NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The Condensed Consolidated Financial Statements at June 30, 2021 and for the quarters and six months ended June 30, 2021 and 2020 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 2020 Annual Report on Form 10-K. In addition, we reclassified certain amounts to conform to our current period presentation.
Separation Transactions, Distributions and Raytheon Merger. On April 3, 2020, United Technologies Corporation (UTC) completed the separation of its business into three independent, publicly traded companies – UTC, Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis) (the Separation Transactions). UTC distributed all of the outstanding shares of Carrier common stock and all of the outstanding shares of Otis common stock to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date for the distributions (the Distributions) effective at 12:01 a.m., Eastern Time, on April 3, 2020. Immediately following the Separation Transactions and Distributions, on April 3, 2020, UTC and Raytheon Company completed their all-stock merger of equals transaction (the Raytheon Merger), pursuant to which Raytheon Company became a wholly-owned subsidiary of UTC and UTC was renamed Raytheon Technologies Corporation. As a result of these transactions, we now operate in four principal business segments: Collins Aerospace Systems (Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).
UTC was determined to be the accounting acquirer in the Raytheon Merger, and, as a result, the financial statements of Raytheon Technologies include Raytheon Company’s financial position and results of operations for all periods subsequent to the completion of the Raytheon Merger on April 3, 2020. RIS and RMD follow a 4-4-5 fiscal calendar while Collins Aerospace and Pratt & Whitney continue to use a quarter calendar end of June 30, 2021. Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended June 30, 2021 and June 30, 2020 with respect to RIS or RMD, we are referring to their July 4, 2021 and June 28, 2020 fiscal quarter ends, respectively. The historical results of Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean United Technologies Corporation and its subsidiaries when referring to periods prior to the Raytheon Merger and to the combined company, Raytheon Technologies Corporation, when referring to periods after the Raytheon Merger. Unless the context otherwise requires, the terms “Raytheon Company,” or “Raytheon” mean Raytheon Company and its subsidiaries prior to the Raytheon Merger.
COVID-19 Pandemic. Beginning in 2020, the coronavirus disease 2019 (COVID-19) negatively impacted both the U.S. and global economy and our business and operations and the industries in which we operate. The continued disruption to air travel and commercial activities and the significant restrictions and limitations on businesses, particularly within the aerospace and commercial airline industries, have negatively impacted global supply, demand and distribution capabilities. In particular, the unprecedented decrease in air travel resulting from the COVID-19 pandemic has adversely affected our airline and airframer customers, and their demand for the products and services of our Collins Aerospace and Pratt & Whitney businesses.
In the six months ended June 30, 2020 we recorded write-downs of assets and significant unfavorable Estimate at Completion (EAC) adjustments in our Collins Aerospace and Pratt & Whitney businesses primarily related to:
•Goodwill impairment charges of $3.2 billion in the quarter ended June 30, 2020 related to two of our Collins Aerospace reporting units. Refer to “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information,
•increased estimated credit losses on both our receivables and contract assets of $237 million and $309 million in the quarter and six months ended June 30, 2020, respectively,
•contract asset and inventory impairments at Collins Aerospace due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a commercial aircraft of $122 million and $133 million in the quarter and six months ended June 30, 2020, respectively,
•unfavorable EAC adjustments on commercial aftermarket contracts at Pratt & Whitney based on a change in estimated future customer activity of $57 million in the quarter ended June 30, 2020,
•the impairment of a Collins Aerospace trade name of $17 million and $57 million, in the quarter and six months ended June 30, 2020, respectively, and
•an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead costs to military contracts of $44 million in the quarter ended June 30, 2020.
Our RIS and RMD businesses, although experiencing minor impacts, have not experienced significant business disruptions as a result of the COVID-19 pandemic.
Given the significant reduction in business and leisure passenger air travel, the number of planes temporarily grounded, and continued travel restrictions that have resulted from the ongoing COVID-19 pandemic, and the resulting impacts on our customers and their business activities, we expect our future operating results, particularly those of our Collins Aerospace and Pratt & Whitney businesses, to continue to be negatively impacted when compared to pre-COVID-19 (2019) results. Our expectations regarding the COVID-19 pandemic and its 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. While we believe that the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, there continues to be uncertainty with respect to the point at which commercial air traffic capacity will return to and/or exceed pre-COVID-19 levels. We have begun to see indications that commercial air travel is recovering in certain areas of demand; however, other areas continue to lag. As a result, we continue to estimate that a full recovery may occur in 2023 or 2024. New information may emerge concerning the scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the effect of mutating strains and whether additional outbreaks of the pandemic will continue to occur, actions to contain the pandemic’s spread or treat its impact, continued availability of vaccines, and their distribution, acceptance and efficacy, and governmental, business and individual personal actions taken in response to the pandemic (including restrictions and limitations on travel and transportation, and changes in leisure and business travel patterns and work environments) among others. Some of these actions and related impacts may be trends that continue in the future even after the pandemic no longer poses a significant public health risk. As our commercial aerospace business begins to recover, we expect certain employee-related and discretionary costs, which were subject to prior year cost reduction actions, to return in 2021 and beyond. A recovery may also impact our judgments around credit risk related to estimated credit losses.
Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets
Business Acquisitions. As described above, on April 3, 2020, pursuant to the Agreement and Plan of Merger dated June 9, 2019, as amended (the Raytheon Merger Agreement) UTC and Raytheon Company completed their previously announced all-stock merger of equals, following the completion by UTC of the Separation Transactions and Distributions. Raytheon Company (previously New York Stock Exchange (NYSE): RTN) shares ceased trading prior to the market open on April 3, 2020, and each share of Raytheon common stock was converted in the merger into the right to receive 2.3348 shares of UTC common stock previously traded on the NYSE under the ticker symbol “UTX.” Upon closing of the Raytheon Merger, UTC’s name was changed to “Raytheon Technologies Corporation,” and its shares of common stock began trading as of April 3, 2020 on the NYSE under the ticker symbol “RTX.”
Total consideration is calculated as follows:
|
|
|
|
|
|
|
|
(dollars in millions)
|
Amount
|
|
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards
|
$
|
33,067
|
|
|
Fair value attributable to pre-merger service for replacement equity awards
|
99
|
|
|
Total merger consideration
|
$
|
33,166
|
|
The fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards is calculated as follows:
|
|
|
|
|
|
|
|
(dollars and shares in millions, except per share amounts and exchange ratio)
|
Amount
|
|
Number of Raytheon Company common shares outstanding as of April 3, 2020
|
277.3
|
|
Number of Raytheon Company stock awards vested as a result of the Raytheon Merger (1)
|
0.4
|
|
Total outstanding shares of Raytheon Company common stock and equity awards entitled to merger consideration
|
277.7
|
|
Exchange ratio (2)
|
2.3348
|
|
Shares of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards
|
648.4
|
|
Price per share of RTC common stock (3)
|
$
|
51.00
|
|
|
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards
|
$
|
33,067
|
|
(1) Represents Raytheon Company stock awards that vested as a result of the Raytheon Merger, which is considered a “change in control” for purposes of the Raytheon 2010 Stock Plan. Certain Raytheon Company restricted stock awards and Raytheon Company restricted stock unit (RSU) awards, issued under the Raytheon 2010 Stock Plan vested on an accelerated basis as a result of the Raytheon Merger. Such vested awards were converted into the right to receive RTC common stock determined as the product of (1) the number of vested awards, and (2) the exchange ratio.
(2) The exchange ratio is equal to 2.3348 shares of UTC common stock for each share of Raytheon Company common stock in accordance with the Raytheon Merger Agreement.
(3) The price per share of RTC common stock is based on the RTC opening stock price as of April 3, 2020.
Allocation of Consideration Transferred to Net Assets Acquired. We accounted for the Raytheon Merger under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree (Raytheon Company) at the fair values on the closing date. During the first quarter of 2021, based on the finalization of our valuation and internal reviews, we completed the purchase price allocation which resulted in a net increase to goodwill of $61 million.
The final purchase price allocation, net of cash acquired, for the acquisition was as follows:
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
Cash and cash equivalents
|
$
|
3,208
|
|
|
Accounts receivable, net
|
1,997
|
|
|
Contract assets
|
6,023
|
|
|
Inventory, net
|
705
|
|
|
Other assets, current
|
940
|
|
|
Fixed assets, net
|
4,745
|
|
|
Operating lease right-of-use assets
|
950
|
|
|
Intangible assets, net:
|
19,130
|
|
|
Customer relationships
|
12,900
|
|
|
Tradenames/trademarks
|
5,430
|
|
|
Developed technology
|
800
|
|
|
Other assets
|
1,218
|
|
|
Total identifiable assets acquired
|
38,916
|
|
|
Accounts payable
|
1,477
|
|
|
Accrued employee compensation
|
1,492
|
|
|
Other accrued liabilities
|
1,921
|
|
|
Contract liabilities
|
3,002
|
|
|
Long-term debt, including current portion
|
4,700
|
|
|
Operating lease liabilities, non-current portion
|
738
|
|
|
Future pension and postretirement benefit obligation
|
11,607
|
|
|
Other long-term liabilities
|
2,368
|
|
|
Total liabilities acquired
|
27,305
|
|
|
Total identifiable net assets
|
11,611
|
|
|
Goodwill
|
21,589
|
|
|
Redeemable noncontrolling interest
|
(34)
|
|
|
Total consideration transferred
|
$
|
33,166
|
|
Fair value adjustments to Raytheon Company’s identified assets and liabilities included an increase in fixed assets of $1.1 billion and an increase to future pension and postretirement benefit obligations of $3.6 billion, primarily related to remeasurement of the liability based on market conditions on the Raytheon Merger closing date. For further information, see “Note 10: Employee Benefit Plans.” In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the closing date. The assessment did not note any material contingencies related to existing legal or government action.
The fair values of the customer relationship intangible assets were determined by using a discounted cash flow valuation method, which is a form of the income approach. Under this approach, the estimated future cash flows attributable to the asset are adjusted to exclude the future cash flows that can be attributed to supporting assets, such as trade names or fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant future cash flows, which require significant management judgement, included forecasted revenue growth rates, remaining developmental effort, operational performance including company specific synergies, program life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows are probability-adjusted to reflect the uncertainties associated with the underlying assumptions, including cancellation rates related to backlog, government demand for sole-source and recompete contracts and win rates for recompete contracts, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future cash flows are then discounted to present value, using an appropriate discount rate that requires significant judgment by management. The customer relationship intangible assets are being amortized based on the pattern of economic benefits we expect to realize over the estimated economic life of the underlying programs. The fair value of the tradename intangible assets were determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the tradename and discounted to present value, using forecasted revenue growth rate projections and a discount rate, respectively, that requires significant judgment by management. The
tradename intangible assets have been determined to have an indefinite life. The developed technology intangible assets are being amortized based on the pattern of economic benefits.
The intangible assets included above consist of the following:
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Fair Value
|
Useful Life
|
|
Acquired customer relationships
|
$
|
12,900
|
|
25 years
|
|
Acquired tradenames
|
5,430
|
|
Indefinite
|
|
Acquired developed technology
|
800
|
|
5 to 7 years
|
|
Total identifiable intangible assets
|
$
|
19,130
|
|
|
We also identified customer contractual obligations on loss making programs and recorded liabilities of $222 million related to these programs based on the difference between the actual expected operating loss and a normalized operating profit. These liabilities will be liquidated based on the expected pattern of expenses incurred on these contracts.
We recorded $21.6 billion of goodwill as a result of the Raytheon Merger which primarily relates to expected synergies from combining operations and the value of the existing workforce. The goodwill generated as a result of the Raytheon Merger is nondeductible for tax purposes.
