) The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the United Kingdom (U.K.) and Canada, and participant contributions.

The majority of our pension obligations relate to our U.S.

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International plans comprise 10 % and 11 % of the pension PBO as of December 31, 2022 and 2021, respectively, and are considered defined benefit pension plans for accounting purposes.

In addition to the pension and PRB noncurrent liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes $ 79 million and $ 139 million of other pension and PRB related liabilities as of December 31, 2021 and 2020, respectively.

In addition to the pension and PRB noncurrent liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes other immaterial pension and PRB-related liabilities.

Information for pension plans with accumulated benefit obligations in excess of plan assets:

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Recognized actuarial net loss 305 435 337

Net settlement, curtailment and special termination benefits (gain) loss 22 45 ( 59 )

Net settlement, curtailment and special termination benefits loss 2 22 45

Non-service pension income ( 1,880 ) ( 1,938 ) ( 912 )

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Recognized actuarial net gain ( 11 ) ( 6 ) ( 12 )

Net settlement, curtailment and special termination benefits loss — 1 —

Net settlement, curtailment and special termination benefits (gain) loss ( 3 ) — 1

Non-service pension (income) expense ( 9 ) ( 6 ) 10

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(dollars in millions) 2022 2021

Actuarial (gain) loss arising during the period $ ( 3,158 ) $ 155

Net actuarial gain arising during the period $ ( 1,082 ) $ ( 3,158 )

Amortization of actuarial loss ( 305 ) ( 435 )

Current year prior service cost (credit) 59 ( 2,088 )

Amortization of prior service cost 168 ( 51 )

Current year prior service cost 131 59

Amortization of prior service credit 163 168

Net settlement and curtailment 1 ( 17 )

Separation of Carrier and Otis — ( 763 )

Total recognized in other comprehensive (income) loss ( 1,161 ) ( 3,389 )

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(1) The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K.

The Actuarial gain arising in 2022 was primarily due to an increase in discount rates during 2022, partially offset by actual asset returns less than our expected return on assets.

The Actuarial gain arising in 2021 was primarily due to an increase in discount rates during 2021 and asset returns exceeding our expected return on assets, partially offset by demographic losses.

The Actuarial loss arising in 2020 was primarily due to a decrease in discount rates during 2020, partially offset by asset returns exceeding our expected return on assets.

Current year prior service credit in 2020 was primarily due to the Raytheon Company plan change for non-union participants as discussed above.

Other changes in PRB assets and benefit obligations recognized in other comprehensive loss in 2022 and 2021 are as follows:

(dollars in millions) 2022 2021

Actuarial (gain) loss arising during the period $ ( 88 ) $ 47

Net actuarial gain arising during the period $ ( 209 ) $ ( 88 )

Amortization of actuarial gain 11 6

Current year prior service cost (credit) — ( 7 )

Amortization of prior service credit 2 3

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Net recognized in net periodic benefit (income) cost and other comprehensive loss $ ( 196 ) $ ( 78 )

The Actuarial gain arising in 2022 was primarily due to an increase in discount rates during 2022, partially offset by actual asset returns less than our expected return on assets on our funded plans.

The Actuarial gain arising in 2021 was primarily due to an increase in discount rates during 2021 and asset returns exceeding our expected return on assets on our funded plans.

The Actuarial loss arising in 2020 was primarily due to a decrease in discount rates during 2020, partially offset by asset returns exceeding our expected return on assets on our funded plans.

The table below reflects the total benefit payments expected to be paid from the plans or from corporate assets.

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In determining the EROA assumption, we consider the target asset allocation of plan assets, as well as economic and other indicators of future performance.

We may consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions.

We consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions.

Return projections are validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns.

As a result of this analysis at year end 2021, our weighted average pension EROA assumption for 2022 is 6.5 %.

As a result of this analysis at year end 2022, our weighted average pension EROA assumption for 2023 increased to 7.1 %.

The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility.

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The fair values of pension plan assets at December 31, 2022 and 2021 by asset category are as follows:

(dollars in millions) Quoted Prices in

Active Markets

For Identical Assets

(Level 1) Significant

(Level 2) Significant

(dollars in millions) Quoted Prices in Active Markets For Identical Assets

(Level 1) Significant Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Not Subject to Leveling (8)

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The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed due to the following:

(dollars in millions) Private Equities Corporate Bonds Real Estate Total

(dollars in millions) Corporate Bonds Real Estate Total

Balance, December 31, 2020

1 unchanged sentence

Realized gains — 212 212

Unrealized gains (losses) relating to instruments still held in the reporting period 16 — ( 129 ) ( 113 )

Unrealized gains relating to instruments still held in the reporting period — 50 50

Purchases, sales, and settlements, net — ( 24 ) ( 24 )

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Valuation estimates are supplemented by third-party appraisals on an annual basis.

Private equity limited partnerships are valued quarterly using discounted cash flows, earnings multiples and market multiples.

Valuation adjustments reflect changes in operating results, financial condition, or prospects of the applicable portfolio company.

Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes.

Temporary cash investments are stated at cost, which approximates fair value.

The fair market value of assets related to our PRB benefits was $ 302 million and $ 389 million as of December 31, 2022 and 2021, respectively.

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Operating lease expense was $ 475 million, $ 525 million, and $ 497 million for 2022, 2021, and 2020, respectively.

Finance leases and leases where we are the lessor are not considered significant to our Consolidated Balance Sheet or Consolidated Statement of Operations.

In both 2021 and 2020, we entered into sale and leaseback transactions for the sale of equipment and related maintenance.

Finance leases and leases where we are the lessor are not considered significant to our Consolidated Balance Sheet, Consolidated Statement of Operations or Consolidated Statement of Cash Flows.

In 2021 and 2020, we entered into sale and leaseback transactions for the sale of equipment and related maintenance.

We subsequently leased back the equipment sold for a limited timeframe, which is accounted for as an operating lease.

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Total operating lease liabilities $ 1,942 $ 2,068

The weighted-average remaining lease term related to our operating leases was 9 years and 8 years as of December 31, 2021 and 2020, respectively.

The weighted-average remaining lease term related to our operating leases was 9 years as of December 31, 2022 and 2021.

