RTX Corp 10-Q

Item 1. Financial Statements RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Quarter Ended March 31, (dollars in millions, except per share amounts) 2023 2022 Net Sales: Products sales $ 12,787 $ 11,862 Services sales 4,427 3,854 Total net sales 17,214 15,716 Costs and Expenses: Cost of sales - products 10,700 9,820 Cost of sales - services 2,945 2,740 Research and development 607 635 Selling, general and administrative 1,398 1,469 Total costs and expenses 15,650 14,664 Other income, net 88 28 Operating profit 1,652 1,080 Non-operating expense (income), net: Non-service pension income ( 444 ) ( 480 ) Interest expense, net 315 318 Total non-operating expense (income), net ( 129 ) ( 162 ) Income from continuing operations before income taxes 1,781 1,242 Income tax expense 300 116 Net income from continuing operations 1,481 1,126 Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations 55 23 Net income from continuing operations attributable to common shareowners 1,426 1,103 Loss from discontinued operations attributable to common shareowners — ( 19 ) Net income attributable to common shareowners $ 1,426 $ 1,084 Earnings (loss) Per Share attributable to common shareowners - Basic: Income from continuing operations $ 0.98 $ 0.74 Loss from discontinued operations — ( 0.01 ) Net income attributable to common shareowners $ 0.98 $ 0.73 Earnings (loss) Per Share attributable to common shareowners - Diluted: Income from continuing operations $ 0.97 $ 0.74 Loss from discontinued operations — ( 0.02 ) Net income attributable to common shareowners $ 0.97 $ 0.72 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) Quarter Ended March 31, (dollars in millions) 2023 2022 Net income from continuing and discontinued operations $ 1,481 $ 1,107 Other comprehensive income (loss), before tax: Foreign currency translation adjustments 122 ( 240 ) Pension and postretirement benefit plans adjustments ( 146 ) 21 Change in unrealized cash flow hedging 12 37 Other comprehensive income (loss), before tax ( 12 ) ( 182 ) Income tax (expense) benefit related to items of other comprehensive income (loss) 41 ( 18 ) Other comprehensive income (loss), net of tax 29 ( 200 ) Comprehensive income 1,510 907 Less: Comprehensive income attributable to noncontrolling interest 55 23 Comprehensive income attributable to common shareowners $ 1,455 $ 884 See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (dollars in millions) March 31, 2023 December 31, 2022 Assets Current Assets Cash and cash equivalents $ 5,893 $ 6,220 Accounts receivable, net 10,069 9,108 Contract assets 12,729 11,534 Inventory, net 11,327 10,617 Other assets, current 5,486 4,964 Total current assets 45,504 42,443 Customer financing assets 2,543 2,603 Fixed assets 29,536 29,116 Accumulated depreciation ( 14,387 ) ( 13,946 ) Fixed assets, net 15,149 15,170 Operating lease right-of-use assets 1,844 1,829 Goodwill 53,904 53,840 Intangible assets, net 36,477 36,823 Other assets 6,215 6,156 Total assets $ 161,636 $ 158,864 Liabilities, Redeemable Noncontrolling Interest and Equity Current Liabilities Short-term borrowings $ 224 $ 625 Accounts payable 10,060 9,896 Accrued employee compensation 1,856 2,401 Other accrued liabilities 11,573 10,999 Contract liabilities 14,870 14,598 Long-term debt currently due 1,545 595 Total current liabilities 40,128 39,114 Long-term debt 32,717 30,694 Operating lease liabilities, non-current 1,624 1,586 Future pension and postretirement benefit obligations 4,676 4,807 Other long-term liabilities 8,106 8,449 Total liabilities 87,251 84,650 Commitments and contingencies (Note 15) Redeemable noncontrolling interest 38 36 Shareowners’ Equity: Common stock 38,031 37,939 Treasury stock ( 16,112 ) ( 15,530 ) Retained earnings 52,891 52,269 Unearned ESOP shares ( 26 ) ( 28 ) Accumulated other comprehensive loss ( 1,989 ) ( 2,018 ) Total shareowners’ equity 72,795 72,632 Noncontrolling interest 1,552 1,546 Total equity 74,347 74,178 Total liabilities, redeemable noncontrolling interest and equity $ 161,636 $ 158,864 See accompanying Notes to Condensed Consolidated Financial Statements 6 Table of Contents RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Quarter Ended March 31, (dollars in millions) 2023 2022 Operating Activities: Net income from continuing operations $ 1,481 $ 1,126 Adjustments to reconcile net income from continuing operations to net cash flows (used in) provided by operating activities: Depreciation and amortization 1,034 1,014 Deferred income tax benefit ( 329 ) ( 601 ) Stock compensation cost 100 103 Net periodic pension and other postretirement income ( 388 ) ( 360 ) Change in: Accounts receivable ( 962 ) 556 Contract assets ( 1,198 ) ( 219 ) Inventory ( 720 ) ( 587 ) Other current assets ( 526 ) ( 281 ) Accounts payable and accrued liabilities 490 ( 316 ) Contract liabilities 223 ( 50 ) Other operating activities, net ( 68 ) 91 Net cash flows (used in) provided by operating activities from continuing operations ( 863 ) 476 Investing Activities: Capital expenditures ( 520 ) ( 439 ) Dispositions of businesses, net of cash transferred — 35 Customer financing assets receipts (payments), net 28 ( 19 ) Increase in other intangible assets ( 154 ) ( 82 ) Payments from settlements of derivative contracts, net ( 13 ) ( 33 ) Other investing activities, net 80 20 Net cash flows used in investing activities from continuing operations ( 579 ) ( 518 ) Financing Activities: Issuance of long-term debt 2,971 — Change in commercial paper, net (Note 8) ( 427 ) — Change in other short-term borrowings, net 22 6 Dividends paid on common stock ( 790 ) ( 745 ) Repurchase of common stock ( 562 ) ( 743 ) Other financing activities, net ( 118 ) ( 263 ) Net cash flows provided by (used in) financing activities from continuing operations 1,096 ( 1,745 ) Effect of foreign exchange rate changes on cash and cash equivalents 1 15 Net decrease in cash, cash equivalents and restricted cash ( 345 ) ( 1,772 ) Cash, cash equivalents and restricted cash, beginning of period 6,291 7,853 Cash, cash equivalents and restricted cash, end of period 5,946 6,081 Less: Restricted cash, included in Other assets, current and Other assets 53 41 Cash and cash equivalents, end of period $ 5,893 $ 6,040 See accompanying Notes to Condensed Consolidated Financial Statements 7 Table of Contents RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) Quarter Ended March 31, (dollars in millions, except per share amounts; shares in thousands) 2023 2022 Equity beginning balance $ 74,178 $ 74,664 Common Stock Beginning balance 37,939 37,483 Common stock plans activity 92 34 Purchase of subsidiary shares from noncontrolling interest, net — ( 13 ) Ending balance 38,031 37,504 Treasury Stock Beginning balance ( 15,530 ) ( 12,727 ) Common stock repurchased ( 582 ) ( 756 ) Ending balance ( 16,112 ) ( 13,483 ) Retained Earnings Beginning balance 52,269 50,265 Net income 1,426 1,084 Dividends on common stock ( 790 ) ( 745 ) Dividends on ESOP common stock ( 13 ) ( 13 ) Other ( 1 ) 1 Ending balance 52,891 50,592 Unearned ESOP Shares Beginning balance ( 28 ) ( 38 ) Common stock plans activity 2 2 Ending balance ( 26 ) ( 36 ) Accumulated Other Comprehensive Loss Beginning balance ( 2,018 ) ( 1,915 ) Other comprehensive income (loss), net of tax 29 ( 200 ) Ending balance ( 1,989 ) ( 2,115 ) Noncontrolling Interest Beginning balance 1,546 1,596 Net income 55 23 Less: Redeemable noncontrolling interest net income ( 2 ) ( 1 ) Dividends attributable to noncontrolling interest ( 44 ) ( 64 ) Purchase of subsidiary shares from noncontrolling interest, net — ( 19 ) Disposition of noncontrolling interest, net ( 3 ) ( 11 ) Ending balance 1,552 1,524 Equity at March 31 $ 74,347 $ 73,986 Supplemental share information Shares of common stock issued under employee plans, net 820 1,817 Shares of common stock repurchased 5,918 7,883 Dividends declared per share of common stock $ 0.550 $ 0.510 See accompanying Notes to Condensed Consolidated Financial Statements 8 Table of Contents RAYTHEON TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1: Basis of Presentation The Condensed Consolidated Financial Statements at March 31, 2023 and for the quarters ended March 31, 2023 and 2022 are unaudited, and in the opinion of management include adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our 2022 Annual Report on Form 10-K. We reclassified certain immaterial prior period amounts within the Condensed Consolidated Statement of Cash Flows to conform to our current period presentation. Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) follow a 4-4-5 fiscal calendar while Collins Aerospace (Collins) and Pratt & Whitney use a quarter calendar end. 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. 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. Russia Sanctions. In response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities, and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities, and individuals in the U.S. and other jurisdictions in which we operate, including certain members of the Company’s management team and Board of Directors. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software, and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected, and could continue to adversely affect, the Company and/or our supply chain, business partners, or customers. As a result of these sanctions on Russia and export controls, in the first quarter of 2022, we recorded pretax charges of $ 290 million, $ 210 million net of tax, and the impact of noncontrolling interest, within our Collins and Pratt & Whitney businesses primarily related to increased estimates for credit losses on both our accounts receivables and contract assets, inventory reserves and purchase order obligations, impairment of customer financing assets for products under lease, impairment of contract fulfillment costs that are no longer recoverable, and a loss on the exit of our investment in a Russia-based joint venture. 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. 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. 9 Table of Contents Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets Goodwill. Changes in our goodwill balances for the quarter ended March 31, 2023 were as follows: (dollars in millions) Balance as of December 31, 2022 Acquisitions and Divestitures Foreign Currency Translation and Other Balance as of March 31, 2023 Collins Aerospace $ 30,719 $ — $ 65 $ 30,784 Pratt & Whitney 1,563 — — 1,563 Raytheon Intelligence & Space 9,841 — — 9,841 Raytheon Missiles & Defense 11,700 — ( 1 ) 11,699 Total Segments 53,823 — 64 53,887 Eliminations and other 17 — — 17 Total $ 53,840 $ — $ 64 $ 53,904 Intangible Assets. Identifiable intangible assets are comprised of the following: March 31, 2023 December 31, 2022 (dollars in millions) Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Amortized: Collaboration assets $ 5,595 $ ( 1,470 ) $ 5,536 $ ( 1,408 ) Exclusivity assets 3,002 ( 325 ) 2,911 ( 323 ) Developed technology and other 1,204 ( 567 ) 1,202 ( 544 ) Customer relationships 29,788 ( 9,394 ) 29,775 ( 8,967 ) 39,589 ( 11,756 ) 39,424 ( 11,242 ) Indefinite-lived: Trademarks and other 8,644 — 8,641 — Total $ 48,233 $ ( 11,756 ) $ 48,065 $ ( 11,242 ) Amortization of intangible assets for the quarters ended March 31, 2023 and 2022 was $ 509 million and $ 487 million, respectively. The following is the expected amortization of intangible assets for the remainder of 2023 through 2028: (dollars in millions) Remaining 2023 2024 2025 2026 2027 2028 Amortization expense $ 1,539 $ 2,183 $ 2,072 $ 1,986 $ 1,870 $ 1,765 10 Table of Contents Note 3: Earnings Per Share Quarter Ended March 31, (dollars and shares in millions, except per share amounts) 2023 2022 Net income attributable to common shareowners: Income from continuing operations $ 1,426 $ 1,103 Loss from discontinued operations — ( 19 ) Net income attributable to common shareowners $ 1,426 $ 1,084 Basic weighted average number of shares outstanding 1,462.2 1,486.8 Stock awards and equity units (share equivalent) 12.0 11.1 Diluted weighted average number of shares outstanding 1,474.2 1,497.9 Earnings (Loss) Per Share attributable to common shareowners - Basic: Income from continuing operations $ 0.98 $ 0.74 Loss from discontinued operations — ( 0.01 ) Net income attributable to common shareowners $ 0.98 $ 0.73 Earnings (Loss) Per Share attributable to common shareowners - Diluted: Income from continuing operations $ 0.97 $ 0.74 Loss from discontinued operations — ( 0.02 ) Net income attributable to common shareowners $ 0.97 $ 0.72 The computation of diluted earnings per share (EPS) excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted EPS excludes the effect of the potential release or exercise of stock awards when the awards’ assumed proceeds exceed the average market price of the common shares during the period. For the quarters ended March 31, 2023 and 2022, the number of stock awards excluded from the computation was 4.1 million and 7.5 million, respectively. Note 4: Changes in Contract Estimates at Completion We review our Estimates at Completion (EACs) at least annually or when a change in circumstances warrants a modification to a previous estimate. For significant contracts, we review our EACs more frequently. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment by management on a contract by contract basis. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration. Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials including any impact from rising costs or inflation, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost changes. Cost estimates may also include the estimated cost of satisfying our industrial cooperation agreements, sometimes in the form of either offset obligations or in-country industrial participation (ICIP) agreements, required under certain contracts. These obligations may or may not be distinct depending on their nature. If cash is paid to a customer to satisfy our offset obligations it is recorded as a reduction in the transaction price. Changes in estimates of net sales, cost of sales and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based on a performance obligation’s percentage of completion in the current period. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. Our EAC adjustments also include the establishment of and changes to loss provisions for our contracts accounted for on a percentage of completion basis. 11 Table of Contents Net EAC adjustments had the following impact on our operating results: Quarter Ended March 31, (dollars in millions, except per share amounts) 2023 2022 Total net sales $ ( 40 ) $ 97 Operating profit ( 124 ) 36 Income from continuing operations attributable to common shareowners (1) ( 98 ) 28 Diluted earnings per share from continuing operations attributable to common shareowners (1) $ ( 0.07 ) $ 0.02 (1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments. Note 5: Accounts Receivable, Net Accounts receivable, net consisted of the following: (dollars in millions) March 31, 2023 December 31, 2022 Accounts receivable $ 10,460 $ 9,560 Allowance for expected credit losses ( 391 ) ( 452 ) Total accounts receivable, net $ 10,069 $ 9,108 Note 6: Contract Assets and Liabilities Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities were as follows: (dollars in millions) March 31, 2023 December 31, 2022 Contract assets $ 12,729 $ 11,534 Contract liabilities ( 14,870 ) ( 14,598 ) Net contract liabilities $ ( 2,141 ) $ ( 3,064 ) Contract assets increased $ 1,195 million during the quarter ended March 31, 2023 primarily due to sales in excess of billings on certain contracts at RMD, Pratt & Whitney, and RIS. Contract liabilities increased $ 272 million during the quarter ended March 31, 2023 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and RMD. We recognized revenue of $ 1.9 billion during the quarter ended March 31, 2023, related to contract liabilities as of January 1, 2023 and $ 1.8 billion during the quarter ended March 31, 2022, related to contract liabilities as of January 1, 2022. 