What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-25 compared with 2023-04-25 · 311 added, 152 removed, 392 unchanged (54% of the section changed)

2 unchanged sentences

We are a global premier systems provider of high technology products and services to the aerospace and defense industries.

Effective July 17, 2023, we changed our legal name from Raytheon Technologies Corporation to RTX Corporation.

We operate in four principal business segments:

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:

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

Effective July 1, 2023, we streamlined the structure of our core businesses from four principal business segments to 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.

All segment information included in this Form 10-Q is reflective of the four segments of Collins, Pratt & Whitney, RIS, and RMD in accordance with the management structure in place as of June 30, 2023.

See “Note 20:

Subsequent Events” within Item 1 of this Form 10-Q for additional information.

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 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.

Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended June 30, 2023 and 2022 with respect to RIS or RMD, we are referring to their July 2, 2023 and July 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 defense business serves both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers.

Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business primarily at RIS, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture, or modify complex equipment.

Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture, or modify complex equipment.

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

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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.

Our defense operations are affected by U.S.

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.

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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.

Pratt & Whitney Geared TurboFan Matter.

As described further in “Note 15:

Commitments and Contingencies,” within Item 1 of this Form 10-Q, Pratt & Whitney has determined that a rare condition in powdered metal used to manufacture certain engine parts will require accelerated fleet inspection.

This does not impact engines currently being produced.

As a result, the business anticipates that a significant portion of the PW1100G-JM fleet, which powers the A320neo, will require engine removals and inspections within the next nine to twelve months, including approximately 200 accelerated removals by mid-September of this year.

Please refer to “Note 15:

Commitments and Contingencies” for additional information.

Global Supply Chain and Labor Markets.

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

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

China previously announced that it may take measures against RTX 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.

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.

RTX is not aware of any specific sanctions against Mr.

If China were to impose additional sanctions, enforce announced sanctions, or take other regulatory action against RTX, 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.

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Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer.

In addition, certain programs require approvals by foreign governments and those approvals may not be obtained or may be revoked.

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 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.

In particular, as of June 30, 2023, our Contract liabilities include approximately $405 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals.

These advance payments may become refundable to the customer if the contracts are ultimately terminated.

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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.

We believe the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel

demand, and expect to fully return to and/or exceed pre-pandemic levels as we exit 2023.

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;

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

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

There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2023.

RESULTS OF OPERATIONS

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

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

Net sales $ 18,315 $ 16,314 $ 35,529 $ 32,030

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

The factors contributing to the change year-over-year in total net sales for the quarter and six months ended June 30, 2023 are as follows:

(dollars in millions) Quarter Ended June 30, 2023 Six Months Ended June 30, 2023

$ 2,047 $ 3,609

Acquisitions and divestitures, net (48) (82)

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GAAP amount is provided in the table above.

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.

Net sales increased $2.0 billion organically in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 primarily due to higher organic sales of $0.9 billion at Collins, $0.7 billion at Pratt & Whitney, and $0.5 billion at RMD.

Net sales increased $3.6 billion organically in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to higher organic sales of $1.7 billion at Collins, $1.4 billion at Pratt & Whitney, and $0.6 billion at RMD.

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

Quarter Ended March 31, % of Total Net Sales

Quarter Ended June 30, % 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 $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.

Net products sales increased $1.2 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 primarily due to increases in external products sales of $0.6 billion at Collins, $0.4 billion at RMD, and $0.2 billion at Pratt & Whitney.

Net services sales increased $0.8 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 primarily due to increases in external services sales of $0.5 billion at Pratt & Whitney and $0.2 billion at Collins.

Six Months Ended June 30, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

Products $ 26,198 $ 24,120 73.7 % 75.3 %

Services 9,331 7,910 26.3 % 24.7 %

Total net sales $ 35,529 $ 32,030 100 % 100 %

Net products sales increased $2.1 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to increases in external products sales of $1.1 billion at Collins, $0.6 billion at Pratt & Whitney, and $0.5 billion at RMD, partially offset by a decrease in external products sales of $0.2 billion at RIS.