The weighted-average discount rate related to our operating leases was 3.3 % and 2.8 % as of December 31, 2022 and 2021, respectively.

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Foreign 513 427 305

2,363 874 674

United States:

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Tax on international activities ( 186 ) ( 3.1 ) ( 204 ) ( 4.1 ) 27 ( 1.1 )

Tax audit settlements — — — — ( 290 ) ( 7.0 )

Tax charges related to Separation Transactions and Raytheon merger — — ( 39 ) ( 0.8 ) 416 ( 17.7 )

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State income tax, net ( 12 ) ( 0.2 ) 33 0.7 ( 56 ) 2.4

Foreign Derived Intangible Income (FDII) ( 121 ) ( 2.5 ) ( 83 ) 3.5 ( 138 ) ( 3.3 )

Foreign Derived Intangible Income ( 214 ) ( 3.5 ) ( 121 ) ( 2.5 ) ( 83 ) 3.5

corporate tax rate enactment — — 73 1.5 8 ( 0.4 )

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Effective income tax rate $ 700 11.6 % $ 786 15.9 % $ 575 ( 24.4 ) %

The 2021 effective tax rate includes tax benefits of $ 244 million included in international activities associated with legal entity and operational reorganizations implemented in the third quarter of 2021, $ 172 million associated with U.S.

research and development credits and $ 121 million associated with Foreign Derived Intangible Income (FDII), and tax charges 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 2022 effective tax rate includes a benefit of $ 214 million related to the Foreign Derived Intangible Income (FDII) benefit, $ 207 million associated with legal entity and operational reorganizations implemented in 2022, and $ 164 million associated with U.S.

research and development credits.

The increase in the FDII benefit from 2021 is primarily attributable to the capitalization of research or experimental expenditures for tax-purposes, enacted as part of the Tax Cuts and Jobs Act of 2017 effective beginning January 1, 2022.

research and development credits and $ 121 million associated with FDII, and tax charges of $ 73 million associated with the revaluation of deferred taxes resulting from the increase in the U.K.

corporate tax rate to 25% enacted in 2021.

In the first quarter of 2021, we recorded $ 148 million of tax charges associated with the sale of the Forcepoint business, and subsequently recognized a $ 104 million tax benefit due to the revaluation of that tax benefit as a result of completing the divestiture of RIS’s global training and services business for a gain in the fourth quarter of 2021.

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Business Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which was non-deductible for tax purposes.

Tax expense includes net deferred tax charges of $ 416 million resulting from the Separation Transactions and the Raytheon Merger primarily related to the impairment of deferred tax assets and the revaluation of certain international tax incentives, and incremental tax expense of $ 177 million related to the disposal of businesses, including the sales of businesses at Collins Aerospace, the airborne tactical radios business at RIS and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2:

Tax expense includes net deferred tax charges of $ 416 million resulting from the Separation Transactions and the Raytheon merger primarily related to the impairment of deferred tax assets and the revaluation of certain international tax incentives, and incremental tax expense of $ 177 million related to the disposal of businesses, including the sales of businesses at Collins, the airborne tactical radios business at RIS and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2:

Business Acquisitions, Dispositions, Goodwill and Intangible Assets.” Also included in the 2020 effective tax rate are tax benefits of $ 142 million associated with U.S.

research and development credits and $ 83 million associated with FDII.

The 2019 effective tax rate includes tax benefits of $ 290 million primarily associated with the conclusion of the audit by the Examination Division of the Internal Revenue Service (IRS) for the Company’s 2014, 2015 and 2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority.

The 2019 effective tax rate also includes tax benefits of $ 101 million related to U.S.

research and development credits and $ 138 million associated with FDII.

Deferred Tax Assets and Liabilities.

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Warranty provisions 242 248

Capitalization of research and experimental expenditures 1,712 —

Other basis differences 828 878

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Total accrued interest balance at December 31 190 165 141

The unrecognized tax benefit table includes discontinued operations activity in 2020 and 2019.

The unrecognized tax benefit table includes discontinued operations activity in 2020.

As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of $ 439 million and associated interest of approximately $ 165 million.

Pursuant to the terms of the separation agreements, certain other unrecognized tax benefits retained by the Company are subject to indemnification.

Total unrecognized tax benefits at December 31, 2019 included $ 437 million of benefits related to discontinued operations, and associated interest of approximately $ 155 million.

The 2020 additions for tax positions of prior years in the table above include amounts related to the Raytheon merger .

Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law.

In making these determinations, we applied the tax law in the relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to the concluded tax treatment.

If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, results of operations, financial condition or liquidity in future reporting periods.

We conduct business globally and, as a result, Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S.

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income tax examinations for years before 2012.

During the fourth quarter of 2020, the Company recognized a non-cash gain of approximately $ 25 million, primarily tax, as a result of the statute of limitations expiration of the 2016 tax year of a subsidiary acquired as part of the RTC’s acquisition of Rockwell Collins.

During 2019, the Company recognized a non-cash net gain of approximately $ 307 million, including pre-tax interest of approximately $ 56 million as a result of the conclusion of the IRS audit of the Company’s 2014, 2015 and 2016 tax years.

The Examination Division of the IRS is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax periods 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon Merger.

The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close within the next six to twelve months.

As a result of the projected closure of the audit of Rockwell Collins fiscal tax years 2016 and 2017, it is reasonably possible that the Company may recognize non-cash gains in the range of $ 20 million to $ 100 million, within the next six to twelve months.

It is reasonably possible that a net reduction within the range of $ 100 million to $ 500 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts, or the closure of tax statutes.

RESTRUCTURING COSTS

Restructuring costs are generally expensed as incurred.

government unallowable restructuring costs related to the Raytheon Merger are recorded within Corporate expenses and other unallocated items, as these costs are not included in management’s evaluation of the segments’ performance, and as a result, there are no unallowable restructuring costs at the RIS and RMD segments.

During 2021, we recorded net pre-tax restructuring costs totaling $ 143 million for new and ongoing restructuring actions.