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. Contract assets include an allowance for credit losses of $ 330 million and $ 318 million as of March 31, 2023 and December 31, 2022, respectively. Note 7: Inventory, net Inventory, net consisted of the following: (dollars in millions) March 31, 2023 December 31, 2022 Raw materials $ 3,841 $ 3,477 Work-in-process 3,994 3,839 Finished goods 3,492 3,301 Total inventory, net $ 11,327 $ 10,617 Note 8: Borrowings and Lines of Credit 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 12 Table of Contents 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 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 $ 100 million and $ 524 million of commercial paper outstanding at March 31, 2023 and December 31, 2022, respectively, which is reflected in Short-term borrowings in our Condensed Consolidated Balance Sheet. At March 31, 2023 and December 31, 2022, short-term commercial paper borrowings outstanding had a weighted-average interest rate of 4.3 % and 4.4 %, respectively. During the quarter ended March 31, 2023, we had no new commercial paper borrowings with maturities greater than 90 days. During the quarter ended March 31, 2023, we made $ 100 million in repayments of commercial paper with maturities greater than 90 days. During the quarter ended March 31, 2022, we had no commercial paper borrowings or repayments with original maturities more than 90 days from the date of issuance. 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 $ 500 5.150 % notes due 2033 1,250 5.375 % notes due 2053 1,250 Long-term debt consisted of the following: (dollars in millions) March 31, 2023 December 31, 2022 3.650 % notes due 2023 (1) $ 171 $ 171 3.700 % notes due 2023 (1) 400 400 3.200 % notes due 2024 (1) 950 950 3.150 % notes due 2024 (1) 300 300 3.950 % notes due 2025 (1) 1,500 1,500 2.650 % notes due 2026 (1) 719 719 5.000 % notes due 2026 (1) 500 — 3.125 % notes due 2027 (1) 1,100 1,100 3.500 % notes due 2027 (1) 1,300 1,300 7.200 % notes due 2027 (1) 382 382 7.100 % notes due 2027 135 135 6.700 % notes due 2028 285 285 7.000 % notes due 2028 (1) 185 185 4.125 % notes due 2028 (1) 3,000 3,000 7.500 % notes due 2029 (1) 414 414 2.150 % notes due 2030 (€ 500 million principal value) (1) 537 531 2.250 % notes due 2030 (1) 1,000 1,000 1.900 % notes due 2031 (1) 1,000 1,000 2.375 % notes due 2032 (1) 1,000 1,000 5.150 % notes due 2033 (1) 1,250 — 5.400 % notes due 2035 (1) 446 446 6.050 % notes due 2036 (1) 410 410 6.800 % notes due 2036 (1) 117 117 7.000 % notes due 2038 148 148 13 Table of Contents 6.125 % notes due 2038 (1) 575 575 4.450 % notes due 2038 (1) 750 750 5.700 % notes due 2040 (1) 553 553 4.875 % notes due 2040 (1) 600 600 4.700 % notes due 2041 (1) 425 425 4.500 % notes due 2042 (1) 3,500 3,500 4.800 % notes due 2043 (1) 400 400 4.200 % notes due 2044 (1) 300 300 4.150 % notes due 2045 (1) 850 850 3.750 % notes due 2046 (1) 1,100 1,100 4.050 % notes due 2047 (1) 600 600 4.350 % notes due 2047 (1) 1,000 1,000 4.625 % notes due 2048 (1) 1,750 1,750 3.125 % notes due 2050 (1) 1,000 1,000 2.820 % notes due 2051 (1) 1,000 1,000 3.030 % notes due 2052 (1) 1,100 1,100 5.375 % notes due 2053 (1) 1,250 — Other (including finance leases) 252 253 Total principal long-term debt 34,254 31,249 Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs) 8 40 Total long-term debt 34,262 31,289 Less: current portion 1,545 595 Long-term debt, net of current portion $ 32,717 $ 30,694 (1) We may redeem these notes, in whole or in part, at our option pursuant to their terms prior to the applicable maturity date. The average maturity of our long-term debt at March 31, 2023 is approximately 14 years. Note 9: Employee Benefit Plans Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension and postretirement benefit (PRB) plans and defined contribution plans. Contributions to our plans were as follows: Quarter Ended March 31, (dollars in millions) 2023 2022 U.S. qualified defined benefit plans $ — $ — International defined benefit plans 8 12 PRB plans 4 5 Defined contribution plans 372 311 In December 2020, we approved a change to the Raytheon Company domestic defined benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation under the historical formula effective December 31, 2022. The plan change does not impact participants’ historical benefit accruals. Benefits for service after December 31, 2022 are based on a cash balance formula. The amounts recognized in the Condensed Consolidated Balance Sheet consist of: (dollars in millions) March 31, 2023 December 31, 2022 Noncurrent pension assets (included in Other assets) $ 3,527 $ 3,301 Current pension and PRB liabilities (included in Accrued employee compensation) 307 307 Future pension and postretirement benefit obligations 4,676 4,807 14 Table of Contents The amounts recognized in Future pension and postretirement benefit obligations consist of: (dollars in millions) March 31, 2023 December 31, 2022 Noncurrent pension liabilities $ 4,004 $ 4,133 Noncurrent PRB liabilities 612 611 Other pension and PRB related items 60 63 Future pension and postretirement benefit obligations $ 4,676 $ 4,807 The components of net periodic benefit (income) expense for our defined pension and PRB plans were as follows: Pension Benefits Quarter Ended March 31, PRB Quarter Ended March 31, (dollars in millions) 2023 2022 2023 2022 Operating expense Service cost $ 55 $ 118 $ 1 $ 2 Non-operating expense Interest cost 626 382 12 7 Expected return on plan assets ( 937 ) ( 890 ) ( 5 ) ( 5 ) Amortization of prior service credit ( 39 ) ( 42 ) — — Recognized actuarial net loss (gain) ( 95 ) 77 ( 8 ) ( 3 ) Net settlement, curtailment and special termination benefit (gain) loss 2 ( 6 ) — — Non-service pension income ( 443 ) ( 479 ) ( 1 ) ( 1 ) Total net periodic benefit (income) expense $ ( 388 ) $ ( 361 ) $ — $ 1 We have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined benefit and defined contribution plan obligations in excess of qualified plan limits. These assets are included in Other assets in our Condensed Consolidated Balance Sheet. The fair value of marketable securities held in trusts was as follows: (dollars in millions) March 31, 2023 December 31, 2022 Marketable securities held in trusts $ 703 $ 774 Note 10: Income Taxes Our effective tax rate was 16.8 % and 9.3 % i n 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. We conduct business globally and, as a result, Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013. The Examination Divisions of the Internal Revenue Service (IRS) are currently auditing Raytheon Technologies (formerly United Technologies Corporation) tax years 2017 and 2018, pre-merger Raytheon Company tax years 2017, 2018, and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015, and 2016 filed prior to the Raytheon merger, and pre-acquisition Rockwell Collins fiscal tax years 2016, 2017, and 2018. The examination phases of these audits are expected to close in 2023. It is reasonably possible that the expected closure of the examination phase of the Raytheon Technologies 2017 and 2018 tax audit will result in a net income benefit in the range of $ 185 million to $ 225 million in 2023. This range includes the effects of adjusting interest accruals and certain tax related indemnity receivables related to the separation and distributions 15 Table of Contents of Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis). The