What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-25 compared with 2022-10-25 · 219 added, 381 removed, 325 unchanged (65% of the section changed)

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We operate in four principal business segments:

Collins Aerospace Systems (Collins), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).

Collins Aerospace (Collins), Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD).

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

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 implement the reorganization beginning in July 2023.

All segment information included in this Form 10-Q is reflective of the existing four segments of Collins, Pratt & Whitney, RIS, and RMD in accordance with the management structure in place as of March 31, 2023.

RIS and RMD follow a 4-4-5 fiscal calendar while Collins and Pratt & Whitney use a quarter calendar end.

Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended September 30, 2022 and September 30, 2021 with respect to RIS or RMD, we are referring to their October 2, 2022 and October 3, 2021 fiscal quarter ends, respectively.

Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended March 31, 2023 and 2022 with respect to RIS or RMD, we are referring to their April 2, 2023 and April 3, 2022 fiscal quarter ends, respectively.

The current status of significant factors affecting our business environment in 2023 is discussed below.

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Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization.

Government legislation, policies and regulations, including regulations related to global warming, carbon footprint and fuel efficiency, can have a negative impact on our worldwide operations.

Government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses.

Government legislation, policies, and regulations can impact our business and operations.

Changes in environmental and climate change-related laws or regulations, including regulations on greenhouse gas emissions, carbon pricing, and energy taxes, could lead to new or additional investment in product designs and facility upgrades and could increase our operational and environmental compliance expenditures, including increased energy and raw materials costs and costs associated with manufacturing changes.

In addition, government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses.

Collins and Pratt & Whitney serve both commercial and government aerospace customers.

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Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits.

Many of our aerospace operations’ customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services.

Many of our aerospace customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services.

RIS, RMD, and the defense operations of Collins and Pratt & Whitney are affected by U.S.

Department of Defense (DoD) budget and spending levels, changes in demand, changes in policy positions or priorities and the global political environment.

Department of Defense (DoD) budget and spending levels, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the global and national security threat environment.

In addition, our defense businesses engage in both direct commercial sales, which generally require U.S.

government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S.

Changes in these budget and spending levels, policies, or priorities, which are subject to geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S.

Changes in these budget and spending levels, policies, or priorities, which are subject to U.S.

domestic and foreign geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S.

government licenses and approvals for sales, the risk of sanctions, or other restrictions.

Impact of the COVID-19 Pandemic

The coronavirus disease 2019 (COVID-19) pandemic continues to negatively affect the global economy, our business and operations, supply chains, and the industries in which we operate.

However, we continue to see signs of ongoing recovery in commercial air travel.

While we believe that the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, there continues to be uncertainty with respect to when commercial air traffic capacity will fully return to and/or exceed pre-COVID-19 levels.

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

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

Other Matters

Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, foreign currency exchange rates, energy costs, levels of air travel, the financial condition of

commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.

During August 2022, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Sciences Act and the Inflation Reduction Act were signed into law, each effective as of January 1, 2023.

This new legislation includes the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions.

We do not currently expect the legislation will have a material effect on our results of operations, financial condition or liquidity.

Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, international and domestic tax law changes, foreign currency exchange rates, energy costs and

supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.

Global Supply Chain and Labor Markets.

Ongoing global supply chain and labor market constraints continue to include materials and parts shortages, including raw material, microelectronics and commodity shortages, as well as delivery delays, labor shortages, distribution problems, and price increases.

Current geopolitical conditions, including sanctions and other trade restrictive activities and strained intercountry relations, are contributing to these issues.

We have had difficulties procuring necessary materials, including raw materials, components, and other supplies, and services on a timely basis or at all.

We have also had difficulties hiring qualified personnel, particularly personnel with specialized engineering experience and security clearances.

Our suppliers and subcontractors have been impacted by the same issues, compounding the shortages for us because we rely on them, sometimes as sole-source providers.

In addition, the ongoing recovery in commercial air travel has increased demand for our products and services and added to these supply chain and labor market challenges.

We work continuously to mitigate the effects of these supply chain and labor constraints through a number of targeted activities and ongoing programs.

However, the timing as to when our supply chain and labor challenges will abate is uncertain and subject to a wide range of factors and future developments.

Geopolitical Matters.

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

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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.

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.

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however, based on information available to date, we do not currently expect these issues will have a material adverse effect on our financial results.

In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog, which would have been recognized over a span of approximately 10 years, and recorded certain impairment charges and increases to reserves related to operations at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1:

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

We will continue to monitor future developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers.

In addition, the People’s Republic of China (China) previously announced that it may take measures against RTC in connection with certain foreign military sales to Taiwan.

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

China previously announced that it may take measures against RTC in connection with certain foreign military sales to Taiwan.

On February 16, 2023, China’s Ministry of Commerce announced that it has added RMD to its “unreliable entities list” in connection with certain foreign military sales to Taiwan involving RMD’s products and services, and that it would impose certain sanctions against RMD, including a fine equal to twice the value of the arms that RMD has sold to Taiwan since September 2020.

In addition, on September 16, 2022, China indicated that it decided to sanction our Chairman and Chief Executive Officer Gregory Hayes, in connection with another foreign military sale to Taiwan involving RTC products and services.

RTC is not aware of any specific sanctions against Mr.

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

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

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

Also, in July 2019, the U.S.

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

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

Turkish companies supply us with components, some of which are sole-sourced, primarily in our aerospace operations for commercial and military engines and aerospace products.

Depending upon the scope and timing of U.S.

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

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

Any impact of these or other potential sanctions or other actions by China is uncertain.

We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S.

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If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results.

In particular, as of September 30, 2022, our Contract liabilities include approximately $355 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals.

In particular, as of March 31, 2023, our Contract liabilities include approximately $395 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.

Coronavirus Disease 2019 (COVID-19) Pandemic.

The COVID-19 pandemic caused continuing negative effects on the global economy, our business and operations, the labor market, supply chains, inflation, and the industries in which we operate.

Commercial air travel continues to recover to varying degrees.

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-pandemic levels.

Our expectations regarding the negative effects of 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.

See Part I, Item 1A, “Risk Factors” in our 2022 Annual Report on Form 10-K for further discussion of these items.

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See “Critical Accounting Estimates” within Item 7 and “Note 1:

Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2021 Annual Report on Form 10-K, which

describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements.

Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2022 Annual Report on Form 10-K, which describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements.

Actual results in these areas could differ from management’s estimates.