Net services sales increased $1.4 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to increases in external services sales of $0.8 billion at Pratt & Whitney, $0.4 billion at Collins, $0.1 billion at RMD, and $0.1 billion at RIS.

Our sales to major customers were as follows:

Quarter Ended March 31, % of Total Net Sales

Quarter Ended June 30, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

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

Six Months Ended June 30, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

Sales to the U.S.

government (1)

$ 15,515 $ 14,897 43.7 % 46.5 %

Foreign military sales through the U.S.

government 2,503 2,357 7.0 % 7.4 %

Foreign government direct commercial sales 2,093 2,054 5.9 % 6.4 %

Commercial aerospace and other commercial sales 15,418 12,722 43.4 % 39.7 %

Total net sales $ 35,529 $ 32,030 100 % 100 %

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

Cost of Sales

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Percentage of net sales 79.3 % 78.8 % 79.3 % 79.4 %

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

The factors contributing to the change year-over-year in total cost of sales for the quarter and six months ended June 30, 2023 are as follows:

(dollars in millions) Quarter Ended June 30, 2023 Six Months Ended June 30, 2023

$ 1,536 $ 2,803

Acquisitions and divestitures, net (48) (73)

2 unchanged sentences

Acquisition accounting adjustments 42 50

Other 51 (193)

Total change $ 1,662 $ 2,747

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GAAP amount is provided in the table above.

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.

The organic increase in total cost of sales of $1.5 billion for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily driven by the organic sales increases at Pratt & Whitney, Collins, and RMD noted above.

The increase in other cost of sales of $0.1 billion for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily driven by charges at Pratt & Whitney related to a customer insolvency in the quarter ended June 30, 2023.

The organic increase in total cost of sales of $2.8 billion for the six months ended June 30, 2023 compared to the six months ended June 30, 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 six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily driven by the absence of charges recorded during the first quarter of 2022 at Pratt & Whitney and Collins related to global sanctions on and export controls with respect to Russia and the impacts of foreign exchange, partially offset by charges at Pratt & Whitney related to a customer insolvency in the quarter ended June 30, 2023.

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

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

Quarter Ended March 31, % of Total Net Sales

Quarter Ended June 30, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

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Total cost of sales $ 14,518 $ 12,856 79.3 % 78.8 %

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.

Net products cost of sales increased $1.0 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, primarily due to increases in external products cost of sales at Collins, RMD, and Pratt & Whitney, all driven by the products sales changes noted above.

Net services cost of sales increased $0.6 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, primarily due to increases in external services cost of sales at Pratt & Whitney and Collins, all driven by the services sales changes noted above.

Six Months Ended June 30, % of Total Net Sales

(dollars in millions) 2023 2022 2023 2022

Cost of sales

Products $ 21,789 $ 19,860 61.3 % 62.0 %

Services 6,374 5,556 17.9 % 17.3 %

Total cost of sales $ 28,163 $ 25,416 79.3 % 79.4 %

Net products cost of sales increased $1.9 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to increases in external products cost of sales at Collins, Pratt & Whitney, and RMD all driven by the products sales changes noted above.

Net services cost of sales increased $0.8 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to increases in external services cost of sales at Pratt & Whitney, Collins, RIS, and RMD all driven by the services sales changes noted above.

Research and Development

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 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.

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.

The increase in company-funded research and development of $31 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily driven by higher program expenses at Collins, and an increase in research and development spending at Pratt & Whitney on various commercial and military programs, partially offset by a decrease in net expenses related to the Lower Tier Air and Missile Defense Sensor (LTAMDS) project, and lower research and development spending at RIS across various programs.

The increase in customer-funded research and development of $99 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily driven by higher expenses on various military and commercial programs at Collins and increased spending at Pratt & Whitney on military programs.

Company- funded research and development for the six months ended June 30, 2023 was relatively consistent with the six months ended June 30, 2022.

Included in the change in company-funded research and development were higher program expenses at Collins, and an increase in research and development spending at Pratt & Whitney on various commercial and military programs, mostly offset by a decrease in net expenses related to the LTAMDS project, and lower research and development spending at RIS across various programs.