tax components of this range are included in the revaluation range included below. In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. It is reasonably possible that a net reduction within the range of $ 250 million to $ 375 million of unrecognized tax benefits may occur within the next 12 months as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes. Note 11: Financial Instruments We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates, and commodity prices. These fluctuations can increase the costs of financing, investing, and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate, and commodity price exposures. The present value of aggregate notional principal of our outstanding foreign currency hedges was $ 11.6 billion and $ 11.2 billion at March 31, 2023 and December 31, 2022, respectively. At March 31, 2023, all derivative contracts accounted for as cash flow hedges will m ature by February 2030. The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments: (dollars in millions) Balance Sheet Location March 31, 2023 December 31, 2022 Derivatives designated as hedging instruments: Foreign exchange contracts Other assets, current $ 77 $ 67 Other accrued liabilities 350 347 Derivatives not designated as hedging instruments: Foreign exchange contracts Other assets, current $ 14 $ 17 Other accrued liabilities 39 39 The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations in the quarters ended March 31, 2023 and 2022 are presented in “Note 16: Accumulated Other Comprehensive Loss.” The amounts of gain or loss are attributable to foreign exchange contract activity and are primarily recorded as a component of Products sales when reclassified from Accumulated other comprehensive loss. The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective. As of March 31, 2023, our € 500 million principal value of euro-denominated long-term debt qualifies as a net investment hedge against our investments in European businesses, which is deemed to be effective. The effect of derivatives not designated as hedging instruments is included within Other income, net, on the Condensed Consolidated Statement of Operations and is not material. Note 12: Fair Value Measurements The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Condensed Consolidated Balance Sheet: March 31, 2023 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 703 $ 643 $ 60 $ — Derivative assets 91 — 91 — Derivative liabilities 389 — 389 — 16 Table of Contents December 31, 2022 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 774 $ 713 $ 61 $ — Derivative assets 84 — 84 — Derivative liabilities 386 — 386 — Valuation Techniques. Our derivative assets and liabilities include foreign exchange contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties’ credit risks. As of March 31, 2023, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks. The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Condensed Consolidated Balance Sheet: March 31, 2023 December 31, 2022 (dollars in millions) Carrying Amount Fair Value Carrying Amount Fair Value Customer financing notes receivable $ 167 $ 157 $ 169 $ 161 Long-term debt (excluding finance leases) 34,175 32,207 31,201 28,049 The following tables provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Condensed Consolidated Balance Sheet: March 31, 2023 (dollars in millions) Total Level 1 Level 2 Level 3 Customer financing notes receivable $ 157 $ — $ 157 $ — Long-term debt (excluding finance leases) 32,207 — 32,161 46 December 31, 2022 (dollars in millions) Total Level 1 Level 2 Level 3 Customer financing notes receivable $ 161 $ — $ 161 $ — Long-term debt (excluding finance leases) 28,049 — 28,003 46 The fair value of our Short-term borrowings approximates the carrying value due to their short-term nature, with commercial paper classified as level 2 and other short-term borrowings classified as level 3 within the fair value hierarchy. Note 13: Variable Interest Entities Pratt & Whitney holds a 61 % program share interest in the International Aero Engines AG (IAE) collaboration with MTU Aero Engines AG (MTU) and Japanese Aero Engines Corporation (JAEC) and a 49.5 % ownership interest in IAE. IAE’s business purpose is to coordinate the design, development, manufacturing, and product support of the V2500 engine program through involvement with the collaborators. Additionally, Pratt & Whitney, JAEC and MTU are participants in the International Aero Engines, LLC (IAE LLC) collaboration, whose business purpose is to coordinate the design, development, manufacturing, and product support for the PW1100G-JM engine for the Airbus A320neo family of aircraft. Pratt & Whitney holds a 59 % program share interest and a 59 % ownership interest in IAE LLC. IAE and IAE LLC retain limited equity with the primary economics of the programs passed to the participants. As such, we have determined that IAE and IAE LLC are variable interest entities with 17 Table of Contents Pratt & Whitney as the primary beneficiary. IAE and IAE LLC have, therefore, been consolidated. The carrying amounts and classification of assets and liabilities for variable interest entities in our Condensed Consolidated Balance Sheet are as follows: (dollars in millions) March 31, 2023 December 31, 2022 Current assets $ 7,903 $ 7,609 Noncurrent assets 801 779 Total assets $ 8,704 $ 8,388 Current liabilities $ 9,730 $ 9,154 Noncurrent liabilities 33 19 Total liabilities $ 9,763 $ 9,173 Note 14: Guarantees We extend a variety of financial, market value and product performance guarantees to third parties. These instruments expire on various dates through 2034. Additional guarantees of project performance for which there is no stated value also remain outstanding. A portion of our third party guarantees are subject to indemnification for our benefit for any liabilities that could arise. As of March 31, 2023 and December 31, 2022, the following financial guarantees were outstanding: March 31, 2023 December 31, 2022 (dollars in millions) Maximum Potential Payment Carrying Amount of Liability Maximum Potential Payment Carrying Amount of Liability Commercial aerospace financing arrangements $ 304 $ — $ 304 $ — Third party guarantees 395 1 335 1 We have made residual value and other guarantees related to various commercial aerospace customer financing arrangements. The estimated fair market values of the guaranteed assets equal or exceed the value of the related guarantees, net of existing reserves. Collaboration partners’ share of these financing guarantees were $ 140 million at both March 31, 2023 and December 31, 2022. We also have obligations arising from sales of certain businesses and assets, including those from representations and warranties and related indemnities for environmental, health and safety, tax, and employment matters. The maximum potential payment related to these obligations is not a specified amount as a number of the obligations do not contain financial caps. The carrying amount of liabilities related to these obligations was $ 96 million and $ 97 million at March 31, 2023 and December 31, 2022, respectively. These primarily relate to environmental liabilities, which are included in our total environmental liabilities as further discussed in “Note 15: Commitments and Contingencies.” We accrue for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. We also provide service and warranty policies on our products and extend performance and operating cost guarantees beyond our normal service and warranty policies on some of our products, particularly commercial aircraft engines. In addition, we incur discretionary costs to service our products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are made to accruals as claims data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the quarters ended March 31, 2023 and 2022 were as follows: (dollars in millions) 2023 2022 Balance as of January 1 $ 1,109 $ 1,157 Warranties and performance guarantees issued 69 71 Settlements ( 84 ) ( 74 ) Other ( 1 ) — Balance as of March 31 $ 1,093 $ 1,154 18 Table of Contents Note 15: Commitments and Contingencies Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, financial condition, or liquidity. Environmental. Our operations are subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. We have accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs, and performance guarantees, and periodically reassess these amounts. We do not expect any additional liability to have a material adverse effect on our results of operations, financial condition, or liquidity. As of March 31, 2023 and December 31, 2022, we had $ 795 million and $ 798 million, respectively, reserved for environmental remediation. Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $ 15.0 billion and $ 15.3 billion as of March 31, 2023 and December 31, 2022, respectively, on a gross basis before reduction for our collaboration partners’ share. Aircraft financing commitments, in the form of debt or lease financing, are provided to certain commercial aerospace customers. The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other financing sources. We may also arrange for third-party investors to assume a portion of these commitments. The majority of financing commitments are collateralized arrangements. We may also lease aircraft and subsequently sublease the aircraft to customers under long-term non-cancelable operating leases, or pay deposits on behalf of our customers to secure production slots with the airframers (pre-delivery payments). Our financing commitments with customers are contingent upon maintenance of certain levels of financial condition by our customers. Associated risks on these commitments are mitigated due to the fact that interest rates are variable during the commitment term and are set at the date of funding based on current market conditions, the fair value of the underlying collateral, and the credit worthiness of our customers. As a result, the fair value of these financing commitments is expected to equal the amounts funded. We also have other contractual commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms. The estimated amount and timing of these payments are generally based on future sales or engine flight hours. Payments made on these contractual commitments are included within intangible assets as exclusivity assets and are amortized over the term of underlying economic benefit. We have entered into certain collaboration arrangements, which may include participation by our collaboration partners in these commitments. In addition, in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in IAE, additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments are capitalized as collaboration intangible assets as payments are made. Other Financing Arrangements. We have entered into standby letters of credit and surety bonds with financial institutions to meet various bid, performance, warranty, retention, and advance payment obligations for us or our affiliates. We enter into these agreements to assist certain affiliates in obtaining financing on more favorable terms, making bids on contracts and performing their contractual obligations. The stated values of these letters of credit agreements and surety bonds totaled $ 3.2 billion as of March 31, 2023. Offset Obligations. We have entered into industrial cooperation agreements, sometimes in the form of either offset agreements or ICIP agreements, as a condition to obtaining orders for our products and services from certain customers in foreign countries. At March 31, 2023, the aggregate amount of our offset agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $ 12.6 billion. These agreements are designed to return economic value to the foreign country by requiring us to engage in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology capabilities, or addressing other local development priorities. Offset agreements may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing manufacturing, training and other consulting support to in-country projects, and the purchase by third parties (e.g., our vendors) of supplies from in-country vendors. These agreements may also be satisfied through our use of cash for activities such as subcontracting with local partners, purchasing supplies from in-country vendors, providing financial support for in-country projects and making investments in local ventures. Such activities may also vary by country depending upon requirements as dictated by their governments. We typically do not commit to offset agreements until orders for our products or services are definitive. The amounts ultimately applied against our offset agreements are based on negotiations with the customers and typically require cash outlays that represent only a fraction of the notional value in the offset agreements. Offset programs usually extend over several or more years and may provide for penalties in the event we fail to perform in accordance with offset requirements. Historically, we have not been required to pay any penalties of significance. Government Oversight. In the ordinary course of business, the Company and its subsidiaries and our properties are subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal 19 Table of Contents actions and proceedings. For example, we are now, and believe that, in light of the current U.S. government contracting environment, we will continue to be the subject of one or more U.S. government investigations. Our contracts with the U.S. government are also subject to audits. Agencies that oversee contract performance include: the Defense Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), the Inspectors General of the U.S. Department of Defense (DoD), and other departments and agencies, the Government Accountability Office (GAO), the Department of Justice (DOJ), and Congressional Committees. Other areas of our business operations may also be subject to audit and investigation by these and other agencies. From time to time, agencies investigate or conduct audits to determine whether our operations are being conducted in accordance with applicable requirements. Such investigations and audits may be initiated due to a number of reasons, including as a result of a whistleblower complaint. Such investigations and audits could result in administrative, civil or criminal liabilities, including repayments, fines, treble or other damages, forfeitures, restitution, or penalties being imposed upon us, the suspension of government export licenses or the suspension or debarment from future U.S. government contracting. U.S. government investigations often take years to complete. The U.S. government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal, or other seriously improper conduct. The U.S. government could void any contracts found to be tainted by fraud. Like many defense contractors, we have received audit reports recommending the reduction of certain contract prices because, for example, cost or pricing data or cost accounting practices used to price and negotiate those contracts may not have conformed to government regulations. Some of these audit reports recommend that certain payments be repaid, delayed, or withheld, and may involve substantial amounts. We have made voluntary refunds in those cases we believe appropriate, have settled some allegations and, in some cases, continue to negotiate and/or litigate. The Company may be, and in some cases has been, required to make payments into escrow of disputed liabilities while the related litigation is pending. If the litigation is resolved in the Company’s favor, any such payments will be returned to the Company with interest. Our