There have been no significant changes in our critical accounting estimates during the nine months ended September 30, 2022.

There have been no significant changes in our critical accounting estimates during the quarter ended March 31, 2023.

RESULTS OF OPERATIONS

As described in our “Cautionary Note Concerning Factors That May Affect Future Results” in this Form 10-Q, our interim period results of operations and period-to-period comparisons of such results, particularly at a segment level, may not be indicative of our future operating results.

As described in our “Cautionary Note Concerning Factors That May Affect Future Results” of this Form 10-Q, our interim period results of operations and period-to-period comparisons of our results, particularly at a segment level, may not be indicative of our future operating results.

The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context.

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We believe that these non-Generally Accepted Accounting Principles (non-GAAP) measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability.

The organic change in Net sales, Cost of sales and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation fluctuations and other significant non-recurring and non-operational items (“Other”).

The organic change in Net sales, Cost of sales, and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation fluctuations and other significant non-operational items and/or significant operational items that may occur at irregular intervals (Other).

Additionally, the organic change in Cost of sales and Operating profit excludes restructuring costs, the FAS/CAS operating adjustment, and costs related to certain acquisition accounting adjustments.

Restructuring costs generally arise from severance related to workforce reductions and facility exit costs.

Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired.

Quarter Ended September 30, Nine Months Ended September 30,

We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive.

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.

Quarter Ended March 31,

(dollars in millions) 2023 2022

Net sales $ 17,214 $ 15,716

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

(dollars in millions) Quarter Ended September 30, 2022 Nine Months Ended September 30, 2022

$ 1,021 $ 2,382

The factors contributing to the change year-over-year in total net sales for the quarter ended March 31, 2023 are as follows:

(dollars in millions) Quarter Ended March 31, 2023

Acquisitions and divestitures, net (34)

Other (98) (206)

Total change $ 1,498

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GAAP amount is provided in the table above.

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

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

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

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

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

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

Net sales increased $1.6 billion organically in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to higher organic sales of $0.8 billion at Collins, $0.7 billion at Pratt & Whitney, and $0.2 billion at RMD.

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

Quarter Ended September 30, % of Total Net Sales

Quarter Ended March 31, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

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

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

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

Nine Months Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

Products $ 36,876 $ 36,174 75.3 % 76.4 %

Services 12,105 11,170 24.7 % 23.6 %

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

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

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

Net products sales increased $0.9 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to increases in external products sales of $0.5 billion at Collins, $0.4 billion at Pratt & Whitney, and $0.1 billion at RMD, partially offset by a decrease in external products sales of $0.1 billion at RIS.

Net services sales increased $0.6 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to increases in external services sales of $0.3 billion at Pratt & Whitney, $0.2 billion at Collins, and $0.1 billion at RMD.

Our sales to major customers were as follows:

Quarter Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

Sales to the U.S.

government (1)

$ 7,555 $ 7,737 44.6 % 47.7 %

Foreign military sales through the U.S.

government 1,275 1,364 7.5 % 8.4 %

Foreign government direct commercial sales 1,064 1,242 6.3 % 7.7 %

Commercial aerospace and other commercial sales 7,057 5,870 41.6 % 36.2 %

Total net sales $ 16,951 $ 16,213 100 % 100 %

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

Nine Months Ended September 30, % of Total Net Sales

Quarter Ended March 31, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

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Cost of Sales

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

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Percentage of net sales 79.3 % 79.9 %

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

(dollars in millions) Quarter Ended September 30, 2022 Nine Months Ended September 30, 2022

$ 650 $ 1,156

The factors contributing to the change year-over-year in total cost of sales for the quarter ended March 31, 2023 are as follows:

(dollars in millions) Quarter Ended March 31, 2023

Acquisitions and divestitures, net (25)

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Acquisition accounting adjustments 8

Other (125) (50)

Total change $ 1,085

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GAAP amount is provided in the table above.

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

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

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

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

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

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

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

The organic increase in total cost of sales of $1.3 billion for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, was primarily driven by the organic sales increases at Pratt & Whitney, Collins, and RMD noted above.

The decrease in other cost of sales of $0.2 billion for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, was primarily driven by the absence of charges recorded during the first quarter of 2022 at Pratt & Whitney and Collins related to impairment of customer financing assets for products under lease, inventory reserves, purchase order obligations, and the impairment of contract fulfillment costs that are no longer recoverable, all due to global sanctions on and

export controls with respect to Russia, and the impact of foreign exchange.

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

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

For further discussion on Acquisition accounting adjustments, see the “Acquisition accounting adjustments” subsection under the “Segment Review” section below.

Quarter Ended September 30, % of Total Net Sales

(dollars in millions) 2022 2021 2022 2021

Cost of sales

Products $ 10,493 $ 10,296 61.9 % 63.5 %

Services 2,971 2,793 17.5 % 17.2 %

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

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

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

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

Nine Months Ended September 30, % of Total Net Sales

Quarter Ended March 31, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

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Total cost of sales $ 13,645 $ 12,560 79.3 % 79.9 %

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

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

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

Net products cost of sales increased $0.9 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to increases at Pratt & Whitney, Collins, and RMD all driven by the products sales changes noted above.

Net services cost of sales increased $0.2 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to an increase in external services cost of sales at Collins, Pratt & Whitney, and RMD all driven by the services sales changes noted above.

Research and Development

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

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

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

Company- funded research and development as a percentage of net sales for the nine months ended September 30, 2022 was relatively consistent with the nine months ended September 30, 2021.

The company-funded research and development increase was principally driven by increased spending at Pratt & Whitney on various commercial programs.

The decrease in customer-funded research and development of $114 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by lower expenses on various military programs

at Collins and lower expenses spread across various programs at RMD, partially offset by an increase in expenses on the Next Generation Interceptor (NGI) program awarded in the second quarter of 2021 at RMD.

The decrease in company-funded research and development of $28 million for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily driven by a decrease in net expenses related to the Lower Tier Air and Missile Defense Sensor (LTAMDS) project.

The increase in customer-funded research and development of $36 million for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, was primarily driven by higher expenses on various military programs at Collins, partially offset by lower expenses on various programs at RMD and RIS.

Selling, General and Administrative

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Selling, general and administrative expenses $ 1,391 $ 1,229 $ 4,284 $ 3,817

Selling, general and administrative $ 1,398 $ 1,469

Percentage of net sales 8.1 % 9.3 %

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

Selling, general and administrative expenses increased $467 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily driven by higher combined expenses of $0.4 billion at Collins and Pratt & Whitney principally driven by higher employee-related costs and by $71 million of charges related to increased estimates for credit losses due to global sanctions on and export controls with respect to Russia.