Merger-Related Costs. Merger-related costs have been expensed as incurred. In the six months ended June 30, 2021 we recorded $17 million of transaction and integration costs. In the quarter and six months ended June 30, 2020 we recorded $70 million and $99 million, respectively, of transaction and integration costs. These costs are included in Selling, general and administrative expenses within the Condensed Consolidated Statement of Operations.
Supplemental Pro-Forma Data. Raytheon Company’s results of operations have been included in RTC’s financial statements for the period subsequent to the completion of the Raytheon Merger on April 3, 2020. The following unaudited supplemental pro-forma data presents consolidated information as if the Raytheon Merger had been completed on January 1, 2019. The pro-forma results were calculated by combining the results of Raytheon Technologies with the stand-alone results of Raytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period. The results below reflect Raytheon Technologies on a continuing operations basis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions, the Distributions and the Raytheon Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
(dollars in millions, except per share amounts)
|
|
|
June 30, 2020
|
|
|
|
June 30, 2020
|
|
Net sales
|
|
|
$
|
14,470
|
|
|
|
|
$
|
32,921
|
|
|
Loss from continuing operations attributable to common shareowners
|
|
|
(3,732)
|
|
|
|
|
(3,014)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share of common stock from continuing operations
|
|
|
$
|
(2.49)
|
|
|
|
|
$
|
(2.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share of common stock from continuing operations
|
|
|
(2.49)
|
|
|
|
|
(2.07)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unaudited supplemental pro-forma data above includes the following significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on January 1, 2019, as adjusted for the applicable
tax impact. As the merger was completed on April 3, 2020, the pro-forma adjustments in the table below only include the required adjustments through April 3, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
(dollars in millions)
|
|
|
June 30, 2020
|
|
|
|
June 30, 2020
|
|
Amortization of acquired Raytheon Company intangible assets, net (1)
|
|
|
$
|
—
|
|
|
|
|
$
|
(270)
|
|
|
Amortization of fixed asset fair value adjustment (2)
|
|
|
—
|
|
|
|
|
(9)
|
|
|
Utilization of contractual customer obligation (3)
|
|
|
—
|
|
|
|
|
8
|
|
|
Deferred revenue fair value adjustment (4)
|
|
|
—
|
|
|
|
|
(4)
|
|
|
Adjustment to non-service pension (income) expense (5)
|
|
|
—
|
|
|
|
|
239
|
|
|
RTC/Raytheon fees for advisory, legal, accounting services (6)
|
|
|
61
|
|
|
|
|
96
|
|
|
Adjustment to interest expense related to the Raytheon Merger, net (7)
|
|
|
—
|
|
|
|
|
9
|
|
|
Elimination of deferred commission amortization (8)
|
|
|
—
|
|
|
|
|
5
|
|
|
|
|
|
$
|
61
|
|
|
|
|
$
|
74
|
|
(1) Reflects the additional amortization of the acquired Raytheon Company’s intangible assets recognized at fair value in purchase accounting and eliminates the historical Raytheon Company intangible asset amortization expense.
(2) Reflects the amortization of the fixed asset fair value adjustment as of the acquisition date.
(3) Reflects the additional amortization of liabilities recognized for certain acquired loss making contracts as of the acquisition date.
(4) Reflects the difference between prepayments related to extended arrangements and the fair value of the assumed performance obligations as they are satisfied.
(5) Represents the elimination of unamortized prior service costs and actuarial losses, as a result of fair value purchase accounting.
(6) Reflects the elimination of transaction-related fees incurred by RTC and Raytheon Company in connection with the Raytheon Merger and assumes all of the fees were incurred during the first quarter of 2019.
(7) Reflects the amortization of the fair market value adjustment related to Raytheon Company.
(8) Reflects the elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting.
The unaudited supplemental pro-forma financial information does not reflect the potential realization of cost savings related to the integration of the two companies. Further, the pro-forma data should not be considered indicative of the results that would have occurred if the acquisition had been consummated on January 1, 2019, nor are they indicative of future results.
Dispositions. As discussed further in “Note 3: Discontinued Operations,” on April 2, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with UTC (since renamed Raytheon Technologies Corporation), pursuant to which, among other things, UTC agreed to separate into three independent, publicly traded companies – UTC, Carrier and Otis and distribute all of the outstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020. UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions. As a result of the Distributions, Carrier and Otis are now independent publicly traded companies.
In May 2020, in order to meet the requirements for regulatory approval of the Raytheon Merger, we completed the sale of our airborne tactical radios business within our RIS segment for $234 million in cash, net of transaction-related costs. As the transaction occurred subsequent to the Raytheon Merger, the gain of $210 million was not recorded in the Condensed Consolidated Statement of Operations, but rather was recorded as an adjustment to the fair value of net assets acquired in the allocation of consideration transferred to net assets acquired in the Raytheon Merger, as discussed further above. Income before taxes related to the disposed business for the period from the closing of the Raytheon Merger to disposal date was not material.
In October 2020, we entered into a definitive agreement to sell our Forcepoint business, which we completed on January 8, 2021, for proceeds of $1.1 billion, net of cash transferred. At December 31, 2020, the related assets of approximately $1.9 billion and liabilities of approximately $855 million were accounted for as held for sale at fair value less cost to sell; however, Forcepoint did not qualify for presentation as discontinued operations. These held for sale assets and liabilities are presented in Other assets, current and Other accrued liabilities, respectively, on our December 31, 2020 Condensed Consolidated Balance Sheet. Assets held for sale included $1.4 billion of goodwill and intangible assets. A further breakout of major classes of assets and liabilities has not been provided as the assets and liabilities held for sale are not material. We did not recognize a pre-tax gain or loss within the Condensed Consolidated Statement of Operations related to the sale of Forcepoint. The results of Forcepoint were included in Eliminations and other in our segment results.
Goodwill. Changes in our goodwill balances for the six months ended June 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Balance as of January 1, 2021
|
|
Acquisitions and Divestitures
|
|
|
|
Foreign Currency Translation and Other
|
|
Balance as of June 30, 2021
|
|
Collins Aerospace Systems
|
$
|
31,571
|
|
|
$
|
—
|
|
|
|
|
$
|
26
|
|
|
$
|
31,597
|
|
|
Pratt & Whitney
|
1,563
|
|
|
—
|
|
|
|
|
—
|
|
|
1,563
|
|
|
Raytheon Intelligence & Space(1)
|
9,522
|
|
|
30
|
|
|
|
|
5
|
|
|
9,557
|
|
|
Raytheon Missiles & Defense(1)
|
11,608
|
|
|
52
|
|
|
|
|
—
|
|
|
11,660
|
|
|
Total Segments
|
54,264
|
|
|
82
|
|
|
|
|
31
|
|
|
54,377
|
|
|
Eliminations and other
|
21
|
|
|
—
|
|
|
|
|
(4)
|
|
|
17
|
|
|
Total
|
$
|
54,285
|
|
|
$
|
82
|
|
|
|
|
$
|
27
|
|
|
$
|
54,394
|
|
(1) In connection with the previously announced January 1, 2021 reorganization of RIS and RMD, goodwill of $282 million was allocated from RMD to RIS on a relative fair value basis and is reflected in the revised balances at January 1, 2021.
The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. We did not have a triggering event in the six months ended June 30, 2021.
We considered the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic to be a triggering event in the first and second quarters of 2020, requiring an impairment evaluation of goodwill, intangible assets and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney. Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of original equipment manufacturer (OEM) production schedules and we experienced significant unfavorable EAC adjustments at our Collins Aerospace and Pratt & Whitney businesses due to a decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries. These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our future sales and cash flows expectations.
In the second quarter of 2020, we evaluated the Collins Aerospace and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins Aerospace reporting units exceeded the sum of discounted future cash flows, resulting in aggregate goodwill impairments of $3.2 billion. For additional discussion, see “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 8 of our 2020 Annual Report on Form 10-K.
The Company continuously monitors and evaluates relevant events and circumstances that could negatively impact the key assumptions in determining the fair value of goodwill, including long-term revenue growth projections, profitability, discount rates, including changes to U.S. treasury rates and equity risk premiums, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, including significant future negative developments in the COVID-19 pandemic, or future changes in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, including the expected long-term recovery of airline travel to pre-COVID-19 levels, would require the Company to record a non-cash impairment charge.
Intangible Assets. Identifiable intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(dollars in millions)
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Amortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and trademarks
|
$
|
49
|
|
|
$
|
(36)
|
|
|
$
|
48
|
|
|
$
|
(35)
|
|
|
Collaboration assets
|
5,081
|
|
|
(1,069)
|
|
|
5,021
|
|
|
(1,024)
|
|
|
Exclusivity assets
|
2,633
|
|
|
(316)
|
|
|
2,541
|
|
|
(295)
|
|
|
Developed technology and other
|
943
|
|
|
(387)
|
|
|
906
|
|
|
(316)
|
|
|
Customer relationships
|
30,264
|
|
|
(6,360)
|
|
|
30,241
|
|
|
(5,262)
|
|
|
|
38,970
|
|
|
(8,168)
|
|
|
38,757
|
|
|
(6,932)
|
|
|
Unamortized:
|
|
|
|
|
|
|
|
|
Trademarks and other
|
8,721
|
|
|
—
|
|
|
8,714
|
|
|
—
|
|
|
Total
|
$
|
47,691
|
|
|
$
|
(8,168)
|
|
|
$
|
47,471
|
|
|
$
|
(6,932)
|
|
Given the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic, we performed an assessment of our unamortized intangible assets in the first and second quarters of 2020 and recorded charges of $17 million and $57 million in the quarter and six months ended June 30, 2020, respectively related to the impairment of a Collins Aerospace indefinite-lived tradename intangible assets. We will continue to evaluate the impact on our customers and our business in future periods which may result in a different conclusion.
Amortization of intangible assets for the quarters and six months ended June 30, 2021 and 2020 were $602 million and $1,198 million and $600 million and $907 million, respectively. The following is the expected amortization of intangible assets for the years 2021 through 2026.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Remaining 2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026
|
|
Amortization expense
|
|
$
|
1,257
|
|
|
$
|
1,955
|
|
|
$
|
2,080
|
|
|
$
|
2,130
|
|
|
$
|
2,037
|
|
|
$
|
1,977
|
|
Note 3: Discontinued Operations
As discussed above, the Separation Transactions and Distributions were completed on April 3, 2020 resulting in, among other things, UTC (since renamed Raytheon Technologies Corporation), being separated into three independent, publicly traded companies – UTC, Carrier and Otis.
Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Income (loss) from discontinued operations attributable to common shareowners is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Otis
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
187
|
|
|
Carrier
|
—
|
|
|
—
|
|
|
—
|
|
|
196
|
|
|
Separation related transactions (1)
|
(8)
|
|
|
9
|
|
|
(27)
|
|
|
(895)
|
|
|
Income (loss) from discontinued operations attributable to common shareowners
|
$
|
(8)
|
|
|
$
|
9
|
|
|
$
|
(27)
|
|
|
$
|
(512)
|
|
(1) Reflects debt extinguishment costs in the quarter and six months ended June 30, 2020 related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon Merger Agreement, and unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.