We recorded charges in the segments as follows:

(dollars in millions)

Pratt & Whitney $ 7

Collins Aerospace Systems 40

Corporate expenses and other unallocated items 96

Restructuring charges incurred in 2021 primarily relate to actions initiated during 2021 and were recorded as follows:

(dollars in millions)

Cost of sales $ 34

Selling, general & administrative 109

2021 Actions.

During 2021, we recorded net pre-tax restructuring costs totaling $ 137 million for restructuring actions initiated in 2021, consisting of $ 97 million in Selling, general and administrative and $ 40 million in Cost of sales.

The 2021 actions primarily consist of severance costs related to ongoing cost reduction efforts, and to a much lesser extent, the exit and consolidation of facilities.

We are targeting to complete in 2022 the majority of the remaining cost reduction actions initiated in 2021.

No specific plans for other significant actions have been finalized at this time.

The following table summarizes our accrual balances for the 2021 restructuring actions, which is included in Other accrued liabilities on our Consolidated Balance Sheet:

(dollars in millions)

Net pre-tax restructuring costs $ 137

Utilization, foreign exchange and other costs ( 50 )

Balance at December 31, 2021 $ 87

The following table summarizes expected, incurred and remaining costs for the 2021 restructuring actions by segment:

(dollars in millions) Expected Costs Cost Incurred During 2021 Remaining Costs at December 31, 2021

Pratt & Whitney $ 60 $ ( 24 ) $ 36

Collins Aerospace Systems 62 ( 36 ) 26

Corporate expenses and other unallocated items 77 ( 77 ) —

Total $ 199 $ ( 137 ) $ 62

2020 Actions.

During 2021, we reversed net pre-tax restructuring costs totaling $ 23 million for restructuring actions initiated in 2020, consisting of a reversal of $ 14 million in Cost of sales and $ 9 million in Selling, general and administrative expenses.

The 2020 actions primarily consist of severance costs principally related to restructuring actions at Pratt & Whitney and Collins Aerospace in response to the impact on our operating results from the economic environment primarily caused by the COVID-19 pandemic, actions at Corporate related to the Raytheon Merger, and ongoing cost reduction efforts including workforce reductions, and to a lesser extent, consolidation of field operations.

The following table summarizes the accrual balance for the 2020 restructuring actions for the year ended 2021, which is included in Other accrued liabilities on our Consolidated Balance Sheet:

(dollars in millions)

Restructuring accruals at January 1, 2021 $ 340

Net pre-tax restructuring costs ( 23 )

Utilization, foreign exchange and other costs ( 267 )

Balance at December 31, 2021 $ 50

The following table summarizes expected, incurred and remaining costs for the 2020 programs by segment:

(dollars in millions) Expected Costs Costs Incurred During 2020

Costs (Incurred) Reversed During 2021

Pratt & Whitney $ 188 $ ( 205 ) $ 17 $ —

Collins Aerospace Systems 312 ( 333 ) 25 4

Corporate expenses and other unallocated items 251 ( 232 ) ( 19 ) —

Total $ 751 $ ( 770 ) $ 23 $ 4

2019 and Prior Actions.

During 2021, we recorded net pre-tax restructuring costs totaling $ 29 million for restructuring actions initiated in 2019 and prior.

As of December 31, 2021, we had $ 25 million of accrual balances remaining related to 2019 and prior actions.

The Examination Division of the IRS is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax years 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon merger.

The examination phase of the audits for each of these tax years is expected to close in 2023.

The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016, 2017 and 2018.

The examination phase of the audit for each of these tax years is expected to close during 2023.

It is reasonably possible that a net reduction within the range of $ 25 million to $ 375 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes.

FINANCIAL INSTRUMENTS

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We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures.

The aggregate notional amount of our outstanding foreign currency hedges was $ 8.5 billion and $ 11.6 billion at December 31, 2021 and 2020, respectively.

The present value of aggregate notional principal of our outstanding foreign currency hedges was $ 11.2 billion and $ 8.5 billion at December 31, 2022 and 2021, respectively.

At December 31, 2022, all derivative contracts accounted for as cash flow hedges will mature b y February 2030.

Additional information pertaining to foreign exchange and hedging activities is included in “Note 1:

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Other accrued liabilities 39 11

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Consolidated Statement of Operations in 2021 and 2020 are presented in the table below.

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Consolidated Statement of Operations in 2022 and 2021 are presented in “Note 19:

Accumulated Other Comprehensive Loss”.

The amounts of gain or (loss) are attributable to foreign exchange contract activity and are primarily recorded as a component of Products sales when reclassified from Accumulated other comprehensive loss.

(dollars in millions) 2021 2020 2019

Gain (loss) recorded in Accumulated other comprehensive loss $ ( 226 ) $ 181 $ ( 33 )

(Gain) loss reclassified from Accumulated other comprehensive loss ( 28 ) 82 51

The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness.

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As of December 31, 2022, we have € 500 million of euro-denominated long-term debt outstanding, which qualifies as a net investment hedge against our investments in European businesses, which is deemed to be effective.

Assuming current market conditions continue, a $ 28 million pre-tax loss is expected to be reclassified from Accumulated other comprehensive loss into Products sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months.

At December 31, 2021, all derivative contracts accounted for as cash flow hedges will mature b y January 2028.

The effect of derivatives not designated as hedging instruments within Other income, net, on the Consolidated Statement of Operations was as follows:

(dollars in millions) 2021 2020 2019

Gain (loss) on non-designated foreign exchange contracts $ ( 24 ) $ ( 76 ) $ 91

The effect of derivatives not designated as hedging instruments is included within Other income, net, on the Consolidated Statement of Operations and is not material.

FAIR VALUE MEASUREMENTS

The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Consolidated Balance Sheet as of December 31, 2021 and 2020:

The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Consolidated Balance Sheet:

December 31, 2022

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The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Consolidated Balance Sheet at December 31:

(dollars in millions) Carrying

Value Carrying

(dollars in millions) Carrying Amount Fair Value Carrying Amount Fair Value

Customer financing notes receivables $ 169 $ 161 $ 195 $ 192

Long-term debt (excluding finance leases) 31,201 28,049 31,250 35,828

The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Consolidated Balance Sheet as of December 31, 2021 and 2020:

The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Consolidated Balance Sheet at December 31:

December 31, 2022

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IAE’s business purpose is to coordinate the design, development, manufacturing and product support of the V2500 engine program through involvement with the collaborators.