The increase in customer-funded research and development of $135 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by higher expenses on various military and commercial programs at Collins and increased spending at Pratt & Whitney on military programs, partially offset by lower expenses on various programs at RIS.

Selling, General and Administrative

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Percentage of net sales 8.9 % 8.7 % 8.5 % 9.0 %

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.

Selling, general and administrative expenses increased $0.2 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, primarily driven by a $0.1 billion charge at our Pratt & Whitney segment related to a customer insolvency in the quarter ended June 30, 2023 and increased employee-related costs.

Selling, general and administrative expenses increased $0.1 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily driven by a $0.1 billion charge at our Pratt & Whitney segment related to a customer insolvency in the quarter ended June 30, 2023 and increased employee-related costs, partially offset 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.

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

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 March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

Other income, net $ 25 $ 17 $ 113 $ 45

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

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.

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

Other income, net for the quarter ended June 30, 2023 was relatively consistent with the quarter ended June 30, 2022.

Included in the change in other income was the absence of $69 million of charges associated with the disposition of two non-core businesses at Collins in the second quarter of 2022, which was partially offset by a net unfavorable year-over-year impact of foreign exchange gains and losses of $27 million, with remaining change spread across multiple items with no common or significant driver.

The increase in Other income, net of $68 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to the absence of $69 million of charges associated with the disposition of two non-core businesses at Collins in the second quarter of 2022 and a $68 million gain on sale of land during the first quarter of 2023, partially offset by a net unfavorable year-over-year impact of foreign exchange gains and losses of $44 million, with remaining change spread across multiple items with no common or significant driver.

Operating Profit

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Operating profit margin 8.0 % 8.3 % 8.8 % 7.6 %

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.”

The increase in Operating profit of $0.1 billion for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily driven by the operating performance of our segments, partially offset by the change in our FAS/CAS operating adjustment, both of which are described below in “Segment Review”.

The increase in Operating profit of $0.7 billion for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by the operating performance of our segments, partially offset by the change in our FAS/CAS operating adjustment, both of which are described below in “Segment Review.”

Non-service Pension Income

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

Non-service pension income $ (447) $ (474) $ (891) $ (954)

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.

The change in Non-service pension income of $27 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 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.

The change in Non-service pension income of $63 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by an increase in interest rates during 2022 and prior years’ pension asset returns less than our EROA assumption, partially offset by an increase in our 2023 EROA assumption.

Interest Expense, Net

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Other non-operating expense (income) (1)

(22) 22 (36) 49

Interest expense, net $ 333 $ 329 $ 648 $ 647

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

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,

Interest expense, net in the quarter ended June 30, 2023 was relatively consistent with the quarter ended June 30, 2022.

The increase in Interest expense of $52 million was primarily due to the long-term debt issuance in the first quarter of 2023 and the increase in commercial paper activity in 2023.

The change in Other non-operating expense (income) of $44 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, and an increase in non-operating dividend income.

Interest expense, net in the six months ended June 30, 2023 was relatively consistent with the six months ended June 30, 2022.

The change in Other non-operating expense (income) of $85 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, and an increase in non-operating dividend income.

The increase in Interest expense of $69 million was primarily due to the long-term debt issuance in the first quarter of 2023 and the increased commercial paper activity in 2023.

Quarter Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Effective income tax rate 13.5 % 10.7 % 15.3 % 10.1 %

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.

Our effective tax rate for the quarter and six months ended June 30, 2023 was 13.5% and 15.3% , respectively, as compared to 10.7% and 10.1% for the quarter and six months ended June 30, 2022, respectively.

The increase in the 2023 effective tax rates for both the quarter and year to date periods as compared to respective prior year periods 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, the effective tax rate for the six months ended June 30, 2023 reflects a lower tax benefit from stock based compensation as compared to the six months ended June 30, 2022.

Net Income from Continuing Operations Attributable to Common Shareowners

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

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

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Diluted earnings per share from continuing operations $ 0.90 $ 0.88 $ 1.87 $ 1.61

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

Net income from continuing operations attributable to common shareowners for the quarter ended June 30, 2023 includes the following:

• acquisition accounting adjustments of $384 million, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) from continuing operations of $0.26;

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

• charges on our contract assets and customer financing assets related to a customer insolvency of $114 million, net of tax and noncontrolling interest, which had an unfavorable impact on diluted EPS from continuing operations of $0.08.