final allowable incurred costs for each year are also subject to audit and have, from time to time, resulted in disputes between us and the U.S. government, with litigation resulting at the Court of Federal Claims (COFC) or the Armed Services Board of Contract Appeals (ASBCA) or their related courts of appeals. In addition, the DOJ has, from time to time, convened grand juries to investigate possible irregularities by us. We also provide products and services to customers outside of the U.S., and those sales are subject to local government laws, regulations and procurement policies and practices. Our compliance with such local government regulations or any applicable U.S. government regulations (e.g., the Foreign Corrupt Practices Act (FCPA) and International Traffic in Arms Regulations (ITAR)) may also be investigated or audited. In addition, we accrue for liabilities associated with those matters that are probable and can be reasonably estimated. The most likely liability amount to be incurred is accrued based upon a range of estimates. Where no amount within a range of estimates is more likely, then we accrue the minimum amount. Other than as specifically disclosed in this Form 10-Q, we do not expect these audits, investigations, or disputes to have a material effect on our results of operations, financial condition, or liquidity, either individually or in the aggregate. Tax Treatment of Carrier and Otis Dispositions. Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law. In making these determinations, we applied the tax law in the relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to the concluded tax treatment. If the completed distributions of Carrier or Otis or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, results of operations, financial condition, or liquidity in future reporting periods. Legal Proceedings. The Company and its subsidiaries are subject to various contract pricing disputes, government investigations, and litigation matters across jurisdictions, updates to certain of which are set forth below. Cost Accounting Standards Claims As previously disclosed, in April 2019, a Divisional Administrative Contracting Officer (DACO) of the United States DCMA asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 1.73 billion plus interest ($ 888 million at March 31, 2023). The claim is based on Pratt & Whitney’s alleged noncompliance with Cost Accounting Standards (CAS) from January 1, 2007 to March 31, 2019, due to its method of allocating independent research and development costs to government contracts. Pratt & Whitney believes that the claim is without merit and filed an appeal to the ASBCA on June 7, 2019. As previously disclosed, in December 2013, a DCMA DACO asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 177 million plus interest ($ 138 million at March 31, 2023). The claim is based on Pratt & Whitney’s alleged noncompliance with CAS from January 1, 2005 to December 31, 2012, due to its method of determining the cost of collaborator parts used in the calculation of material overhead costs for government contracts. In 2014, Pratt & Whitney filed an appeal to the ASBCA. An evidentiary hearing was held and completed in June 2019. On November 22, 2021, the ASBCA issued its written decision sustaining in part and denying in part Pratt & Whitney’s appeal. The ASBCA rejected the DCMA’s asserted measure of the cost of collaborator parts, and ruled substantially in Pratt & Whitney’s favor on other liability 20 Table of Contents issues. The ASBCA remanded the appeal to the parties for resolution of damages issues, which could require further proceedings at the ASBCA. On December 23, 2021, the DCMA filed a motion with the ASBCA seeking partial reconsideration of the November 22, 2021 decision. The motion for reconsideration was denied on August 29, 2022. On December 23, 2022, the DCMA filed an appeal to the United States Court of Appeals for the Federal Circuit. We continue to believe that the ASBCA’s rejection of the DCMA’s asserted measure of the cost of collaborator parts is well supported in fact and law and likely will be sustained. In December 2018, a DCMA DACO issued a second claim against Pratt & Whitney that similarly alleges that its method of determining the cost of collaborator parts does not comply with the CAS for calendar years 2013 through 2017. This second claim, which asserts the same measure of the cost of collaborator parts rejected by the ASBCA’s recent decision, demands payment of $ 269 million plus interest ($ 102 million at March 31, 2023). Pratt & Whitney appealed this second claim to the ASBCA in January 2019. Although subject to further litigation at the ASBCA and potentially further appellate proceedings, we continue to believe that the November 22, 2021 decision in the first claim will apply with equal legal effect to the second claim. Accordingly, we believe that the amounts demanded by the DCMA as set forth in the two claims are without legal basis and that any damages owed to the U.S. government for the two claims will not have a material adverse effect on our results of operations, financial condition, or liquidity. Thales-Raytheon Systems and Related Matters As previously disclosed, in 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Raytheon Company, our joint venture known as Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014. In the first quarter of 2020, the DOJ advised Raytheon Company it had opened a parallel criminal investigation. In the third quarter of 2020, Raytheon Company received an additional subpoena from the SEC, seeking information and documents as part of its ongoing investigation. The Company maintains a rigorous anti-corruption compliance program, and continues to cooperate fully with the SEC’s and DOJ’s inquiries and to examine through our own investigation whether there were any improper payments or any such conduct that was in violation of Raytheon Company policy. At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiries. Based on the information available to date, however, we cannot reasonably estimate the range of any potential loss or impact to the business that may result, but do not believe that the results of these inquiries will have a material adverse effect on our results of operations, financial condition, or liquidity. DOJ Investigation, Contract Pricing Disputes and Related Civil Litigation As previously disclosed, on October 8, 2020, the Company received a criminal subpoena from the DOJ seeking information and documents in connection with an investigation relating to financial accounting, internal controls over financial reporting, and cost reporting regarding Raytheon Company’s Missiles & Defense (RMD) business since 2009. The investigation involves multi-year contracts subject to governmental regulation, including potential civil defective pricing claims for three RMD contracts entered into between 2011 and 2013. As part of the same investigation, on March 24, 2021, the Company received a second criminal subpoena from the DOJ seeking documents relating to a different RMD contract entered into in 2017. We are cooperating fully with, and will continue to review the issues raised by the DOJ’s ongoing investigation. We continue to make substantial progress in our internal review of the issues raised by the DOJ investigation. Although we believe we have defenses to the potential claims, the Company has determined that there is a probable risk of liability for damages, interest and potential penalties and has accrued approximately $ 290 million for this matter . We are currently unable to estimate an incremental loss, if any, which may result when the DOJ investigation is complete. Based on the information available to date, we do not believe the results of the DOJ investigation or of any pending or potential