Additionally, Pratt & Whitney, JAEC and MTU are participants in International Aero Engines, LLC (IAE LLC), whose business purpose is to coordinate the design, development, manufacturing and product support for the PW1100G-JM engine for the Airbus A320neo aircraft and the PW1400G-JM engine for the Irkut MC-21 aircraft.

Additionally, Pratt & Whitney, JAEC and MTU are participants in the International Aero Engines, LLC (IAE LLC) collaboration, whose business purpose is to coordinate the design, development, manufacturing and product support for the PW1100G-JM engine for the Airbus A320neo family of aircraft.

Pratt & Whitney holds a 59 % program share interest and a 59 % ownership interest in IAE LLC.

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These instruments expire on various dates through 2028.

Additional guarantees of project performance for which there is no stated value also remain outstanding.

Additional guarantees of project performance for which there is no stated value also remain

A portion of our third party guarantees are subject to indemnification for our benefit for any liabilities that could arise.

As of December 31, 2022 and 2021, the following financial guarantees were outstanding:

December 31, 2022 December 31, 2021

(dollars in millions) Maximum

Payment Carrying

Liability Maximum

Payment Carrying

Commercial aerospace financing guarantees $ 309 $ 3 $ 322 $ 6

(dollars in millions) Maximum Potential Payment Carrying Amount of Liability Maximum Potential Payment Carrying Amount of Liability

Commercial aerospace financing arrangements $ 304 $ — $ 309 $ 3

Third party guarantees 335 1 511 5

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The maximum potential payment related to these obligations is not a specified amount as a number of the obligations do not contain financial caps.

The carrying amount of liabilities related to these obligations was $ 120 million at both December 31, 2021 and 2020.

For additional information regarding the environmental indemnifications, see “Note 19:

The carrying amount of liabilities related to these obligations was $ 97 million and $ 120 million at December 31, 2022 and 2021, respectively.

These primarily relate to environmental liabilities, which are included in our total environmental liabilities as further discussed in “Note 18:

Commitments and Contingencies.”

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Adjustments are made to accruals as claims data and historical experience warrant.

The changes in the carrying amount of service and product warranties and product performance guarantees for the years ended December 31, 2021 and 2020 were as follows:

The changes in the carrying amount of service and product warranties and product performance guarantees for the years ended December 31 were as follows:

(dollars in millions) 2022 2021 2020

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We had commercial aerospace financing commitments and other contractual commitments of approximately $ 15.3 billion and $ 15.6 billion as of December 31, 2022 and 2021, respectively, on a gross basis before reduction for our collaboration partners’ share.

Aircraft financing commitments, in the

form of debt or lease financing, are provided to certain commercial aerospace customers.

The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other financing sources.

Aircraft financing commitments, in the form of debt or lease financing, are provided to certain commercial aerospace customers.

The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other

financing sources.

We may also arrange for third-party investors to assume a portion of these commitments.

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As a result, the fair value of these financing commitments is expected to equal the amounts funded.

We also have other contractual commitments, including commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms.

We also have other contractual commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms.

The estimated amount and timing of these payments, which are generally based on future sales or engine flight hours, are reflected in “Other commercial aerospace commitments” in the table below.

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For example, we are now, and believe that, in light of the current U.S.

government contracting environment,

we will continue to be the subject of one or more U.S.

government contracting environment, we will continue to be the subject of one or more U.S.

government investigations.

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the Defense Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), the Inspectors General of the U.S.

Department of Defense (DoD) and other departments and agencies, the Government Accountability Office (GAO), the Department of Justice (DOJ), and Congressional Committees.

Department of Defense (DoD) and other

departments and agencies, the Government Accountability Office (GAO), the Department of Justice (DOJ), and Congressional Committees.

Other areas of our business operations may also be subject to audit and investigation by these and other agencies.

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Other than as specifically disclosed in this Form 10-K, we do not expect these audits, investigations or disputes to have a material effect on our results of operations, financial condition or liquidity, either individually or in the aggregate.

Tax Treatment of Carrier and Otis Dispositions.

Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law.

If the completed distributions of Carrier or Otis or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, results of operations, financial condition or liquidity in future reporting periods.

Legal Proceedings.

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On December 23, 2021, the DCMA filed a motion with the ASBCA seeking partial reconsideration of the November 22, 2021 decision.

Although the ASBCA decision may also be subject to further appellate review, we believe that the ASBCA’s rejection of the DCMA’s asserted measure of the cost of collaborator parts is well supported in fact and law and likely will be sustained.

The motion for reconsideration was denied on August 29, 2022.

On December 23, 2022, the DCMA filed an appeal to the United States Court of Appeals for the Federal Circuit.

We continue to believe that the

ASBCA’s rejection of the DCMA’s asserted measure of the cost of collaborator parts is well supported in fact and law and likely will be sustained.

In December 2018, a DCMA DACO issued a second claim against Pratt & Whitney that similarly alleges that its method of determining the cost of collaborator parts does not comply with the CAS for calendar years 2013 through 2017.

This second claim, which asserts the same measure of the cost of collaborator parts rejected by the ASBCA’s recent decision, demands payment of $ 269 million plus interest ($ 96 million at December 31, 2022).

Pratt & Whitney appealed

this second claim to the ASBCA in January 2019.

Although subject to further litigation at the ASBCA and potentially further appellate proceedings, we believe that the November 22, 2021 decision in the first claim will apply with equal legal effect to the second claim.

Pratt & Whitney appealed this second claim to the ASBCA in January 2019.

Although subject to further litigation at the ASBCA and potentially further litigation at the ASBCA and potentially further appellate proceedings, we continue to believe that the November 22, 2021 decision in the first claim will apply with equal legal effect to the second claim.

Accordingly, we believe that the amounts demanded by the DCMA as set forth in the two claims are without legal basis and that any damages owed to the U.S.

government for the two claims will not have a material adverse effect on our results of operations, financial condition or liquidity.

Thales-Raytheon Systems Matter

As previously disclosed, in 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014.