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

• acquisition accounting adjustments of $349 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.23.

Net income from continuing operations attributable to common shareowners for the six months ended June 30, 2023 includes the following:

• acquisition accounting adjustments of $769 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.52;

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

• acquisition accounting adjustments of $727 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.49;

• 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.

Net Income Attributable to Common Shareowners

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

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

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Diluted earnings per share from operations $ 0.90 $ 0.88 $ 1.87 $ 1.60

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.

The increase in net income attributable to common shareowners and diluted earnings per share from operations for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 and for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by the increases in continuing operations, as discussed above.

SEGMENT REVIEW

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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:

Effective July 1, 2023, we streamlined the structure of our core businesses from four principal business segments to three principal business segments:

Collins Aerospace, Pratt & Whitney, and Raytheon.

The Company plans to implement the reorganization beginning in July 2023.

See “Note 20:

Subsequent Events” within Item 1 of this Form 10-Q for additional information.

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.

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Total net sales by segment were as follows:

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

8 unchanged sentences

Operating profit by segment was as follows:

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

6 unchanged sentences

Corporate expenses and other unallocated items (1)

(59) (42) (102) (178)

FAS/CAS operating adjustment 309 379 623 757

10 unchanged sentences

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

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Total net EAC adjustments $ (30) $ (41) $ (154) $ (5)

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.

Net EAC adjustments in the quarter ended June 30, 2023 were relatively consistent with the quarter ended June 30, 2022.

Included in the change in net EAC adjustments were favorable changes in net EAC adjustments of $63 million at RMD which was spread across numerous individual programs, partially offset by unfavorable changes in net EAC adjustments of $64 million at Pratt & Whitney principally driven by the absence of 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 $149 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to unfavorable changes in net EAC adjustments of $95 million at Pratt & Whitney principally driven by the absence of a $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket program in the second quarter of 2022, and unfavorable changes in net EAC adjustments of $30 million at RIS spread across numerous individual programs.

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

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.

Total backlog was approximately $185 billion and $175 billion as of June 30, 2023 and December 31, 2022, respectively, which includes defense backlog of $73 billion and $69 billion as of June 30, 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 $8 billion for the quarters ended March 31, 2023 and 2022, respectively.

Defense bookings were approximately $13 billion for both the quarters ended June 30, 2023 and 2022, and approximately $25 billion and $22 billion for the six months ended June 30, 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:

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Collins Aerospace

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 Change 2023 2022 Change

Net sales $ 5,850 $ 5,011 17 % $ 11,431 $ 9,835 16 %

1 unchanged sentence

Operating profit margins 14.0 % 10.9 % 14.1 % 10.0 %

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

Quarter Ended June 30, 2023 Compared with Quarter Ended June 30, 2022

Factors Contributing to Total Change

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GAAP amounts is provided in the table above.

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.

The organic sales increase of $0.9 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 primarily relates to higher commercial aerospace aftermarket sales of $0.6 billion, including increases across all aftermarket sales channels.

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

Commercial aerospace OEM sales increased $0.2 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 due to increased production rates within wide-body, narrow-body, and business jets.

Military sales increased $0.1 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 primarily due to increased development program volume.

The organic operating profit increase of $0.2 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily due to higher commercial aerospace operating profit of $0.3 billion, principally driven by the higher sales volume discussed above as well as favorable mix, which was partially offset by higher production costs.

This increase in commercial aerospace operating profit was further offset by higher research and development costs primarily due to higher program expenses, and higher selling, general and administrative expenses, primarily due to increased employee-related costs.

The increase in Other operating profit of $0.1 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily due to the absence of $69 million of charges associated with the disposition of two non-core businesses in the second quarter of 2022.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Factors Contributing to Total Change

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Restructuring

Costs Other Total Change

Net sales $ 1,670 $ (46) $ — $ (28) $ 1,596

Operating profit 431 (2) (3) 203 629

(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 $1.7 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily relates to higher commercial aerospace aftermarket sales of $1.1 billion, including increases across all aftermarket sales channels.