civil litigation will have a material adverse effect on our results of operations, financial condition, or liquidity. Four shareholder lawsuits were filed against the Company after the DOJ investigation was first disclosed. A putative securities class action lawsuit was filed in the United States District Court for the District of Arizona against the Company and certain of its executives alleging that the defendants violated federal securities laws by making material misstatements in regulatory filings regarding internal controls over financial reporting in RMD. Three shareholder derivative lawsuits were also filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings. We believe that each of these lawsuits lacks merit. Darnis, et al. and Related Matter As previously disclosed, on August 12, 2020, several former employees of United Technologies Corporation (UTC) or its subsidiaries filed a putative class action complaint in the United States District Court for the District of Connecticut against the Company, Otis, Carrier, the former members of the UTC Board of Directors, and the members of the Carrier and Otis Boards of 21 Table of Contents Directors (Geraud Darnis, et al. v. Raytheon Technologies Corporation, et al.). The complaint challenged the method by which UTC equity awards were converted to Company, Otis, and Carrier equity awards following the separation of UTC into three independent, publicly-traded companies on April 3, 2020. The complaint also claimed that the defendants are liable for breach of certain equity compensation plans and also asserted claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). On September 13, 2021, Plaintiffs filed an amended complaint which supersedes the initial complaint and continues to assert claims for breach of the equity compensation plans against the Company, Otis, and Carrier, but no longer asserts ERISA claims. Further, no claim is made in the amended complaint against any current or former director of any of the three companies. Plaintiffs seek money damages, attorneys’ fees, and other relief. On September 30, 2022, in response to motions to dismiss filed by the Company, Otis and Carrier, the Court dismissed the class action in its entirety with prejudice. On October 26, 2022, Plaintiffs filed an appeal to the United States Court of Appeals for the Second Circuit. We continue to believe that this matter will not have a material adverse effect on our results of operations, financial condition, or liquidity. On December 6, 2022, a shareholder derivative lawsuit was filed in the Delaware Court of Chancery against the Company and certain current and former members of its Board of Directors, alleging that defendants breached their fiduciary duties in May 2020 by amending the method by which UTC equity awards were converted to certain Company equity awards following the separation of UTC into three independent, publicly-traded companies. We believe that the lawsuit lacks merit. DOJ Grand Jury Investigation and Related Civil Litigation The Company received a grand jury subpoena in late 2019, as part of a DOJ criminal investigation into purported agreements not to solicit or hire employees in violation of the federal antitrust laws. While the investigation has focused on alleged hiring restrictions between and among Pratt & Whitney and certain of its suppliers of outsourced engineering services, the subpoena also included requests regarding Collins. Since receipt of the subpoena, the Company has been cooperating with the DOJ investigation. On December 15, 2021, a criminal indictment was filed in the United States District Court for the District of Connecticut, against a former Pratt & Whitney employee and other employees of certain outsourced engineering suppliers charging each of them with one count of violating the federal antitrust laws. No current or former Collins employees were named in the indictment. We have been advised that the Company is a target of the DOJ investigation, and we continue to cooperate with the investigation. No criminal charge has been filed against the Company or its affiliates. After the criminal charges against the individuals were filed, numerous civil class action antitrust lawsuits have been filed against Pratt & Whitney and other corporate and individual defendants in the United States District Court for the District of Connecticut. The allegations in each of the civil lawsuits track the factual assertions in the criminal indictment and generally allege that Pratt & Whitney and the other defendants agreed to restrict the hiring and recruiting of certain engineers and skilled laborers in a manner that violated federal antitrust laws. Plaintiffs in each of the civil lawsuits seek to represent different purported classes of engineers and skilled laborers employed by Pratt & Whitney and other supplier-defendants since 2011. Plaintiffs in each of the lawsuits seek treble damages in an undetermined amount, plus attorneys’ fees and costs of suit. All of the lawsuits have been consolidated and a single amended class action complaint was filed. We believe that the claims asserted lack merit. Based on the information available to date, we do not believe that this matter will have a material adverse effect on our results of operations, financial condition, or liquidity. Where appropriate, we have recorded loss contingency accruals for the above-referenced matters, and the amounts individually, or in the aggregate, are not material. Other. As described in “Note 14: Guarantees,” we extend performance and operating cost guarantees beyond our normal warranty and service policies for extended periods on some of our products. We have accrued our estimate of the liability that may result under these guarantees and for service costs that are probable and can be reasonably estimated. We also have other commitments and contingent liabilities related to legal proceedings, self-insurance programs, and matters arising out of the normal course of business. We accrue contingencies based upon a range of possible outcomes. If no amount within this range is a better estimate than any other, then we accrue the minimum amount. In the ordinary course of business, the Company and its subsidiaries are also routinely defendants in, parties to or otherwise subject to many pending and threatened legal actions, claims, disputes, and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax, and other laws. In some instances, claims for substantial monetary damages are asserted against the Company and its subsidiaries and could result in fines, penalties, compensatory or treble damages, or non-monetary relief. We do not believe that these matters will have a material adverse effect upon our results of operations, financial condition, or liquidity. 22 Table of Contents Note 16: Accumulated Other Comprehensive Loss A summary of the changes in each component of Accumulated other comprehensive loss, net of tax for the quarters ended March 31, 2023 and 2022 is provided below: (dollars in millions) Foreign Currency Translation Defined Benefit Pension and Postretirement Plans Unrealized Hedging Gains (Losses) Accumulated Other Comprehensive Income (Loss) Quarter Ended March 31, 2023 Balance at December 31, 2022 $ ( 1,005 ) $ ( 782 ) $ ( 231 ) $ ( 2,018 ) Other comprehensive income (loss) before reclassifications, net 122 ( 4 ) ( 27 ) 91 Amounts reclassified, pre-tax — ( 142 ) 39 ( 103 ) Tax benefit (expense) 1 38 2 41 Balance at March 31, 2023 $ ( 882 ) $ ( 890 ) $ ( 217 ) $ ( 1,989 ) (dollars in millions) Foreign Currency Translation Defined Benefit Pension and Postretirement Plans Unrealized Hedging Gains (Losses) Accumulated Other Comprehensive Income (Loss) Quarter Ended March 31, 2022 Balance at December 31, 2021 $ 49 $ ( 1,828 ) $ ( 136 ) $ ( 1,915 ) Other comprehensive income (loss) before reclassifications, net ( 242 ) ( 11 ) 31 ( 222 ) Amounts reclassified, pre-tax 2 32 6 40 Tax benefit (expense) ( 3 ) ( 4 ) ( 11 ) ( 18 ) Balance at March 31, 2022 $ ( 194 ) $ ( 1,811 ) $ ( 110 ) $ ( 2,115 ) Note 17: Segment Financial Data Our operations, for the periods presented herein, are classified into four principal segments: Collins, Pratt & Whitney, RIS, and RMD. The segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. The 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. We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and PRB expense under the Financial Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting Principles (GAAP) and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related RIS and RMD pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis. 