The following summarized financial information related to discontinued operations has been reclassified from Income from continuing operations attributable to common shareowners and included in Income (loss) from discontinued operations attributable to common shareowners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Otis
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,123
|
|
|
Service sales
|
—
|
|
|
—
|
|
|
—
|
|
|
1,843
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
913
|
|
|
Cost of services sold
|
—
|
|
|
—
|
|
|
—
|
|
|
1,157
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
Selling, general and administrative expense
|
—
|
|
|
—
|
|
|
—
|
|
|
450
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
—
|
|
|
(65)
|
|
|
Non-operating (income) expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Income from discontinued operations, before tax
|
—
|
|
|
—
|
|
|
—
|
|
|
340
|
|
|
Income tax expense from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
116
|
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
224
|
|
|
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
Income from discontinued operations attributable to common shareowners
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
187
|
|
|
Carrier
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,144
|
|
|
Service sales
|
—
|
|
|
—
|
|
|
—
|
|
|
740
|
|
|
Cost of products sold
|
—
|
|
|
—
|
|
|
—
|
|
|
2,239
|
|
|
Cost of services sold
|
—
|
|
|
—
|
|
|
—
|
|
|
527
|
|
|
Research and development
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
Selling, general and administrative expense
|
—
|
|
|
—
|
|
|
—
|
|
|
669
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
|
Non-operating (income) expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
Income from discontinued operations, before tax
|
—
|
|
|
—
|
|
|
—
|
|
|
304
|
|
|
Income tax expense from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
102
|
|
|
Net income from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
202
|
|
|
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
Income from discontinued operations attributable to common shareowners
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
196
|
|
|
Separation related transactions (1)
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
$
|
10
|
|
|
$
|
13
|
|
|
30
|
|
|
$
|
167
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating expense, net
|
—
|
|
|
43
|
|
|
—
|
|
|
709
|
|
|
Loss from discontinued operations, before tax
|
(10)
|
|
|
(56)
|
|
|
(30)
|
|
|
(876)
|
|
|
Income tax (benefit) expense from discontinued operations
|
(2)
|
|
|
(65)
|
|
|
(3)
|
|
|
19
|
|
|
Net income (loss) from discontinued operations
|
(8)
|
|
|
9
|
|
|
(27)
|
|
|
(895)
|
|
|
Total income (loss) from discontinued operations attributable to common shareowners
|
$
|
(8)
|
|
|
$
|
9
|
|
|
$
|
(27)
|
|
|
$
|
(512)
|
|
(1) Reflects debt extinguishment costs in the quarter and six months ended June 30, 2020 related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon Merger Agreement, and unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.
Selected financial information related to cash flows from discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Net cash used in operating activities
|
$
|
(24)
|
|
|
$
|
(661)
|
|
|
Net cash used in investing activities
|
—
|
|
|
(241)
|
|
|
Net cash provided by (used in) financing activities
|
24
|
|
|
(1,481)
|
|
Net cash used in operating activities for the six months ended June 30, 2020 includes the net operating cash flows of Carrier and Otis prior to the Separation Transactions, as well as costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities. Net cash used in financing activities for the six months ended June 30, 2020 primarily consists of cash distributed by the Company to Carrier and Otis upon separation and debt extinguishment costs related to the early repayment of debt.
Note 4: Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars and shares in millions, except per share amounts)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income (loss) attributable to common shareowners:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
1,040
|
|
|
$
|
(3,844)
|
|
|
$
|
1,812
|
|
|
$
|
(3,406)
|
|
|
Income (loss) from discontinued operations
|
(8)
|
|
|
9
|
|
|
(27)
|
|
|
(512)
|
|
|
Net income (loss) attributable to common shareowners
|
$
|
1,032
|
|
|
$
|
(3,835)
|
|
|
$
|
1,785
|
|
|
$
|
(3,918)
|
|
|
Basic weighted average number of shares outstanding
|
1,506.4
|
|
|
1,501.3
|
|
|
1,508.7
|
|
|
1,225.4
|
|
|
Stock awards and equity units (share equivalent)
|
7.1
|
|
|
—
|
|
|
5.0
|
|
|
—
|
|
|
Diluted weighted average number of shares outstanding
|
1,513.5
|
|
|
1,501.3
|
|
|
1,513.7
|
|
|
1,225.4
|
|
|
Earnings (Loss) Per Share attributable to common shareowners - Basic:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
0.69
|
|
|
$
|
(2.56)
|
|
|
$
|
1.20
|
|
|
$
|
(2.78)
|
|
|
Income (loss) from discontinued operations
|
—
|
|
|
0.01
|
|
|
(0.02)
|
|
|
(0.42)
|
|
|
Net income (loss) attributable to common shareowners
|
$
|
0.69
|
|
|
$
|
(2.55)
|
|
|
$
|
1.18
|
|
|
$
|
(3.20)
|
|
|
Earnings (Loss) Per Share attributable to common shareowners - Diluted:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
0.69
|
|
|
$
|
(2.56)
|
|
|
$
|
1.20
|
|
|
$
|
(2.78)
|
|
|
Income (loss) from discontinued operations
|
(0.01)
|
|
|
0.01
|
|
|
(0.02)
|
|
|
(0.42)
|
|
|
Net income (loss) attributable to common shareowners
|
$
|
0.68
|
|
|
$
|
(2.55)
|
|
|
$
|
1.18
|
|
|
$
|
(3.20)
|
|
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 exercise of stock awards when the awards’ assumed proceeds exceed the average market price of the common shares during the period. For the quarter and six months ended June 30, 2021, the number of stock awards excluded from the computation was 11.2 million and 19.0 million, respectively. For the quarter and six months ended June 30, 2020, all stock awards were excluded from the computation of diluted EPS because their effect was antidilutive due to the loss from continuing operations, and amounted to 36.6 million and 53.3 million stock awards, respectively.
Note 5: Changes in Contract Estimates at Completion
We review our Estimates at Completion (EACs) on significant contracts on a periodic basis and for others, no less than annually or when a change in circumstances warrant a modification to a previous estimate. 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’s judgment related to these considerations has become increasingly more significant given the current economic environment primarily caused by the COVID-19 pandemic. Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. Cost estimates may also include the estimated cost of satisfying our industrial cooperation agreements, sometimes in the form of either offset obligations or in-country industrial participation (ICIP) agreements, required under certain contracts primarily within our RIS and RMD segments. 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 loss provisions for our contracts accounted for on a percentage of completion basis.
Net EAC adjustments had the following impact on our operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions, except per share amounts)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating profit (loss)
|
|
$
|
27
|
|
|
$
|
(151)
|
|
|
$
|
39
|
|
|
$
|
(130)
|
|
|
Income (loss) from continuing operations attributable to common shareowners(1)
|
|
22
|
|
|
(119)
|
|
|
31
|
|
|
(103)
|
|
|
Diluted earnings (loss) per share from continuing operations attributable to common shareholders (1)
|
|
$
|
0.01
|
|
|
$
|
(0.08)
|
|
|
$
|
0.02
|
|
|
$
|
(0.08)
|
|
(1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments.
In the quarters ended June 30, 2021 and 2020, revenue was increased by $73 million and reduced by $218 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods. In the six months ended June 30, 2021 and 2020, revenue was increased by $125 million and reduced by $201 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods. This primarily relates to EAC adjustments that impacted revenue.
As a result of the Raytheon Merger, Raytheon Company’s contracts accounted for on a percentage of completion basis were reset to zero percent complete as of the merger date, since only the unperformed portion of the contract at such date represents the obligation of the Company. For additional information related to the Raytheon Merger, see “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets.”
Note 6: Accounts Receivable, Net
Accounts receivable, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Accounts receivable
|
$
|
9,431
|
|
|
$
|
9,800
|
|
|
Allowance for expected credit losses
|
(519)
|
|
|
(546)
|
|
|
Total accounts receivable, net
|
$
|
8,912
|
|
|
$
|
9,254
|
|
The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Under these arrangements, the Company factored receivables of $3.4 billion and $3.8 billion during the six months ended June 30, 2021 and 2020, respectively. The cash received from these arrangements is reflected as cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. At June 30, 2021 and December 31, 2020, the Company had $7 million and $10 million, respectively, that was collected on behalf of the financial institutions and recorded as restricted cash and accrued liabilities. The net cash flows relating to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows.
The changes in the allowance for expected credit losses related to Accounts receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
Balance as of January 1
|
$
|
546
|
|
|
$
|
254
|
|
|
Current period provision for expected credit losses, net of recoveries (1)
|
(16)
|
|
|
225
|
|
|
Write-offs charged against the allowance for expected credit losses
|
(11)
|
|
|
(3)
|
|
|
Other, net(2)
|
—
|
|
|
18
|
|
|
Balance as of June 30
|
$
|
519
|
|
|
$
|
494
|
|
(1) The current provision for expected credit losses for the six months ended June 30, 2020 includes $194 million of reserves driven by customer bankruptcies and additional reserves for credit losses primarily due to the current economic environment primarily caused by the COVID-19 pandemic.
(2) Other, net for the six months ended June 30, 2020 includes a $34 million impact related to the January 1, 2020 adoption of Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Note 7: 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 as of June 30, 2021 and December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Contract assets
|
$
|
10,485
|
|
|
$
|
9,931
|
|
|
Contract liabilities
|
(12,591)
|
|
|
(12,889)
|
|
|
Net contract liabilities
|
$
|
(2,106)
|
|
|
$
|
(2,958)
|
|
Contract assets increased $554 million during the six months ended June 30, 2021 primarily due to sales in excess of billings at Pratt & Whitney. Contract liabilities decreased $298 million during the six months ended June 30, 2021 primarily due to $364 million of contract liability reduction related to a contract termination at Collins Aerospace and revenue recognized on certain international contracts with advances at RMD, partially offset by billings in excess of sales at Pratt & Whitney. We recognized revenue of $1,021 million and $2,726 million during the quarter and six months ended June 30, 2021, respectively, related to contract liabilities as of January 1, 2021 and $625 million and $1,808 million during the quarter and six months ended June 30, 2020, respectively, related to contract liabilities as of January 1, 2020.
As of June 30, 2021, our contract liabilities include approximately $440 million of advance payments received from a certain 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 $247 million and $177 million as of June 30, 2021 and December 31, 2020, respectively.
Note 8: Inventory, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Raw materials
|
$
|
2,973
|
|
|
$
|
3,015
|
|
|
Work-in-process
|
3,307
|
|
|
2,924
|
|
|
Finished goods
|
3,268
|
|
|
3,472
|
|
|
Total inventory, net
|
$
|
9,548
|
|
|
$
|
9,411
|
|
Raw materials, work-in-process and finished goods are net of total valuation reserves of $1,878 million and $1,788 million as of June 30, 2021 and December 31, 2020, respectively.
Note 9: Borrowings and Lines of Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Commercial paper
|
$
|
160
|
|
|
$
|
160
|
|
|
Other borrowings
|
36
|
|
|
87
|
|
|
Total short-term borrowings
|
$
|
196
|
|
|
$
|
247
|
|
As of June 30, 2021, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments and repurchases of our common stock. The commercial paper notes outstanding have original maturities of not more than 90 days from the date of issuance.
In May 2021, we renewed our $2.0 billion revolving credit agreement, which now expires in May 2022. As of June 30, 2021, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion consisting of a $5.0 billion revolving credit agreement that became available upon completion of the Raytheon Merger on April 3, 2020, and the $2.0 billion revolving credit agreement that we renewed in May 2021 and there were no borrowings outstanding under these agreements.
We did not issue long-term debt during the six months ended June 30, 2021.
In June 2020, we completed an exchange offer of outstanding subsidiary notes with an aggregate principal amount of approximately $8.2 billion in exchange for approximately $8.2 billion of Raytheon Technologies notes with identical interest rates, maturity dates, and redemption provisions.
In preparation for and in anticipation of the Separation Transactions and Distributions, the Company, Carrier and Otis issued and the Company repaid long-term debt in the six months ended June 30, 2020, which are included in the tables below.