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

Commercial aerospace OEM sales increased $0.4 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to increased production rates in narrow-body, wide-body, and business jets.

Military sales increased $0.2 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to increased development program volume and higher material receipts.

The organic profit increase of $0.4 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to higher commercial aerospace operating profit of $0.6 billion, principally driven by the higher sales volume discussed above as well as favorable mix, partially offset by higher production costs.

This increase in commercial aerospace operating profit was further offset by higher selling, general and administrative expenses, primarily due to increased employee-related costs, and higher research and development costs, primarily due to higher program expenses.

The increase in Other operating profits of $0.2 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 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 and the absence of $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.

Pratt & Whitney

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 Change 2023 2022 Change

Net sales $ 5,701 $ 4,969 15 % $ 10,931 $ 9,498 15 %

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Operating profit margins 4.0 % 6.1 % 5.9 % 4.8 %

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

Quarter Ended June 30, 2023 Compared with Quarter Ended June 30, 2022

Factors Contributing to Total Change

8 unchanged sentences

GAAP amounts is provided in the table above.

The organic sales increase of $0.7 billion in the quarter ended 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.

The organic sales increase of $0.7 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 reflects higher commercial aftermarket sales of $0.6 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.

These increases are partially offset by a decline in military sales of $0.1 billion primarily driven by the absence of a benefit in the second quarter of 2022 resulting from the timing of an F135 production contract award which resulted in the recognition of previously inventoried cost, which was partially offset by higher F135 sustainment volume in the second quarter of 2023.

The organic operating profit increase of $0.1 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily driven by higher commercial aerospace operating profit of $0.2 billion, principally due to the aftermarket sales volume increase and favorable mix discussed above, partially offset by higher production costs.

Included in the organic operating profit is a favorable contract matter of approximately $60 million, which offsets a prior year $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket contract in the second quarter of 2022.

The decrease in Other operating profit of $0.2 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 reflects a $181 million charge related to a customer insolvency during the second quarter of 2023.

The charge primarily relates to Contract assets and Customer financing assets exposures with the customer.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Factors Contributing to Total Change

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Restructuring

Costs Other Total Change

Net sales $ 1,439 $ — $ — $ (6) $ 1,433

Operating profit 233 — (41) — 192

(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 $1.4 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 reflects higher commercial aftermarket sales of $0.9 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 $0.4 billion, primarily driven by volume and favorable mix.

Military sales increased $0.1 billion, primarily due to higher F135 sustainment volume.

The organic profit increase of $0.2 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by higher commercial aerospace operating profit of $0.3 billion, principally due to the aftermarket sales increase discussed above, partially offset by lower commercial OEM operating profit driven by the volume increases noted above and higher production costs.

The six months ended June 30, 2023 also benefited from two favorable contract matters totaling approximately $120 million, which was partially offset by a prior year $50 million favorable contract adjustment resulting from a contract modification on a commercial aftermarket contract in the second quarter of 2022.

Other operating profit in the six months ended June 30, 2023 was consistent with the six months ended June 30, 2022 and includes a $181 million charge related to a customer insolvency during the second quarter of 2023 as discussed above, partially offset by the absence of a $155 million charge recorded in 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 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.

Restructuring actions relate to ongoing cost reduction efforts including the consolidation of facilities and workforce reductions.

Defense Bookings – In addition to a number of smaller bookings, in the quarter ended June 30, 2023, Pratt & Whitney booked $2.0 billion for F135 production Lots 15-17 and $1.5 billion for F117 sustainment.

Raytheon Intelligence & Space

Quarter Ended March 31,

(dollars in millions) 2023 2022 Change

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 Change 2023 2022 Change

Net sales $ 3,655 $ 3,570 2 % $ 7,220 $ 7,142 1 %

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Bookings $ 3,148 $ 2,980 6 % $ 7,443 $ 5,572 34 %

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

Quarter Ended June 30, 2023 Compared with Quarter Ended June 30, 2022

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ 9 $ 19 $ — $ (52) $ (24)

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.