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 . 23 Table of Contents Total sales and operating profit by segment include inter-segment sales which are generally recorded at cost-plus a specified fee or at a negotiated fixed price. These pricing arrangements may result in margins different than what the purchasing segment realizes on the ultimate third-party sale. Results for the quarters ended March 31, 2023 and 2022 are as follows: Net Sales Operating Profit Operating Profit Margins (dollars in millions) 2023 2022 2023 2022 2023 2022 Collins Aerospace $ 5,581 $ 4,824 $ 794 $ 440 14.2 % 9.1 % Pratt & Whitney 5,230 4,529 415 151 7.9 % 3.3 % Raytheon Intelligence & Space 3,565 3,572 324 378 9.1 % 10.6 % Raytheon Missiles & Defense 3,671 3,527 328 387 8.9 % 11.0 % Total segment 18,047 16,452 1,861 1,356 10.3 % 8.2 % Eliminations and other (1) ( 833 ) ( 736 ) 13 ( 34 ) Corporate expenses and other unallocated items (2) — — ( 43 ) ( 136 ) FAS/CAS operating adjustment — — 314 378 Acquisition accounting adjustments — — ( 493 ) ( 484 ) Consolidated $ 17,214 $ 15,716 $ 1,652 $ 1,080 9.6 % 6.9 % (1) Includes the operating results of certain smaller non-reportable business segments. (2) 2022 included the net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) project. Beginning in 2023, LTAMDS results are included in the RMD segment. We disaggregate our contracts from customers by geographic region based on customer location, by customer and by sales type. Our geographic region based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location. In addition, for our RIS and RMD segments, we disaggregate our contracts from customers by contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Segment sales disaggregated by geographic region for the quarters ended March 31, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total United States $ 2,648 $ 2,631 $ 2,806 $ 2,459 $ 4 $ 10,548 $ 2,249 $ 2,312 $ 2,866 $ 2,299 $ 4 $ 9,730 Europe 1,458 1,120 108 304 — 2,990 1,314 879 107 272 — 2,572 Asia Pacific 556 905 213 376 — 2,050 497 873 163 324 — 1,857 Middle East and North Africa 156 110 36 461 — 763 112 78 81 558 — 829 Other 345 463 31 24 — 863 293 387 36 12 — 728 Consolidated net sales 5,163 5,229 3,194 3,624 4 17,214 4,465 4,529 3,253 3,465 4 15,716 Inter-segment sales 418 1 371 47 ( 837 ) — 359 — 319 62 ( 740 ) — Business segment sales $ 5,581 $ 5,230 $ 3,565 $ 3,671 $ ( 833 ) $ 17,214 $ 4,824 $ 4,529 $ 3,572 $ 3,527 $ ( 736 ) $ 15,716 24 Table of Contents Segment sales disaggregated by type of customer for the quarters ended March 31, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total Sales to the U.S. government (1) $ 1,132 $ 1,222 $ 2,742 $ 2,457 $ 4 $ 7,557 $ 1,051 $ 1,174 $ 2,812 $ 2,297 $ 4 $ 7,338 Foreign military sales through the U.S. government 53 332 161 716 — 1,262 54 197 160 765 — 1,176 Foreign government direct commercial sales 240 118 201 445 — 1,004 251 103 204 401 — 959 Commercial aerospace and other commercial sales 3,738 3,557 90 6 — 7,391 3,109 3,055 77 2 — 6,243 Consolidated net sales 5,163 5,229 3,194 3,624 4 17,214 4,465 4,529 3,253 3,465 4 15,716 Inter-segment sales 418 1 371 47 ( 837 ) — 359 — 319 62 ( 740 ) — Business segment sales $ 5,581 $ 5,230 $ 3,565 $ 3,671 $ ( 833 ) $ 17,214 $ 4,824 $ 4,529 $ 3,572 $ 3,527 $ ( 736 ) $ 15,716 (1) Excludes foreign military sales through the U.S. government. Segment sales disaggregated by sales type for the quarters ended March 31, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total Collins Aerospace Pratt & Whitney Raytheon Intelligence & Space Raytheon Missiles & Defense Other Total Products $ 4,000 $ 3,052 $ 2,510 $ 3,221 $ 4 $ 12,787 $ 3,482 $ 2,633 $ 2,604 $ 3,139 $ 4 $ 11,862 Services 1,163 2,177 684 403 — 4,427 983 1,896 649 326 — 3,854 Consolidated net sales 5,163 5,229 3,194 3,624 4 17,214 4,465 4,529 3,253 3,465 4 15,716 Inter-segment sales 418 1 371 47 ( 837 ) — 359 — 319 62 ( 740 ) — Business segment sales $ 5,581 $ 5,230 $ 3,565 $ 3,671 $ ( 833 ) $ 17,214 $ 4,824 $ 4,529 $ 3,572 $ 3,527 $ ( 736 ) $ 15,716 RIS and RMD segment sales disaggregated by contract type for the quarters ended March 31, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Raytheon Intelligence & Space Raytheon Missiles & Defense Raytheon Intelligence & Space Raytheon Missiles & Defense Fixed-price $ 1,387 $ 2,095 $ 1,340 $ 2,075 Cost-type 1,807 1,529 1,913 1,390 Consolidated net sales 3,194 3,624 3,253 3,465 Inter-segment sales 371 47 319 62 Business segment sales $ 3,565 $ 3,671 $ 3,572 $ 3,527 25 Table of Contents Note 18: Remaining Performance Obligations (RPO) RPO represent the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $ 180 billion as of March 31, 2023. Of the total RPO as of March 31, 2023, we expect approximately 25 % will be recognized as revenue over the next 12 months. Approximately 45 % of our RPO relates to long-term commercial aerospace maintenance contracts at Pratt & Whitney, which are generally expected to be realized over a span of up to 15 years. Note 19: Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose the key terms of supplier finance programs, the amount of obligations outstanding at the end of the reporting period that the entity has confirmed as valid to the finance provider, where these obligations are recorded in the balance sheet, and a roll forward of the obligations. The new standard is effective for fiscal years beginning after December 15, 2022, on a retrospective basis, including interim periods within those fiscal years. The adoption of this standard did not have an impact on our disclosures as we have determined impact of supplier finance programs is not material. Other new pronouncements issued but not effective until after March 31, 2023 are not expected to have a material impact on our results of operations, financial condition, or liquidity. 26 Table of Contents With respect to the unaudited condensed consolidated financial information of Raytheon Technologies for the quarters ended March 31, 2023 and 2022, PricewaterhouseCoopers LLP (PwC) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated April 25, 2023, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PwC has not carried out any significant or additional audit tests beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PwC within the meaning of Sections 7 and 11 of the Act. Report of Independent Registered Public Accounting Firm To the Shareowners and Board of Directors of Raytheon Technologies Corporation Results of Review of Interim Financial Information We have reviewed the accompanying condensed consolidated balance sheet of Raytheon Technologies Corporation and its subsidiaries (the “Company”) as of March 31, 2023, and the related condensed consolidated statements of operations, of comprehensive income, of changes in equity, and of cash flows for the three-month periods ended March 31, 2023 and 2022, including the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 6, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts April 25, 2023 27 Table of Contents