Thales-Raytheon Systems and Related Matters

As previously disclosed, in 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Raytheon Company, our joint venture known as Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014.

In the first quarter of 2020, the DOJ advised Raytheon Company it had opened a parallel criminal investigation.

In the third quarter of 2020, Raytheon Company received an additional subpoena from the SEC, seeking information and documents as part of its ongoing investigation.

The Company maintains a rigorous anti-corruption compliance program, is cooperating fully with the SEC’s and DOJ’s inquiry, and is examining whether there has been any conduct that is in violation of Raytheon Company policy.

At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiry.

Based on the information available to date, however, we do not believe the results of this inquiry will have a material adverse effect on our results of operations, financial condition or liquidity.

The Company maintains a rigorous anti-corruption compliance program, and continues to cooperate fully with the SEC’s and DOJ’s inquiries and to examine through our own investigation whether there were any improper payments or any such conduct that was in violation of Raytheon Company policy.

At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiries.

Based on the information available to date, however, we cannot reasonably estimate the range of any potential loss or impact to the business that may result, but do not believe that the results of these inquiries will have a material adverse effect on our results of operations, financial condition or liquidity.

DOJ Investigation, Contract Pricing Disputes and Related Civil Litigation

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We are cooperating fully with, and will continue to review the issues raised by the DOJ’s ongoing investigation.

We have made substantial progress in our internal review of the issues raised by the DOJ investigation.

Although we continue to believe we have defenses to the potential claims, the Company has determined that there is a probable risk of liability for damages, interest and potential penalties and has accrued approximately $ 290 million for this matter.

We are currently unable to estimate an incremental loss, if any, which may result following the completion of our internal review and resolution of the DOJ investigation.

Based on the information available to date, we do not believe the results of the investigation or of any potential civil litigation will have a material adverse effect on our results of operations, financial condition or liquidity.

We continue to make substantial progress in our internal review of the issues raised by the DOJ investigation.

Although we believe we have defenses to the potential claims, the Company has determined that there is a probable risk of liability for damages, interest and potential penalties and has accrued approximately $ 290 million for this matter.

We are currently unable to estimate an incremental loss, if any, which may result when the DOJ investigation is complete.

Based on the information available to date, we do not believe the results of the DOJ investigation or of any pending or potential civil litigation will have a material adverse effect on our results of operations, financial condition or liquidity.

Four shareholder lawsuits were filed against the Company after the DOJ investigation was first disclosed.

A putative securities class action lawsuit was filed in the United States District Court for the District of Arizona against the Company and certain of its executives alleging that the defendants violated federal securities laws by making material misstatements in regulatory filings regarding internal controls over financial reporting in RMD.

Three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings.

Three shareholder derivative lawsuits were also filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings.

We believe that each of these lawsuits lacks merit.

Darnis, et al.

and Related Matter

As previously disclosed, on August 12, 2020, several former employees of UTC or its subsidiaries filed a putative class action complaint in the United States District Court for the District of Connecticut against the Company, Otis, Carrier, the former members of the UTC Board of Directors, and the members of the Carrier and Otis Boards of Directors (Geraud Darnis, et al.

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The complaint challenged the method by which UTC equity awards were converted to Company, Otis, and Carrier equity awards following the separation of UTC into three independent, publicly-traded companies on April 3, 2020.

The complaint also claimed that the defendants are liable for breach of certain equity compensation plans and also asserted claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

The complaint also claimed that the defendants are liable for breach of certain equity

compensation plans and also asserted claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

On September 13, 2021, Plaintiffs filed an amended complaint which supersedes the initial complaint and continues to assert claims for breach of the equity compensation plans against the Company, Otis and Carrier, but no longer asserts ERISA claims.

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Plaintiffs seek money damages, attorneys’ fees and other relief.

We continue to believe that the Company has meritorious defenses to these claims.

At this time, the Company is unable to predict the outcome;

however, based on the

information available to date, we do not believe that this matter will have a material adverse effect on our results of operations, financial condition or liquidity.

On September 30, 2022, in response to motions to dismiss filed by the Company, Otis and Carrier, the Court dismissed the class action in its entirety with prejudice.

On October 26, 2022, Plaintiffs filed an appeal to the United States Court of Appeals for the Second Circuit.

We continue to believe that this matter will not have a material adverse effect on our results of operations, financial condition or liquidity.

On December 6, 2022, a shareholder derivative lawsuit was filed in the Delaware Court of Chancery against the Company and certain current and former members of its Board of Directors, alleging that defendants breached their fiduciary duties in May 2020 by amending the method by which UTC equity awards were converted to certain Company equity awards following the separation of UTC into three independent, publicly-traded companies.

We believe that the lawsuit lacks merit.

DOJ Grand Jury Investigation and Related Civil Litigation

The Company received a grand jury subpoena in late 2019, as part of a DOJ criminal investigation into purported agreements not to solicit or hire employees in violation of the federal antitrust laws.

While the investigation has focused on alleged hiring restrictions between and among Pratt & Whitney and certain of its suppliers of outsourced engineering services, the subpoena also included requests regarding Collins Aerospace.

Since receipt of the subpoena, the Company has been cooperating with the DOJ investigation.

On December 15, 2021, a criminal indictment was filed in the United States District Court for the District of Connecticut, against a former Pratt & Whitney employee and other employees of certain outsourced engineering suppliers charging each of them with one count of violating the federal antitrust laws.

No current or former Collins Aerospace employees were named in the indictment.

We were recently advised that the Company is a target of the DOJ investigation, and we continue to cooperate with the investigation.

No current or former Collins employees were named in the indictment.

We have been advised that the Company is a target of the DOJ investigation, and we continue to cooperate with the investigation.

No criminal charge has been filed against the Company or its affiliates.

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Plaintiffs in each of the civil lawsuits seek to represent different purported classes of engineers and skilled laborers employed by Pratt & Whitney and other supplier-defendants since 2011.

Collins Aerospace was also named as a defendant in some of the lawsuits.

Plaintiffs in each of the lawsuits seek treble damages in an undetermined amount, plus attorneys’ fees and costs of suit.

We expect that all the lawsuits ultimately will be consolidated into a single joint complaint.