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

Selling, general and administrative expenses decreased $0.1 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily driven by the absence of $71 million of charges recorded in the first quarter of 2022 related to increased estimates for credit losses due to global sanctions on and export controls with respect to Russia.

We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive.

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Other Income, Net

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

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

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

The decrease in Other income, net of $223 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $69 million of charges associated with the disposition of two non-core businesses at Collins in the second quarter of 2022, the absence of prior year foreign government wage subsidies related to COVID-19 at Pratt & Whitney of $52 million and a $23 million loss resulting from the exit of our investment in a Russia-based joint venture at Collins in the first quarter of 2022.

The above items were partially offset by a net favorable year-over-year impact of foreign exchange gains and losses of $38 million with the remaining change spread across multiple items with no common or significant driver.

The increase in Other income, net of $0.1 billion for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to a gain on sale of land during the first quarter of 2023 and the absence of a loss resulting from the exit of our investment in a Russia-based joint venture at Collins recorded in the quarter ended March 31, 2022.

Operating Profit

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

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Operating profit margin 9.6 % 6.9 %

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

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

The increase in Operating profit of $0.6 billion for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily driven by the operating performance of our segments and a decrease in Corporate expenses and other unallocated items, partially offset by the change in our FAS/CAS operating adjustment, all of which are described below in “Segment Review.”

Non-service Pension Income

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Non-service pension income $ (444) $ (480)

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

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

The change in Non-service pension income of $36 million for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily driven by an increase in interest rates during 2022 and prior years’ pension asset returns less than our expected return on plan assets (EROA) assumption, partially offset by an increase in our 2023 EROA assumption.

Interest Expense, Net

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

4 unchanged sentences

Average interest expense rate 4.0 % 4.0 %

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

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

The decrease in interest expense, net of $88 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a $40 million decrease in Interest expense, a $30 million increase in Interest income, and an $18 million decrease in Other non-operating expenses.

The decrease in Interest expense was primarily due to repayments of higher interest rate long-term debt during 2021, partially offset by debt issuances with lower interest rates during 2021.

The increase in Interest income was primarily due to adjustments of certain tax-related interest reserves in the first quarter of 2022.

The decrease in Other non-operating expense (income) was primarily due to the absence of $32 million of net debt extinguishment costs in the prior year.

Quarter Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Interest expense, net in the quarter ended March 31, 2023 was relatively consistent with the quarter ended March 31, 2022.

The decrease in Interest income of $21 million was primarily due to the absence of certain tax-related interest reserve adjustments recorded in the quarter ended March 31, 2022.

The increase in Interest expense of $17 million was primarily due to the long-term debt issuance in the quarter ended March 31, 2023 and the commercial paper activity in the first quarter of 2023.

The change in Other non-operating expense (income) of $41 million was primarily driven by a change in the mark-to-market fair value of marketable securities held in trusts associated with certain of our nonqualified deferred compensation and employee benefit plans.

Quarter Ended March 31,

Effective income tax rate 16.8 % 9.3 %

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

Tax expense in the quarter ended September 30, 2021 includes deferred tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter of 2021.

The effective tax rate in the nine months ended September 30, 2022 includes a benefit of approximately 5 percentage points primarily related to an incremental FDII benefit and other effects created by the capitalization of research or experimental expenditures for tax-purposes, which was enacted as part of the Tax Cuts and Jobs Act of 2017 and became effective on January 1, 2022.

Tax expense in the nine months ended September 30, 2021 includes deferred tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter of 2021, tax charges incremental to the U.S.

statutory rate of $148 million associated with the sale of the Forcepoint business, as described in “Note 2:

Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q, and $73 million associated with the revaluation of deferred taxes resulting from the increase in the United Kingdom (U.K.) corporate tax rate to 25% enacted in 2021.

Subsequently, in the fourth quarter of 2021, we recognized an incremental $104 million tax benefit due to the revaluation of the Forcepoint tax benefit as a result of completing the divestiture of RIS’s global training and services business.

Our effective tax rate was 16.8% and 9.3% in the quarters ended March 31, 2023 and 2022, respectively.

The increase in the effective tax rate for the quarter ended March 31, 2023 as compared to the quarter ended March 31, 2022 is primarily driven by a higher forecasted annualized effective tax rate for 2023 principally due to a lower forecasted Foreign Derived Intangible Income (FDII) benefit in addition to a lower tax benefit from stock based compensation in the current quarter.

Net Income from Continuing Operations Attributable to Common Shareowners

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions, except per share amounts) 2023 2022

1 unchanged sentence

Diluted earnings per share from continuing operations $ 0.97 $ 0.74

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

Net income from continuing operations attributable to common shareowners for the quarter ended March 31, 2023 includes the following:

• acquisition accounting adjustments of $385 million, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) from continuing operations of $0.26.

• income of $65 million related to the capitalization of research or experimental expenditures for tax purposes, which had a net favorable impact on diluted EPS from continuing operations of $0.04.

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

• acquisition accounting adjustments of $456 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.30;

• tax benefits of $244 million associated with legal entity and operational reorganizations implemented in the third quarter 2021, which had a favorable impact on diluted EPS from continuing operations of $0.16.

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

Net income from continuing operations attributable to common shareowners for the quarter ended March 31, 2022 includes the following:

• acquisition accounting adjustments of $379 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.25;

• impairment charges and reserve adjustments related to the global sanctions on, and export controls with respect to, Russia of $210 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.14.

• income of $159 million related to the capitalization of research or experimental expenditures for tax purposes, which had a net favorable impact on diluted EPS from continuing operations of $0.11.

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

• acquisition accounting adjustments of $1,257 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.83;

• tax expense of $148 million related to the sale of our Forcepoint business, which had an unfavorable impact on diluted EPS from continuing operations of $0.10.

Net Income Attributable to Common Shareowners

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions, except per share amounts) 2023 2022

1 unchanged sentence

Diluted earnings per share from operations $ 0.97 $ 0.72

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

The increase in net income attributable to common shareowners and diluted earnings per share from operations for the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily driven by the increases in continuing operations, as discussed above.

SEGMENT REVIEW

2 unchanged sentences

Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services.

Segment total net sales and operating profit include intercompany sales and profit, which are ultimately

eliminated within Eliminations and other, which also includes certain smaller non-reportable segments.

Segment total net sales and operating profit include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments.

Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment, and certain corporate expenses, as further discussed below.

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 implement the reorganization beginning in July 2023.

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

3 unchanged sentences

Total net sales by segment were as follows:

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Collins Aerospace Systems $ 5,100 $ 4,592 $ 14,935 $ 13,507

Collins Aerospace $ 5,581 $ 4,824

Pratt & Whitney 5,230 4,529

6 unchanged sentences

Operating profit by segment was as follows:

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Collins Aerospace Systems $ 616 $ 478 $ 1,602 $ 1,298

Collins Aerospace $ 794 $ 440

Pratt & Whitney 415 151

7 unchanged sentences

Consolidated $ 1,652 $ 1,080

(1) 2022 included the net expenses related to the U.S.

Army’s LTAMDS project.

Beginning in 2023, LTAMDS results are included in the RMD segment.

Included in segment operating profit are Estimate at Completion (EAC) adjustments, which relate to changes in operating profit and margin due to revisions to total estimated revenues and costs at completion.

2 unchanged sentences

Changes in Contract Estimates at Completion” within Item 1 of this Form 10-Q.

Given that we have thousands of individual contracts and given the types and complexity of the assumptions and estimates we must make on an on-going basis and the nature of the work required to perform under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course.

Given that we have thousands of individual contracts, and given the types and complexity of the assumptions and estimates we must make on an on-going basis, and the nature of the work required to be performed under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course.

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

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

2 unchanged sentences

Total net EAC adjustments $ (124) $ 36

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

The change in net EAC adjustments of $62 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to unfavorable changes in net EAC adjustments of $143 million at RMD and $59 million at RIS, including the impact of acquisitions and dispositions, both spread across numerous individual programs with no individual or common significant driver.

These unfavorable changes were partially offset by a favorable change in net EAC adjustments of $105 million at Collins, spread across numerous individual programs with no individual or common significant driver, and a favorable change in net EAC adjustments of $35 million at Pratt & Whitney primarily due to a $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket program in the second quarter of 2022.

The change in net EAC adjustments of $160 million in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to unfavorable changes in net EAC adjustments of $61 million at RMD, and $49 million at RIS spread across numerous individual programs with no individual or common significant driver.

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

Backlog and Defense Bookings.

Total backlog was approximately $168 billion and $156 billion as of September 30, 2022 and December 31, 2021, respectively, which includes defense backlog of $67 billion and $63 billion as of September 30, 2022 and December 31, 2021, respectively.

In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1:

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

Backlog and Bookings.

Total backlog was approximately $180 billion and $175 billion as of March 31, 2023 and December 31, 2022, respectively, which includes defense backlog of $71 billion and $69 billion as of March 31, 2023 and December 31, 2022, respectively.

Our defense operations consist primarily of our RIS and RMD businesses and operations in the defense businesses within our Collins and Pratt & Whitney segments.

Defense bookings were approximately $12 billion and $10 billion for the quarters ended September 30, 2022 and 2021, respectively, and approximately $34 billion and $30 billion for the nine months ended September 30, 2022 and 2021, respectively.

Defense bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including:

the desired capability by the customer and urgency of customer needs, customer budgets and other fiscal constraints, political and economic and other environmental factors, the timing of customer negotiations, and the timing of governmental approvals and notifications.

Defense bookings were approximately $12 billion and $8 billion for the quarters ended March 31, 2023 and 2022, respectively.

Bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including:

In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis.

Collins Aerospace Systems

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

Collins Aerospace

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Net sales $ 5,581 $ 4,824 16 %

1 unchanged sentence

Operating profit margins 14.2 % 9.1 %

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

Factors Contributing to Total Change

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Restructuring

Costs Other Total Change

Net sales $ 587 $ (21) $ — $ (58) $ 508

Operating profit 158 (3) (12) (5) 138

(1) See “Segment Review” above for definition of organic.

A reconciliation of these measures to reported U.S.

GAAP amounts is provided in the table above.

The organic sales increase of $0.6 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily relates to higher commercial aerospace aftermarket sales of $0.4 billion, including increases across all aftermarket sales channels, and higher commercial aerospace OEM sales of $0.2 billion.

These increases were principally driven by the recovery of commercial air traffic which has resulted in an increase in flight hours, aircraft fleet

utilization and narrow-body commercial OEM volume growth.

This was partially offset by lower military sales of $0.1 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 primarily due to lower material receipts and decreased volume.

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

This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.1 billion principally driven by lower military sales volume, and higher combined selling, general and administrative expenses and research and development costs of $0.1 billion.

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

Quarter Ended March 31, 2023 Compared with Quarter Ended March 31, 2022

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

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

These increases were partially offset by lower military sales of $0.4 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lower material receipts and expected declines in F-35 volume.

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

This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.2 billion principally driven by the lower military sales discussed above, and higher selling, general and administrative expenses of $0.2 billion.

The decrease in Other operating profits of $197 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $141 million of pretax charges related to increased estimates for credit losses, inventory reserves, recognition of purchase order obligations and a loss resulting from the exit of our investment in a Russia-based joint venture, all due to global sanctions on and export controls with respect to Russia in the first quarter of 2022.

In addition, we recognized $69 million of charges associated with the disposition of two non-core businesses in the second quarter of 2022.

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

The organic sales increase of $0.8 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily relates to higher commercial aerospace aftermarket sales of $0.5 billion, including increases across all aftermarket sales channels, and higher commercial aerospace OEM sales of $0.2 billion.

These increases were principally driven by the recovery of commercial air traffic which has resulted in an increase in flight hours, aircraft fleet utilization and OEM production rates.

Military sales increased $0.1 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 primarily due to higher material receipts and increased production volume.

The organic operating profit increase of $0.2 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to higher commercial aerospace operating profit of $0.3 billion, principally driven by the higher commercial aerospace aftermarket sales discussed above as well as favorable mix.

This increase in commercial aerospace operating profit was partially offset by higher production costs and selling, general and administrative expenses.

The increase in Other operating profit of $0.1 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to the absence of $141 million of pretax charges recorded in the first quarter of 2022 related to increased estimates for credit losses, inventory reserves, recognition of purchase order obligations, and a loss resulting from the exit of our investment in a Russia-based joint venture, all due to global sanctions on and export controls with respect to Russia.

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

Pratt & Whitney

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Net sales $ 5,230 $ 4,529 15 %

1 unchanged sentence

Operating profit margins 7.9 % 3.3 %

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

Factors Contributing to Total Change

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Restructuring

Costs Other Total Change

Net sales $ 686 $ — $ — $ (31) $ 655

Operating profit 137 — — (8) 129

(1) See “Segment Review” above for definition of organic.