We had the following issuances of long-term debt during the six months ended June 30, 2020, which is inclusive of issuances made by Carrier and Otis prior to the Distributions, the proceeds of which were primarily used by the Company to extinguish Raytheon Technologies short-term and long-term debt, and therefore, these issuances were treated as a distribution from discontinued operations within financing activities from continuing operations on our Condensed Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date
|
Description of Notes
|
Aggregate Principal Balance (in millions)
|
|
|
May 18, 2020
|
2.250% notes due 2030
|
$
|
1,000
|
|
|
|
|
3.125% notes due 2050
|
1,000
|
|
|
|
March 27, 2020
|
Term Loan due 2023 (Otis) (1)
|
1,000
|
|
|
|
|
Term Loan due 2023 (Carrier) (1)
|
1,750
|
|
|
|
February 27, 2020
|
1.923% notes due 2023 (1)
|
500
|
|
|
|
|
LIBOR plus 0.450% floating rate notes due 2023 (1)
|
500
|
|
|
|
|
2.056% notes due 2025 (1)
|
1,300
|
|
|
|
|
2.242% notes due 2025 (1)
|
2,000
|
|
|
|
|
2.293% notes due 2027 (1)
|
500
|
|
|
|
|
2.493% notes due 2027 (1)
|
1,250
|
|
|
|
|
2.565% notes due 2030 (1)
|
1,500
|
|
|
|
|
2.722% notes due 2030 (1)
|
2,000
|
|
|
|
|
3.112% notes due 2040 (1)
|
750
|
|
|
|
|
3.377% notes due 2040 (1)
|
1,500
|
|
|
|
|
3.362% notes due 2050 (1)
|
750
|
|
|
|
|
3.577% notes due 2050 (1)
|
2,000
|
|
|
|
|
|
|
(1) The debt issuances and term loan draws reflect debt incurred by Carrier and Otis. The net proceeds of these issuances were primarily utilized to extinguish Raytheon Technologies short-term and long-term debt in order to not exceed the maximum applicable net indebtedness required by the Raytheon Merger Agreement.
We made the following repayments of long-term debt during the six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
Repayment Date
|
Description of Notes
|
Aggregate Principal Balance (in millions)
|
|
March 1, 2021
|
8.750% notes due 2021
|
$
|
250
|
|
|
May 19, 2020
|
3.650% notes due 2023 (1)(2)
|
410
|
|
|
May 15, 2020
|
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)(2)
|
817
|
|
|
March 29, 2020
|
4.500% notes due 2020 (1)(2)
|
1,250
|
|
|
|
1.125% notes due 2021 (€950 million principal value) (1)(2)
|
1,082
|
|
|
|
1.250% notes due 2023 (€750 million principal value) (1)(2)
|
836
|
|
|
|
1.150% notes due 2024 (€750 million principal value) (1)(2)
|
841
|
|
|
|
1.875% notes due 2026 (€500 million principal value) (1)(2)
|
567
|
|
|
March 3, 2020
|
1.900% notes due 2020 (1)(2)
|
1,000
|
|
|
|
3.350% notes due 2021 (1)(2)
|
1,000
|
|
|
|
LIBOR plus 0.650% floating rate notes due 2021 (1)(2)
|
750
|
|
|
|
1.950% notes due 2021 (1)(2)
|
750
|
|
|
|
2.300% notes due 2022 (1)(2)
|
500
|
|
|
|
3.100% notes due 2022 (1)(2)
|
2,300
|
|
|
|
2.800% notes due 2024 (1)(2)
|
800
|
|
|
March 2, 2020
|
4.875% notes due 2020 (1)(2)
|
171
|
|
|
February 28, 2020
|
3.650% notes due 2023 (1)(2)
|
1,669
|
|
|
|
2.650% notes due 2026 (1)(2)
|
431
|
|
|
|
|
(1) In connection with the early repayment of outstanding principal, Raytheon Technologies recorded debt extinguishment costs of $43 million and $703 million for the quarter and six months ended June 30, 2020, which are classified as discontinued operations in our Condensed Consolidated Statement of Operations as we would not have had to redeem the debt, except for the Separation Transactions. No proceeds of the notes issued May 18, 2020 were used to fund the May 19, 2020 redemption.
(2) Extinguishment of Raytheon Technologies short-term and long-term debt in order to not exceed the maximum net indebtedness required by the Raytheon Merger Agreement.
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
8.750% notes due 2021
|
$
|
—
|
|
|
$
|
250
|
|
|
3.100% notes due 2021
|
250
|
|
|
250
|
|
|
2.800% notes due 2022
|
1,100
|
|
|
1,100
|
|
|
2.500% notes due 2022 (2)
|
1,100
|
|
|
1,100
|
|
|
3.650% notes due 2023 (1)
|
171
|
|
|
171
|
|
|
3.700% notes due 2023
|
400
|
|
|
400
|
|
|
3.200% notes due 2024
|
950
|
|
|
950
|
|
|
3.150% notes due 2024 (2)
|
300
|
|
|
300
|
|
|
3.950% notes due 2025 (1)
|
1,500
|
|
|
1,500
|
|
|
2.650% notes due 2026 (1)
|
719
|
|
|
719
|
|
|
3.125% notes due 2027 (1)
|
1,100
|
|
|
1,100
|
|
|
3.500% notes due 2027
|
1,300
|
|
|
1,300
|
|
|
7.200% notes due 2027 (2)
|
382
|
|
|
382
|
|
|
7.100% notes due 2027
|
141
|
|
|
141
|
|
|
6.700% notes due 2028
|
400
|
|
|
400
|
|
|
7.000% notes due 2028 (2)
|
185
|
|
|
185
|
|
|
4.125% notes due 2028 (1)
|
3,000
|
|
|
3,000
|
|
|
7.500% notes due 2029 (1)
|
550
|
|
|
550
|
|
|
2.150% notes due 2030 (€500 million principal value) (1)
|
598
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.250% notes due 2030 (1)
|
1,000
|
|
|
1,000
|
|
|
5.400% notes due 2035 (1)
|
600
|
|
|
600
|
|
|
6.050% notes due 2036 (1)
|
600
|
|
|
600
|
|
|
6.800% notes due 2036 (1)
|
134
|
|
|
134
|
|
|
7.000% notes due 2038
|
159
|
|
|
159
|
|
|
6.125% notes due 2038 (1)
|
1,000
|
|
|
1,000
|
|
|
4.450% notes due 2038 (1)
|
750
|
|
|
750
|
|
|
5.700% notes due 2040 (1)
|
1,000
|
|
|
1,000
|
|
|
4.875% notes due 2040 (2)
|
600
|
|
|
600
|
|
|
4.700% notes due 2041 (2)
|
425
|
|
|
425
|
|
|
4.500% notes due 2042 (1)
|
3,500
|
|
|
3,500
|
|
|
4.800% notes due 2043
|
400
|
|
|
400
|
|
|
4.200% notes due 2044 (2)
|
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
|
1,000
|
|
|
1,000
|
|
|
4.625% notes due 2048 (1)
|
1,750
|
|
|
1,750
|
|
|
3.125% notes due 2050 (1)
|
1,000
|
|
|
1,000
|
|
|
Other (including finance leases)
|
273
|
|
|
292
|
|
|
Total principal long-term debt
|
31,187
|
|
|
31,470
|
|
|
Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs)
|
99
|
|
|
106
|
|
|
Total long-term debt
|
31,286
|
|
|
31,576
|
|
|
Less: current portion
|
1,370
|
|
|
550
|
|
|
Long-term debt, net of current portion
|
$
|
29,916
|
|
|
$
|
31,026
|
|
(1) We may redeem these notes at our option pursuant to their terms.
(2) Debt assumed in the Raytheon Merger.
The average maturity of our long-term debt at June 30, 2021 is approximately 14 years. The average interest expense rate on our total borrowings for the quarters and six months ended June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Average interest expense rate
|
4.2
|
%
|
|
3.8
|
%
|
|
4.1
|
%
|
|
3.8
|
%
|
Note 10: 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.
On April 3, 2020, UTC completed the Separation Transactions, which included the transfer of certain defined benefit plans from UTC to Carrier and Otis. The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies. Upon separation, the pension participants within Carrier and Otis were effectively terminated from Raytheon Technologies. The terminations triggered a mid-year remeasurement of the UTC domestic plans. The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020 (using March 31, 2020 as a practical expedient), resulted in a $2.4 billion increase to our pension liability in the quarter ended June 30, 2020, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019. All service cost previously associated with Carrier and Otis was reclassified to discontinued operations. For non-service pension (income) expense and pension liabilities, generally only the portions related to the defined benefit plans transferred to Carrier and Otis as part of the Separation Transactions were reclassified to discontinued operations.
Raytheon Company has both funded and unfunded domestic and foreign defined benefit pension and PRB plans. As of the merger date, the Raytheon Company plans were remeasured at fair value using accounting policies consistent with the UTC plans. The deferred pension and PRB plan losses included in Raytheon Company’s accumulated other comprehensive income
(loss) as of the merger date were eliminated and are no longer subject to amortization in net periodic benefit (income) expense. Amounts prior to the merger date of April 3, 2020 do not include the Raytheon Company pension plan results.
Contributions to our plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
U.S. qualified defined benefit plans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
International defined benefit plans
|
14
|
|
|
34
|
|
|
21
|
|
|
42
|
|
|
PRB plans
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Defined contribution plans
|
238
|
|
|
227
|
|
|
509
|
|
|
440
|
|
The amounts recognized in the Condensed Consolidated Balance Sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Noncurrent pension assets (included in Other assets)
|
$
|
1,069
|
|
|
$
|
424
|
|
|
Current pension and PRB liabilities (included in Accrued employee compensation)
|
314
|
|
|
314
|
|
|
Future pension and postretirement benefit obligations
|
9,929
|
|
|
10,342
|
|
The amounts recognized in Future pension and postretirement benefit obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
June 30, 2021
|
|
December 31, 2020
|
|
Noncurrent pension liabilities
|
$
|
8,805
|
|
|
$
|
9,131
|
|
|
Noncurrent PRB liabilities
|
1,058
|
|
|
1,072
|
|
|
Other pension and PRB related items
|
66
|
|
|
139
|
|
|
Future pension and postretirement benefit obligations
|
$
|
9,929
|
|
|
$
|
10,342
|
|
The following table illustrates the components of net periodic benefit (income) expense for our defined pension and PRB plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
Quarter Ended June 30,
|
|
PRB
Quarter Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating expense
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
131
|
|
|
$
|
142
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Non-operating expense
|
|
|
|
|
|
|
|
|
Interest cost
|
313
|
|
|
452
|
|
|
6
|
|
|
10
|
|
|
Expected return on plan assets
|
(871)
|
|
|
(814)
|
|
|
(5)
|
|
|
(4)
|
|
|
Amortization of prior service cost (credit)
|
(42)
|
|
|
13
|
|
|
(1)
|
|
|
(1)
|
|
|
Recognized actuarial net loss (gain)
|
109
|
|
|
83
|
|
|
(2)
|
|
|
(3)
|
|
|
Net settlement, curtailment and special termination benefit loss
|
3
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
Non-service pension (income) expense
|
(488)
|
|
|
(239)
|
|
|
(2)
|
|
|
2
|
|
|
Total net periodic benefit (income) expense
|
$
|
(357)
|
|
|
$
|
(97)
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
Six Months Ended June 30,
|
|
PRB
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating expense
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
262
|
|
|
$
|
179
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
Non-operating expense
|
|
|
|
|
|
|
|
|
Interest cost
|
625
|
|
|
705
|
|
|
12
|
|
|
16
|
|
|
Expected return on plan assets
|
(1,739)
|
|
|
(1,335)
|
|
|
(10)
|
|
|
(5)
|
|
|
Amortization of prior service cost (credit)
|
(84)
|
|
|
26
|
|
|
(2)
|
|
|
(2)
|
|
|
Recognized actuarial net loss (gain)
|
218
|
|
|
169
|
|
|
(4)
|
|
|
(6)
|
|
|
Net settlement, curtailment and special termination benefit loss
|
3
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
Non-service pension (income) expense
|
(977)
|
|
|
(408)
|
|
|
(4)
|
|
|
3
|
|
|
Total net periodic benefit (income) expense
|
$
|
(715)
|
|
|
$
|
(229)
|
|
|
$
|
—
|
|
|
$
|
6
|
|
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)
|
June 30, 2021
|
|
December 31, 2020
|
|
Marketable securities held in trusts
|
$
|
908
|
|
|
$
|
881
|
|
Note 11: Income Taxes
Our effective tax rate was 23.9% and 1.0% in the quarters ended June 30, 2021 and 2020, respectively. Tax expense in the quarter ended June 30, 2021 includes tax charges of $73 million associated with the revaluation of deferred taxes resulting from the increase in the United Kingdom (U.K.) corporate tax rate to 25% effective in 2023. The loss from continuing operations before income taxes for the quarter ended June 30, 2020 includes the $3.2 billion goodwill impairment as described in “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which is non-deductible for tax purposes. Tax expense in the quarter ended June 30, 2020 includes tax charges of $60 million related to the June 2020 debt exchange, and tax charges of $46 million associated with a revaluation of certain international tax incentives.