Organic sales in the quarter ended June 30, 2023 were relatively consistent with the quarter ended June 30, 2022.

Included in the organic change in sales were higher Sensing and Effects sales, higher Cyber and Services sales and lower Command, Control and Communications sales.

The decrease in operating profit of $24 million, and the related decrease in operating profit margins, in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, were primarily due to a change in mix and other performance of $52 million principally driven by unfavorable program mix and higher operating expenses.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Factors Contributing to Total Change in Net Sales

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Other Total Change

Net sales $ 95 $ — $ (17) $ 78

(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 $ 13 $ (30) $ — $ (61) $ (78)

Organic sales in the six months ended June 30, 2023 were relatively consistent with the six months ended June 30, 2022.

Included in the organic change in sales were higher Cyber and Services sales 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 six months ended June 30, 2023 compared to the six months ended June 30, 2022, were primarily due to an unfavorable change in mix and other performance of $61 million and an unfavorable net change in EAC adjustments of $30 million.

The change in mix and other performance was primarily due to unfavorable program mix and higher operating expenses.

The net change in EAC adjustments was spread across numerous individual programs.

Backlog and Bookings – Backlog was $17 billion at June 30, 2023 and $16 billion at December 31, 2022.

In addition to a number of smaller bookings, in the quarter ended June 30, 2023, RIS booked $1.1 billion on a number of classified contracts and $332 million on cyber defense services contracts for certain federal and civil customers.

In addition to these bookings, in the six months ended June 30, 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 March 31,

(dollars in millions) 2023 2022 Change

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 Change 2023 2022 Change

Net sales $ 4,000 $ 3,558 12 % $ 7,671 $ 7,085 8 %

2 unchanged sentences

Bookings $ 3,636 $ 4,537 (20) % $ 8,836 $ 8,637 2 %

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

Quarter Ended June 30, 2023 Compared with Quarter Ended June 30, 2022

Factors Contributing to Total Change in Net Sales

10 unchanged sentences

Operating profit $ 53 $ 63 $ 2 $ (51) $ 67

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.

The organic sales increase of $0.5 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily due to higher net sales of $0.2 billion from our Air Power programs, $0.1 billion from our Advanced Technology programs, and $0.1 billion from our Land Warfare and Air Defense programs.

The increase in Air Power programs is primarily driven by higher net sales on the Advanced Medium Range Air-to-Air Missile (AMRAAM) program driven by the award in the second quarter of 2023.

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

The increase in Land Warfare and Air Defense programs was due to higher volumes across multiple programs .

The increase in operating profit of $0.1 billion in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily due to a favorable net change in EAC adjustments of $63 million and the impact of higher volume of $53 million, partially offset by an unfavorable change in mix and other performance of $51 million.

The net change in EAC adjustments was spread across numerous individual programs.

The increase in volume was principally driven by the higher net sales discussed above.

The unfavorable change in mix and other performance was primarily due to higher relative volume of early stage production programs within Land Warfare and Air Defense and Air Power programs .

The increase in operating profit margins in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily due to the net change in EAC adjustments, partially offset by the change in mix and other performance discussed above.

Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022

Factors Contributing to Total Change in Net Sales

(dollars in millions) Organic (1)

Acquisitions /

Divestitures, net Other Total Change

Net sales $ 633 $ (36) $ (11) $ 586

(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 $ 83 $ 2 $ 1 $ (78) $ 8

The organic sales increase of $0.6 billion in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to higher net sales of $0.2 billion from our Air Power programs, $0.2 billion from our Advanced Technology programs, and $0.1 billion from our Land Warfare and Air Defense programs.

The increase in Air Power programs is primarily driven by higher net sales on the AMRAAM program driven by the award in the second quarter of 2023.

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

The increase in Land Warfare and Air Defense programs was due to higher volumes across multiple programs .

Operating profit in the six months ended June 30, 2023 was relatively consistent with the six months ended June 30, 2022.

Included in the change in operating profit was higher volume of $83 million and an unfavorable change in mix and other performance of $78 million.