A reconciliation of these measures to reported U.S.

GAAP amounts is provided in the table above.

The organic sales increase of $0.7 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 reflects higher commercial aftermarket sales of $0.5 billion primarily due to an increase in shop visits and

related spare part sales as the commercial aerospace environment continues to recover.

The increase also includes higher commercial OEM sales of $0.2 billion primarily driven by favorable mix and higher volume on commercial engine shipments.

These increases were partially offset by a slight decline in military sales reflecting expected lower F135 production volume, partially offset by higher F135 sustainment volume.

The organic profit increase of $0.1 billion in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was primarily driven by higher commercial aerospace operating profit of $0.2 billion principally due to the aftermarket sales increase discussed above and favorable commercial OEM mix .

The increase also includes slightly higher military operating profit primarily driven by favorable mix.

These increases were partially offset by a combined increase in selling, general and administrative expenses and research and development costs of $0.1 billion.

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

Quarter Ended March 31, 2023 Compared with Quarter Ended March 31, 2022

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $1.9 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 reflects higher commercial aftermarket sales of $1.5 billion primarily due to an increase in shop visits and related spare part sales as the commercial aerospace environment continues to recover.

The increase also includes higher commercial OEM sales of $0.5 billion driven by favorable mix and higher volume on commercial engine shipments.

These increases were partially offset by lower military sales of $0.1 billion primarily due to lower sales on F135 production volume, partially offset by higher F135 sustainment volume.

The organic profit increase of $0.6 billion in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily driven by higher commercial aerospace operating profit of $1.0 billion principally due to the aftermarket sales volume increase discussed above and favorable OEM mix .

The organic profit increase also includes slightly higher military operating profit primarily driven by favorable mix.

These increases were partially offset by a combined increase in selling, general and administrative expenses and research and development costs of $0.2 billion.

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

In the nine months ended September 30, 2021 our organic profit included $52 million related to foreign government wage subsidies due to COVID-19 .

The decrease in Other operating profit of $175 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to $155 million of pretax charges related to impairment of customer financing assets for products under lease, increased estimates for credit losses, inventory reserves and recognition of purchase order obligations, all due to global sanctions on and export controls with respect to Russia in the first quarter of 2022.

The organic sales increase of $0.7 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 reflects higher commercial aftermarket sales of $0.3 billion primarily due to an increase in volume and favorable mix as the commercial aerospace environment continues to recover.

The increase also includes higher commercial OEM sales of $0.2 billion primarily driven by volume and favorable mix on commercial engine shipments and higher military sales of $0.2 billion primarily driven by the F135 production contract award in the second quarter of 2022 and higher F135 sustainment volume.

The organic operating profit increase of $0.1 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily driven by higher commercial aerospace operating profit of $0.1 billion principally due to the aftermarket sales increase discussed above and includes a $60 million favorable contract matter.

These increases were partially offset by lower commercial OEM operating profit driven by the volume increases noted above.

T he increase in operating profit also includes higher military operating profit primarily driven by the sales increases discussed above.

The increase in Other operating profits of $0.2 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to the absence of $155 million of pretax charges recorded the first quarter of 2022 related to impairment of customer financing assets for products under lease, increased estimates for credit losses, inventory reserves, and recognition of purchase order obligations, all due to global sanctions on and export controls with respect to Russia.

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

Defense Bookings – In addition to a number of smaller bookings, in the quarter ended September 30, 2022, Pratt & Whitney booked $524 million for F135 sustainment and $278 million for expanded scope on F135 production Lots 15 and 16.

In addition to these bookings, in the nine months ended September 30, 2022 Pratt & Whitney booked $4.0 billion for F135 production Lots 15 and 16, $408 million for F135 sustainment, and $251 million for tanker production Lots 7 and 8.

Defense Bookings – In addition to a number of smaller bookings, in the quarter ended March 31, 2023, Pratt & Whitney booked $308 million for F119 sustainment, $224 million for F117 sustainment, $217 million for tanker production Lots 8 and 9, and $213 million for F135 sustainment.

Raytheon Intelligence & Space

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Net sales $ 3,565 $ 3,572 — %

2 unchanged sentences

Bookings $ 4,295 $ 2,592 66 %

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

Factors Contributing to Total Change in Net Sales

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Other Total Change

Net sales $ 68 $ (164) $ (18) $ (114)

(1) See “Segment Review” above for definition of organic.

A reconciliation of this measure to the reported U.S.

GAAP amount is provided in the table above.

Factors Contributing to Change in Operating Profit

(dollars in millions) Volume Net change in EAC adjustments Acquisitions /

Divestitures, net Mix and other performance Total Change

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

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

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

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

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

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

Quarter Ended March 31, 2023 Compared with Quarter Ended March 31, 2022

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ 4 $ (49) $ — $ (9) $ (54)

Organic sales in the nine months ended September 30, 2022 were relatively consistent with the nine months ended September 30, 2021.

Included in the organic change in sales were higher Sensing and Effects sales of $0.1 billion, and higher Cyber, Training and Services sales of $0.1 billion on certain classified cyber programs, offset by lower Command, Control and Communications sales of $0.2 billion.

The higher Sensing and Effects sales includes an increase due to certain development programs transitioning into production, an increase in sales on classified programs, and a decrease in surveillance and targeting systems due to lower production volume.

The lower Command, Control and Communications sales were primarily driven by an anticipated decrease in production volumes on certain tactical communications systems programs.

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

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

Backlog and Bookings – Backlog was $17 billion at September 30, 2022 and $18 billion at December 31, 2021.

In addition to a number of smaller bookings, in the quarter ended September 30, 2022, RIS booked $1.6 billion on a number of classified contracts.

In addition to these bookings, in the nine months ended September 30, 2022, RIS booked $2.3 billion on a number of classified contracts, $311 million on the Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) GEO missile warning

and defense contract for the U.S.

Space Force, and $253 million on the Development, Operations and Maintenance (DOMino) cyber program for the Department of Homeland Security (DHS).

Organic sales in the quarter ended March 31, 2023 were relatively consistent with the quarter ended March 31, 2022.

Included in the organic change in sales were higher Cyber and Services sales (formerly Cyber, Training and Services), and lower Command, Control and Communications sales.

The decrease in operating profit of $0.1 billion, and the related decrease in operating profit margins, in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, were primarily due to the net unfavorable change in EAC adjustments of $49 million, which was spread across numerous programs, with no individual common or significant driver.