Our effective tax rate was 26.5% and (22.0)% in the six months ended June 30, 2021 and 2020, respectively. Tax expense in the six months ended June 30, 2021 includes tax charges of $148 million associated with the sale of the Forcepoint business and the tax charges of $73 million associated with the enactment of the U.K. corporate tax rate change discussed above. The loss from continuing operations before income taxes for the six months ended June 30, 2020 includes the $3.2 billion goodwill impairment as described in “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which is non-deductible for tax purposes. Tax expense in the six months ended June 30, 2020 includes tax charges of $415 million resulting from the Separation Transactions or the Raytheon Merger, primarily related to the impairment of deferred tax assets, tax charges of $60 million related to the June 2020 debt exchange, and tax charges of $46 million associated with a revaluation of certain international tax incentives.
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 2012.
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 $35 million to $410 million of unrecognized tax benefits may occur within the next 12 months as a result of the revaluation of uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts, or the closure of tax statutes. Interest recognized during the quarters ended June 30, 2021 and 2020 was $10 million and $11 million, respectively. Interest recognized during the six months ended June 30, 2021 and 2020 was
$19 million and $22 million, respectively. Accrued interest on unrecognized tax benefits was $154 million and $141 million, at June 30, 2021 and December 31, 2020, respectively.
Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law. In making these determinations, we applied the tax law in the relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to the concluded tax treatment. If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.
The Examination Division of the Internal Revenue Service (IRS) is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax periods 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon Merger.
The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close in the next six to nine months. As a result of the projected closure of the audit of Rockwell Collins fiscal tax years 2016 and 2017, it is reasonably possible that the Company may recognize non-cash gains in the range of $20 million to $100 million in the next six to nine months.
Note 12: Restructuring Costs
Restructuring costs are generally expensed as incurred. All U.S. government unallowable restructuring costs related to the Raytheon Merger are recorded within Corporate expenses and other unallocated items, as these costs are not included in management’s evaluation of the segments’ performance, and as a result, there are no unallowable restructuring costs at the RIS and RMD segments. During the quarter and six months ended June 30, 2021, we recorded net pre-tax restructuring costs totaling $56 million and $99 million, respectively, for new and ongoing restructuring actions.
We recorded and reversed charges in the segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Quarter Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
Pratt & Whitney
|
$
|
(16)
|
|
|
$
|
4
|
|
|
Collins Aerospace Systems
|
12
|
|
|
30
|
|
|
Corporate expenses and other unallocated items
|
60
|
|
|
65
|
|
|
|
|
|
|
|
Total
|
$
|
56
|
|
|
$
|
99
|
|
Restructuring charges incurred during the quarter and six months ended June 30, 2021 primarily relate to actions initiated during 2021 and 2020, and were recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Quarter Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
Cost of sales
|
$
|
1
|
|
|
$
|
21
|
|
|
Selling, general and administrative
|
55
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
56
|
|
|
$
|
99
|
|
2021 Actions. During the quarter ended June 30, 2021, we recorded net pre-tax restructuring costs of $65 million, comprised of $61 million in Selling, general and administrative expenses and $4 million in Cost of sales. During the six months ended June 30, 2021, we recorded net pre-tax restructuring costs of $101 million, comprised of $76 million in Selling, general and administrative expenses and $25 million in Cost of sales. The 2021 actions primarily relate to ongoing cost reduction efforts including workforce reductions and the consolidation of facilities.
The following table summarizes the accrual balance and utilization for the 2021 restructuring actions for the quarter and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Severance
|
|
Facility Exit and Other Costs
|
|
Total
|
|
Quarter Ended June 30, 2021
|
|
|
|
|
|
|
Restructuring accruals at March 31, 2021
|
$
|
23
|
|
|
$
|
9
|
|
|
$
|
32
|
|
|
Net pre-tax restructuring costs
|
63
|
|
|
2
|
|
|
65
|
|
|
Utilization, foreign exchange and other costs
|
(25)
|
|
|
(2)
|
|
|
(27)
|
|
|
Balance at June 30, 2021
|
$
|
61
|
|
|
$
|
9
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net pre-tax restructuring costs
|
87
|
|
|
14
|
|
|
101
|
|
|
Utilization, foreign exchange and other costs
|
(26)
|
|
|
(5)
|
|
|
(31)
|
|
|
Balance at June 30, 2021
|
$
|
61
|
|
|
$
|
9
|
|
|
$
|
70
|
|
The following table summarizes expected, incurred and remaining costs for the 2021 restructuring actions by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Expected
Costs
|
|
Costs Incurred Quarter Ended March 31, 2021
|
|
Costs Incurred Quarter Ended June 30, 2021
|
|
|
|
Remaining Costs at June 30, 2021
|
|
Pratt & Whitney
|
$
|
25
|
|
|
$
|
(20)
|
|
|
$
|
(2)
|
|
|
|
|
$
|
3
|
|
|
Collins Aerospace Systems
|
62
|
|
|
(16)
|
|
|
(3)
|
|
|
|
|
43
|
|
|
Corporate expenses and other unallocated items
|
60
|
|
|
—
|
|
|
(60)
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
147
|
|
|
$
|
(36)
|
|
|
$
|
(65)
|
|
|
|
|
$
|
46
|
|
We are targeting to complete the majority of the remaining workforce and facility related cost reduction actions during 2021 and 2022.
2020 Actions. During the quarter ended June 30, 2021, we reversed a net $24 million of pre-tax restructuring costs for restructuring actions initiated in 2020, including a reversal of $18 million in Selling, general and administrative expenses and a reversal of $6 million in Cost of sales. During the six months ended June 30, 2021, we reversed $20 million net pre-tax restructuring costs for restructuring actions initiated in 2020, including a reversal of $12 million in Selling, general and administrative expenses and a reversal of $8 million in Cost of sales. The 2020 actions primarily relate to severance and restructuring actions at Pratt & Whitney and Collins Aerospace in response to the impact on our operating results related to the economic environment primarily caused by the COVID-19 pandemic, the Raytheon Merger, and ongoing cost reduction efforts including workforce reductions and consolidation of field operations.
The following table summarizes the accrual balances and utilization for the 2020 restructuring actions for the quarter and six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Severance
|
|
Facility Exit, and Other Costs
|
|
Total
|
|
Quarter Ended June 30, 2021
|
|
|
|
|
|
|
Restructuring accruals at March 31, 2021
|
$
|
205
|
|
|
$
|
4
|
|
|
$
|
209
|
|
|
Net pre-tax restructuring costs
|
(27)
|
|
|
3
|
|
|
(24)
|
|
|
Utilization, foreign exchange and other costs
|
(105)
|
|
|
46
|
|
|
(59)
|
|
|
Balance at June 30, 2021
|
$
|
73
|
|
|
$
|
53
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
Restructuring accruals at December 31, 2020
|
$
|
334
|
|
|
$
|
6
|
|
|
$
|
340
|
|
|
Net pre-tax restructuring costs
|
(26)
|
|
|
6
|
|
|
(20)
|
|
|
Utilization, foreign exchange and other costs
|
(235)
|
|
|
41
|
|
|
(194)
|
|
|
Balance at June 30, 2021
|
$
|
73
|
|
|
$
|
53
|
|
|
$
|
126
|
|
The following table summarizes expected, incurred, and remaining costs for the 2020 restructuring actions by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Expected
Costs
|
|
Costs Incurred in 2020
|
|
Costs (Incurred) Reversed Quarter Ended March 31, 2021
|
|
Costs (Incurred) Reversed Quarter Ended June 30, 2021
|
|
|
|
Remaining Costs at June 30, 2021
|
|
Pratt & Whitney
|
$
|
188
|
|
|
$
|
(205)
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
|
|
$
|
—
|
|
|
Collins Aerospace Systems
|
334
|
|
|
(333)
|
|
|
1
|
|
|
7
|
|
|
|
|
9
|
|
|
Corporate expenses and other unallocated items
|
237
|
|
|
(232)
|
|
|
(5)
|
|
|
—
|
|
|
|
|
—
|
|
|
Total
|
$
|
759
|
|
|
$
|
(770)
|
|
|
$
|
(4)
|
|
|
$
|
24
|
|
|
|
|
$
|
9
|
|
2019 and Prior Actions. During the quarter and six months ended June 30, 2021, we had net pre-tax restructuring costs of $15 million and $18 million, respectively, for restructuring actions initiated in 2019 and prior. As of June 30, 2021, we have approximately $31 million of accrual balances remaining related to 2019 and prior actions.
Note 13: 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 aggregate notional amount of our outstanding foreign currency hedges was $9.3 billion and $11.6 billion at June 30, 2021 and December 31, 2020, respectively.
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Balance Sheet Location
|
June 30, 2021
|
|
December 31, 2020
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
Other assets, current
|
$
|
224
|
|
|
$
|
197
|
|
|
|
Other accrued liabilities
|
70
|
|
|
66
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign exchange contracts
|
Other assets, current
|
$
|
23
|
|
|
$
|
44
|
|
|
|
Other accrued liabilities
|
25
|
|
|
32
|
|
The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations for the quarters and six months ended June 30, 2021 and 2020 are presented in the table
below. The amounts of gain or loss are attributable to foreign exchange contract activity and are generally recorded as a component of Product sales when reclassified from Accumulated other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Gain (loss) recorded in Accumulated other comprehensive loss
|
$
|
108
|
|
|
$
|
188
|
|
|
$
|
62
|
|
|
$
|
(215)
|
|
|
(Gain) loss reclassified from Accumulated other comprehensive loss into Product sales
|
(20)
|
|
|
27
|
|
|
(34)
|
|
|
56
|
|
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 June 30, 2021, we have €500 million of euro-denominated long-term debt outstanding, which qualifies as a net investment hedge against our investments in European businesses, which is deemed to be effective.
Assuming current market conditions continue, $53 million of pre-tax gains are expected to be reclassified from Accumulated other comprehensive loss into Product sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At June 30, 2021, all derivative contracts accounted for as cash flow hedges will mature by January 2028.