We believe that each of these lawsuits lacks merit.

All of the lawsuits have been consolidated and a single amended class action complaint was filed.

We believe that the claims asserted lack merit.

Based on the information available to date, we do not believe that this matter will have a material adverse effect on our results of operations, financial condition or liquidity.

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We do not believe that these matters will have a material adverse effect upon our results of operations, financial condition or liquidity.

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE LOSS

A summary of the changes in each component of Accumulated other comprehensive (loss) income, net of tax is provided below:

(dollars in millions) Foreign

Translation Defined Benefit

Postretirement

Plans Unrealized

Gains Accumulated

Comprehensive

(Loss) Income

(dollars in millions) Foreign Currency Translation Defined Benefit Pension and Postretirement Plans Unrealized Hedging (Losses) Gains Accumulated Other Comprehensive (Loss) Income

Balance at December 31, 2019 $ ( 3,211 ) $ ( 6,772 ) $ ( 166 ) $ ( 10,149 )

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Tax benefit (expense) 25 ( 510 ) ( 62 ) ( 547 )

ASU 2018-02 adoption impact ( 8 ) ( 737 ) — ( 745 )

Separation of Carrier and Otis, net of tax 3,287 584 4 3,875

Balance at December 31, 2020 $ 710 $ ( 4,483 ) $ 39 $ ( 3,734 )

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Tax benefit (expense) ( 14 ) ( 813 ) 79 ( 748 )

Separation of Carrier and Otis, net of tax 3,287 584 4 3,875

Balance at December 31, 2021 $ 49 $ ( 1,828 ) $ ( 136 ) $ ( 1,915 )

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Balance at December 31, 2022 $ ( 1,005 ) $ ( 782 ) $ ( 231 ) $ ( 2,018 )

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220) .

The standard allows companies to reclassify to retained earnings the stranded tax effects in Accumulated other comprehensive income (AOCI) from the Tax Cuts and Jobs Act of 2017 (TCJA).

We elected to reclassify the income tax effects of TCJA from AOCI of $ 745 million to retained earnings, effective January 1, 2019.

Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net gains or losses recognized during each period presented.

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In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to performance goals.

We have historically repurchased shares of our common stock

in an amount at least equal to the number of shares issued under our equity compensation arrangements and will continue to evaluate this policy in conjunction with our overall share repurchase program.

We have historically repurchased shares of our common stock in an amount at least equal to the number of shares issued under our equity compensation arrangements and will continue to evaluate this policy in conjunction with our overall share repurchase program.

We measure the cost of all share-based payments, including stock options and stock appreciation rights, at fair value on the grant date and recognize this cost in the Consolidated Statement of Operations, net of expected forfeitures, as follows:

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Stock Options Stock Appreciation Rights Performance Share Units Restricted Stock and RSUs

(shares and units in thousands) Shares Average

Shares Average

Units Average

(shares and units in thousands) Shares Average Price (1)

Shares Average Price (1)

Units Average Price (2)

Units Average Price (1)

Outstanding at:

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December 31, 2022 1,657 $ 80.67 32,032 $ 81.04 2,150 $ 83.52 9,757 $ 78.40

(1) Weighted-average grant / exercise price.

(1) Weighted-average exercise price.

(2) Weighted-average grant date fair value.

The weighted-average grant date fair value of stock options and stock appreciation rights granted during 2022, 2021 and 2020 was $ 21.80 , $ 15.60 and $ 23.37 , respectively.

The weighted-average grant date fair value of performance share units, which vest upon achieving certain performance metrics, granted during 2022 and 2021 was $ 96.15 and $ 73.75 , respectively.

There were no performance share units granted in 2020, and all PSUs granted in 2019 were converted to RSUs in connection with the Separation Transactions and Distributions.

There were no performance share units granted in 2020.

The total fair value of awards vested during the years ended December 31, 2022, 2021 and 2020 was $ 346 million, $ 287 million and $ 284 million, respectively.

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(shares in thousands;

aggregate intrinsic value in millions) Awards Average

Value Remaining Term (2)

Awards Average

Value Remaining Term (2)

aggregate intrinsic value in millions) Awards Average Price (1)

Aggregate Intrinsic Value Remaining Term (2)

Awards Average Price (1)

Aggregate Intrinsic Value Remaining Term (2)

Stock Options 1,654 $ 80.61 $ 34 5.36 1,182 $ 77.13 $ 28 4.47

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Expected volatility 27.9 %

18.8 % - 19.7 %

Weighted-average volatility 28 % 30 % 19 %

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Our operations, for the periods presented herein, are classified into four principal segments:

Collins Aerospace, Pratt & Whitney, RIS and RMD.

Collins, Pratt & Whitney, RIS and RMD.

The segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services.

The results of RIS and RMD reflect the period subsequent to the completion of the Raytheon merger on April 3, 2020.

Collins Aerospace Systems is a leading global provider of technologically advanced aerospace and defense products and aftermarket service solutions for aircraft manufacturers, airlines, and regional, business and general aviation, as well as for defense and commercial space operations.

Collins Aerospace’s product lines include integrated avionics systems, aviation systems, communications systems, navigation systems, electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft seating and cargo systems, evacuation systems, landing systems, including landing gear, wheels and braking systems, hoists and winches, fire and ice detection and protection systems, actuation systems, and propeller systems.

Collins Aerospace also designs, manufactures, and supports cabin interior, oxygen systems, food and beverage preparation, storage and galley systems, lavatory and wastewater management systems.

Collins Aerospace solutions support human space exploration with environmental control and power systems and extravehicular activity suits and support government and defense customer missions by providing airborne intelligence, surveillance and reconnaissance systems, test and training range systems, crew escape systems, and simulation and training solutions.

Collins Aerospace also provides connected aviation solutions and services through worldwide voice and data communication networks and solutions.

The Company recently announced its intention to streamline the structure of its core businesses into three principal business segments:

Collins Aerospace, Pratt & Whitney and Raytheon.

The Company plans to determine the exact composition of each segment and implement the reorganization in the second half of 2023, at which time management will begin to manage its operations under its new segment structure.

The changes will require the Company to revise its segment reporting.