Backlog and Bookings – Backlog was $17 billion at March 31, 2023 and $16 billion at December 31, 2022.

In addition to a number of smaller bookings, in the quarter ended March 31, 2023, RIS booked $1.9 billion on a number of classified contracts, $650 million on Next Generation Jammer Mid-Band (NGJ-MB) for the U.S.

Navy and the government of Australia, $275 million on a seven-vehicle missile tracking satellite constellation for the Space Development Agency, and $266 million to deliver airborne radars to an international customer.

Raytheon Missiles & Defense

Quarter Ended September 30, Nine Months Ended September 30,

(dollars in millions) 2022 2021 Change 2022 2021 Change

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Net sales $ 3,671 $ 3,527 4 %

2 unchanged sentences

Bookings $ 5,200 $ 4,100 27 %

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

Factors Contributing to Total Change in Net Sales

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Other Total Change

Net sales $ (209) $ — $ (15) $ (224)

(1) See “Segment Review” above for definition of organic.

A reconciliation of this measure to the reported U.S.

GAAP amount is provided in the table above.

Factors Contributing to Change in Operating Profit

(dollars in millions) Volume Net change in EAC adjustments Acquisitions /

Divestitures, net Mix and other performance Total Change

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

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

These declines were partially offset by higher net sales of $0.2 billion from our Strategic Missile Defense programs, which included higher net sales on the NGI program.

The decrease in operating profit of $82 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, was due to a change in mix and other performance of $42 million, a net unfavorable change in EAC adjustments of $21 million, and lower volume of $19 million.

The changes in mix and other performance and volume were principally driven by the lower net sales on the Land Warfare and Air Defense programs discussed above.

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

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

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

Quarter Ended March 31, 2023 Compared with Quarter Ended March 31, 2022

Factors Contributing to Total Change in Net Sales

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Operating profit $ 30 $ (61) $ (1) $ (27) $ (59)

The organic sales decrease of $883 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to lower net sales of $0.7 billion from our Land Warfare and Air Defense programs, including certain international air and missile defense programs, primarily driven by lower material receipts as a result of supply chain constraints and anticipated decreases in production;

lower net sales of $0.3 billion from our Air Power programs,

including lower net sales on the Paveway program and the Advanced Medium Range Air-to-Air Missile (AMRAAM) program;

and lower net sales of $0.3 billion on our Naval Power programs due to lower volumes across multiple programs, partially offset by higher net sales from SPY-6 programs.

These decreases were partially offset by higher net sales of $0.3 billion from our Strategic Missile Defense programs which included higher net sales from the NGI program.

The decrease in operating profit of $375 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily due to a change in mix and other performance of $155 million, a net unfavorable change in EAC adjustments of $143 million, and lower volume of $77 million.

The changes in mix and other performance and volume were principally driven by the lower net sales on the Land Warfare and Air Defense programs discussed above.

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

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

Backlog and Bookings – Backlog was $32 billion at September 30, 2022 and $29 billion at December 31, 2021.

In addition to a number of smaller bookings, in the quarter ended September 30, 2022, RMD booked $1 billion for the first Hypersonic Attack Cruise Missile (HACM) for the U.S.

Air Force, $972 million for AMRAAM for the U.S.

Air Force and Navy and international customers, $353 million for the Lower Tier Air and Missile Defense Sensor (LTAMDS) Pre-planned Product Improvement program for the U.S.

Army, $226 million for systems improvement program hardware for the Air Intercept Missile (AIM-9X) Sidewinder short-range air- to-air missiles for the U.S.

Navy, and $207 million for integrated effectors and sensors for Counter-Unmanned Aircraft Systems (C-UAS) defense system for the U.S.

In addition to these bookings, in the nine months ended September 30, 2022, RMD booked $1.6 billion on a number of classified contracts, including a strategic competitive award.

RMD also booked $662 million on Stinger for the U.S.

Army, $651 million for the SPY-6 Hardware Production and Sustainment contract for the U.S.

Navy, $648 million for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA), $423 million on the SPY-6 Hardware Production and Sustainment contract for the U.S.

Navy, $384 million for Excalibur Rapid Demonstration Phase 2 for the U.S.

Army, $219 million for AIM-9X Sidewinder short-range air-to-air missiles for the U.S.

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

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

The organic sales increase of $0.2 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to higher net sales of $0.1 billion from our Advanced Technologies programs, and $0.1 billion from our Air Power programs.

The increase in Advanced Technologies programs includes higher net sales on certain classified programs awarded in 2022.

The increase in Air Power programs includes higher net sales on the StormBreaker program driven by the award in the first quarter of 2023, primarily driven by the recognition of previously deferred precontract costs.

The decrease in operating profit of $0.1 billion in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, was primarily due to a net unfavorable change in EAC adjustments of $61 million and mix and other performance of $27 million, partially offset by the impact of higher volume of $30 million.

The net change in EAC adjustments was driven primarily by an unfavorable impact related to a significant contract option exercised in the first quarter of 2023.

The unfavorable change in mix and other performance was spread across numerous programs and includes higher development program mix .

The increase in volume was principally driven by the higher net sales on the Advanced Technologies and Air Power programs discussed above.

The decrease in operating profit margins in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, was primarily due to the net change in EAC adjustments and the change in mix and other performance discussed above.

Backlog and Bookings – Backlog was $35 billion at March 31, 2023 and $34 billion at December 31, 2022.

In addition to a number of smaller bookings, in the quarter ended March 31, 2023, RMD booked $1.2 billion to provide Patriot Air Defense system to Switzerland, $619 million on the SPY-6 Hardware Production and Sustainment contract for the U.S.

Navy, $320 million on StormBreaker for the U.S.

Air Force and Navy, $234 million on Naval Strike Missiles (NSM) for the U.S.

Navy, and $212 million on Excalibur for the U.S.

Army and international customers.

In addition to the bookings noted above, RMD booked $827 million on a number of classified contracts.

Corporate and Eliminations and other

Eliminations and other reflects the elimination of sales, other income, and operating profit transacted between segments, as well as the operating results of certain smaller non-reportable business segments.

Corporate expenses and other unallocated items consists of costs and certain other unallowable corporate costs not considered part of management’s evaluation of reportable segment operating performance including restructuring costs related to the Raytheon merger, net costs associated with corporate research and development, including the LTAMDS program and certain reserves.