The effect of derivatives not designated as hedging instruments within Other income, net, on the Condensed Consolidated Statement of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Gain (loss) on non-designated foreign exchange contracts
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
(8)
|
|
|
$
|
(29)
|
|
Note 14: 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 as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Marketable securities held in trusts
|
$
|
908
|
|
|
$
|
837
|
|
|
$
|
71
|
|
|
$
|
—
|
|
|
Derivative assets
|
247
|
|
|
—
|
|
|
247
|
|
|
—
|
|
|
Derivative liabilities
|
(95)
|
|
|
—
|
|
|
(95)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Marketable securities held in trusts
|
$
|
881
|
|
|
$
|
773
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
Derivative assets
|
241
|
|
|
—
|
|
|
241
|
|
|
—
|
|
|
Derivative liabilities
|
(98)
|
|
|
—
|
|
|
(98)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Techniques. Our available-for-sale securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets. 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 June 30, 2021, 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 at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(dollars in millions)
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Customer financing notes receivable
|
$
|
312
|
|
|
$
|
302
|
|
|
$
|
271
|
|
|
$
|
264
|
|
|
Short-term borrowings
|
(196)
|
|
|
(196)
|
|
|
(247)
|
|
|
(247)
|
|
|
Long-term debt (excluding finance leases)
|
(31,185)
|
|
|
(36,794)
|
|
|
(31,512)
|
|
|
(38,615)
|
|
|
Long-term liabilities
|
(32)
|
|
|
(30)
|
|
|
(27)
|
|
|
(25)
|
|
The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Condensed Consolidated Balance Sheet at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
(dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Customer financing notes receivable
|
$
|
302
|
|
|
$
|
—
|
|
|
$
|
302
|
|
|
$
|
—
|
|
|
Short-term borrowings
|
(196)
|
|
|
—
|
|
|
(160)
|
|
|
(36)
|
|
|
Long-term debt (excluding finance leases)
|
(36,794)
|
|
|
—
|
|
|
(36,740)
|
|
|
(54)
|
|
|
Long-term liabilities
|
(30)
|
|
|
—
|
|
|
(30)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(dollars in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Customer financing notes receivable
|
$
|
264
|
|
|
$
|
—
|
|
|
$
|
264
|
|
|
$
|
—
|
|
|
Short-term borrowings
|
(247)
|
|
|
—
|
|
|
(160)
|
|
|
(87)
|
|
|
Long-term debt (excluding finance leases)
|
(38,615)
|
|
|
—
|
|
|
(38,540)
|
|
|
(75)
|
|
|
Long-term liabilities
|
(25)
|
|
|
—
|
|
|
(25)
|
|
|
—
|
|
Note 15: 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 International Aero Engines, LLC (IAE LLC), whose business purpose is to coordinate the design, development, manufacturing and product support for the PW1100G-JM engine for the Airbus A320neo aircraft and the PW1400G-JM engine for the Irkut MC-21 aircraft. 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 Pratt & Whitney 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)
|
June 30, 2021
|
|
December 31, 2020
|
|
Current assets
|
$
|
5,989
|
|
|
$
|
6,652
|
|
|
Noncurrent assets
|
834
|
|
|
868
|
|
|
Total assets
|
$
|
6,823
|
|
|
$
|
7,520
|
|
|
Current liabilities
|
$
|
7,002
|
|
|
$
|
7,365
|
|
|
Noncurrent liabilities
|
61
|
|
|
89
|
|
|
Total liabilities
|
$
|
7,063
|
|
|
$
|
7,454
|
|
Note 16: Guarantees
We extend a variety of financial, market value and product performance guarantees to third parties. These instruments expire on various dates through 2024. Additional guarantees of project performance for which there is no stated value also remain outstanding. As of June 30, 2021 and December 31, 2020, the following guarantees were outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(dollars in millions)
|
Maximum Potential Payment
|
|
Carrying Amount of Liability
|
|
Maximum Potential Payment
|
|
Carrying Amount of Liability
|
|
Commercial aerospace financing arrangements
|
$
|
314
|
|
|
$
|
6
|
|
|
$
|
322
|
|
|
$
|
6
|
|
|
Third party guarantees
|
386
|
|
|
2
|
|
|
386
|
|
|
3
|
|
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 is $144 million and $142 million at June 30, 2021 and December 31, 2020, respectively.
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 $116 million and $120 million at June 30, 2021 and December 31, 2020, respectively. For additional information regarding the environmental indemnifications, see “Note 17: 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 six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2021
|
|
2020
|
|
Balance as of January 1
|
|
$
|
1,057
|
|
|
$
|
1,033
|
|
|
Warranties and performance guarantees issued
|
|
176
|
|
|
149
|
|
|
Settlements
|
|
(128)
|
|
|
(154)
|
|
|
Other
|
|
(3)
|
|
|
(20)
|
|
|
Balance as of June 30
|
|
$
|
1,102
|
|
|
$
|
1,008
|
|
Note 17: 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, financial condition, results of operations, 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 believe that the likelihood of incurring losses materially in excess of amounts accrued is remote. At June 30, 2021 and December 31, 2020, we had $834 million and $835 million, respectively, reserved for environmental remediation.
Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $13.3 billion and $13.4 billion as of June 30, 2021 and December 31, 2020, 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. Our financing commitments with customers are contingent upon maintenance of certain levels of financial condition by the 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 the customers. As a result, the fair value of these financing commitments is expected to equal the amounts funded.
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, which are considered in other contractual commitments, are being capitalized as collaboration intangible assets.
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 $4.1 billion as of June 30, 2021.
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 June 30, 2021, the aggregate amount of our offset agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $10.8 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 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 financial condition, results of operations or liquidity, either individually or in the aggregate.
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 overpayments of approximately $1.73 billion plus interest ($693 million at June 30, 2021). 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 overpayments of approximately $177 million plus interest ($114 million at June 30, 2021). 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. The parties concluded post-hearing briefing in January 2020, and now await a decision from the ASBCA. We continue to believe that the claim is without merit. 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 demands payment of $269 million plus interest ($75 million at June 30, 2021), which we also believe is without merit and which Pratt & Whitney appealed to the ASBCA in January 2019.
Thales-Raytheon Systems Matter
As previously disclosed, in 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014. In the first quarter of 2020, the DOJ advised Raytheon Company it had opened a parallel 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. Raytheon Company maintains a rigorous anti-corruption compliance program, is cooperating fully with the SEC’s inquiry, and is examining whether there has been any conduct that is in violation of Raytheon Company policy. At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiry. Based on the information available to date, however, we do not believe the results of this inquiry will have a material adverse effect on our financial condition, results of operations 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 business (RMD) since 2009. The investigation includes 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 the DOJ’s ongoing investigation. Although we believe we have defenses to the potential claims, the Company has determined that there is a meaningful risk of civil liability for damages, interest and potential penalties. At this time, the Company is unable to predict either the outcome of the criminal investigation or the outcome of any potential civil claims based on facts revealed in, or related to, the investigation. Based on
the information available to date, however, we do not believe the results of the investigation or of any potential civil litigation will have a material adverse effect on our financial condition, results of operations or liquidity.
Four shareholder lawsuits were filed against the Company after the DOJ investigation was first disclosed. A putative securities class action lawsuit was filed in the United States District Court for the District of Arizona against the Company and certain of its executives alleging that the defendants violated federal securities laws by making material misstatements in regulatory filings regarding internal controls over financial reporting in RMD. Three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings. We believe that each of these lawsuits lacks merit.
Darnis, et al.
As previously disclosed, on August 12, 2020, several former employees of UTC or its subsidiaries filed a putative class action complaint in the United States District Court for the District of Connecticut against the Company, Otis, Carrier, the former members of the UTC Board of Directors, and the members of the Carrier and Otis Boards of Directors (Geraud Darnis, et al. v. Raytheon Technologies Corporation, et al.). The complaint challenges 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 claims that the defendants are liable for breach of certain equity compensation plans and also asserts claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Plaintiffs seek money damages, attorneys’ fees and other relief. We believe that the Company has meritorious defenses to these claims. At this time, the Company is unable to predict the outcome, or the possible range of loss, if any, which could result from this action.
Where appropriate, we have recorded loss contingency accruals for the above-referenced matters, and the amount in aggregate is not material.
Other. As described in “Note 16: 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 competitive position, financial condition, results of operations, or liquidity.
Note 18: Accumulated Other Comprehensive Loss
A summary of the changes in each component of Accumulated other comprehensive loss, net of tax for the quarters and six months ended June 30, 2021 and 2020 is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Foreign Currency Translation
|
|
Defined Benefit Pension and Post-retirement Plans
|
|
Unrealized Hedging (Losses) Gains
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Quarter Ended June 30, 2021
|
|
|
|
|
|
|
|
|
Balance at March 31, 2021
|
$
|
529
|
|
|
$
|
(4,441)
|
|
|
$
|
(9)
|
|
|
$
|
(3,921)
|
|
Other comprehensive income (loss) before
reclassifications, net
|
258
|
|
|
(14)
|
|
|
108
|
|
|
352
|
|
|
Amounts reclassified, pre-tax
|
—
|
|
|
64
|
|
|
(20)
|
|
|
44
|
|
|
Tax benefit (expense)
|
2
|
|
|
(11)
|
|
|
(21)
|
|
|
(30)
|
|
|
Balance at June 30, 2021
|
$
|
789
|
|
|
$
|
(4,402)
|
|
|
$
|
58
|
|
|
$
|
(3,555)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
$
|
710
|
|
|
$
|
(4,483)
|
|
|
$
|
39
|
|
|
$
|
(3,734)
|
|
Other comprehensive income (loss) before
reclassifications, net
|
82
|
|
|
(24)
|
|
|
62
|
|
|
120
|
|
|
Amounts reclassified, pre-tax
|
—
|
|
|
128
|
|
|
(34)
|
|
|
94
|
|
|
Tax benefit (expense)
|
(3)
|
|
|
(23)
|
|
|
(9)
|
|
|
(35)
|
|
|
Balance at June 30, 2021
|
$
|
789
|
|
|
$
|
(4,402)
|
|
|
$
|
58
|
|
|
$
|
(3,555)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
Foreign Currency Translation
|
|
Defined Benefit Pension and Post-retirement Plans
|
|
Unrealized Hedging (Losses) Gains
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Quarter Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
$
|
(4,647)
|
|
|
$
|
(6,693)
|
|
|
$
|
(448)
|
|
|
$
|
(11,788)
|
|
Other comprehensive income (loss) before
reclassifications, net
|
665
|
|
|
(2,371)
|
|
|
188
|
|
|
(1,518)
|
|
|
Amounts reclassified, pre-tax
|
—
|
|
|
85
|
|
|
27
|
|
|
112
|
|
|
Tax benefit (expense)
|
3
|
|
|
568
|
|
|
(52)
|
|
|
519
|
|
|
Separation of Carrier and Otis, net of tax
|
3,287
|
|
|
584
|
|
|
4
|
|
|
3,875
|
|
|
Balance at June 30, 2020
|
$
|
(692)
|
|
|
$
|
(7,827)
|
|
|
$
|
(281)
|
|
|
$
|
(8,800)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
$
|
(3,211)
|
|
|
$
|
(6,772)
|
|
|
$
|
(166)
|
|
|
$
|
(10,149)
|
|
Other comprehensive income (loss) before
reclassifications, net
|
(780)
|
|
|
(2,363)
|
|
|
(215)
|
|
|
(3,358)
|
|
|
Amounts reclassified, pre-tax
|
—
|
|
|
187
|
|
|
56
|
|
|
243
|
|
|
Tax benefit (expense)
|
12
|
|
|
537
|
|
|
40
|
|
|
589
|
|
|
Separation of Carrier and Otis, net of tax
|
3,287
|
|
|
584
|
|
|
4
|
|
|
3,875
|
|
|
Balance at June 30, 2020
|
$
|
(692)
|
|
|
$
|
(7,827)
|
|
|
$
|
(281)
|
|
|
$
|
(8,800)
|
|
Note 19: Segment Financial Data
Our operations, for the periods presented herein, are classified into four principal segments: Collins Aerospace, Pratt & Whitney, RIS and RMD. The segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products
and services. The results of RIS and RMD reflect the period subsequent to the completion of the Raytheon Merger on April 3, 2020.