All segment information included in this Form 10-K is reflective of the existing four segments of Collins, Pratt & Whitney, RIS and RMD in accordance with the management structure in place as of December 31, 2022.

Collins Aerospace is a leading global provider of technologically advanced aerospace and defense products and aftermarket service solutions for aircraft manufacturers, airlines, and regional, business and general aviation, as well as for defense and commercial space operations.

Collins’ product lines include integrated avionics systems, aviation systems, communications systems, navigation systems, electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft seating and cargo systems, evacuation systems, landing systems, including landing gear, wheels and braking systems, hoists and winches, fire and ice detection and protection systems, actuation systems, and propeller systems.

Collins also designs, manufactures, and supports cabin interior, oxygen systems, food and beverage preparation, storage and galley systems, lavatory and wastewater management systems.

Collins’ solutions support human space exploration with environmental control and power systems and extravehicular activity suits and support government and defense customer missions by providing airborne intelligence, surveillance and reconnaissance systems, test and training range systems, crew escape systems, and simulation and training solutions.

Collins also provides connected aviation solutions and services through worldwide voice and data communication networks and solutions.

Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, asset management services and information management services.

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Pratt & Whitney provides fleet management services and aftermarket maintenance, repair and overhaul services in all of these segments.

Raytheon Intelligence & Space is a global leading developer and provider of integrated space, communication and sensor systems for advanced missions in all domains, and cyber and software solutions to intelligence, defense, federal and commercial customers.

These systems and solutions include end-to-end space solutions, data processing systems, multi-domain intelligence solutions, electronic warfare solutions, including high-energy laser weapons systems, secure sensor solutions, command and control systems, modernization services, and advanced cyber analytics, systems defense and services.

Raytheon Missiles & Defense is a leading designer, developer, integrator producer and sustainer of integrated air and missile defense systems;

defensive and combat solutions;

large land- and sea-based radars;

ballistic and hypersonic missile defense systems;

and naval and undersea sensor solutions for the U.S.

and foreign government customers.

RMD’s integrated air and missile defense systems include the proven Patriot air and missile defense system and its Lower Tier Air and Missile Defense

Sensor (LTAMDS), the first in a family of radars known as GhostEye™, as well as next-generation radar systems to defeat advanced threats.

Its defensive solutions include counter-unmanned aircraft systems and ship defense systems.

Its combat solutions include precision munitions, missiles, hypersonics, high power microwave and other weapons.

RMD’s naval and undersea solutions include combat and ship electronic and sensing systems, as well as undersea sensing and effects solutions.

Ballistic and hypersonic missile defense systems include portable radar systems and a portfolio of effectors.

Its sustainment solutions include maintenance, depot support, training and predictive analytics services.

Raytheon Intelligence & Space is a leading provider of integrated space, communication and sensor systems, and cyber and software solutions to intelligence, defense, federal and commercial customers.

RIS’s Sensing and Effects business provides intelligence, surveillance and reconnaissance, precision targeting radars, and electronic warfare solutions across all domains, as well as end-to-end space solutions, including missile warning and intelligence, weather, and navigation.

RIS Sensing and Effects products include the Multi-Spectral Targeting System (MTS) product family of sensors, Electro Optical Distributed

Aperture System (EODAS), AN/APG-79 AESA Radar, AN/APG-82(V)1 AESA Radar, Next Generation Jammer Mid-Band (NGJ-MB), Global Positioning System (GPS) Next-Generation Operational Control System (GPS-OCX), Next Generation Overhead Persistent Infrared (OPIR), and Future Operationally Resilient Ground Evolution (FORGE).

RIS’s Command, Control and Communications business provides automated battle management and secure, resilient communications systems, including terminals providing satellite communications connecting submarines, ships, aircraft and ground stations for the U.S.

Department of Defense (DoD), identification friend or foe interrogators and transponders, and automation, surveillance, navigation, and landing solutions including the Joint Precision Approach Landing System (JPALS).

RIS’s Cyber, Training and Services provides full-spectrum cyber and service solutions in every domain, including offensive and defensive cyber services for certain classified and department of defense customers, cyber protection solutions which secure and monitor information technology (IT) systems and networks across the federal and commercial domains, and high consequence missions which provide classified special mission support and IT intelligence services to certain classified customers.

Raytheon Missiles & Defense is a leading provider of end-to-end solutions for U.S.

and foreign government customers designed to detect, track and engage threats.

RMD’s systems span air, land, sea and space, and are designed to defend against the most sophisticated threats.

RMD’s Air Power business provides air-to-air and air-to-ground weapons that deliver power and precision to fourth- and fifth-generation fighters including the Advanced Medium Range Air-to-Air Missile (AMRAAM) and StormBreaker smart weapon, and ground-based sensors for persistent wide-area defense and space surveillance including Early Warning Radar.

RMD’s Land Warfare and Air Defense business provides capabilities ranging from precision weapons including Excalibur, Javelin, Stinger and TOW to integrated air and missile defense, including the proven Patriot air and missile defense system, the Guidance Enhanced Missile (GEM-T), the National Advanced Surface-to-Air Missile System (NASAMS) and the GhostEye family of radars, including the Lower Tier Air and Missile Defense Sensor (LTAMDS).

RMD’s Naval Power business provides advanced sensors, command and control and weapons to protect ships and sailors around the world, including AIM-9X Sidewinder, Tomahawk, Standard Missile 2 (SM-2) and Standard Missile 6 (SM-6) missiles, and the SPY-6 family of radars.

RMD’s Strategic Missile Defense business provides technologically advanced sensors, satellites and interceptors including the AN/TPY-2 radar, Standard Missile 3 (SM-3) Block IA/IB/IIA missiles and development of future integrated missile defense solutions.

RMD’s Advanced Technology business focuses on the development and early introduction of next-generation technologies and systems, including hypersonics, counter-hypersonics, directed energy, advanced weapons and next-generation radars.

Segment Information.

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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 Aerospace and Pratt & Whitney segments generally record pension and PRB expense on a FAS basis.

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.

Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis.

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, the amortization of customer contractual obligations related to loss making or below market contracts acquired, and goodwill impairment.

These adjustments are not considered part of management’s evaluation of segment results.