Net Sales Operating Profit

Quarter Ended September 30, Quarter Ended September 30,

(dollars in millions) 2022 2021 2022 2021

Eliminations and other $ (833) $ (746) $ (50) $ (27)

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

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

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

Corporate expenses and other unallocated items in the quarter ended September 30, 2022 were relatively consistent with the quarter ended September 30, 2021.

Included in the change in corporate expenses and other unallocated items were a decrease in expenses related to the LTAMDS project and lower restructuring costs, partially offset by an increase in IT-related costs.

In addition, in 2022, net costs associated with corporate research and development related to the LTAMDS program were included in Corporate Eliminations and other.

Beginning in 2023, the remaining net costs associated with the LTAMDS program are within the RMD segment.

Net Sales Operating Profit

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

Quarter Ended March 31, Quarter Ended March 31,

(dollars in millions) 2023 2022 2023 2022

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Corporate expenses and other unallocated items — — (43) (136)

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

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

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

The increase in eliminations and other sales of $97 million in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to an increase in intersegment eliminations, principally driven by Collins and RIS.

The change in eliminations and other operating profit of $47 million in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to a gain on sale of land in the first quarter of 2023.

The change in corporate expenses and other unallocated items operating profit of $93 million in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was primarily due to a decrease in expenses related to the LTAMDS project, which are now included in the RMD segment, and lower restructuring costs.

FAS/CAS operating adjustment

We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and postretirement benefit (PRB) expense under the Financial Accounting Standards (FAS) requirements of U.S.

Generally Accepted Accounting Principles (GAAP) and our pension and PRB expense under U.S.

GAAP and our pension and PRB expense under U.S.

government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments.

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

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

2 unchanged sentences

FAS/CAS operating adjustment $ 314 $ 378

The change in our FAS/CAS operating adjustment of $121 million in the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 was driven by a $132 million decrease in CAS expense, partially offset by an $11 million decrease in FAS service cost.

The decrease in CAS expense was primarily due to our 2021 actuarial estimate update in the third quarter of 2021 and an increase in applicable discount rates as a result of U.S.

qualified pension plan funding relief included in the American Rescue Plan Act of 2021 (ARPA).

The change in our FAS/CAS operating adjustment of $212 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was driven by a $242 million decrease in CAS expense, partially offset by a $30 million decrease in FAS service cost.

The decrease in CAS expense was primarily due to an increase in applicable discount rates as a result of U.S.

qualified pension plan funding relief included in ARPA.

The change in our FAS/CAS operating adjustment of $64 million in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022 was driven by a $115 million decrease in CAS expense, partially offset by a $51 million decrease in FAS service cost.

The decrease in CAS expense was primarily due to changes to the Raytheon Company domestic pension plans announced in December 2020 that was effective December 31, 2022, and the recognition of historical CAS gain/loss experience.

The decrease in FAS service cost was primarily due to changes to the Raytheon Company domestic pension plans announced in December 2020 that was effective December 31, 2022.

Refer to “Note 9:

Employee Benefit Plans” within Item 1 of this Form 10-Q for additional information on the Raytheon Company domestic pension plan change.

Acquisition accounting adjustments

Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions, 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 .

The components of Acquisition accounting adjustments were as follows:

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

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

Quarter Ended September 30, Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Collins Aerospace Systems $ (201) $ (196) $ (604) $ (466)

Collins Aerospace $ (199) $ (206)

Pratt & Whitney (64) (57)

4 unchanged sentences

Acquisition accounting adjustments $ (493) $ (484)

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

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

Acquisition accounting adjustments in the quarter ended March 31, 2023 were relatively consistent with the quarter ended March 31, 2022.

LIQUIDITY AND FINANCIAL CONDITION

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

(dollars in millions) March 31, 2023 December 31, 2022

Cash and cash equivalents $ 5,893 $ 6,220

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capital expenditures, customer financing requirements, investments in and divestitures of businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms.

At September 30, 2022, we had cash and cash equivalents of $5.4 billion, of which approximatel y 38% was held by RTC’s foreign subsidiaries.

At March 31, 2023, we had cash and cash equivalents of $5.9 billion, of which approximatel y 34% was held by RTC’s foreign subsidiaries.

We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed.

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For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTC will continue to permanently reinvest these earnings.

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

As of September 30, 2022, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion, consisting of a $5.0 billion revolving credit agreement, which expires in April 2025, and a $2.0 billion revolving credit agreement, which was renewed in September 2022 and expires in September 2023.

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

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

As of March 31, 2023, 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 expires in September 2023.

As of March 31, 2023, there were no borrowings outstanding under these agreements.

From time to time, we use commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments, and repurchases of our common stock.

The commercial paper notes have original maturities of not more than 364 days from the date of issuance.

As of September 30, 2022, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement.

We had $2.1 billion of commercial paper outstanding at September 30, 2022.

The proceeds from these borrowings have primarily been used to fund payments related to the impact of a provision enacted in the Tax Cuts and Jobs Act of 2017 requiring the capitalization of research and experimental expenditures for tax purposes.

The daily average

amount of short-term commercial paper borrowings outstanding during the nine months ended September 30, 2022 was $815 million.

At September 30, 2022 short-term commercial paper borrowings outstanding had a weighted-average interest rate of 3.6%.

Proceeds from issuance of commercial paper with maturities greater than 90 days were $1.4 billion during the nine months ended September 30, 2022.

There were no repayments of commercial paper with maturities greater than 90 days during the nine months ended September 30, 2022.

During the nine months ended September 30, 2021, commercial paper borrowings had original maturities of not more than 90 days from the date of issuance.

As of March 31, 2023,

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 $0.1 billion of commercial paper outstanding at March 31, 2023.

At March 31, 2023 short-term commercial paper borrowings outstanding had a weighted-average interest rate of 4.3%.

There were no repayments of long-term debt during the quarters ended March 31, 2023 and 2022, and there were no issuances of long-term debt during the quarter ended March 31, 2022.

We had the following issuances of long-term debt during the quarter ended March 31, 2023:

Issuance Date Description of Notes Aggregate Principal Balance (in millions)

February 27, 2023 5.000% notes due 2026 (1)

5.150% notes due 2033 (1)

5.375% notes due 2053 (1)

(1) The net proceeds from these issuances will be used to fund repayment at maturity of the 3.650% notes due August 16, 2023 and the 3.700% notes due December 15, 2023, with the remaining proceeds to be used for general corporate purposes.

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

The Company offers a voluntary supply chain finance (SCF) program with a global financial institution which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institution at a rate that leverages our credit rating, which might be beneficial to them.