As previously announced, effective January 1, 2021, we reorganized certain product areas of our RIS and RMD businesses to more efficiently leverage our capabilities. The amounts and presentation of our business segments, including intersegment activity, set forth in this Form 10-Q reflect this reorganization. The reorganization does not impact our previously reported Collins Aerospace Systems and Pratt & Whitney segment results, or our consolidated balance sheets, statements of operations or statements of cash flows.
Revised financial results for the fiscal quarters and year ended 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
(dollars in millions)
|
Q1
|
Q2
|
Q3
|
Q4
|
FY
|
|
Revised Net Sales
|
|
|
|
|
|
|
Collins Aerospace Systems
|
$
|
6,438
|
|
$
|
4,202
|
|
$
|
4,274
|
|
$
|
4,374
|
|
$
|
19,288
|
|
|
Pratt & Whitney
|
5,353
|
|
3,487
|
|
3,494
|
|
4,465
|
|
16,799
|
|
|
Raytheon Intelligence & Space
|
—
|
|
3,387
|
|
3,749
|
|
3,933
|
|
11,069
|
|
|
Raytheon Missiles & Defense
|
—
|
|
3,506
|
|
3,706
|
|
4,184
|
|
11,396
|
|
|
Total segments
|
11,791
|
|
14,582
|
|
15,223
|
|
16,956
|
|
58,552
|
|
|
Eliminations and other
|
(431)
|
|
(521)
|
|
(476)
|
|
(537)
|
|
(1,965)
|
|
|
Consolidated
|
$
|
11,360
|
|
$
|
14,061
|
|
$
|
14,747
|
|
$
|
16,419
|
|
$
|
56,587
|
|
|
|
|
|
|
|
|
|
Revised Operating Profit (Loss)
|
|
|
|
|
|
|
Collins Aerospace Systems
|
$
|
1,246
|
|
$
|
(317)
|
|
$
|
526
|
|
$
|
11
|
|
$
|
1,466
|
|
|
Pratt & Whitney
|
475
|
|
(457)
|
|
(615)
|
|
33
|
|
(564)
|
|
|
Raytheon Intelligence & Space
|
—
|
|
309
|
|
350
|
|
361
|
|
1,020
|
|
|
Raytheon Missiles & Defense
|
—
|
|
398
|
|
449
|
|
33
|
|
880
|
|
|
Total segments
|
1,721
|
|
(67)
|
|
710
|
|
438
|
|
2,802
|
|
|
Eliminations and other
|
(25)
|
|
(27)
|
|
(49)
|
|
(6)
|
|
(107)
|
|
|
Corporate expenses and other unallocated items
|
(130)
|
|
(277)
|
|
(84)
|
|
(99)
|
|
(590)
|
|
|
FAS/CAS operating adjustment
|
—
|
|
356
|
|
380
|
|
370
|
|
1,106
|
|
|
Acquisition accounting adjustments
|
(271)
|
|
(3,745)
|
|
(523)
|
|
(561)
|
|
(5,100)
|
|
|
Consolidated
|
$
|
1,295
|
|
$
|
(3,760)
|
|
$
|
434
|
|
$
|
142
|
|
$
|
(1,889)
|
|
|
|
|
|
|
|
|
|
Revised Segment Operating Profit (Loss) Margin
|
|
|
|
|
|
|
Collins Aerospace Systems
|
19.4
|
%
|
(7.5)
|
%
|
12.3
|
%
|
0.3
|
%
|
7.6
|
%
|
|
Pratt & Whitney
|
8.9
|
%
|
(13.1)
|
%
|
(17.6)
|
%
|
0.7
|
%
|
(3.4)
|
%
|
|
Raytheon Intelligence & Space
|
NM
|
9.1
|
%
|
9.3
|
%
|
9.2
|
%
|
9.2
|
%
|
|
Raytheon Missiles & Defense
|
NM
|
11.4
|
%
|
12.1
|
%
|
0.8
|
%
|
7.7
|
%
|
|
Total segment
|
14.6
|
%
|
(0.5)
|
%
|
4.7
|
%
|
2.6
|
%
|
4.8
|
%
|
As a result of the Raytheon Merger, we now 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. We generally expect to recover the related RIS and RMD pension and PRB liabilities over time through the pricing of our products and services to the U.S. government. Because the Collins Aerospace and Pratt & Whitney segments generally record pension and PRB expense on a FAS basis, historical results were not impacted by this change in segment reporting.
Total sales and operating profit by segment include inter-segment sales which are generally recorded at prices approximating those that the selling entity is able to obtain on external sales for our Collins Aerospace and Pratt & Whitney segments, and at
cost-plus a specified fee, which may differ from what the selling entity would be able to obtain on sales to external customers, for our RIS and RMD segments. Results for the quarters ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Operating Profit
|
|
Operating Profit Margins
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Collins Aerospace Systems
|
$
|
4,545
|
|
|
$
|
4,202
|
|
|
$
|
506
|
|
|
$
|
(317)
|
|
|
11.1
|
%
|
|
(7.5)
|
%
|
|
Pratt & Whitney
|
4,280
|
|
|
3,487
|
|
|
112
|
|
|
(457)
|
|
|
2.6
|
%
|
|
(13.1)
|
%
|
|
Raytheon Intelligence & Space
|
3,805
|
|
|
3,387
|
|
|
415
|
|
|
309
|
|
|
10.9
|
%
|
|
9.1
|
%
|
|
Raytheon Missiles & Defense
|
3,985
|
|
|
3,506
|
|
|
532
|
|
|
398
|
|
|
13.4
|
%
|
|
11.4
|
%
|
|
Total segment
|
16,615
|
|
|
14,582
|
|
|
1,565
|
|
|
(67)
|
|
|
9.4
|
%
|
|
(0.5)
|
%
|
|
Eliminations and other(1)
|
(735)
|
|
|
(521)
|
|
|
(40)
|
|
|
(27)
|
|
|
|
|
|
|
Corporate expenses and other unallocated items (2)
|
—
|
|
|
—
|
|
|
(149)
|
|
|
(277)
|
|
|
|
|
|
|
FAS/CAS operating adjustment
|
—
|
|
|
—
|
|
|
425
|
|
|
356
|
|
|
|
|
|
|
Acquisition accounting adjustments
|
—
|
|
|
—
|
|
|
(519)
|
|
|
(3,745)
|
|
|
|
|
|
|
Consolidated
|
$
|
15,880
|
|
|
$
|
14,061
|
|
|
$
|
1,282
|
|
|
$
|
(3,760)
|
|
|
8.1
|
%
|
|
(26.7)
|
%
|
(1) Includes the operating results of certain smaller non-reportable business segments. 2020 amounts include Forcepoint, which was acquired as part of the Raytheon Merger and subsequently disposed of on January 8, 2021.
(2) Corporate expenses and other unallocated items include the net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) project.
Results for the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Operating Profit
|
|
Operating Profit Margins
|
|
(dollars in millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Collins Aerospace Systems
|
$
|
8,915
|
|
|
$
|
10,640
|
|
|
$
|
820
|
|
|
$
|
929
|
|
|
9.2
|
%
|
|
8.7
|
%
|
|
Pratt & Whitney
|
8,310
|
|
|
8,840
|
|
|
132
|
|
|
18
|
|
|
1.6
|
%
|
|
0.2
|
%
|
|
Raytheon Intelligence & Space
|
7,570
|
|
|
3,387
|
|
|
803
|
|
|
309
|
|
|
10.6
|
%
|
|
9.1
|
%
|
|
Raytheon Missiles & Defense
|
7,778
|
|
|
3,506
|
|
|
1,028
|
|
|
398
|
|
|
13.2
|
%
|
|
11.4
|
%
|
|
Total segment
|
32,573
|
|
|
26,373
|
|
|
2,783
|
|
|
1,654
|
|
|
8.5
|
%
|
|
6.3
|
%
|
|
Eliminations and other (1)
|
(1,442)
|
|
|
(952)
|
|
|
(71)
|
|
|
(52)
|
|
|
|
|
|
|
Corporate expenses and other unallocated items (2)
|
—
|
|
|
—
|
|
|
(230)
|
|
|
(407)
|
|
|
|
|
|
|
FAS/CAS operating adjustment
|
—
|
|
|
—
|
|
|
848
|
|
|
356
|
|
|
|
|
|
|
Acquisition accounting adjustments
|
—
|
|
|
—
|
|
|
(1,035)
|
|
|
(4,016)
|
|
|
|
|
|
|
Consolidated
|
$
|
31,131
|
|
|
$
|
25,421
|
|
|
$
|
2,295
|
|
|
$
|
(2,465)
|
|
|
7.4
|
%
|
|
(9.7)
|
%
|
(1) Includes the operating results of certain smaller non-reportable business segments. 2020 amounts include Forcepoint, which was acquired as part of the Raytheon Merger and subsequently disposed of on January 8, 2021.
(2) Corporate expenses and other unallocated items include the net expenses related to the U.S. Army’s LTAMDS project.
We disaggregate our contracts from customers by geographic location based on customer location, by customer and by sales type. Our geographic location based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location. In addition, for our RIS and RMD segments, we disaggregate our contracts from customers by contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Historical results have been recast to reflect the presentation of this disaggregation.