As previously announced, effective January 1, 2021, we reorganized certain product areas of our RIS and RMD businesses to more efficiently leverage our capabilities.

The amounts and presentation of our business segments, including intersegment activity, set forth in this Form 10-K reflect this reorganization.

The reorganization does not impact our previously reported Collins Aerospace Systems and Pratt & Whitney segment results, or our consolidated balance sheets, statements of operations or statements of cash flows.

Segment information for the years ended December 31 are as follows:

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(dollars in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020

Collins Aerospace Systems $ 18,449 $ 19,288 $ 26,028 $ 1,759 $ 1,466 $ 4,508 9.5 % 7.6 % 17.3 %

Collins Aerospace $ 20,597 $ 18,449 $ 19,288 $ 2,343 $ 1,759 $ 1,466 11.4 % 9.5 % 7.6 %

Pratt & Whitney 20,530 18,150 16,799 1,075 454 ( 564 ) 5.2 % 2.5 % ( 3.4 ) %

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2020 amounts include Forcepoint, LLC, which was acquired as part of the Raytheon merger, and subsequently disposed of on January 8, 2021.

(2) Corporate expenses and other unallocated items in 2021 and 2020 include the net expenses related to the U.S.

Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) project.

No amounts were recorded in 2019.

(3) Operating profit (loss) in 2020 includes the $ 3.2 billion goodwill impairment charge in the second quarter of 2020 related to two Collins Aerospace reporting units.

(2) Includes the net expenses related to the U.S.

Army’s LTAMDS project.

(3) Operating profit (loss) in 2020 includes the $ 3.2 billion goodwill impairment charge in the second quarter of 2020 related to two Collins reporting units.

Refer to “Note 2:

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(dollars in millions) 2022 2021 2022 2021 2020 2022 2021 2020

Collins Aerospace Systems (1)

Collins Aerospace (1)

$ 67,030 $ 67,564 $ 655 $ 665 $ 638 $ 742 $ 728 $ 736

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Disaggregation of Revenue.

We also disaggregate our contracts from customers by geographic location based on customer location, by customer and by sales type.

Our geographic location based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location.

In addition, for our RIS and RMD segments, we disaggregate our contracts from customers by contract type.

We also disaggregate our contracts from customers by geographic region based on customer location, by customer and by sales type.

Our geographic region based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location.

In addition, for our RIS and RMD segments, we disaggregate our

contracts from customers by contract type.

We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Segment sales disaggregated by geographic region for the years ended December 31 are as follows:

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

United States $ 9,847 $ 10,433 $ 11,418 $ 9,482 $ 10 $ 41,190

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Middle East and North Africa 474 450 231 2,444 — 3,599

Canada and All Other 915 1,302 144 70 — 2,431

Other 1,240 1,658 141 78 — 3,117

Consolidated net sales 18,956 20,527 12,955 14,626 10 67,074

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Business segment sales $ 20,597 $ 20,530 $ 14,312 $ 14,863 $ ( 3,228 ) $ 67,074

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

United States $ 9,341 $ 9,034 $ 12,126 $ 9,495 $ 15 $ 40,011

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Middle East and North Africa 462 441 469 3,007 — 4,379

Canada and All Other 904 1,001 83 73 23 2,084

Other 915 1,302 144 70 — 2,431

Consolidated net sales 16,990 18,150 13,944 15,289 15 64,388

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Business segment sales $ 18,449 $ 18,150 $ 15,180 $ 15,539 $ ( 2,930 ) $ 64,388

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

United States $ 10,132 $ 8,534 $ 8,704 $ 6,906 $ 284 $ 34,560

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Middle East and North Africa 421 505 410 2,077 30 3,443

Canada and All Other 1,452 1,657 — — — 3,109

Other 904 1,001 83 73 23 2,084

Consolidated net sales 17,910 16,790 10,141 11,219 527 56,587

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Business segment sales $ 19,288 $ 16,799 $ 11,069 $ 11,396 $ ( 1,965 ) $ 56,587

Segment sales disaggregated by customer for the years ended December 31 are as follows:

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

Segment sales disaggregated by type of customer for the years ended December 31 are as follows:

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

government (1)

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

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

government (1)

8 unchanged sentences

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

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

government (1)

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

Sales to Airbus primarily relate to Pratt & Whitney and Collins Aerospace products, and prior to discounts and incentives were approximately 12 %, 13 % and 22 % of total net sales in 2021, 2020 and 2019, respectively.

Sales to Airbus primarily relate to Pratt & Whitney and Collins products, and prior to discounts and incentives were approximately 14 %, 12 % and 13 % of total net sales in 2022, 2021 and 2020, respectively.

Segment sales disaggregated by sales type for the years ended December 31 are as follows:

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

Products $ 14,857 $ 12,411 $ 10,261 $ 13,234 $ 10 $ 50,773

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Business segment sales $ 20,597 $ 20,530 $ 14,312 $ 14,863 $ ( 3,228 ) $ 67,074

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

Products $ 13,404 $ 11,189 $ 10,735 $ 13,927 $ 15 $ 49,270

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Business segment sales $ 18,449 $ 18,150 $ 15,180 $ 15,539 $ ( 2,930 ) $ 64,388

(dollars in millions) Collins Aerospace Systems Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

(dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total

Products $ 14,664 $ 10,186 $ 7,775 $ 10,232 $ 462 $ 43,319

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Business segment sales $ 19,288 $ 16,799 $ 11,069 $ 11,396 $ ( 1,965 ) $ 56,587

RIS and RMD segment sales disaggregated by contract type for the year ended December 31 are as follows:

(dollars in millions) Raytheon Intelligence & Space Raytheon Missiles & Defense Raytheon Intelligence & Space Raytheon Missiles & Defense

RIS and RMD segment sales disaggregated by contract type for the years ended December 31 are as follows:

2022 2021 2020

(dollars in millions) Raytheon Intelligence & Space Raytheon Missiles & Defense Raytheon Intelligence & Space Raytheon Missiles & Defense Raytheon Intelligence & Space Raytheon Missiles & Defense

Fixed-price $ 5,357 $ 8,763 $ 6,338 $ 9,406 $ 4,526 $ 7,080

5 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data