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

The unfavorable change in mix and other performance was primarily due to higher relative volume of early stage production programs within Land Warfare and Air Defense and Air Power .

Included in the net change in EAC adjustments is an unfavorable impact related to a significant contract option exercised in the first quarter of 2023, which was more than offset by favorable changes in net EAC adjustments spread across numerous individual programs.

The decrease in operating profit margins in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily due to the change in mix and other performance discussed above.

Backlog and Bookings – Backlog was $35 billion at June 30, 2023 and $34 billion at December 31, 2022.

In addition to a number of smaller bookings, in the quarter ended June 30, 2023, RMD booked $1.2 billion for AMRAAM for the U.S.

Air Force and Navy and international customers, $294 million on a number of classified contracts, $265 million for Javelin for the U.S.

Army and international customers, $251 million for AIM-9X Sidewinder short-range air-to-air missiles for the U.S.

Navy and Air Force and international customers, and $237 million for CLEAVAR, an integrated U.S.

Army Counter- Unmanned Aircraft Systems (C-UAS) defense system.

In addition to these bookings, in the six months ended June 30, 2023 RMD booked $1.2 billion to provide Patriot Air Defense system to Switzerland, $827 million on a number of classified contracts, $619 million on the SPY-6 Hardware Production and Sustainment contract for the U.S.

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

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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 and certain reserves.

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

Corporate expenses and other unallocated items consists of costs not considered part of management’s evaluation of reportable segment operating performance, including certain unallowable costs and reserves.

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

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

Net Sales Operating Profit

Quarter Ended March 31, Quarter Ended March 31,

Quarter Ended June 30, Quarter Ended June 30,

(dollars in millions) 2023 2022 2023 2022

1 unchanged sentence

Corporate expenses and other unallocated items — — (59) (42)

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.

The increase in eliminations and other sales of $97 million in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was primarily due to an increase in intersegment eliminations, principally driven by RIS and Collins.

Eliminations and other operating profit in the quarter ended June 30, 2023 was relatively consistent with the quarter ended June 30, 2022.

Corporate expenses and other unallocated items operating profit in the quarter ended June 30, 2023 was relatively consistent with the quarter ended June 30, 2022.

Net Sales Operating Profit

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

(dollars in millions) 2023 2022 2023 2022

Eliminations and other $ (1,724) $ (1,530) $ (47) $ (81)

Corporate expenses and other unallocated items — — (102) (178)

The increase in eliminations and other sales of $194 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to an increase in intersegment eliminations, principally driven by RIS and Collins.

The change in eliminations and other operating profit of $34 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to a gain on sale of land in the first quarter of 2023.

The decrease in Corporate expenses and other unallocated items of $76 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily due to a decrease in expenses related to the LTAMDS project, which are included in the RMD segment beginning in 2023.

FAS/CAS operating adjustment

6 unchanged sentences

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

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

2 unchanged sentences

FAS/CAS operating adjustment $ 309 $ 379 $ 623 $ 757

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.

The change in our FAS/CAS operating adjustment of $70 million in the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 was driven by a $123 million decrease in CAS expense, partially offset by a $53 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 were 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 were 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.

The change in our FAS/CAS operating adjustment of $134 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was driven by a $238 million decrease in CAS expense, partially offset by a $104 million decrease in FAS service cost.

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

Acquisition accounting adjustments

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The components of Acquisition accounting adjustments were as follows:

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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

Quarter Ended March 31,

Quarter Ended June 30, Six Months Ended June 30,

(dollars in millions) 2023 2022 2023 2022

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Acquisition accounting adjustments $ (489) $ (448) $ (982) $ (932)

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

The change in acquisition accounting adjustments of $41 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, was primarily driven by an increase at Pratt & Whitney related to collaborator intangibles and an increase in intangibles amortization at RMD and RIS related to the Raytheon merger.

The change in acquisition accounting adjustments of $50 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily driven by an increase at Pratt & Whitney related to collaborator intangibles and an increase in intangibles amortization at RMD and RIS related to the Raytheon merger.

LIQUIDITY AND FINANCIAL CONDITION

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

(dollars in millions) June 30, 2023 December 31, 2022

Cash and cash equivalents $ 5,391 $ 6,220

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Total debt to total capitalization 32 % 30 %

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities and the timing of such activities.

Our principal source of liquidity is cash flows from operating activities.

1 unchanged sentence

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 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.

At June 30, 2023, we had cash and cash equivalents of $5.4 billion, of which approximatel y 41% was held by RTX’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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Taxes associated with the future remittance of these earnings have been recorded.

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

For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTX 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 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.

As of June 30, 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 June 30, 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 $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:

As of June 30, 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 $1.0 billion of commercial paper borrowings outstanding at June 30, 2023.

At June 30, 2023 short-term commercial paper borrowings outstanding had a weighted-average interest rate of 5.5%.

We had the following issuances of long-term debt during the six months ended June 30, 2023:

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

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Cash Flow - Operating Activities

Quarter Ended March 31,

Six Months Ended June 30,

(dollars in millions) 2023 2022

1 unchanged sentence

$ (144) $ 1,762

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 $1.9 billion change in cash flows (used in) provided by operating activities from continuing operations in the six months ended June 30, 2023 compared to in the six months ended June 30, 2022, was primarily due to higher tax payments discussed below, a reduction in accounts payable and accrued liabilities primarily driven by timing of supplier and collaborator payments, higher accounts receivable as a result of increased sales volume and related factoring activity, partially offset by the timing of collaborator receivables, and the impact of the net change in contract assets and contract liabilities driven by the timing of collections, primarily at RMD.

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

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

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 resulted in a decrease of approximately $0.3 billion in cash provided by operating activities during the six months ended June 30, 2023, compared to an increase of approximately $1.5 billion in cash provided by operating activities during the six months ended June 30, 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 $171 million and $133 million in the quarters ended March 31, 2023 and 2022, respectively.

We made net tax payments of $1.4 billion and $0.5 billion in the six months ended June 30, 2023 and 2022, respectively.

Cash Flow - Investing Activities

Quarter Ended March 31,

Six Months Ended June 30,

(dollars in millions) 2023 2022

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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.

The $0.1 billion change in cash flows used in investing activities from continuing operations in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily related to an increase in other intangible assets and capital expenditures, both of which are described below, partially offset by the timing of our derivative contract settlements.

Capital expenditures in the six months ended June 30, 2023 increased by $128 million from the six months ended June 30, 2022 primarily due to investments in production facilities at Pratt & Whitney and Collins.

Customer financing assets receipts (payments), net were receipts of $42 million and payments of $7 million in the six months ended June 30, 2023 and 2022, respectively, and includes leased asset pool activity as well as customer financing activity.

During the six months ended June 30, 2023 and 2022, we increased other intangible assets by approximately $314 million and $185 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 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.

During the six months ended June 30, 2023 and 2022, we had net cash receipts of $45 million and net cash payments of $151 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

Cash Flow - Financing Activities

Quarter Ended March 31,

Six Months Ended June 30,

(dollars in millions) 2023 2022

2 unchanged sentences

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.

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.

The $4.1 billion change in cash flows provided by (used in) financing activities from continuing operations in the six months ended June 30, 2023 compared to in the six months ended June 30, 2022 was primarily driven by long-term debt issuances of $3.0 billion, lower share repurchases of $0.6 billion, as discussed below, and issuance of commercial paper, net, of $0.5 billion.

Refer to “Note 8:

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

At June 30, 2023, management had remaining authority to repurchase approximately $4.8 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.

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Our share repurchases were as follows:

Quarter Ended March 31,

Six Months Ended June 30,

(dollars in millions;

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Our Board of Directors authorized the following cash dividends:

Quarter Ended March 31,

Six Months Ended June 30,

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

1 unchanged sentence

Total dividends paid $ 1,634 $ 1,543

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.

On June 5, 2023, the Board of Directors declared a dividend of $0.59 per share payable September 7, 2023 to shareowners of record at the close of business on August 18, 2023.

Quantitative and Qualitative Disclosures About Market Risk

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

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