Segment sales disaggregated by geographic region for the quarters ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
United States
|
$
|
2,323
|
|
$
|
2,139
|
|
$
|
3,020
|
|
$
|
2,385
|
|
$
|
4
|
|
$
|
9,871
|
|
|
$
|
2,505
|
|
$
|
1,892
|
|
$
|
2,628
|
|
$
|
2,087
|
|
$
|
49
|
|
$
|
9,161
|
|
|
Asia Pacific
|
470
|
|
971
|
|
205
|
|
356
|
|
—
|
|
2,002
|
|
|
388
|
|
787
|
|
200
|
|
346
|
|
13
|
|
1,734
|
|
|
Middle East and North Africa
|
115
|
|
85
|
|
132
|
|
835
|
|
—
|
|
1,167
|
|
|
99
|
|
122
|
|
137
|
|
705
|
|
8
|
|
1,071
|
|
|
Europe
|
1,062
|
|
807
|
|
118
|
|
325
|
|
4
|
|
2,316
|
|
|
787
|
|
512
|
|
102
|
|
291
|
|
66
|
|
1,758
|
|
|
Canada and All Other
|
203
|
|
278
|
|
26
|
|
17
|
|
—
|
|
524
|
|
|
114
|
|
177
|
|
24
|
|
14
|
|
8
|
|
337
|
|
|
Consolidated net sales
|
4,173
|
|
4,280
|
|
3,501
|
|
3,918
|
|
8
|
|
15,880
|
|
|
3,893
|
|
3,490
|
|
3,091
|
|
3,443
|
|
144
|
|
14,061
|
|
|
Inter-segment sales
|
372
|
|
—
|
|
304
|
|
67
|
|
(743)
|
|
—
|
|
|
309
|
|
(3)
|
|
296
|
|
63
|
|
(665)
|
|
—
|
|
|
Business segment sales
|
$
|
4,545
|
|
$
|
4,280
|
|
$
|
3,805
|
|
$
|
3,985
|
|
$
|
(735)
|
|
$
|
15,880
|
|
|
$
|
4,202
|
|
$
|
3,487
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(521)
|
|
$
|
14,061
|
|
Segment sales disaggregated by geographic region for the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
United States
|
$
|
4,565
|
|
$
|
4,298
|
|
$
|
5,985
|
|
$
|
4,742
|
|
$
|
11
|
|
$
|
19,601
|
|
|
$
|
5,649
|
|
$
|
4,247
|
|
$
|
2,628
|
|
$
|
2,087
|
|
$
|
47
|
|
$
|
14,658
|
|
|
Asia Pacific
|
875
|
|
1,764
|
|
409
|
|
726
|
|
—
|
|
3,774
|
|
|
992
|
|
2,208
|
|
200
|
|
346
|
|
13
|
|
3,759
|
|
|
Middle East and North Africa
|
210
|
|
189
|
|
265
|
|
1,495
|
|
—
|
|
2,159
|
|
|
242
|
|
294
|
|
137
|
|
705
|
|
8
|
|
1,386
|
|
|
Europe
|
2,141
|
|
1,433
|
|
232
|
|
652
|
|
5
|
|
4,463
|
|
|
2,532
|
|
1,529
|
|
102
|
|
291
|
|
66
|
|
4,520
|
|
|
Canada and All Other
|
420
|
|
626
|
|
55
|
|
33
|
|
—
|
|
1,134
|
|
|
486
|
|
559
|
|
24
|
|
14
|
|
15
|
|
1,098
|
|
|
Consolidated net sales
|
8,211
|
|
8,310
|
|
6,946
|
|
7,648
|
|
16
|
|
31,131
|
|
|
9,901
|
|
8,837
|
|
3,091
|
|
3,443
|
|
149
|
|
25,421
|
|
|
Inter-segment sales
|
704
|
|
—
|
|
624
|
|
130
|
|
(1,458)
|
|
—
|
|
|
739
|
|
3
|
|
296
|
|
63
|
|
(1,101)
|
|
—
|
|
|
Business segment sales
|
$
|
8,915
|
|
$
|
8,310
|
|
$
|
7,570
|
|
$
|
7,778
|
|
$
|
(1,442)
|
|
$
|
31,131
|
|
|
$
|
10,640
|
|
$
|
8,840
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(952)
|
|
$
|
25,421
|
|
Segment sales disaggregated by customer for the quarters ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
U.S. government (1)
|
$
|
1,147
|
|
$
|
1,191
|
|
$
|
2,944
|
|
$
|
2,384
|
|
$
|
4
|
|
$
|
7,670
|
|
|
$
|
1,353
|
|
$
|
1,283
|
|
$
|
2,560
|
|
$
|
2,078
|
|
$
|
54
|
|
$
|
7,328
|
|
|
Foreign military sales through the U.S. government
|
25
|
|
397
|
|
209
|
|
866
|
|
—
|
|
1,497
|
|
|
77
|
|
281
|
|
218
|
|
766
|
|
—
|
|
1,342
|
|
|
Foreign government direct commercial sales
|
301
|
|
127
|
|
217
|
|
668
|
|
—
|
|
1,313
|
|
|
204
|
|
122
|
|
213
|
|
565
|
|
—
|
|
1,104
|
|
|
Commercial aerospace and other commercial
|
2,700
|
|
2,565
|
|
131
|
|
—
|
|
4
|
|
5,400
|
|
|
2,259
|
|
1,804
|
|
100
|
|
34
|
|
90
|
|
4,287
|
|
|
Consolidated net sales
|
4,173
|
|
4,280
|
|
3,501
|
|
3,918
|
|
8
|
|
15,880
|
|
|
3,893
|
|
3,490
|
|
3,091
|
|
3,443
|
|
144
|
|
14,061
|
|
|
Inter-segment sales
|
372
|
|
—
|
|
304
|
|
67
|
|
(743)
|
|
—
|
|
|
309
|
|
(3)
|
|
296
|
|
63
|
|
(665)
|
|
—
|
|
|
Business segment sales
|
$
|
4,545
|
|
$
|
4,280
|
|
$
|
3,805
|
|
$
|
3,985
|
|
$
|
(735)
|
|
$
|
15,880
|
|
|
$
|
4,202
|
|
$
|
3,487
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(521)
|
|
$
|
14,061
|
|
(1) Excludes foreign military sales through the U.S. government.
Segment sales disaggregated by customer for the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
U.S. government (1)
|
$
|
2,369
|
|
$
|
2,453
|
|
$
|
5,844
|
|
$
|
4,741
|
|
$
|
11
|
|
$
|
15,418
|
|
|
$
|
2,642
|
|
$
|
2,522
|
|
$
|
2,560
|
|
$
|
2,078
|
|
$
|
54
|
|
$
|
9,856
|
|
|
Foreign military sales through the U.S. government
|
65
|
|
639
|
|
417
|
|
1,671
|
|
—
|
|
2,792
|
|
|
132
|
|
552
|
|
218
|
|
766
|
|
—
|
|
1,668
|
|
|
Foreign government direct commercial sales
|
546
|
|
266
|
|
446
|
|
1,235
|
|
—
|
|
2,493
|
|
|
429
|
|
260
|
|
213
|
|
565
|
|
—
|
|
1,467
|
|
|
Commercial aerospace and other commercial
|
5,231
|
|
4,952
|
|
239
|
|
1
|
|
5
|
|
10,428
|
|
|
6,698
|
|
5,503
|
|
100
|
|
34
|
|
95
|
|
12,430
|
|
|
Consolidated net sales
|
8,211
|
|
8,310
|
|
6,946
|
|
7,648
|
|
16
|
|
31,131
|
|
|
9,901
|
|
8,837
|
|
3,091
|
|
3,443
|
|
149
|
|
25,421
|
|
|
Inter-segment sales
|
704
|
|
—
|
|
624
|
|
130
|
|
(1,458)
|
|
—
|
|
|
739
|
|
3
|
|
296
|
|
63
|
|
(1,101)
|
|
—
|
|
|
Business segment sales
|
$
|
8,915
|
|
$
|
8,310
|
|
$
|
7,570
|
|
$
|
7,778
|
|
$
|
(1,442)
|
|
$
|
31,131
|
|
|
$
|
10,640
|
|
$
|
8,840
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(952)
|
|
$
|
25,421
|
|
(1) Excludes foreign military sales through the U.S. government.
Segment sales disaggregated by sales type for the quarters ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Product
|
$
|
3,349
|
|
$
|
2,582
|
|
$
|
2,675
|
|
$
|
3,565
|
|
$
|
8
|
|
$
|
12,179
|
|
|
$
|
3,190
|
|
$
|
1,888
|
|
$
|
2,409
|
|
$
|
3,156
|
|
$
|
125
|
|
$
|
10,768
|
|
|
Service
|
824
|
|
1,698
|
|
826
|
|
353
|
|
—
|
|
3,701
|
|
|
703
|
|
1,602
|
|
682
|
|
287
|
|
19
|
|
3,293
|
|
|
Consolidated net sales
|
4,173
|
|
4,280
|
|
3,501
|
|
3,918
|
|
8
|
|
15,880
|
|
|
3,893
|
|
3,490
|
|
3,091
|
|
3,443
|
|
144
|
|
14,061
|
|
|
Inter-segment sales
|
372
|
|
—
|
|
304
|
|
67
|
|
(743)
|
|
—
|
|
|
309
|
|
(3)
|
|
296
|
|
63
|
|
(665)
|
|
—
|
|
|
Business segment sales
|
$
|
4,545
|
|
$
|
4,280
|
|
$
|
3,805
|
|
$
|
3,985
|
|
$
|
(735)
|
|
$
|
15,880
|
|
|
$
|
4,202
|
|
$
|
3,487
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(521)
|
|
$
|
14,061
|
|
Segment sales disaggregated by sales type for the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Collins Aerospace Systems
|
Pratt & Whitney
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
Other
|
Total
|
|
Product
|
$
|
6,531
|
|
$
|
5,005
|
|
$
|
5,351
|
|
$
|
6,940
|
|
$
|
16
|
|
$
|
23,843
|
|
|
$
|
8,094
|
|
$
|
5,143
|
|
$
|
2,409
|
|
$
|
3,156
|
|
$
|
130
|
|
$
|
18,932
|
|
|
Service
|
1,680
|
|
3,305
|
|
1,595
|
|
708
|
|
—
|
|
7,288
|
|
|
1,807
|
|
3,694
|
|
682
|
|
287
|
|
19
|
|
6,489
|
|
|
Consolidated net sales
|
8,211
|
|
8,310
|
|
6,946
|
|
7,648
|
|
16
|
|
31,131
|
|
|
9,901
|
|
8,837
|
|
3,091
|
|
3,443
|
|
149
|
|
25,421
|
|
|
Inter-segment sales
|
704
|
|
—
|
|
624
|
|
130
|
|
(1,458)
|
|
—
|
|
|
739
|
|
3
|
|
296
|
|
63
|
|
(1,101)
|
|
—
|
|
|
Business segment sales
|
$
|
8,915
|
|
$
|
8,310
|
|
$
|
7,570
|
|
$
|
7,778
|
|
$
|
(1,442)
|
|
$
|
31,131
|
|
|
$
|
10,640
|
|
$
|
8,840
|
|
$
|
3,387
|
|
$
|
3,506
|
|
$
|
(952)
|
|
$
|
25,421
|
|
RIS and RMD segment sales disaggregated by contract type for the quarters ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
|
Fixed-price
|
$
|
1,556
|
|
$
|
2,402
|
|
|
$
|
1,271
|
|
$
|
2,110
|
|
|
Cost-type
|
1,945
|
|
1,516
|
|
|
1,820
|
|
1,333
|
|
|
Consolidated net sales
|
$
|
3,501
|
|
$
|
3,918
|
|
|
$
|
3,091
|
|
$
|
3,443
|
|
RIS and RMD segment sales disaggregated by contract type for the six months ended June 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
(dollars in millions)
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
|
Raytheon Intelligence & Space
|
Raytheon Missiles & Defense
|
|
Fixed-price
|
$
|
3,027
|
|
$
|
4,653
|
|
|
$
|
1,271
|
|
$
|
2,110
|
|
|
Cost-type
|
3,919
|
|
2,995
|
|
|
1,820
|
|
1,333
|
|
|
Consolidated net sales
|
$
|
6,946
|
|
$
|
7,648
|
|
|
$
|
3,091
|
|
$
|
3,443
|
|
Note 20: Remaining Performance Obligations (RPO)
RPO represent the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $151.8 billion and $150.1 billion as of June 30, 2021 and December 31, 2020, respectively. Of the total RPO as of June 30, 2021, we expect approximately 30% will be recognized as sales over the next 12 months. This percentage of RPO to be recognized as sales over the next 12 months depends on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the effect of mutating strains and whether additional outbreaks of the
pandemic will continue to occur, actions to contain the pandemic’s spread or treat its impact, continued availability of vaccines, and their distribution, acceptance and efficacy, and governmental, business and individual personal actions taken in response to the pandemic, which may result in customer delays or order cancellations.
Note 21: Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, contract assets and off-balance sheet credit exposures. The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period. This ASU requires that the statement of operations reflect estimates of expected credit losses for newly recognized financial assets as well as changes in the estimate of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses. We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach. A cumulative-effect non-cash adjustment to retained earnings as of January 1, 2020 was recorded in the amount of $59 million. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions of Topic 740 including the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income from other items; the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; the exception to the ability to reverse a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance related to franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes. We adopted the new standard effective January 1, 2021. The adoption of this standard did not, and is not expected to, have an impact on the Company’s Condensed Consolidated Financial Statements.
Other new pronouncements issued but not effective until after June 30, 2021 are not expected to have a material impact on our financial condition, results of operations or liquidity.
With respect to the unaudited condensed consolidated financial information of Raytheon Technologies for the quarters and six months ended June 30, 2021 and 2020, 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 July 27, 2021, 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.