Our suppliers’ participation in the SCF program does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the program.

In addition, we provide no guarantees or otherwise pay for any of the costs of the program incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institution, as it relates to the program.

As such, the SCF program does not impact our overall liquidity.

The Company offers voluntary supply chain finance (SCF) programs with global financial institutions which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institutions at a rate that leverages our credit rating, which might be beneficial to them.

Our suppliers’ participation in the SCF programs does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the programs.

In addition, we do not pay for any of the costs of the programs incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institutions, as it relates to sales of receivables made by those suppliers.

As such, the SCF programs do not impact our working capital, cash flows, or overall liquidity.

We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs.

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Cash Flow - Operating Activities

Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Net cash flows provided by operating activities from continuing operations

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

$ (863) $ 476

Cash generated by operating activities from continuing operations in the nine months ended September 30, 2022 was $1.4 billion lower than the same period in 2021, primarily driven by the net increase in tax payments discussed below and an unfavorable impact to cash flow from inventory principally due to current year increases to support sales volume growth.

These unfavorable impacts to cash flow were partially offset by increases in accounts payable and accrued liabilities primarily driven by deferred revenue and advanced payments.

Included in the change in accounts payable and accrued liabilities is a decrease in collaborator payables at Pratt & Whitney, which was mostly offset by a decrease in collaborator receivables due to the timing of settlements.

Net cash (used in) provided by operating activities from continuing operations in the quarter ended March 31, 2023 was $1.3 billion lower than the same period in 2022, primarily driven by an unfavorable impact to cash flow from accounts receivable as a result of increased sales volume and related factoring activity, and an increase in contract assets driven by sales in excess of billings at RMD, Pratt & Whitney, and RIS.

These impacts were partially offset by the increase in net income after adjustments for depreciation and amortization, deferred income tax benefit, stock compensation costs, and net periodic pension and other postretirement income.

Included in the change in accounts payable and accrued liabilities was an increase in collaborator payables at Pratt & Whitney, which was mostly offset by an increase in collaborator receivables, included in accounts receivable, due to the timing of settlements.

The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables.

Factoring activity resulted in an increase of approximately $1.5 billion in cash provided by operating activities during the nine months ended September 30, 2022, compared to a minimal impact on cash flows provided by operating activities during the nine months ended September 30, 2021.

Factoring activity resulted in a decrease of approximately $0.4 billion in cash provided by operating activities during the quarter ended March 31, 2023, compared to an increase of approximately $0.5 billion in cash provided by operating activities during the quarter ended March 31, 2022.

Factoring activity includes amounts factored on certain aerospace receivables at the customers’ request for which we may be compensated by the customer.

We made net tax payments of $2,168 million and $906 million in the nine months ended September 30, 2022 and 2021, respectively.

A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022.

As this provision was not deferred legislatively, we have made incremental tax payments of $1.5 billion in the nine months ended September 30, 2022, and expect to pay an additional amount in the fourth quarter of 2022.

We made net tax payments of $171 million and $133 million in the quarters ended March 31, 2023 and 2022, respectively.

Cash Flow - Investing Activities

Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

1 unchanged sentence

$ (579) $ (518)

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

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

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

Dispositions of businesses were $94 million and $1.1 billion in nine months ended September 30, 2022 and 2021, respectively.

The nine months ended September 30, 2022 consisted of immaterial dispositions.

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

For additional detail, see “Note 2:

Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q.

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

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

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

The $0.1 billion increase in cash flows used in investing activities from continuing operations in the quarter ended March 31, 2023 compared to in the quarter ended March 31, 2022 primarily related to an increase in capital expenditures and other intangible assets, both of which are described below, partially offset by proceeds from a land sale in the first quarter of 2023.

Capital expenditures in the quarter ended March 31, 2023 increased by $81 million from the quarter ended March 31, 2022 primarily due to investments in production facilities at Pratt & Whitney.

Customer financing assets receipts (payments), net were receipts of $28 million and payments of $19 million in the quarters ended March 31, 2023 and 2022, respectively, and included purchases and sales of engines in our leased asset pool as well as customer financing activity.

During the quarters ended March 31, 2023 and 2022, we increased other intangible assets by approximately $154 million and $82 million, respectively, primarily related to collaboration payment commitments made under our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE) and exclusivity payments made on contractual commitments included within intangible assets.

As discussed in “Note 11:

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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.

During the nine months ended September 30, 2022 and 2021, we had net cash payments of $259 million and net cash receipts of $42 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

During the quarters ended March 31, 2023 and 2022, we had net cash payments of $13 million and $33 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

Cash Flow - Financing Activities

Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions) 2023 2022

Net cash flows used in financing activities from continuing operations

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

$ 1,096 $ (1,745)

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

Financing activities were a cash outflow of $3.0 billion in the nine months ended September 30, 2022 compared to a cash outflow of $5.2 billion in the nine months ended September 30, 2021.

This change was primarily driven by an increase in commercial paper borrowings, net of $2.1 billion, and the absence of the prior year repayments of long-term debt, net of issuances of $0.6 billion, partially offset by an increase in share repurchases of $0.4 billion.

The $2.8 billion change in cash flows provided by (used in) financing activities from continuing operations in the quarter ended March 31, 2023 compared to in the quarter ended March 31, 2022 was primarily driven by long-term debt issuances of $3.0 billion, offset by repayments of commercial paper, net of $0.4 billion.

Refer to “Note 8:

Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on commercial paper and debt issuances and repayments.

At September 30, 2022, management had remaining authority to repurchase approximately $3.5 billion of our common stock under the December 7, 2021 share repurchase program.

Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.

Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on debt issuances and commercial paper.

At March 31, 2023, management had remaining authority to repurchase approximately $5.4 billion of our common stock under the December 12, 2022 share repurchase program.

Under the 2022 program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.

We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan.

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Our share repurchases were as follows:

Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions;

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Our Board of Directors authorized the following cash dividends:

Nine Months Ended September 30,

Quarter Ended March 31,

(dollars in millions, except per share amounts) 2023 2022

1 unchanged sentence

Total dividends paid $ 790 $ 745

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

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

On April 24, 2023, the Board of Directors declared a dividend of $0.59 per share payable June 15, 2023 to shareowners of record at the close of business on May 19, 2023.

Quantitative and Qualitative Disclosures About Market Risk

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

There has been no significant change in our exposure to market risk during the quarter ended March 31, 2023.

For discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our 2022 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis