Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of RTC is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management has assessed the effectiveness of RTC’s internal control over financial reporting as of December 31, 2020. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its Internal Control—Integrated Framework, released in 2013*.* Management concluded that based on its assessment, RTC’s internal control over financial reporting was effective as of December 31, 2020. The effectiveness of RTC’s internal control over financial reporting, as of December 31, 2020, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.


/s/ GREGORY J. HAYES
Gregory J. Hayes
President and Chief Executive Officer

/s/ ANTHONY F. O’BRIEN
Anthony F. O’Brien
Executive Vice President and Chief Financial Officer

/s/ MICHAEL J. WOOD
Michael J. Wood
Corporate Vice President and Controller

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareowners and Board of Directors of Raytheon Technologies Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Raytheon Technologies Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

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company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Acquired Customer Relationship and Tradename Intangible Assets

As described in Note 2 to the consolidated financial statements, the Company completed its merger with Raytheon Company (“Raytheon”) on April 3, 2020 for net consideration of $33.2 billion. The merger was accounted for using the acquisition method of accounting, and the Company was treated as the accounting acquirer. As a result of this merger, $12.9 billion of customer relationship intangible assets and $5.4 billion of tradename intangible assets were recorded. Fair value of the customer relationship intangible assets were estimated using a discounted cash flow valuation method and fair value of the tradename intangible assets were estimated using a relief from royalty valuation method. Management applied significant judgment in determining the fair value of the intangible assets, which involved the use of significant assumptions for forecasted revenue growth rates and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of acquired customer relationship and tradename intangible assets arising from the merger with Raytheon is a critical audit matter are the significant judgment by management when determining the fair value of the these intangible assets, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s assumptions for the forecasted revenue growth rates and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls over management’s determination of forecasted revenue growth rates and the discount rate assumptions used in the valuation of the customer relationship and tradename intangible assets. These procedures also included, among others, testing management’s process for determining the fair value of the customer relationship and tradename intangible assets. Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness, accuracy and relevance of the underlying data used in the valuations and evaluating the reasonableness of significant assumptions related to the forecasted revenue growth rates and the discount rate. Evaluating the reasonableness of the forecasted revenue growth rates involved considering the past performance of Raytheon, as well as economic and industry data. The discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discount rate assumption.

Tax-free Determinations of Certain Internal Separation Transactions and the Distributions of Carrier Global Corporation and Otis Worldwide Corporation.

As described in Note 13 to the consolidated financial statements, management has determined that the distributions of Carrier Global Corporation (“Carrier”) and Otis Worldwide Corporation (“Otis”) on April 3, 2020, and certain related internal business separation transactions (the distributions and internal separation transactions referred to together as the “Transactions”), qualified as tax-free under applicable law. In making these determinations, management applied the tax law in the relevant jurisdictions to their 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.

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The principal considerations for our determination that performing procedures relating to the tax-free determinations of certain internal separation transactions and the distributions of Carrier and Otis is a critical audit matter are (i) the significant judgment by management in applying relevant tax laws and regulations and assumptions in determining that certain internal separation transactions and the distributions of Carrier and Otis qualify for tax-free status, and (ii) the significant impact to the financial statements if these tax-free determinations were determined to be inappropriate by the relevant taxing authorities. This in turn led to a significant degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence relating to the tax-free determination of certain internal separation transactions and the distributions of Carrier and Otis. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Revenue Recognition - Contract Estimates at Completion

As described in Note 1 to the consolidated financial statements, a significant portion of the Company’s revenues of $56.6 billion for the year ended December 31, 2020 are from long-term contracts associated with the design, development, manufacture or modification of complex aerospace or defense equipment or related services. The timing of the satisfaction of performance obligations varies across the Company’s businesses due to their diverse product and service mix, customer base, and contractual terms. Substantially all of the Company’s revenues from the Raytheon Intelligence & Space and Raytheon Missiles & Defense segments are recognized over time because of the continuous transfer of control to the customer. The Company’s revenues from certain long-term aftermarket contracts within its Pratt & Whitney segment are recognized over the contract period as a series of daily performance obligations to stand ready to provide spare parts, product maintenance and aftermarket services. For the performance obligations satisfied over time, revenue is recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress. 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. Within the Raytheon Intelligence & Space and Raytheon Missiles & Defense segments, the variables and significant judgments relate to 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 for the contracts relate to management’s ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels and related variable consideration. Management also makes judgments about variables related to estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, the length of time to complete the performance obligation, execution by the Company’s subcontractors, the availability and timing of funding from the customer, overhead cost rates, and the estimated cost of satisfying the Company’s industrial cooperation agreements required under certain contracts. Within the Pratt & Whitney segment these variables and significant judgments relate to current and past maintenance cost and frequency experience. Management reviews contract estimates at completion on a periodic basis and no less than annually or when a change in circumstances warrant a modification to a previous estimate.

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

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judgments and variables considered by management specific to each contract or performance obligation. Evaluating the significant judgments and assumptions related to the estimates of total revenue and total costs at completion involved evaluating whether the significant judgments and assumptions used were reasonable considering: (i) management’s historical forecasting accuracy, (ii) evidence to support the relevant aforementioned variables, (iii) the consistent application of accounting policies, and (iv) the timely identification of circumstances which may warrant a modification to a previous estimate.

Certain Goodwill and Unamortized Intangible Assets Impairment Assessments

As described in Notes 1 and 2 to the consolidated financial statements, the Company’s consolidated goodwill and intangible asset balances were $54.3 billion and $40.5 billion, respectively, as of December 31, 2020. Intangible assets included unamortized intangible assets of $8.7 billion as of December 31, 2020. Goodwill and unamortized intangible assets are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. In the second quarter of 2020, management observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of production schedules. These factors contributed to a deterioration of management’s expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which reduced future sales and cash flows expectations. Management considered these factors to be a triggering event requiring impairment evaluation of goodwill, intangible assets and other assets in its commercial aerospace businesses. The carrying value of two Collins Aerospace reporting units exceeded the sum of discounted cash flows resulting in goodwill impairments of $3.2 billion. In developing the estimates for the fair value of reporting units and unamortized intangible assets, significant judgment is required by management in the determination of the appropriateness of using a qualitative assessment or quantitative assessment. For the quantitative assessments that are performed for goodwill and unamortized intangible assets, fair value is primarily based on income approaches using a discounted cash flow method and relief from royalty method, respectively, which have significant assumptions related to sales growth rates, projected operating profit, terminal growth rates, discount rates and royalty rates. The impairment testing compares carrying values to estimated fair values. If the carrying value exceeds the fair value, then the carrying value is reduced to fair value.

The principal considerations for our determination that performing procedures relating to certain goodwill and unamortized intangible assets quantitative impairment assessments is a critical audit matter are the significant judgment by management when developing the fair value measurements of these assets. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s fair value measurements and the applicable significant assumptions for both goodwill and unamortized intangible assets relating to sales growth rates, projected operating profit, terminal growth rates, and discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill and unamortized intangible assets quantitative impairment assessments, including controls over the valuation of the Company’s reporting units and unamortized intangible assets. These procedures also included, among others, testing management’s process for developing the fair value estimates, which included evaluating the appropriateness of the discounted cash flow and relief from royalty methods; testing the completeness, accuracy, and relevance of underlying data in the estimates; and evaluating the significant assumptions used by management relating to sales growth rates, projected operating profit, terminal growth rates and discount rates. Evaluating management’s assumptions related to sales growth rates, projected operating profit, and terminal growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units and unamortized intangible assets, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow and relief from royalty methods, and terminal growth rate and discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 8, 2021

We have served as the Company’s auditor since 1947.

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RAYTHEON TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS


(dollars in millions, except per share amounts; shares in millions)	2020		2019		2018
Net Sales:
Product sales	$	43,319	$	32,998	$	24,141
Service sales	13,268		12,351		10,560
Total Net Sales	56,587		45,349		34,701
Costs and Expenses:
Cost of products sold	38,137		26,910		21,083
Cost of services sold	9,919		7,688		6,382
Research and development	2,582		2,452		1,878
Selling, general and administrative	5,540		3,711		2,864
Total Costs and Expenses	56,178		40,761		32,207
Goodwill impairment	(3,183)		—		—
Other income, net	885		326		383
Operating profit (loss)	(1,889)		4,914		2,877
Non-operating expense (income), net
Non-service pension benefit	(902)		(829)		(659)
Interest expense, net	1,366		1,591		1,032
Total non-operating expense, net	464		762		373
Income (loss) from continuing operations before income taxes	(2,353)		4,152		2,504
Income tax expense	575		421		1,098
Net income (loss) from continuing operations	(2,928)		3,731		1,406
Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations	181		221		190
Income (loss) from continuing operations attributable to common shareowners	(3,109)		3,510		1,216
Discontinued operations (Note 3):
Income (loss) from discontinued operations	(216)		4,091		5,776

Income tax expense from discontinued operations	151		1,874		1,528
Net income (loss) from discontinued operations	(367)		2,217		4,248
Less: Noncontrolling interest in subsidiaries’ earnings from discontinued operations	43		190		195
Income (loss) from discontinued operations attributable to common shareowners	(410)		2,027		4,053
Net income (loss) attributable to common shareowners	$	(3,519)	$	5,537	$	5,269

Earnings (loss) per share attributable to common shareowners - basic
Income (loss) from continuing operations attributable to common shareowners	$	(2.29)	$	4.11	$	1.52
Income (loss) from discontinued operations	(0.30)		2.37		5.06
Net income (loss) attributable to common shareowners	$	(2.59)	$	6.48	$	6.58
Earnings (loss) per share attributable to common shareowners - diluted
Income (loss) from continuing operations attributable to common shareowners	$	(2.29)	$	4.06	$	1.50
Income (loss) from discontinued operations	(0.30)		2.35		5.00
Net income (loss) attributable to common shareowners	$	(2.59)	$	6.41	$	6.50
Weighted average number of shares outstanding:
Basic shares	1,357.8		854.8		800.4
Diluted shares	1,357.8		863.9		810.1

See accompanying Notes to Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)


(dollars in millions)	2020		2019		2018
Net income (loss) from continuing and discontinued operations	$	(3,295)	$	5,948	$	5,654
Pension and postretirement benefit plans
Net actuarial loss arising during period	(202)		(543)		(1,819)
Prior service credit (cost) arising during period	2,095		(6)		(22)
Amortization of actuarial loss and prior service cost	373		228		344
Other	(51)		(93)		105
Pension and postretirement benefit plans	2,215		(414)		(1,392)
Unrealized loss on available-for-sale securities	—		—		(5)
Change in unrealized cash flow hedging	263		18		(323)
Foreign currency translation adjustments	609		268		(518)
Other comprehensive income (loss), before tax	3,087		(128)		(2,238)
Income tax (expense) benefit related to items of other comprehensive income (loss)	(547)		43		400
Other comprehensive income (loss), net of tax	2,540		(85)		(1,838)
Comprehensive income (loss)	(755)		5,863		3,816
Less: comprehensive income attributable to noncontrolling interest	224		399		355
Comprehensive income (loss) attributable to common shareowners	$	(979)	$	5,464	$	3,461

See accompanying Notes to Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEET


(dollars in millions, except per share amounts; shares in thousands)	2020		2019
Assets
Current assets
Cash and cash equivalents	$	8,802	$	4,937
Accounts receivable, net	9,254		8,743
Contract assets	9,931		4,462
Inventory, net	9,411		9,047
Assets related to discontinued operations	64		31,823
Other assets, current	5,914		2,565
Total Current Assets	43,376		61,577
Customer financing assets	3,144		3,463
Fixed assets, net	14,962		10,322
Operating lease right-of-use assets	1,880		1,252
Goodwill	54,285		36,609
Intangible assets, net	40,539		24,473
Other assets	3,967		1,919
Total Assets	$	162,153	$	139,615

Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities
Short-term borrowings	$	247	$	2,293
Accounts payable	8,639		7,816
Accrued employee compensation	3,006		1,353
Other accrued liabilities	10,401		8,417
Contract liabilities	12,889		9,014
Liabilities related to discontinued operations	116		14,443
Long-term debt currently due	550		3,258
Total Current Liabilities	35,848		46,594
Long-term debt	31,026		37,701
Operating lease liabilities, non-current	1,516		1,093
Future pension and postretirement benefit obligations	10,342		2,487
Other long-term liabilities	9,537		7,414
Total Liabilities	88,269		95,289
Commitments and contingent liabilities (Note 19)
Redeemable noncontrolling interest	32		95
Shareowners’ Equity:
Capital Stock:
Preferred Stock, $1 par value; 250,000 shares authorized; None issued or outstanding	—		—
Common Stock, $1 par value; 4,000,000 shares authorized; 1,706,173 and 1,450,845 shares issued	36,930		23,019
Treasury Stock— 186,734 and 586,479 common shares at average cost	(10,407)		(32,626)
Retained earnings	49,423		61,594
Unearned ESOP shares	(49)		(64)
Accumulated other comprehensive loss	(3,734)		(10,149)
Total Shareowners’ Equity	72,163		41,774
Noncontrolling interest	1,689		2,457
Total Equity	73,852		44,231
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	162,153	$	139,615

See accompanying Notes to Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS


(dollars in millions)	2020		2019		2018
Operating Activities:




Net income (loss) from continuing operations	$	(2,928)	$	3,731	$	1,406
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities:
Depreciation and amortization	4,156		2,708		1,896
Deferred income tax (benefit) provision	(99)		38		763
Stock compensation cost	330		268		169
Net periodic pension and other postretirement (income) expense	(413)		(566)		(392)
Goodwill impairment charge	3,183		—		—

Change in:
Accounts receivable	1,318		88		(1,147)
Contract assets	63		(679)		(651)
Inventory	412		(1,267)		(417)
Other current assets	(445)		(984)		(645)
Accounts payable and accrued liabilities	(1,666)		1,111		2,738
Contract liabilities	1,129		1,234		325

Global pension contributions	(1,025)		(55)		(79)
Canadian government settlement	—		(38)		(429)
Other operating activities, net	319		232		(867)
Net cash flows provided by operating activities from continuing operations	4,334		5,821		2,670
Investing Activities:
Capital expenditures	(1,795)		(1,868)		(1,467)
Increase in customer financing assets	(280)		(787)		(988)
Decrease in customer financing assets	368		128		604
Investments in businesses (Note 2)	(419)		(9)		(15,039)
Cash acquired in Raytheon Merger	3,208		—		—
Dispositions of businesses (Note 2)	2,556		134		74
Increase in collaboration intangible assets	(172)		(351)		(400)
Receipts (payments) from settlements of derivative contracts	(32)		342		140
Other investing activities, net	(91)		(265)		(183)
Net cash flows provided by (used in) investing activities from continuing operations	3,343		(2,676)		(17,259)
Financing Activities:
Issuance of long-term debt	2,004		(19)		13,337
Distribution from discontinued operation	17,207		—		—
Repayment of long-term debt	(16,082)		(2,693)		(2,520)
(Decrease) increase in short-term borrowings, net	(2,041)		896		(370)

Proceeds from Common Stock issued under employee stock plans	15		27		36
Dividends paid on Common Stock	(2,732)		(2,442)		(2,170)
Repurchase of Common Stock	(47)		(151)		(325)
Net transfer (to) from discontinued operations	(2,033)		2,387		3,979
Other financing activities, net	(151)		82		242
Net cash flows (used in) provided by financing activities from continuing operations	(3,860)		(1,913)		12,209
Discontinued Operations:
Net cash (used in) provided by operating activities	(728)		3,062		3,652
Net cash (used in) provided by investing activities	(241)		(416)		286
Net cash used in financing activities	(1,414)		(2,651)		(4,244)
Net cash flows used in discontinued operations	(2,383)		(5)		(306)
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations	54		1		(6)
Effect of foreign exchange rate changes on cash and cash equivalents from discontinued operations	(76)		(20)		(114)
Net increase (decrease) in cash, cash equivalents and restricted cash	1,412		1,208		(2,806)
Cash, cash equivalents and restricted cash, beginning of year	4,961		3,731		6,118
Cash, cash equivalents and restricted cash within assets related to discontinued operations, beginning of year	2,459		2,481		2,900
Cash, cash equivalents and restricted cash, end of year	8,832		7,420		6,212
Less: Restricted cash, included in Other assets	30		24		38
Less: Cash, cash equivalents and restricted cash for discontinued operations	—		2,459		2,481
Cash and cash equivalents, end of year	$	8,802	$	4,937	$	3,693
Supplemental Disclosure of Cash Flow Information(1):
Interest paid, net of amounts capitalized	$	1,628	$	1,801	$	1,027
Income taxes paid, net of refunds	1,716		1,768		1,714

(1) Amounts are inclusive of continuing operations and discontinued operations payments.

See accompanying Notes to Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


(dollars in millions, except per share amounts; shares in thousands)	2020		2019		2018
Equity at January 1	$	44,231	$	40,610	$	31,421
Common Stock
Balance at January 1	23,019		22,514		17,574
Common Stock issued under employee plans	417		525		423

Common Stock issued for Raytheon Company outstanding common stock & equity awards	10,897		—		—
Adjustment to Common Stock for the Otis Distribution	2,598		—		—
Common Stock issued for Rockwell Collins outstanding common stock & equity awards	—		—		4,523
Purchase of subsidiary shares from noncontrolling interest, net	(1)		(20)		(6)

Balance at December 31	36,930		23,019		22,514
Treasury Stock
Balance at January 1	(32,626)		(32,482)		(35,596)
Common Stock issued under employee plans	2		7		6
Common Stock repurchased	(43)		(151)		(329)
Common Stock issued for Raytheon Company outstanding common stock & equity awards	22,269		—		—
Common Stock issued for Rockwell Collins outstanding common stock & equity awards	—		—		3,437
Other	(9)		—		—
Balance at December 31	(10,407)		(32,626)		(32,482)
Retained Earnings
Balance at January 1	61,594		57,823		55,242
Net income (loss)	(3,519)		5,537		5,269
Adjustment to retained earnings for the Carrier Distribution	(5,805)		—		—
Dividends on Common Stock	(2,732)		(2,442)		(2,170)
Dividends on ESOP Common Stock	(50)		(70)		(71)
Redeemable noncontrolling interest fair value adjustment	—		4		7
ASU 2018-02 adoption impact (Note 20)	—		745		—
Revenue Standard adoption impact	—		—		(480)
Other, including the adoption impact of ASU 2016-13 (Note 1)	(65)		(3)		26
Balance at December 31	49,423		61,594		57,823
Unearned ESOP Shares
Balance at January 1	(64)		(76)		(85)
Common Stock issued under employee plans	15		12		9
Balance at December 31	(49)		(64)		(76)
Accumulated Other Comprehensive Income (Loss)
Balance at January 1	(10,149)		(9,333)		(7,525)
Other comprehensive loss, net of tax	2,540		(71)		(1,808)
Separation of Carrier and Otis	3,875		—		—
ASU 2018-02 adoption impact (Note 20)	—		(745)		—
Balance at December 31	(3,734)		(10,149)		(9,333)
Noncontrolling Interest
Balance at January 1	2,457		2,164		1,811
Net income	224		411		385
Less: Redeemable noncontrolling interest net income	(4)		7		(4)
Other comprehensive income (loss), net of tax	—		(12)		(30)
Dividends attributable to noncontrolling interest	(159)		(268)		(315)
Sale (purchase) of subsidiary shares from noncontrolling interest, net	66		70		(23)
Acquisition (disposition) of noncontrolling interest, net	1		(23)		(8)
Separation of Carrier and Otis	(865)		—		—
Capital contributions (distributions)	(31)		108		342
Other	—		—		6
Balance at December 31	1,689		2,457		2,164
Equity at December 31	$	73,852	$	44,231	$	40,610
Supplemental share information
Shares of Common Stock issued under employee plans, net	2,689		3,883		2,775
Shares of Common Stock repurchased	330		1,133		2,727
Shares of Common Stock issued for Raytheon Company outstanding common stock & equity awards	652,638		—		—
Dividends per share of Common Stock	$	2.16	$	2.94	$	2.84

See accompanying Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING PRINCIPLES

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

Separation Transactions and Distributions. On April 3, 2020, United Technologies Corporation (UTC) (since renamed Raytheon Technologies Corporation) completed the previously announced separation of its business into three independent, publicly traded companies – UTC, Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis) (such separations, 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). UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions, each of which was effective at 12:01 a.m., Eastern Time, on April 3, 2020. 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. Unless otherwise indicated, amounts and activity throughout these Consolidated Financial Statements are presented on a continuing operations basis, and includes the reclassification of certain long term assets and liabilities to current using the duration of the related contract or program as our operating cycle. Refer to “Note 3: Discontinued Operations” and “Consolidation and Classification” below for further details.

Raytheon Merger. On April 3, 2020, following the completion of the Separation Transactions and the Distributions, pursuant to an Agreement and Plan of Merger dated June 9, 2019, as amended, UTC and Raytheon Company (Raytheon) completed their previously announced all-stock merger of equals transaction (the Raytheon Merger). Upon closing of the Raytheon Merger, Raytheon Company became a wholly owned subsidiary of UTC, which changed its name to “Raytheon Technologies Corporation.”

Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean United Technologies Corporation and its subsidiaries when referring to periods prior to the Raytheon Merger and to the combined company, Raytheon Technologies Corporation, when referring to periods after the Raytheon Merger. Unless the context otherwise requires, the terms “Raytheon Company,” or “Raytheon” mean Raytheon Company and its subsidiaries prior to the Raytheon Merger. UTC was determined to be the accounting acquirer in the merger and, as a result, the financial statements of Raytheon Technologies as of and for the year ended December 31, 2020 include Raytheon Company’s financial position and results of operations for the period subsequent to the completion of the Raytheon Merger on April 3, 2020.

COVID-19 Pandemic. In March 2020, the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government. The pandemic has negatively affected the U.S. and global economy, disrupted global supply chains and financial markets, and resulted in significant travel restrictions, mandated facility closures and shelter-in-place and social distancing orders in numerous jurisdictions around the world. Raytheon Technologies is taking all prudent measures to protect the health and safety of our employees, such as practicing social distancing, performing deep cleaning in all of our facilities, temperature screening, health questionnaires and enabling our employees to work from home where possible. We have also taken appropriate actions to help support our communities in addressing the challenges posed by the pandemic, including the production and donation of personal protective equipment.

Our business and operations and the industries in which we operate have been significantly impacted by public and private sector policies and initiatives in the U.S. and worldwide to address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote working. Additionally, public sentiments regarding air travel have also had a significant impact. We began to experience issues related to COVID-19 in the first quarter of 2020, primarily related to a limited number of facility closures, less than full staffing, and disruptions in supplier deliveries, most significantly in our Collins Aerospace Systems (Collins Aerospace) and Pratt & Whitney businesses.

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. These conditions, which began in the second quarter of 2020, continued through the remainder of 2020. In particular, the unprecedented decrease in air travel resulting from the COVID-19 pandemic is adversely affecting our airline and airframer customers, and their demand for the products and services of our Collins Aerospace and Pratt & Whitney businesses. Based on recent public data, revenue passenger miles (RPMs) declined by approximately 65% in the first eleven months of 2020, compared to the prior year, due to the pandemic. As a result, our airline customers have reported significant reductions in fleet utilization, aircraft grounding and unplanned retirements, and have deferred and, in some cases, cancelled new aircraft deliveries. Airlines have shifted to cash conservation behaviors such as deferring engine maintenance due to lower flight hours and aircraft utilization, requesting extended payment terms, deferring delivery of new aircraft and spare engines and

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requesting discounts on engine maintenance. Some airline customers have filed for bankruptcy due to their inability to meet their financial obligations. Additionally, we are seeing purchase order declines in line with publicly communicated aircraft production volumes as original equipment manufacturer (OEM) customers delay and cancel orders. We continue to monitor these trends and are working closely with our customers. We have been and continue to actively mitigate costs and adjust production schedules to accommodate these declines in demand. We have also been taking actions to preserve capital and protect the long-term needs of our businesses, including cutting discretionary spending, significantly reducing capital expenditures and research and development spend, suspending our share buybacks in 2020, deferring merit increases and implementing temporary pay reductions, freezing non-essential hiring, repositioning employees to defense work, furloughing employees when needed, and personnel reductions. In 2020, we recorded total restructuring charges of $777 million primarily related to personnel reductions at our Collins Aerospace and Pratt & Whitney businesses to preserve capital and at our corporate headquarters due to consolidation from the Raytheon Merger. The former Raytheon Company businesses, although experiencing minor impacts, have not experienced significant facility closures or other significant business disruptions as a result of the COVID-19 pandemic.

Given the impacts described above that have resulted from the COVID-19 pandemic, we expect our future operating results, particularly those of our Collins Aerospace and Pratt & Whitney businesses to continue to be significantly negatively impacted. 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 is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. Our latest estimates are that this 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, timing of the 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.

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 OEM production schedules and we experienced a significant decline in revenues 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. Based on our updated forecast assumptions in the second quarter of 2020, we concluded that the carrying values of two of our Collins Aerospace reporting units were greater than their respective fair values, and accordingly, recorded a goodwill impairment charge of $3.2 billion. We did not identify any further deterioration to our expectations in the third quarter of 2020, and therefore, did not have a triggering event.

We completed our annual goodwill impairment testing as of October 1, 2020 and determined that no additional adjustments to the carrying value of our goodwill were necessary. Refer to “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information.

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

increased estimated credit losses on both our receivables and contract assets of $387 million,
an unfavorable EAC adjustment on a Pratt & Whitney commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period of $334 million,
contract asset and inventory impairments at Collins Aerospace due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a commercial aircraft of $146 million,
an unfavorable EAC adjustment of $129 million related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney,
an $89 million impairment of commercial aircraft program assets at Pratt & Whitney,
the impairment of a Collins Aerospace trade name of $57 million,

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net unfavorable EAC adjustments on commercial aftermarket contracts at Pratt & Whitney based on a change in estimated future customer activity of $75 million,
an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead costs to military contracts of $44 million, and
reserves related to a commercial financing arrangement at Pratt & Whitney of $43 million.

As described further in “Note 8: Commercial Aerospace Industry Assets and Commitments,” we have significant exposure related to our airline and airframer customers, including significant accounts receivable and contract assets balances. Given the uncertainty related to the severity and length of the pandemic, as well as any worsening of the pandemic, mutations to the strains of the virus and the timing and impact of vaccines and whether there will be additional outbreaks of the pandemic and its impact across the aerospace industry, we may be required to record additional charges or impairments in future periods.

Although the impact of COVID-19 on our commercial business is significant, we currently believe we have sufficient liquidity to withstand the current estimated impacts.

Summary of Accounting Principles. As a result of the Raytheon Merger and the Separation Transactions, several of our accounting policies have been modified and certain additional polices have been added. The following represents the significant accounting principles of Raytheon Technologies Corporation.

Consolidation and Classification. The Consolidated Financial Statements include the accounts of Raytheon Technologies Corporation, and all wholly owned, majority-owned and otherwise controlled domestic and foreign subsidiaries. All intercompany transactions have been eliminated. For classification of certain current assets and liabilities, the duration of our contracts or programs is utilized to define our operating cycle, which is generally longer than one year. Included within our current assets and liabilities are contract assets and liabilities related to our aftermarket and development arrangements, which can generally span up to fifteen years.

As a result of the Separation Transactions, the Distributions and the Raytheon Merger, certain reclassifications have been made to the prior year amounts to conform to the current year presentation. These reclassifications include the presentation of current assets and liabilities based upon the duration of our operating cycle, the reclassification of certain unbilled accounts receivable from accounts receivable, net to contract assets, reclassifications of lease amortization within our presentation of cash flows, reclassifications within our segment presentation, and the reclassification of the historical Carrier and Otis results to discontinued operations.

Use of Estimates. Our Consolidated Financial statements are based on the application of U.S. Generally Accepted Accounting Principles (GAAP), which require us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial statements and the accompanying notes. As discussed above, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition, and cash flows, including sales, expenses, reserves and allowances, asset recoverability and EAC adjustments, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and related containment and treatment actions, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Other future events, including COVID-19, and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our Consolidated Financial statements.

Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less. The estimated fair value of cash and cash equivalents approximates the carrying value due to their short maturities.

On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions or divestitures or other legal obligations. As of December 31, 2020 and 2019, the amount of such restricted cash was approximately $30 million and $24 million, respectively. This restricted cash is excluded from cash and cash equivalents and is included in other assets, current and other assets on our Consolidated Balance Sheet.

Accounts Receivable. Accounts receivable are stated at the net amount expected to be collected. The allowance for credit losses is established to provide for the expected lifetime credit losses by evaluating factors such as customer creditworthiness, historical payment and loss experiences, current economic conditions and the age and status of outstanding receivables. See the Accounting Pronouncements section below for additional information as to how we develop our allowance for credit losses under Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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Unbilled receivables represent revenues that are not currently billable to the customer under the terms of the contract and include unbilled amounts under commercial contracts where payment is solely subject to the passage of time. These items are expected to be billed and collected in the normal course of business. Accounts receivable as of December 31, 2020 and 2019 includes unbilled receivables of $228 million and $265 million, respectively, which primarily includes unbilled receivables with commercial aerospace customers. Other unbilled receivables not just subject to the passage of time are included in Contract assets in the Consolidated Balance Sheet, and are generally classified as current.

Contract Assets and Liabilities. Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from our customers. Contract assets reflect revenue recognized and performance obligations satisfied or partially 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.

Contract assets and contract liabilities are generally classified as current as our operating cycle is generally longer than one year. See “Note 6: Contract Assets and Liabilities” for further discussion of contract assets and liabilities.

Inventory. Inventory is stated at the lower of cost or estimated realizable value and is primarily based on first-in, first-out (FIFO) or average cost methods.

Valuation reserves for excess, obsolete, and slow-moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than inventoriable cost. Other factors that management considers in determining the adequacy of these reserves include whether individual inventory parts meet current specifications and can be substituted for a part currently being sold or used as a service part, overall market conditions, and other inventory management initiatives. Manufacturing costs are allocated to current production contracts. In our commercial aerospace businesses, excess costs beyond standard manufacturing costs are expensed when they meet certain thresholds.

Equity Method Investments. Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in Other assets on the Consolidated Balance Sheet. Under this method of accounting, our share of the net earnings or losses of the investee is included in Other income, net on the Consolidated Statement of Operations since the activities of the investee are closely aligned with the operations of the business segment holding the investment. We evaluate our equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. RTC sells products to and purchases products and services from unconsolidated entities accounted for under the equity method, which are considered related parties. This activity is not considered material to the Consolidated Statement of Operations nor Consolidated Balance Sheet of RTC.

Customer Financing Assets. Customer financing assets (CFA) relate to our commercial aerospace businesses in which we provide financing to airline customers. Our financing predominately relates to products under lease, and to a lesser extent, notes and lease receivables. In certain limited circumstances, we pay deposits on behalf of our airline customers to secure production slots with the airframers, and such pre-delivery payments are included in our notes receivables. Any unfunded pre-delivery payments are included within our commercial aerospace financing commitments as further discussed in “Note 19: Commitments and Contingencies.” We record revenue from lease assets by applying Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842: Leases, and from interest income on the notes and lease receivables. Interest income from notes and financing leases and rental income from operating lease assets is generally included in Other income, net in the Consolidated Statement of Operations, while gains or losses on sales of operating lease assets are included in product sales and cost of sales. The current portion of these financing arrangements are aggregated in Other assets, current and the non-current portion of these financing arrangements are aggregated in CFA in the Consolidated Balance Sheet. The increases and decreases in CFA from funding, receipts and certain other activity, are generally reflected as Investing Activities in the Consolidated Statement of Cash Flows. Leased assets are valued at cost and reviewed for impairment when circumstances indicate that the related carrying amounts may not be recoverable. Notes and lease receivables are valued at the net amount expected to be collected. For notes and lease receivables, we determine a specific reserve for exposure based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral in connection with the evaluation of credit risk and collectability. As of December 31, 2020 and 2019 the reserves related to CFA were not material. At December 31, 2020 and 2019, we did not have any significant balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be impaired.

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Business Combinations. Once a business is acquired, the fair value of the identifiable assets acquired and liabilities assumed is determined with the excess cost recorded to goodwill. As required, a preliminary fair value is determined once a business is acquired, with the final determination of the fair value being completed no later than one year from the date of acquisition.

In connection with the acquisitions of Rockwell Collins in 2018 and Goodrich in 2012, and to a lesser extent the acquisition of Raytheon Company in 2020, we recorded assumed liabilities related to customer contractual obligations on certain contracts with economic returns that were lower than what could be realized in market transactions as of the acquisition date. We measured these assumed liabilities based on the estimated cash flows of the programs plus a reasonable contracting profit margin required to transfer the contracts to market participants. These liabilities are being amortized in accordance with the underlying pattern of obligations, as reflected by the expenses incurred on the contracts. The balance of the contractual obligations was $1,243 million and $1,408 million at December 31, 2020 and 2019, respectively. Total consumption of the contractual obligations for the years ended December 31, 2020, 2019 and 2018 was $295 million, $345 million and $252 million, respectively, with future consumption expected to be as follows: $223 million in 2021, $119 million in 2022, $96 million in 2023, $115 million in 2024, $130 million in 2025 and $560 million thereafter.

Goodwill and Intangible Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The goodwill impairment test compares carrying values of the reporting units to their estimated fair values. If the carrying value exceeds the fair value then the carrying value is reduced to fair value. In developing our estimates for the fair value of our reporting units and unamortized intangible assets, significant judgment is required in the determination of the appropriateness of using a qualitative assessment or quantitative assessment. For the quantitative assessments that are performed, fair value is primarily based on income approaches using a discounted cash flow method or relief from royalty method, which have significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates and royalty rates. Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions. Finite-lived intangible assets are tested for impairment when events occur that indicate that the net book value will not be recovered over future cash flows.

Intangible assets consist of patents, trademarks/tradenames, customer relationships, exclusivity assets, developed technology and other intangible assets including collaboration assets. Acquired intangible assets are recognized at fair value in purchase accounting. Finite-lived intangible assets are amortized to cost of sales and selling, general and administrative expenses over the applicable useful lives. Exclusivity assets are commercial aerospace payments made to secure certain contractual rights to provide product on new aircraft platforms. We classify amortization of such payments as a reduction of sales. Such payments are capitalized when there are distinct rights obtained and there are sufficient incremental cash flows to support the recoverability of the assets established. Otherwise, the applicable portion of the payments are expensed. In addition, in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in International Aero Engines AG (IAE), additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments are being capitalized as collaboration assets and amortized to cost of sales.

Useful lives of finite-lived intangible assets are estimated based upon the nature of the intangible asset and the industry in which the intangible asset is used. These intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are consumed, as represented by the underlying cash flows, which may result in an amortization method other than straight-line. For both our commercial aerospace collaboration assets and exclusivity arrangements, the pattern of economic benefit generally results in no amortization during the development period with amortization beginning as programs enter full rate production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used. The range of estimated useful lives is as follows:


			Years
Collaboration assets			30
Customer relationships and related programs			3 to 32
Developed technology			15 to 25
Patents and trademarks			4 to 30
Exclusivity assets			5 to 25

Leases. We account for leases in accordance with ASC Topic 842: Leases, which we adopted on January 1, 2019. As a lessee, we record a right-of-use asset and a lease liability on the Consolidated Balance Sheet for all leases with terms longer than 12

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months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statement of Operations.

We enter into lease agreements for the use of real estate space, vehicles, information technology equipment, and certain other equipment under both operating and finance leases. We determine if an arrangement contains a lease at inception. Operating leases are included in Operating lease right-of-use assets, Accrued liabilities for the current portion of our operating lease liabilities, and Operating lease liabilities in our Consolidated Balance Sheet. Finance leases are not considered significant to our Consolidated Balance Sheet or Consolidated Statement of Operations.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, and use the implicit rate when readily determinable. We determine our incremental borrowing rate through market sources including relevant industry rates. Our lease right-of-use assets also include any initial direct costs and lease pre-payments made at or before the commencement date and are reduced for any lease incentives received at or before the commencement date. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease right-of-use assets and lease liabilities, to the extent not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts are not a material component of lease expense. Some of our leases include the option to extend or terminate the lease. We include these options in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Lease expense is generally recognized on a straight-line basis over the lease term.

In limited instances we act as a lessor, primarily for commercial aerospace engines, the majority of which are classified as operating leases. These leases are not significant to our Consolidated Balance Sheet or Consolidated Statement of Operations.

Other Long-Lived Assets. We evaluate the potential impairment of other long-lived assets whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. If the carrying value of other long-lived assets held and used exceeds the sum of the undiscounted expected future cash flows, the carrying value is written down to fair value. In order for long-lived assets to be considered held for disposal, we must have committed to a plan to dispose of the assets. Once deemed held for disposal, the assets are stated at the lower of the carrying amount or fair value.

Income Taxes. Future income taxes represent the tax effects of transactions which are reported in different periods for tax and financial reporting purposes. These amounts consist of the tax effects of temporary differences between the tax and financial reporting balance sheets and tax carryforwards. Future income tax benefits and payables within the same tax paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheet. 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. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest expense has also been recognized. We recognize accrued interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. State income tax amounts are generally included in income tax expense; however state income tax payments related to our Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) segments are generally recoverable through the pricing of products and services to the U.S. government. Accordingly, these state income taxes are generally allocated to contracts and reclassified to Selling, general and administrative expenses when paid (recovered) or otherwise agreed as allocable with the U.S. government.

We have elected to account for tax on Global Intangible Low-Taxed Income (GILTI) as a period cost, as incurred.

Revenue Recognition. The vast majority of our revenues are from long-term contracts associated with the design, development, manufacture or modification of complex aerospace or defense equipment or related services. Collins Aerospace and Pratt & Whitney primarily serve commercial and government customers in both the OEM and aftermarket parts and services markets of the aerospace industry, while RIS and RMD primarily provide products and services to government customers in the defense industry.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily contracts that are directly with a foreign government, we are required

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to obtain certain regulatory approvals. In these cases, we recognize revenue based on the likelihood of obtaining regulatory approvals based upon all known facts and circumstances. A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while others contain multiple performance obligations most commonly when a contract contains multiple distinct units (such as engines or certain aerospace components) or spans multiple phases of the product life-cycle such as production, maintenance and support. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as the performance obligation is satisfied. When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on its standalone selling price when available. If standalone selling price is not available, we estimate the standalone selling price of each performance obligation, which is generally based on an expected cost plus a margin approach.

We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including contractual discounts, contract incentive payments, estimates of award fees, flight hours, aircraft landings or other customer usage activities on long term maintenance contracts, and other sources of variable consideration, when determining the transaction price of each contract. When reasonably able to estimate, we include variable consideration in the transaction price at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We also consider whether our contracts contain a significant financing component, which they generally do not.

Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.

Performance obligations are satisfied as of a point in time for certain aerospace components, engines, and spare parts. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment. Since billing also typically occurs upon product shipment, we generally do not have contract assets or contract liabilities balances related to point in time sales.

Performance obligations are satisfied over-time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced (continuous transfer of control), or if the product being produced for the customer has no alternative use and we have a contractual right to payment for performance to date. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace OEM and aftermarket contracts.

Substantially all of our defense business revenue, which primarily relates to our RIS and RMD segments, and to a lesser extent Pratt & Whitney and Collins Aerospace, is recognized over time because of the continuous transfer of control to our customers. For performance obligations satisfied over time, revenue is recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs can include labor, materials, subcontractors’ costs, or other direct costs and indirect costs. Our contracts with the U.S. government are typically subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts. The pricing for non-U.S. government contracts is based on the specific negotiations with each customer. Under the typical payment terms of our U.S. government fixed-price contracts, the customer pays us either performance-based payments (PBPs) or progress payments. PBPs are interim payments equal to a negotiated percentage of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments up to 80-90% of costs incurred as the work progresses. Because the customer retains a portion of the contract price until completion of the contract, our U.S. government fixed-price contracts generally result in revenue recognized in excess of billings which we present as Contract assets on the Consolidated Balance Sheet. For our U.S. government cost-type contracts, the customer generally pays us for our costs incurred within a short period of time. For non-U.S. government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. Such advances are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. We recognize a liability for advance payments in excess of revenue recognized and present it as Contract liabilities on the Consolidated Balance Sheet.

For certain of our long-term aftermarket contracts, revenue is recognized over the contract period. We generally account for such contracts as a series of daily performance obligations to stand ready to provide spare parts, product maintenance and aftermarket services. These arrangements include the sale of spare parts with integral services to our customers, and are generally classified as Service sales, with the corresponding costs classified in Cost of services sold, within the Consolidated

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Statement of Operations. Revenue is primarily recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress, as sufficient historical evidence indicates that the cost of performing services under the contract is incurred on an other-than-straight-line basis. For some of our long-term aftermarket contracts, we receive payment prior to delivery of products and services, resulting in a contract liability balance, while for others, we deliver products or services in advance of payment, resulting in a contract asset balance.

Contracts are often modified to account for changes in contract specifications or requirements. We consider contract modifications to exist when the modification either creates new or changes existing enforceable rights and obligations. Contract modifications for goods or services that are not distinct are accounted for as part of the existing contract either on a cumulative catch-up basis or prospective basis depending on the nature of the modification.

Loss provisions on contracts are recognized to the extent that estimated contract costs exceed the estimated consideration from the products or services contemplated under the contractual arrangement. For new commitments, we generally record loss provisions at contract signing except for certain contracts under which losses are recorded upon receipt of the purchase order that obligates us to perform. For existing commitments, anticipated losses on contractual arrangements are recognized in the period in which losses become evident. In estimating losses, products contemplated under contractual arrangements include firm quantities of product sold under contract and, in the commercial engine and wheels and brakes businesses, future highly probable sales of replacement parts required by regulation that are expected to be sold subsequently for incorporation into the original equipment. In our commercial engine and wheels and brakes businesses, when the OEM product is sold for a loss, but the combined OEM and aftermarket arrangement for each individual sales campaign is profitable, we record OEM product losses at the time of product delivery.

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


(dollars in millions, except per share amounts)	2020		2019		2018
Operating profit (loss)	$	(643)	$	(69)	$	(50)
Income (loss) from continuing operations attributable to common shareowners (1)	(508)		(55)		(40)
Diluted earnings (loss) per share from continuing operations attributable to common shareowners (1)	$	(0.37)	$	(0.06)	$	(0.05)

(1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments.

For additional discussion on significant unfavorable EAC adjustments see the COVID-19 Pandemic discussion above. In 2020, 2019 and 2018, revenue was reduced by a net of $407 million, $106 million and increased by $72 million, respectively, for

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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 date of completion of the Raytheon Merger, since only the unperformed portion of the contract at such date represents an obligation of the Company. This will have the impact of reducing gross favorable and unfavorable EAC adjustments for these segments in the short-term, with the exception of EAC adjustments related to loss contracts. For additional information related to the Raytheon Merger, see “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets.”

In our Collins Aerospace and Pratt & Whitney businesses, we incur contract fulfillment costs for engineering and development of aerospace OEM products directly related to existing or anticipated contracts with customers. Such costs generate or enhance our ability to satisfy our performance obligations under these contracts. We capitalize these costs as contract fulfillment costs to the extent the costs are recoverable from the associated contract margin and customer funding, and subsequently amortize the costs as the related performance obligations are satisfied. In instances where intellectual property does not transfer to the customer, we generally defer the customer funding of product engineering and development and recognize revenue when the related performance obligations are satisfied. Capitalized contract fulfillment costs were $1,981 million and $1,519 million as of December 31, 2020 and 2019, respectively and are classified in Other assets in our Consolidated Balance Sheet and are included in Other operating activities, net in our Consolidated Statement of Cash Flows. We regularly assess capitalized contract fulfillment costs for impairment. We had $111 million of impairment for contract fulfillment costs in 2020, and had no impairment in 2019 or 2018. Costs to obtain contracts are not material.

In view of the risks and costs associated with developing new engines and the large up-front investments required that often require returns generated over the full estimated life of the engine, Pratt & Whitney has entered into certain collaboration arrangements in which sales, costs and risks are shared. Sales generated from engine programs, spare parts sales, and aftermarket business under these collaboration arrangements are recorded consistent with our revenue recognition policies in our Consolidated Financial Statements. Amounts attributable to our collaborators for their share of sales are recorded as cost of sales in our Consolidated Financial Statements based upon the terms and nature of the arrangement. Costs associated with engine programs under collaborative arrangements are expensed as incurred. Under these arrangements, collaborators contribute their program share of engine parts, incur their own production costs and make certain payments for shared or joint program costs. The reimbursement from collaborators of their share of program costs is recorded as a reduction of the related expense item at that time. As of December 31, 2020, the collaborators’ interests in all commercial engine programs ranged from 13% to 49%, inclusive of a portion of Pratt & Whitney’s interests held by other participants. Pratt & Whitney is the principal participant in all existing collaborative arrangements, with the exception of the Engine Alliance (EA), a joint venture with GE Aviation, which markets and manufactures the GP7000 engine for the Airbus A380 aircraft. There are no individually significant collaborative arrangements, and none of the collaborators individually have more than a 31% share in an individual program. The following table illustrates the Consolidated Statement of Operations classification and amounts attributable to transactions arising from the collaborative arrangements between participants for each period presented.


(dollars in millions)	2020		2019		2018
Collaborator share of sales:
Cost of products sold	$	1,183	$	2,097	$	1,688
Cost of services sold	1,374		1,674		1,765
Collaborator share of program costs (reimbursement of expenses incurred):
Cost of products sold	(147)		(190)		(209)
Research and development	(177)		(219)		(225)
Selling, general and administrative	(99)		(101)		(87)

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

Remaining Performance Obligations (RPO). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $150.1 billion as of December 31, 2020. Of the total RPO as of December 31, 2020, 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 our current estimates of future developments, which are highly uncertain, and cannot be predicted, including new information which may emerge concerning the scope, severity and duration of the COVID-19 pandemic, actions to contain its spread or treat its impact, and governmental, business and individuals’ actions taken in response to the pandemic, which may result in customer delays or order cancellations.

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Research and Development. Company-sponsored research and development costs, including those costs related to the Company’s portion in connection with cost-sharing arrangements, are charged to expense as incurred and recovery on these cost-sharing arrangements is recorded as a reduction to research and development expense as earned. Customer-sponsored research and development projects performed under contracts with customers are accounted for as contract costs and reported as cost of sales on the related revenue generating contracts.

Foreign Exchange. We conduct business in many different currencies and, accordingly, are subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of operations of many of our foreign subsidiaries are often measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. Dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating the balance sheets of these subsidiaries are deferred as a separate component of accumulated other comprehensive loss (AOCL) in shareowners’ equity.

Derivatives and Hedging Activity. We use derivative instruments, including swaps, forward contracts and options, to help manage certain foreign currency, and from time to time to help manage interest rate and commodity price exposures. Derivative instruments are viewed as risk management tools by us and are not used for trading or speculative purposes. By their nature, all financial instruments involve market and credit risks. We enter into derivative and other financial instruments with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. We limit counterparty exposure and concentration of risk by diversifying counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties. We enter into transactions that are subject to enforceable master netting arrangements or similar agreements with various counterparties. However, we have not elected to offset multiple contracts with a single counterparty and, as a result, the fair value of the derivative instruments in a loss position is not offset against the fair value of derivative instruments in a gain position.

Derivatives used for hedging purposes may be designated and effective as a hedge of the identified risk exposure at the inception of the contract. All derivative instruments are recorded on the balance sheet at fair value. Derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases may be accounted for as cash flow hedges, as deemed appropriate. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings as a component of product sales or expenses, as applicable, when the hedged transaction occurs. Cash payments or receipts on derivatives designated as cash flow hedges are recorded in Other operating activities, net within the Consolidated Statement of Cash Flows. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs.

To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur. Cash receipts or payments related to the settlement of derivatives not designated as hedging instruments are recorded as investing cash flows within the Consolidated Statement of Cash Flows. Additional information pertaining to foreign currency forward contracts and net investment hedging is included in “Note 15: Financial Instruments.”

Environmental. Environmental investigatory, remediation, operating and maintenance costs are accrued 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 with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple responsible parties, we consider our likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. A portion of these costs is eligible for future recovery through the pricing of our products and services to the U.S. government. We regularly assess the probability of recovery of these costs, which requires us to make assumptions about the extent of cost recovery under our contracts and the amount of future contract activity with the U.S. government. We consider such recovery probable based on government contracting regulations and our history of receiving reimbursement for such costs, and accordingly have recorded the future recovery of these costs from the U.S. government within Other assets in the Consolidated Balance Sheet. Accrued environmental liabilities are not reduced by potential insurance reimbursements or potential recoveries from pursuing other parties. See “Note 19: Commitments and Contingencies” for additional details on the environmental remediation activities.

Pension and Postretirement Obligations. U.S. GAAP requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit (PRB) plans. Funded status is measured at least annually in the fourth quarter and represents the difference between the plans’ projected benefit obligation (PBO) and the fair market value of the plans’ assets.

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Changes to our pension and PRB plans’ funded status can result from company actions, such as contributions or changes in plan provisions, or by gains and losses. Gains and losses are primarily a result of changes in assumptions and actual experience that differs from these assumptions. Major assumptions include the discount rate and expected return on plan assets (EROA). These gains or losses are recorded in other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit (income) expense.

A calculated “market-related value” of our plan assets is used to develop the amount of deferred asset gains or losses to be amortized. The market-related value of assets is equal to the fair value of assets adjusted to reflect the recognition, and subsequent amortization, of the difference between actual and expected asset returns over a five-year period. The market-related value of assets is used to calculate the expected return on assets included in the net periodic benefit (income) expense.

The Company has elected to use the “corridor” approach in the amortization of gains and losses, which limits the expense recognition to the net outstanding gains and losses in excess of the greater of 10% of the PBO or 10% of the market-related value of assets. Gains and losses exceeding the corridor are amortized in net periodic benefit (income) expense over either the projected average remaining employee service period or the projected average remaining lifetime of inactive participants depending on the plan.

Net periodic benefit (income) expense is split between operating profit and non-operating income, whereby only the service cost component is included in operating profit and the remaining components are included in Non-service pension (income) expense.

Product Performance Obligations. We extend performance and operating cost guarantees beyond our normal service and warranty policies for extended periods on some of our products, particularly commercial aircraft engines. Liability under such guarantees is based upon future product performance and durability. We accrue for such costs that are probable and can be reasonably estimated. In addition, we incur discretionary costs to service our products in connection with product performance issues. The costs associated with these product performance and operating cost guarantees require estimates over the full terms of the agreements, and require management to consider factors such as the extent of future maintenance requirements, interval between flight and repair time and the future cost of material and labor to perform the services. These cost estimates are largely based upon historical experience. See “Note 18: Guarantees” for further discussion.

Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, contract assets and off-balance sheet credit exposures. The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period. This ASU requires that the statement of operations reflect estimates of expected credit losses for newly recognized financial assets as well as changes in the estimate of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses.

We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach. A cumulative-effect non-cash adjustment to retained earnings as of January 1, 2020 was recorded in the amount of $59 million. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

We are exposed to credit losses primarily through our sales of products and services to commercial customers which are recorded as trade receivables, contract assets, long-term receivables, and notes and lease receivables on the Consolidated Balance Sheet. We do not have any significant exposure for credit losses related to sales of products and services to our government customers. Our method for developing our allowance for credit losses involves making informed judgments regarding whether an adjustment is necessary to our historical loss experiences to reflect our expectations around current economic conditions and reasonable and supportable forecast periods, where applicable. We utilize current economic market data as well as other internal and external information available to us to inform our decision making. In certain circumstances we may be able to develop reasonable and supportable forecasts over the contractual term of the financial asset or off-balance sheet exposure. For periods beyond which we are able to make or obtain reasonable and supportable forecasts, we revert to historical loss experience and information.

We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. We conduct a review of customer credit ratings, published historical credit default rates for different rating categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness of the allowance for credit losses on these balances quarterly or when events and circumstances warrant. In addition to credit quality indicators, factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses, and existing economic conditions, including geographic and political risk. A credit limit is established for each customer based on the outcome of this review. Customer credit ratings range from

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customers with an extremely strong capacity to meet financial obligations, to customers whose uncollateralized receivable is in default. We may require collateral or prepayment to mitigate credit risk.

To estimate expected credit losses of financial assets with similar risk characteristics, we determine an asset is impaired when, based on historical experience, current information and a reasonable forecast period, there is risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

We can also be exposed to credit losses from off-balance sheet exposures, such as certain financial guarantees and financing commitments. We have assessed these potential exposures and concluded that there are no material associated credit losses as of December 31, 2020.

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: exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance in regards to: franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes. The provisions of this ASU are effective for years beginning after December 15, 2020. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.

Other new pronouncements issued but not effective until after December 31, 2020 did not and are not expected to have a material impact on our financial position, results of operations or liquidity.

NOTE 2: BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLE ASSETS

Business Acquisitions. Our investments in businesses net of cash acquired in 2020, 2019 and 2018 totaled $35,077 million (including debt assumed of $4,700 million and stock issued of $33,166 million), $9 million, and $30,783 million (including debt assumed of $7,784 million and stock issued of $7,960 million) respectively. Our investments in businesses in 2020 and 2018 primarily consisted of the acquisition of Raytheon Company and Rockwell Collins, Inc. (Rockwell Collins), respectively.

Raytheon Merger. As noted 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

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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.

Preliminary Allocation of Consideration Transferred to Net Assets Acquired. We are accounting 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. The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Raytheon Merger. As of December 31, 2020, the majority of the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed have been reviewed and finalized; however, our assessment of certain contingencies including environmental liabilities, pension and postretirement benefit obligations and taxes remain open for completion of the related valuation analyses. We expect to finalize the purchase price allocation process in the first quarter of 2021 when we finalize our valuations and reviews.

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Any potential adjustments made could be material in relation to the preliminary values presented below.


(dollars in millions)
Cash and cash equivalents	$	3,208
Accounts receivable	1,997
Inventory	705
Contract assets	6,023
Other assets, current	940
Fixed assets	4,745
Operating lease right-of-use assets	950
Intangible assets:	19,130
Customer relationships	12,900
Tradenames/trademarks	5,430
Developed technology	800
Other assets	1,193
Total identifiable assets acquired	38,891
Accounts payable	1,455
Accrued employee compensation	1,492
Other accrued liabilities	1,797
Contract liabilities	2,991
Long-term debt, including current portion	4,700
Operating lease liabilities, non-current portion	738
Future pension and postretirement benefit obligation	11,621
Other long-term liabilities	2,425
Total liabilities acquired	27,219
Total identifiable net assets	11,672
Goodwill	21,528
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. Fair value adjustments also included a preliminarily estimated 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, which includes an incremental adjustment of $980 million in the fourth quarter of 2020, principally due to a refinement of our demographic assumptions. For further information, see “Note 11: Employee Benefit Plans.” In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of such closing date. The preliminary assessment did not note any significant 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 judgment, 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

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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)	Estimated Fair Value		Estimated 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 $21.5 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 2020, approximately $142 million, of transaction and integration costs have been incurred which excludes $23 million of transaction costs related to the divestitures required for regulatory approval discussed further in Dispositions below. These costs were recorded in Selling, general and administrative expenses within the 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 and the Raytheon Merger.


(dollars in millions, except per share amounts)	2020		2019
Net sales	$	64,087	$	74,238
Income (loss) from continuing operations attributable to common shareowners	(2,167)		6,544


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


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

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.


(dollars in millions)	2020		2019
Amortization of acquired Raytheon Company intangible assets, net (1)	$	(270)	$	(1,048)
Amortization of fixed asset fair value adjustment (2)	(9)		(38)
Utilization of contractual customer obligation (3)	8		57
Deferred revenue fair value adjustment (4)	(4)		(33)
Adjustment to non-service pension (income) expense (5)	239		832
RTC/Raytheon fees for advisory, legal, accounting services (6)	134		(134)
Adjustment to interest expense related to the Raytheon Merger, net (7)	9		36
Elimination of deferred commission amortization (8)	5		20
	$	112	$	(308)

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

(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 preliminary fair value of the assumed performance obligations as they are satisfied.

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(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.

In December 2020, we completed the acquisition of Blue Canyon Technologies, a leading provider of small satellites and spacecraft systems components, for $426 million, net of cash received. Blue Canyon Technologies is reported in the Raytheon Intelligence & Space segment. In connection with this acquisition, we preliminarily recorded $266 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, which is expected to be deductible for tax purposes, and $141 million of intangible assets, primarily related to customer relationships. The purchase price allocation process is expected to be complete in 2021 after the conclusion of our final reviews.

Rockwell Collins Acquisition. On November 26, 2018, we completed the acquisition of Rockwell Collins (the Rockwell Acquisition), a leader in aviation and high-integrity solutions for commercial and military customers as well as leading-edge avionics, flight controls, aircraft interior and data connectivity solutions. Under the terms of the Rockwell acquisition agreement, each share of common stock, par value $0.01 per share, of Rockwell Collins issued and outstanding immediately prior to the effective time of the Rockwell Acquisition (other than shares held by Rockwell Collins, the Company, Riveter Merger Sub Corp or any of their respective wholly owned subsidiaries) was converted into the right to receive (1) $93.33 in cash, without interest, and (2) 0.37525 shares of Company common stock (together, the Acquisition Consideration), less any applicable withholding taxes, with cash paid in lieu of fractional shares. The total aggregate consideration payable in the Rockwell Acquisition was $15.5 billion in cash ($14.9 billion net of cash acquired) and 62.2 million shares of Company common stock. In addition, $7.8 billion of Rockwell Collins debt was outstanding at the time of the Rockwell Acquisition. This equated to a total enterprise value of $30.6 billion, including the $7.8 billion of Rockwell Collins’ outstanding debt.


(dollars in millions)	Amount
Cash consideration paid for Rockwell Collins outstanding common stock & equity awards	$	15,533
Fair value of UTC common stock issued for Rockwell Collins outstanding common stock & equity awards	7,960
Total consideration transferred	$	23,493

The cash consideration utilized for the Rockwell Acquisition was partially financed through the issuance of $11.0 billion aggregate principal notes on August 16, 2018 for net proceeds of $10.9 billion. For the remainder of the cash consideration, we utilized repatriated cash and cash equivalents and cash flow generated from operating activities.

Acquisition-Related Costs. Acquisition-related costs have been expensed as incurred. In 2019 and 2018, $40 million and $112 million, respectively, of transaction and integration costs have been incurred related to the Rockwell Acquisition. These costs were recorded in Selling, general and administrative expenses within the Consolidated Statement of Operations.

Supplemental Pro-Forma Data. Rockwell Collins’ results of operations have been included in RTC’s financial statements for the period subsequent to the completion of the acquisition on November 26, 2018. Rockwell Collins contributed sales of approximately $778 million and operating profit of approximately $11 million for the year ended December 31, 2018. The following unaudited supplemental pro-forma data presents consolidated information as if the acquisition had been completed on January 1, 2017. The pro-forma results were calculated by combining the results of RTC with the stand-alone results of Rockwell Collins for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period:


(dollars in millions, except per share amounts; shares in millions)	2018
Net sales	$	42,336
Net income attributable to common shareowners from continuing operations	2,011
Basic earnings per share of common stock from continuing operations	$	2.26
Diluted earnings per share of common stock from continuing operations	2.24

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tax impact. As our acquisition of Rockwell Collins was completed on November 26, 2018, the pro-forma adjustments in the table below only include the required adjustments through November 26, 2018:


(dollars in millions)	2018
Amortization of inventory and fixed asset fair value adjustment (1)	$	58
Amortization of acquired Rockwell Collins intangible assets, net (2)	(193)
Utilization of contractual customer obligation (3)	16
RTC/Rockwell fees for advisory, legal, accounting services (4)	212
Interest expense incurred on acquisition financing, net (5)	(199)
Elimination of capitalized pre-production engineering amortization (6)	63
Adjustment to net periodic pension cost (7)	42
Adjustment to reflect the adoption of ASC 606 (8)	106
Elimination of entities held for sale (9)	(47)
	$	58

(1) Reflects the elimination of the inventory step-up amortization recorded by RTC in 2018 as this would have been completed within the first two quarters of 2017. Additionally, this adjustment reflects the amortization of the fixed asset fair value adjustment as of the acquisition date.

(2) Reflects the additional amortization of the acquired Rockwell Collins’ intangible assets recognized at fair value in purchase accounting and eliminates the historical Rockwell Collins intangible asset amortization expense.

(3) Reflects the additional amortization of liabilities recognized for acquired contracts with terms less favorable than could be realized in market transactions as of the acquisition date and eliminates Rockwell Collins historical amortization of these liabilities.

(4) Reflects the elimination of transaction-related fees incurred by RTC and Rockwell Collins in connection with the acquisition and assumes all of the fees were incurred during the first quarter of 2017.

(5) Reflects the additional interest expense incurred on debt to finance our acquisition of Rockwell Collins and reduces interest expense for the debt fair value adjustment which would have been amortized.

(6) Reflects the elimination of Rockwell Collins capitalized pre-production engineering amortization to conform to RTC policy.

(7) Reflects adjustments for the elimination of amortization of prior service cost and actuarial loss amortization, which was recorded by Rockwell Collins, as a result of fair value purchase accounting, net of the impact of the revised pension and post-retirement benefit (expense) as determined under RTC’s plan assumptions.

(8) Reflects adjustments to Rockwell Collins revenue recognition as if they adopted the New Revenue Standard as of January 1, 2018 and primarily relates to capitalization of contract costs and changes in timing of sales recognition for contracts requiring an over time method of revenue recognition, partially offset by deferral of revenue recognized on OEM product engineering and development.

(9) Reflects the elimination of entities required to be sold for regulatory approvals.

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 and related financing had been consummated on January 1, 2017, nor are they indicative of future results.

Dispositions. In 2020, 2019 and 2018 cash inflows related to dispositions during were $2,556 million, $134 million, and $74 million, respectively.

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 for $231 million in cash, net of transaction-related costs. The business was part of our RIS segment. As the transaction occurred subsequent to the Raytheon Merger, the gain of $199 million was not recorded in the Consolidated Statement of Operations, but rather was recorded as part of the fair value of net assets acquired in the preliminary 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 the third quarter of 2020, in accordance with conditions imposed for regulatory approval of the Raytheon Merger, we completed the sale of our Collins Aerospace military Global Positioning System (GPS) and space-based precision optics businesses for $2.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction costs, of $564 million ($240 million after tax), of which $595 million was included in Other income, net partially offset by $23 million of aggregate transaction costs included in Selling, general and administrative costs and an $8 million expense included in Non-service pension (income)

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expense within our Consolidated Statement of Operations. Income before taxes for 2020, through the date of sale, and for full year 2019 for these businesses were $94 million and $153 million, respectively.

In October 2020, we entered into a definitive agreement to sell our Forcepoint business, which we completed in January 2021, for $1.1 billion in cash. At December 31, 2020, the related assets of approximately $1.9 billion and liabilities of approximately $855 million have been accounted for as held for sale at fair value less cost to sell; however, Forcepoint does 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 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 do not expect to recognize a pre-tax gain or loss within the Consolidated Statement of Operations related to the sale of Forcepoint, as any difference between the fair value, as determined by the purchase price, and the book value of the net assets has been recorded as part of the fair value of the net assets acquired in the preliminary allocation of consideration transferred to net assets acquired in the Raytheon Merger. The results of Forcepoint are included in Eliminations and other in our segment results.

Goodwill. Changes in our goodwill balances for the year ended in 2020 were as follows:


(dollars in millions)	Balance as of January 1, 2020		Acquisitions and Divestitures		Impairment Losses		Foreign currency translation and other		Balance as of December 31, 2020
Collins Aerospace Systems	$	35,025	$	(890)	$	(3,183)	$	619	$	31,571
Pratt & Whitney	1,563		—		—		—		1,563
Raytheon Intelligence & Space	—		9,236		—		4		9,240
Raytheon Missiles & Defense	—		11,887		—		3		11,890
Total Segment	36,588		20,233		(3,183)		626		54,264
Eliminations and other	21		—		—		—		21
Total	$	36,609	$	20,233	$	(3,183)	$	626	$	54,285

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

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 goodwill impairments of $3.2 billion. Collins Aerospace discounted future cash flow estimates were developed for three scenarios: a base case, a downside case, and an upside case. These scenarios included assumptions regarding future airline flight activity, out of warranty hours on original equipment, expected repairs, upgrades and replacements, future OEM manufacturing schedules and related environmental assumptions, including individuals’ desire to return to normal travel, business needs to travel, and potential cures or vaccines to prevent or reduce the effects of COVID-19. These estimates require a significant amount of judgment and are subject to change based upon factors outside our control. We weighted the three scenarios as follows: 50% for the base case, 40% for the downside case, and 10% for the upside case, and used these weightings, as we believed they reflected the risks and opportunities relative to our estimates. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios.

We did not identify any further deterioration to our expectations in the third quarter of 2020, and therefore, did not have a triggering event.

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On October 1, 2020, we changed our annual goodwill impairment testing date from July 1 to October 1 to better align with the timing of our annual long-term planning process. Accordingly, management determined that the change in accounting principle is preferable under the circumstance. This change has been applied prospectively from October 1, 2020 as retrospective application would not change the Company’s accounting for goodwill. This change was not material to our Consolidated Financial Statements as it did not delay, accelerate, or avoid any potential goodwill impairment charges. We completed our annual impairment testing as of October 1, 2020, where we assessed our Pratt & Whitney, RIS, RMD and one of the Collins Aerospace reporting units using qualitative factors to determine whether it was more likely than not that any individual reporting unit’s fair value is less than its carrying value (step 0) and determined that no further testing was required based on there being no significant changes at RIS and RMD since the acquisition of Raytheon Company and the substantial cushion of fair value over book value at the other reporting units. For the remainder of our Collins Aerospace reporting units, we compared the fair value of the reporting units to their respective carrying values (step 1), and determined that no additional adjustments to the carrying value of goodwill were necessary.

Based on our annual impairment analysis as of October 1, 2020, the reporting unit that was closest to impairment was a reporting unit at Collins Aerospace with a fair value in excess of book value, including goodwill, of $1.2 billion or 7%.

Impairment evaluations at Collins Aerospace and Pratt & Whitney resulted in several other non-goodwill related impairment charges as further discussed in “Note 1: Basis of Presentation and Summary of Accounting Principles.” These charges were primarily due to declines in expected future commercial air traffic, airline bankruptcies, or other impacts such as accelerated fleet retirements, announced program delays and expected changes to contract terms.

The Company continuously monitors for 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, 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 a more prolonged and/or severe COVID-19 pandemic than originally anticipated, 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:


	2020				2019
(dollars in millions)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Amortized:
Patents and trademarks	$	48	$	(35)	$	47	$	(34)
Collaboration intangible assets	5,021		(1,024)		4,862		(920)
Exclusivity assets	2,541		(295)		2,386		(275)
Developed technology and other	906		(316)		890		(217)
Customer relationships	30,241		(5,262)		17,750		(3,392)
	38,757		(6,932)		25,935		(4,838)
Unamortized:
Trademarks and other	8,714		—		3,376		—
Total	$	47,471	$	(6,932)	$	29,311	$	(4,838)

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 and recorded $57 million in 2020 related to the impairment of an indefinite-lived tradename intangible assets at Collins Aerospace. At December 31, 2020, the intangible asset that was closest to impairment was a tradename at Collins Aerospace with a fair value in excess of book value of approximately $110 million, or 7%. We also evaluated amortizable intangible assets and identified no impairments. 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 was $2,125 million, $1,244 million and $736 million in 2020, 2019 and 2018, respectively. The following is the expected amortization of total intangible assets for 2021 through 2025, which reflects the pattern of expected economic benefit on certain aerospace intangible assets:


(dollars in millions)			2021						2022						2023						2024						2025
Amortization expense			$2,409						$1,924						$2,040						$2,106						$2,020

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NOTE 3: DISCONTINUED OPERATIONS

As discussed above, 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. The Separation Transactions were completed on April 3, 2020. In 2020, a total of $1,329 million of costs have been incurred related to the Separation Transactions and recorded in the following financial statement line items: $974 million in Income from discontinued operations, $86 million of benefit in Income tax expense from discontinued operations, $23 million in Income from continuing operations and $418 million in Income tax expense.

Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Income (loss) from discontinued operations is as follows:


	Year Ended December 31
(dollars in millions)	2020		2019		2018
Otis	$	187	$	1,033	$	1,213
Carrier	196		1,698		2,840
Separation related transactions (1)	(793)		(704)		—
Income (loss) from discontinued operations	$	(410)	$	2,027	$	4,053

(1) Reflects debt extinguishment costs in 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.

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


	Year Ended December 31
(dollars in millions)	2020		2019		2018
Otis
Product sales	$	1,123	$	5,669	$	5,636
Service sales	1,843		7,444		7,268
Cost of products sold	913		4,656		4,624
Cost of services sold	1,157		4,635		4,568
Research and development	38		163		185
Selling, general and administrative expense	450		1,906		1,636
Other income (expense), net	(65)		(40)		26
Non-operating (income) expense, net	3		4		(18)
Income from discontinued operations, before income taxes	340		1,709		1,935
Income tax expense	116		525		561
Income from discontinued operations	224		1,184		1,374
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations	37		151		161
Income from discontinued operations attributable to common shareowners	$	187	$	1,033	$	1,213
Carrier
Product sales	$	3,143	$	15,337	$	15,657
Service sales	741		3,247		3,239
Cost of products sold	2,239		10,878		11,047
Cost of services sold	527		2,298		2,281
Research and development	98		400		399
Selling, general and administrative expense	669		2,888		2,566
Other income (expense), net	(30)		246		1,156
Non-operating (income) expense, net	17		(43)		(82)
Income from discontinued operations, before income taxes	304		2,409		3,841
Income tax expense	102		672		967
Income from discontinued operations	202		1,737		2,874
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations	6		39		34
Income from discontinued operations attributable to common shareowners	$	196	$	1,698	$	2,840
Separation related transactions (1)
Selling, general and administrative expense	$	151	$	16	$	—
Other income (expense), net	(709)		(11)		—

Loss from discontinued operations, before income taxes	(860)		(27)		—
Income tax (benefit) expense	(67)		677		—
Loss from discontinued operations, net of tax	(793)		(704)		—
Total income (loss) from discontinued operations attributable to common shareowners	$	(410)	$	2,027	$	4,053

(1) Reflects debt extinguishment costs 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.

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Selected financial information related to cash flows from discontinued operations is as follows:


	Year Ended December 31
(dollars in millions)	2020		2019		2018











Net cash (used in) provided by operating activities	$	(728)	$	3,062	$	3,652
Net cash (used in) provided by investing activities	(241)		(416)		286
Net cash used in financing activities	(1,414)		(2,651)		(4,244)

Net cash provided by operating activities includes the net operating cash flows of Carrier and Otis prior to the Separation Transactions, as well as cash outflows by the Company primarily related to professional services costs in connection with the Separation Transactions and the establishment of Carrier and Otis as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities. Net cash used in financing activities primarily consists of net cash transfers from Carrier and Otis to RTC.

The Separation of Carrier was treated as a return on capital and recorded as a reduction to retained earnings, as it was in a net asset position, while the Separation of Otis was treated as a return of capital and recorded as an adjustment to Common stock, as it was in a net liability position. The remaining assets and liabilities related to discontinued operations at December 31, 2020 primarily relate to trailing tax assets and liabilities of the Company related to the Separation Transactions, including indemnification obligations.

The major components of assets and liabilities related to discontinued operations at December 31, 2019 are provided below:


(dollars in millions)	Otis		Carrier		Total
Assets
Cash and cash equivalents	$	1,446	$	995	$	2,441
Accounts receivable, net	2,899		2,728		5,627
Contract assets, current	530		679		1,209
Inventories and contracts in progress, net	571		1,332		1,903
Other assets, current	213		221		434

Fixed assets, net	747		1,686		2,433
Operating lease right-of-use assets	529		818		1,347
Goodwill	1,647		9,807		11,454
Intangible assets, net	490		1,083		1,573
Other assets	575		2,827		3,402
Total assets related to discontinued operations	$	9,647	$	22,176	$	31,823
Liabilities and Redeemable Noncontrolling Interest
Short-term borrowings	$	33	$	38	$	71
Accounts payable	1,321		1,682		3,003
Accrued employee compensation	516		506		1,022
Other accrued liabilities	1,135		2,383		3,518
Contract liabilities, current	2,288		611		2,899
Long-term debt, currently due	1		237		238
Long-term debt	5		82		87
Future pension and postretirement benefit obligations	560		455		1,015
Operating lease liabilities	383		668		1,051

Other long-term liabilities (1)	514		1,025		1,539

Total liabilities related to discontinued operations	$	6,756	$	7,687	$	14,443

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NOTE 4: EARNINGS PER SHARE


(dollars in millions, except per share amounts; shares in millions)	2020		2019		2018
Net income (loss) attributable to common shareowners:
Income (loss) from continuing operations	$	(3,109)	$	3,510	$	1,216
Income (loss) from discontinued operations	(410)		2,027		4,053
Net income (loss) attributable to common shareowners	$	(3,519)	$	5,537	$	5,269
Basic weighted average number of shares outstanding	1,357.8		854.8		800.4
Stock awards and equity units (share equivalent)	—		9.1		9.7
Diluted weighted average number of shares outstanding	1,357.8		863.9		810.1
Earnings (Loss) per share attributable to common shareowners - basic
Income (loss) from continuing operations	$	(2.29)	$	4.11	$	1.52
Income (loss) from discontinued operations	(0.30)		2.37		5.06
Net income (loss) attributable to common shareowners	$	(2.59)	$	6.48	$	6.58
Earnings (Loss) per share attributable to common shareowners - diluted
Income (loss) from continuing operations	$	(2.29)	$	4.06	$	1.50
Income (loss) from discontinued operations	(0.30)		2.35		5.00
Net income (loss) attributable to common shareowners	$	(2.59)	$	6.41	$	6.50

It may not be possible to recalculate earnings per share (EPS) attributable to common shareowners by adjusting EPS from continuing operations by EPS from discontinued operations as each amount is calculated independently.

The computation of diluted 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 2020, 2019 and 2018, there were 32.5 million, 8.3 million and 5.1 million anti-dilutive stock awards excluded from the computation, respectively. All outstanding stock awards are excluded in the computation of diluted EPS in 2020 because their effect was antidilutive due to the loss from continuing operations.

NOTE 5: ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:


(dollars in millions)	2020		2019
U.S. government contracts (including foreign military sales)	$	1,039	$	551
Other customers	8,761		8,446
Allowance for expected credit losses	(546)		(254)
Total accounts receivable, net	$	9,254	$	8,743

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 $6.4 billion and $7.8 billion in 2020 and 2019, respectively. The cash received from these arrangements is reflected as cash provided by operating activities in the 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 December 31, 2020 and 2019, the Company had $10 million and $7 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 Consolidated Statement of Cash Flows.

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The changes in the allowance for expected credit losses related to Accounts receivable were as follows:


(dollars in millions)	2020
Balance as of December 31, 2019	$	254
Current period provision for expected credit losses(1)	277
Write-offs charged against the allowance for expected credit losses	(5)
Other, net(2)	20
Balance as of December 31, 2020	$	546

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

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

The activity in the allowance for doubtful accounts was not material in 2019 or 2018.

NOTE 6: CONTRACT ASSETS AND LIABILITIES

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of December 31, 2020 and 2019 are as follows:


(dollars in millions)	2020		2019
Contract assets	$	9,931	$	4,462
Contract liabilities	(12,889)		(9,014)
Net contract liabilities	$	(2,958)	$	(4,552)

Contract assets increased $5,469 million during the year ended December 31, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $5.5 billion, net of $335 million of contract asset write-offs or reclassifications related to certain precision guided munitions contracts with certain Middle Eastern customers as described below. Included in the change in contract assets was a decrease of $132 million due to the impairments and incremental credit loss reserves related to our commercial aerospace businesses, as discussed below. Contract liabilities increased $3,875 million during the year ended December 31, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $3.8 billion.

We have direct commercial sales contracts for precision guided munitions with a certain Middle East customer, for which we have not yet obtained regulatory approval. Due to the result of the U.S. presidential and congressional election, and the resulting uncertainty surrounding U.S. foreign policy on direct commercial sales for precision guided munitions with this customer, we determined that it is no longer probable that we will be able to obtain required regulatory approvals for these contracts; however, this determination could change as the U.S. government’s foreign policy views are clarified. Therefore, in the fourth quarter of 2020, we reversed $119 million of sales for work performed on these specific contracts subsequent to the date of the Raytheon Merger and through the end of the third quarter of 2020, and the related operating profit. In addition, we recognized an unfavorable profit impact of $516 million, primarily related to inventory reserves, contract asset impairments and recognition of supplier related obligations related to termination liability, which we now do not expect to be utilized or otherwise directed to other customers. In addition, we reversed $755 million of backlog on these contracts. As of December 31, 2020, our contract liabilities include $405 million of advance payments received from the customer on these contracts, which may become refundable to the customer if the contracts are ultimately terminated.

Contract assets consisted of the following at December 31:


(dollars in millions)	2020		2019
Unbilled	$	20,336	$	5,211
Progress payments	(10,405)		(749)
Total contract assets	$	9,931	$	4,462

The U.S. government has title to the assets related to unbilled amounts on U.S. government contracts that provide progress payments.

Contract assets include retentions arising from contractual provisions. At December 31, 2020, retentions were $98 million.

Total contract assets include an allowance for credit losses of $177 million as of December 31, 2020. For additional information

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on the adoption of the Credit Loss Standard on January 1, 2020, see “Note 1: Basis of Presentation and Summary of Accounting Principles.” The increase in the allowance for 2020 includes incremental credit loss reserves of $132 million related to a number of airline customers that have filed for bankruptcy and additional reserves due to the current economic environment primarily caused by the COVID-19 pandemic. In addition, in 2020, we recognized an impairment of $111 million of contract assets at Collins Aerospace due to the impact of lower estimated future customer activity principally driven by the expected acceleration of fleet retirements of a commercial aircraft, and we recognized an impairment of $129 million of contract assets as a result of an unfavorable EAC adjustment related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney.

In 2020, 2019 and 2018, we recognized revenue of $2,763 million, $2,850 million and $2,269 million related to our contract liabilities at January 1, 2020, January 1, 2019 and January 1, 2018, respectively.

NOTE 7: INVENTORY, NET


(dollars in millions)	2020		2019
Raw materials	$	3,015	$	2,984
Work-in-process	2,924		2,586
Finished goods	3,472		3,477
	$	9,411	$	9,047

Raw materials, work-in-process and finished goods are net of valuation reserves of $1,788 million and $1,122 million as of December 31, 2020 and 2019, respectively.

NOTE 8: COMMERCIAL AEROSPACE INDUSTRY ASSETS AND COMMITMENTS

The COVID-19 pandemic’s continued disruption to air travel and commercial activities and the significant restrictions and limitations on businesses within the aerospace and commercial airline industries have negatively impacted global supply, demand and distribution capabilities. In particular, the significant decrease in air travel resulting from the COVID-19 pandemic is adversely affecting our airline and airframer customers, and their demand for the products and services of our Collins Aerospace and Pratt & Whitney businesses. As described in “Note 1: Basis of Presentation and Summary of Accounting Principles,” in 2020, we recorded a goodwill impairment charge of $3.2 billion at our Collins Aerospace business, as well as write-downs of assets in both our Collins Aerospace and Pratt & Whitney businesses primarily related to increased estimated credit losses, impairments of contract assets due lower estimated future customer activity or revenues on commercial contracts, impairment of commercial aircraft program assets and the impairment of a Collins Aerospace trade name. We continue to monitor the recoverability of our commercial aerospace industry assets and assess potential exposures. The following summarizes certain significant assets and off-balance sheet exposures specifically related to our commercial aerospace customers:


(dollars in millions)	2020		2019
Assets related to commercial aerospace industry customers:
Accounts receivable, net (Note 5)	$	7,239	$	7,560
Contract assets (Note 6)	2,559		2,741
Customer financing assets (1) (Note 1)	3,160		3,476
Contract fulfillment costs (Note 1)	1,773		1,361


Guarantees and Commitments related to commercial aerospace industry customers:
Commercial aerospace guarantees (net of reserves and collaboration partners’ share) (Note 18)	174		184
Commercial aerospace commitments (net of collaboration partners’ share) (Note 19)	8,515		9,708

(1) Customer financing assets is inclusive of both the current and long term balances.

We also have goodwill and intangible assets, including exclusivity assets and collaboration assets, associated with our commercial aerospace business. Refer to “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets” for further discussion.

NOTE 9: FIXED ASSETS, NET

Fixed assets, net, are stated at cost less accumulated depreciation. Major improvements are capitalized while expenditures for maintenance, repairs and minor improvements are expensed. For sales or asset retirements, the assets and related accumulated

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depreciation and amortization are eliminated from the accounts. Gains and losses on sales of our fixed assets, net, are generally recorded in operating income; however, for our RIS and RMD segments, gains and losses that are allocable to our contracts are included in overhead, as we are required to allocate gains or losses and generally can recover these costs through the pricing of products and services to the U.S. government.


(dollars in millions)	Estimated Useful Lives	2020		2019
Land		$	773	$	292
Buildings and improvements	12-45 years	7,067		4,978
Machinery, tools and equipment	3-20 years	15,994		12,936
Other, including assets under construction		2,512		1,871
		26,346		20,077
Accumulated depreciation		(11,384)		(9,755)
		$	14,962	$	10,322

Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the improvement.

Depreciation expense related to fixed assets, net is recorded predominantly utilizing the straight-line method and was $1,767 million in 2020, $1,191 million in 2019 and $945 million in 2018.

NOTE 10: BORROWINGS AND LINES OF CREDIT


(dollars in millions)	2020		2019

Commercial paper	$	160	$	—
Other borrowings	87		2,293
Total short-term borrowings	$	247	$	2,293

As of December 31, 2020, 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 preparation for and in anticipation of the Separation Transactions, the Distributions and the Raytheon Merger, the Company entered into and terminated a number of credit agreements.

On February 11, 2020 and March 3, 2020, we terminated a $2.0 billion revolving credit agreement and a $4.0 billion term loan credit agreement, respectively. Upon termination, we repaid the $2.1 billion of borrowings outstanding on the $4.0 billion term loan credit agreement. On April 3, 2020, upon the completion of the Raytheon Merger, we terminated a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement.

On March 20, 2020 and March 23, 2020, we entered into two $500 million term loan credit agreements and borrowed $1.0 billion under these agreements in the first quarter of 2020. We terminated these agreements on May 5, 2020 and April 28, 2020, respectively, upon repayment.

On March 16, 2020, we entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $5.0 billion which became available upon completion of the Raytheon Merger on April 3, 2020. This credit agreement matures on April 3, 2025. On May 6, 2020, we entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $2.0 billion. This credit agreement matures on May 5, 2021. As of December 31, 2020, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion, and there were no borrowings outstanding under these agreements.

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 during the year ended December 31, 2020, which are shown in the tables below. On February 10, 2020, Otis entered into a term loan credit agreement providing for a $1.0 billion unsecured, unsubordinated 3-year term loan credit facility. Also on February 10, 2020, Carrier entered into a term loan credit agreement providing for a $1.75 billion unsecured, unsubordinated 3-year term loan credit facility. On March 27, 2020, Carrier and Otis drew on the full amounts of the term loans and distributed the full proceeds to Raytheon Technologies in connection with the Separation

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Transactions. UTC utilized those amounts 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.

At December 31, 2020, approximately $1 billion was available under short-term lines of credit with local banks at our various domestic and international subsidiaries. The weighted-average interest expense rates applicable to short-term borrowings and total debt were as follows:


	2020		2019
Average interest expense rate - average outstanding borrowings during the year:
Short-term borrowings	2.0	%	1.7	%
Total debt	4.0	%	3.6	%
Average interest expense rate - outstanding borrowings as of December 31:
Short-term borrowings	0.6	%	2.3	%
Total debt	4.2	%	3.6	%

We had the following issuances of long-term debt during 2020, which is inclusive of issuances made by Carrier and Otis which were primarily used by the Company to extinguish certain Raytheon Technologies short-term and long-term debt and, therefore, were treated as a distribution from discontinued operations within financing activities from continuing operation on our 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 had no issuances of long-term debt during 2019.

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We made the following repayments of debt during 2020 and 2019:


Repayment Date	Description of Notes	Aggregate Principal Balance (in millions)
October 15, 2020	3.125% notes due 2020 (1)	$	1,000
May 19, 2020	3.650% notes due 2023 (2)(3)	$	410
May 15, 2020	EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)(3)	$	817
March 29, 2020	4.500% notes due 2020 (2)(3)	$	1,250
	1.125% notes due 2021 (€950 million principal value) (2)(3)	$	1,082
	1.250% notes due 2023 (€750 million principal value) (2)(3)	$	836
	1.150% notes due 2024 (€750 million principal value) (2)(3)	$	841
	1.875% notes due 2026 (€500 million principal value) (2)(3)	$	567
March 3, 2020	1.900% notes due 2020 (2)(3)	$	1,000
	3.350% notes due 2021 (2)(3)	$	1,000
	LIBOR plus 0.650% floating rate notes due 2021 (2)(3)	$	750
	1.950% notes due 2021 (2)(3)	$	750
	2.300% notes due 2022 (2)(3)	$	500
	3.100% notes due 2022 (2)(3)	$	2,300
	2.800% notes due 2024 (2)(3)	$	800
March 2, 2020	4.875% notes due 2020 (2)(3)	$	171
February 28, 2020	3.650% notes due 2023 (2)(3)	$	1,669
	2.650% notes due 2026 (2)(3)	$	431
November 15, 2019	8.875% notes due 2019	$	271
November 13, 2019	EURIBOR plus 0.15% floating rate notes due 2019	€	750
November 1, 2019	LIBOR plus 0.350% floating rate notes due 2019	$	350
	1.500% notes due 2019	$	650
July 15, 2019	1.950% notes due 2019 (4)	$	300
	5.250% notes due 2019 (4)	$	300

(1) These notes were assumed in connection with the Raytheon Merger and subsequently repaid.

(2) In connection with the early repayment of outstanding principal, Raytheon Technologies recorded debt extinguishment costs of $703 million for the year ended December 31, 2020, which are classified as discontinued operations in our 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.

(3) 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.

(4) These notes were assumed in connection with the Rockwell Collins Acquisition and subsequently repaid.

On June 10, 2020, we completed an exchange offer with eligible holders of the outstanding notes of Goodrich Corporation maturing through 2046, Raytheon Company maturing through 2044 and Rockwell Collins Inc. maturing through 2047 (collectively, the “Subsidiary Notes”). An aggregate principal amount of approximately $8.2 billion of the Subsidiary Notes was exchanged for approximately $8.2 billion of Raytheon Technologies notes with identical interest rates, maturity dates, and redemption provisions, if any, as the Subsidiary Notes exchanged. Because the exchange was for substantially identical notes, the change was treated as a debt modification for accounting purposes with no gain or loss recognized.

Long-term debt consisted of the following as of December 31:


(dollars in millions)	2020		2019
4.875% notes due 2020	$	—	$	171
4.500% notes due 2020	—		1,250
1.900% notes due 2020	—		1,000
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)	—		831
8.750% notes due 2021	250		250
3.100% notes due 2021	250		250
3.350% notes due 2021	—		1,000

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LIBOR plus 0.650% floating rate notes due 2021	—	750
1.950% notes due 2021	—	750
1.125% notes due 2021 (€950 million principal value)	—	1,053
2.300% notes due 2022	—	500
2.800% notes due 2022	1,100	1,100
3.100% notes due 2022	—	2,300
2.500% notes due 2022 (2)	1,100	—
1.250% notes due 2023 (€750 million principal value)	—	831
3.650% notes due 2023 (1)	171	2,250
3.700% notes due 2023	400	400
2.800% notes due 2024	—	800
3.200% notes due 2024	950	950
1.150% notes due 2024 (€750 million principal value)	—	831
3.150% notes due 2024 (2)	300	—
3.950% notes due 2025 (1)	1,500	1,500
1.875% notes due 2026 (€500 million principal value)	—	554
2.650% notes due 2026 (1)	719	1,150
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	—
7.100% notes due 2027	141	141
6.700% notes due 2028	400	400
7.000% notes due 2028 (2)	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)	612	554
2.250% notes due 2030 (1)	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	—
4.700% notes due 2041 (2)	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	—
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	—
Other (including finance leases)	292	315
Total principal long-term debt	31,470	41,274
Other (fair market value adjustments, (discounts)/premiums and debt issuance costs)	106	(315)

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Total long-term debt	31,576		40,959
Less: current portion	550		3,258
Long-term debt, net of current portion	$	31,026	$	37,701

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

(2) Debt assumed in the Raytheon Merger.

The percentage of total short-term borrowings and long-term debt at variable interest rates was approximately 1% and 9% at December 31, 2020 and 2019, respectively. Interest rates on our commercial paper borrowings are considered variable due to their short-term duration and high-frequency of turnover.

The average maturity of our long-term debt at December 31, 2020 is approximately 14 years. The schedule of principal payments required on long-term debt for the next five years and thereafter is:


(in millions)
2021	$	550
2022	2,224
2023	581
2024	1,262
2025	1,582
Thereafter	25,271
Total	$	31,470

NOTE 11: EMPLOYEE BENEFIT PLANS

We sponsor various domestic and foreign employee benefit plans, which are discussed below.

Employee Savings Plans. We sponsor various employee savings plans. Our contributions to employer sponsored defined contribution plans were $875 million, $485 million and $332 million for 2020, 2019 and 2018, respectively.

Our non-union domestic employee savings plan for legacy UTC employees uses an Employee Stock Ownership Plan (ESOP) for employer matching contributions. External borrowings were used by the ESOP to fund a portion of its purchase of ESOP stock from us. The external borrowings have been extinguished and only re-amortized loans remain between RTC and the ESOP Trust. As ESOP debt service payments are made, common stock is released from an unreleased shares account. ESOP debt may be prepaid or re-amortized to either increase or decrease the number of shares released so that the value of released shares equals the value of plan benefit. We may also, at our option, contribute additional common stock or cash to the ESOP.

Shares of common stock are allocated to employees’ ESOP accounts at fair value on the date earned. Cash dividends on common stock held by the ESOP are used for debt service payments. Participants may choose to have their ESOP dividends reinvested or distributed in cash. Common stock allocated to ESOP participants is included in the average number of common shares outstanding for both basic and diluted EPS. At December 31, 2020, 23.4 million common shares had been allocated to employees, leaving 9.4 million unallocated common shares in the ESOP Trust, with a fair value of $672 million.

Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. Our largest plans are generally closed to new participants. We also sponsor both funded and unfunded PRB plans that provide health care and life insurance benefits to eligible retirees. Our plans use a December 31 measurement date consistent with our fiscal year.

The Separation Transactions included the transfer of certain defined benefit plans from UTC to Carrier and Otis. The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies. Upon separation, the employees within Carrier and Otis were effectively terminated from Raytheon Technologies. The terminations of approximately 3,400 domestic pension plan participants triggered a mid-year remeasurement of the UTC domestic plans. The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020 (using March 31, 2020 as a practical expedient), resulted in a $2.4 billion increase to our pension liability, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019. All service cost previously associated with Carrier and Otis is included in discontinued operations. For non-service pension (income) expense and the pension liability, generally only the portion related to the defined benefit plans transferred to Carrier and Otis as part of the Separation Transactions has been reclassified to discontinued operations.

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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. Refer to “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information. 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.

In September 2019, we amended the UTC domestic defined benefit pension plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019. Beginning January 1, 2020, these participants began receiving additional contributions under the UTC domestic defined contribution plan. The plan change did not impact participants’ historical benefit accruals. We utilized the practical expedient and remeasured plan assets and pension benefit obligations for the affected pension plans as of the nearest month-end, August 31, 2019, resulting in a net actuarial loss of $425 million. This reflects remeasurement losses of $605 million, partially offset by a benefit obligation gain of $180 million resulting from the benefit plan change. The remeasurement losses are driven by a reduction of 124 basis points in the PBO discount rate as of the remeasurement date compared to December 31, 2018, partially offset by actual asset returns of approximately 17% as of the remeasurement date. We recorded a curtailment gain of $98 million in the Consolidated Statement of Operations, due to the recognition of previously unrecognized prior service credits for the affected pension plans.

For non-union employees in the UTC domestic pension plans, benefits for service up to December 31, 2014 are generally based on the employee’s years of service and compensation. Benefits for service after December 31, 2014 and through December 31, 2019 are based on the existing cash balance formula that was adopted in 2003 for newly hired non-union employees and for non-union employees who made a one-time voluntary election to have future benefit accruals determined under this formula. Benefits for union employees in the UTC domestic pension plans are generally based on a stated amount for each year of service.

In December 2020, we approved a change to the Raytheon domestic benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation effective December 31, 2022. The plan change does not impact participants’ historical benefit accruals. Benefits for service after December 31, 2022 will be based on a cash balance formula. We utilized a practical expedient and measured the plan assets and pension benefit obligations for the effected pension plans as of the nearest month end, December 31, 2020, resulting in a current year prior service credit of $2.1 billion.

We made the following contributions to our pension and PRB plans’ trusts during the years ended December 31:


(dollars in millions)	2020		2019		2018
U.S. qualified defined benefit plans	$	885	$	25	$	—
International defined benefit plans	125		30		79
PRB plans	15		—		—

The contributions to our U.S. qualified defined benefit plans for the year ended December 31, 2020 include a $750 million discretionary contribution to the Raytheon Company U.S. qualified pension plans’ trust. As a result of this discretionary contribution, we do not expect to make any required contributions to our U.S. qualified plans’ trust until 2022.

The contributions to our International defined benefit plans for the year ended December 31, 2020 include a $51 million discretionary contribution. We expect to make total contributions of approximately $50 million to our international defined benefit plans’ trusts in 2021, which are expected to meet or exceed the current funding requirements.

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	Pension				PRB
(dollars in millions)	2020		2019		2020		2019
Change in Benefit Obligation:
Beginning balance	$	38,027	$	34,344	$	765	$	810
Service cost attributable to continuing operations	483		261		6		2
Service cost attributable to discontinued operations	1		34		—		—
Interest cost	1,650		1,245		37		31
Actuarial loss (gain)	7,029		4,247		114		(11)
Total benefits paid(1)	(3,623)		(2,016)		(144)		(69)
Net settlement, curtailment and special termination benefits	(4)		(206)		(8)		—
Plan amendments	(2,088)		—		(7)		—
Business combinations and divestitures(2)	29,385		(6)		724		—
Other (3)	397		124		48		2
Ending balance	$	71,257	$	38,027	$	1,535	$	765
Change in Plan Assets:
Beginning balance	$	36,225	$	32,150	$	20	$	20
Actual return on plan assets	9,885		5,873		80		—
Employer contributions(1)	1,201		137		102		69
Total benefits paid(1)	(3,623)		(2,016)		(144)		(69)
Settlements	(32)		(17)		(8)		—
Business combinations and divestitures(2)	18,310		(10)		286		—
Other (3)	352		108		45		—
Ending balance	$	62,318	$	36,225	$	381	$	20
Funded Status:
Fair value of plan assets	$	62,318	$	36,225	$	381	$	20
Benefit obligations	(71,257)		(38,027)		(1,535)		(765)
Funded status of plan	$	(8,939)	$	(1,802)	$	(1,154)	$	(745)
Amounts Recognized in the Consolidated Balance Sheet Consist of:
Noncurrent assets	$	424	$	19	$	—	$	—
Current liability	(232)		(51)		(82)		(47)
Noncurrent liability	(9,131)		(1,770)		(1,072)		(698)
Net amount recognized	$	(8,939)	$	(1,802)	$	(1,154)	$	(745)
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
Net actuarial (gain) loss	$	8,023	$	8,160	$	(117)	$	(181)
Prior service (credit) cost	(1,947)		190		(9)		(4)
Net actuarial loss and prior service cost related to discontinued operations	—		763		—		—
Net amount recognized	$	6,076	$	9,113	$	(126)	$	(185)

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

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

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

The majority of our pension obligations relate to our U.S. Internal Revenue Service (IRS) qualified pension plans, which comprise 85% and 82% of our pension PBO as of December 31, 2020 and 2019, respectively. 3% and 1% of our pension PBO as of December 31, 2020 and 2019, respectively, is attributable to our nonqualified domestic pension plans, which provide supplementary retirement benefits to certain employees in excess of the IRS qualified plan limits. International plans comprise 12% and 17% of the pension PBO as of December 31, 2020 and 2019, respectively, and are considered defined benefit pension plans for accounting purposes.

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In addition to the pension and PRB noncurrent liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes $139 million and $21 million of other pension and PRB related liabilities as of December 31, 2020 and 2019, respectively.

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


(dollars in millions)	2020		2019
Projected benefit obligation	$	37,215	$	37,941
Accumulated benefit obligation	36,150		37,559
Fair value of plan assets	27,854		36,120

The accumulated benefit obligation for all defined benefit pension plans was $70.2 billion and $37.7 billion at December 31, 2020 and 2019, respectively.

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


(dollars in millions)	2020		2019
Projected benefit obligation	$	37,217	$	37,943
Accumulated benefit obligation	36,151		37,600
Fair value of plan assets	27,855		36,122

The components of the net periodic pension (income) expense are as follows:


(dollars in millions)	2020		2019		2018
Operating expense
Service cost	$	483	$	261	$	265
Non-operating expense
Interest cost	1,650		1,245		1,058
Expected return on plan assets	(2,995)		(2,252)		(2,061)
Amortization of prior service cost (credit)	51		16		(42)

Recognized actuarial net loss	337		245		373
Net settlement, curtailment and special termination benefits (gain) loss	45		(59)		3
Non-service pension income	(912)		(805)		(669)
Net periodic pension income	$	(429)	$	(544)	$	(404)

The components of the net periodic PRB (income) expense are as follows:


(dollars in millions)	2020		2019		2018
Operating expense
Service cost	$	6	$	2	$	2
Non-operating expense
Interest cost	37		31		26
Expected return on plan assets	(13)		(1)		—
Amortization of prior service credit	(3)		(42)		(6)
Recognized actuarial net gain	(12)		(12)		(10)
Net settlement, curtailment and special termination benefits loss	1		—		—
Non-service pension (income) expense	10		(24)		10
Net periodic PRB (income) expense	$	16	$	(22)	$	12

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Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss in 2020 and 2019 are as follows:


	2020		2019
(dollars in millions)	Total		Continuing Operations		Discontinued Operations		Total
Actuarial loss arising during the period	$	155	$	434	$	119	$	553
Amortization of actuarial loss	(337)		(245)		(20)		(265)
Current year prior service cost (credit)	(2,088)		—		6		6
Amortization of prior service cost	(51)		(16)		(1)		(17)
Net settlement and curtailment	(34)		62		(5)		57
Separation of Carrier and Otis	(763)		—		—		—
Other (1)	81		36		(2)		34
Total recognized in other comprehensive (income) loss	(3,037)		271		97		368
Net recognized in net periodic benefit (income) cost and other comprehensive (income) loss	$	(3,466)	$	(232)	$	97	$	(135)

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

The Actuarial loss arising during the period in 2020 is primarily due to a decrease in discount rates during 2020, partially offset by asset returns exceeding our expected return on assets. Current year prior service credit in 2020 was primarily due to the RTC plan change for non-union participants as discussed above.

The Actuarial loss arising during the period in 2019 was primarily due to a decrease in discount rates during 2019, partially offset by our asset returns exceeding our expected return on assets.

Other changes in PRB assets and benefit obligations recognized in other comprehensive loss in 2020 and 2019 are as follows:


(dollars in millions)	2020		2019
Actuarial (gain) loss arising during the period	$	47	$	(10)
Amortization of actuarial gain	12		12
Current year prior service cost (credit)	(7)		—
Amortization of prior service credit	3		42
Net settlement and curtailment	(1)		—
Other	5		2
Total recognized in other comprehensive loss	59		46
Net recognized in net periodic benefit (income) cost and other comprehensive loss	$	75	$	24

The Actuarial gain arising during the period in 2019 was primarily due to demographic gains, partially offset by a decrease in discount rates in 2019.

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


(dollars in millions)	Pension		PRB
2021	$	4,374	$	128
2022	4,197		120
2023	3,831		112
2024	3,795		106
2025	3,785		100
2026-2030	18,311		419

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Major assumptions used in determining the pension benefit obligation and net periodic pension benefit (income) expense are presented in the following table as weighted-averages:


	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2020		2019		2020		2019		2018
Discount rate
PBO	2.5	%	3.1	%	3.2	%	4.0	%	3.5	%
Interest cost (1)	N/A		N/A		2.8	%	3.7	%	3.1	%
Service cost (1)	N/A		N/A		3.5	%	3.7	%	3.4	%
Salary scale	4.3	%	4.3	%	4.3	%	4.3	%	4.3	%
Expected return on plan assets	N/A		N/A		6.5	%	6.8	%	6.9	%
Interest crediting rate	3.8	%	3.8	%	3.8	%	3.8	%	3.8	%

(1) The discount rates used to measure the service cost and interest cost applies to our significant plans. The PBO discount rate is used for the service cost and interest cost measurements for non-significant plans.

Major assumptions used in determining the PRB benefit obligation and net periodic PRB (income) expense are presented in the following table as weighted-averages:


	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2020		2019		2020		2019		2018
Discount rate	2.4	%	3.0	%	3.1	%	4.0	%	3.4	%
Expected return on assets	N/A		N/A		5.7	%	7.0	%	7.0	%

Assumed health care cost trend rates used in determining the PRB benefit obligation and net periodic PRB (income) expense are as follows:


	2020		2019
Health care cost trend rate assumed for next year	5.0	%	6.5	%
Rate that the cost trend rate gradually declines to	4.3	%	5.0	%
Year that the rate reaches the rate it is assumed to remain at	2026		2026

The weighted-average discount rates used to measure pension and PRB liabilities are based on yield curves developed using high-quality corporate bonds as well as plan specific cash flows. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components of net periodic benefit costs by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows.

In determining the EROA assumption, we consider the target asset allocation of plan assets, as well as economic and other indicators of future performance. We may consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions. Return projections are validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. As a result of this analysis at year end 2020, our weighted average pension EROA assumption for 2021 is 6.5%.

Plan Assets. The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, investment strategies generally target a mix of 50% to 55% of growth seeking assets and 45% to 50% of income generating and hedging assets using a wide set of diversified asset types, fund strategies and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, private equity, real estate and multi-asset class strategies. Growth assets include an enhanced alpha strategy that invests in publicly traded equity and fixed income securities, derivatives and foreign currency. Investments in private equity are primarily via limited partnership interests in buy-out strategies with smaller allocations to distressed debt funds. The real estate strategy is principally concentrated in directly held U.S. core investments with some smaller investments in international, value-added and opportunistic strategies. Within the income generating assets, the fixed income portfolio consists of mainly government and broadly diversified high quality corporate bonds.

The plans have continued their pension risk management techniques designed to reduce their interest rate risk. Specifically, the plans have incorporated liability hedging programs that include the adoption of a risk reduction objective as part of the long-term investment strategy. Under this objective the interest rate hedge is intended to increase as funded status improves. The hedging programs incorporate a range of assets and investment tools, each with varying interest rate sensitivities. The

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investment portfolios are currently hedging approximately 30% to 70% of the interest rate sensitivity of the pension plan liabilities, depending on the funded status of the plan.

The fair values of pension plan assets at December 31, 2020 and 2019 by asset category are as follows:


(dollars in millions)	Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Not Subject to Leveling(8)		Total
Asset Category:
Public Equities
Global Equities	$	8,437	$	5	$	—	$	—	$	8,442
Global Equity Commingled Funds (1)	1		2,686		—		—		2,687
Enhanced Global Equities (2)	56		185		—		—		241
Other Public Equities	—		—		—		9,008		9,008
Private Equities (3)	—		—		—		3,646		3,646
Fixed Income Securities
Governments	1,740		1,480		—		—		3,220
Corporate Bonds	3		18,489		2		305		18,799
Structured Products	—		24		—		—		24
Other Fixed Income	—		—		—		6,631		6,631
Real Estate (4)	—		—		1,647		1,737		3,384
Other (5)	—		99		—		5,088		5,187
Cash & Cash Equivalents (6)	9		97		—		154		260
Subtotal	$	10,246	$	23,065	$	1,649	$	26,569	61,529
Other Assets & Liabilities (7)									789
Total at December 31, 2020									$	62,318
Public Equities
Global Equities	$	3,588	$	5	$	—	$	—	$	3,593
Global Equity Commingled Funds (1)	—		1,496		—		—		1,496
Enhanced Global Equities (2)	322		393		—		—		715
Other Public Equities	—		—		—		5,332		5,332
Private Equities (3)	—		—		202		1,230		1,432
Fixed Income Securities
Governments	969		116		—		—		1,085
Corporate Bonds	1		13,059		5		—		13,065
Structured Products	—		17		—		—		17
Other Fixed Income	—		—		—		4,755		4,755
Real Estate (4)	—		13		1,464		366		1,843
Other (5)	—		343		—		2,834		3,177
Cash & Cash Equivalents (6)	—		47		—		36		83
Subtotal	$	4,880	$	15,489	$	1,671	$	14,553	$	36,593
Other Assets & Liabilities (7)									(368)
Total at December 31, 2019									$	36,225

(1) Represents commingled funds that invest primarily in common stocks.

(2) Represents enhanced equity separate account and commingled fund portfolios. A portion of the portfolio may include long-short market neutral and relative value strategies that invest in publicly traded, equity and fixed income securities, as well as derivatives of equity and fixed income securities and foreign currency.

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(3) Represents limited partnership investments with general partners that primarily invest in equity and debt.

(4) Represents investments in real estate including commingled funds and directly held properties.

(5) Represents global balanced risk commingled funds that invest in multiple asset classes including equity, fixed income and some commodities. “Other” also includes insurance contracts.

(6) Represents short-term commercial paper, bonds and other cash or cash-like instruments.

(7) Represents receivables, payables and certain individually immaterial international plan assets that are not leveled.

(8) In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.

Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps and currency forward contracts. The fair market value of the plans’ derivatives through direct or separate account investments was approximately $176 million and $75 million as of December 31, 2020 and 2019, respectively.

We review our assets at least quarterly to ensure we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. We employ a broadly diversified investment manager structure that includes diversification by active and passive management, style, capitalization, country, sector, industry and number of investment managers. No individual investment represented more than 5% of the plan assets as of December 31, 2020.

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


(dollars in millions)	Private Equities		Corporate Bonds		Real Estate		Total
Balance, December 31, 2018	$	133	$	18	$	1,387	$	1,538

Realized losses	—		—		(2)		(2)
Unrealized gains relating to instruments still held in the reporting period	32		—		27		59
Purchases, sales, and settlements, net	37		(13)		52		76
Balance, December 31, 2019	202		5		1,464		1,671

Realized gains	—		—		7		7
Unrealized gains relating to instruments still held in the reporting period	16		—		(129)		(113)
Purchases, sales, and settlements, net	10		(3)		77		84
Transfers in/out, net	(228)		—		228		—
Balance, December 31, 2020	$	—	$	2	$	1,647	$	1,649

Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Mortgages have been valued on the basis of their future principal and interest payments discounted at prevailing interest rates for similar investments. Investment contracts are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations. Real estate investments are valued on a quarterly basis using discounted cash flow models which consider long-term lease estimates, future rental receipts and estimated residual values. Valuation estimates are supplemented by third-party appraisals on an annual basis.

Private equity limited partnerships are valued quarterly using discounted cash flows, earnings multiples and market multiples. Valuation adjustments reflect changes in operating results, financial condition, or prospects of the applicable portfolio company. Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Temporary cash investments are stated at cost, which approximates fair value.

The fair market value of assets related to our PRB benefits was $381 million and $20 million as of December 31, 2020 and 2019. These assets include $149 million of which are invested in our domestic qualified pension plan trust at December 31, 2020. There were no PRB assets invested in our domestic qualified pension plan trust at December 31, 2019. The remaining PRB investments are held within Voluntary Employees’ Beneficiary Association (VEBA) trusts. The VEBA assets are generally invested in mutual funds and are valued primarily using quoted prices in active markets (Level 1). There were no Level 3 investments in the VEBA trusts as of December 31, 2020 or 2019.

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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, current in our Consolidated Balance Sheet. The fair value of marketable securities held in trusts consisted of the following:


(dollars in millions)			2020						2019
Marketable securities held in trusts			$	881					$	—

NOTE 12: LEASES

Operating lease expense was $497 million and $323 million for 2020 and 2019, respectively. Finance leases and lessor leases are not considered significant to our Consolidated Balance Sheet or Consolidated Statement of Operations.

Variable least cost and sublease income were immaterial in 2020 and 2019.

In 2020, we entered into a sale and leaseback transaction for the sale of equipment and related maintenance. We subsequently leased back the equipment sold for a limited timeframe, which is accounted for as an operating lease. The proceeds received as a result of the equipment sales have been classified in decrease in Customer Financing Assets within the Investing Activities in our Consolidated statement of cash flows, and the portion related to future maintenance services has been classified within Operating Activities. The net gain as a result of this transaction was not material. Gains and losses on sale and leaseback transactions were immaterial in 2019.

Supplemental cash flow information related to operating leases were as follows:


(dollars in millions)	2020		2019
Operating cash flows used in the measurement of operating lease liabilities	$	420	$	411
Operating lease right-of-use assets obtained in exchange for operating lease obligations	299		123

Future lease payments related to our operating lease liabilities as of December 31, 2020 are as follows:


(dollars in millions)
2021	$	632
2022	468
2023	335
2024	231
2025	158
Thereafter	646
Total undiscounted lease payments (1)	2,470
Less imputed interest	(472)
Total discounted lease payments	$	1,998

(1) Total future lease payments excluded approximately $58 million of future lease payments related to leases that were signed but had not yet commenced as of December 31, 2020.

Our lease liabilities recognized in our Consolidated Balance Sheet were as follows as of December 31:


(dollars in millions)	2020		2019
Operating lease liabilities, current (included in Other accrued liabilities)	$	(482)	$	(245)
Operating lease liabilities, noncurrent	(1,516)		(1,093)
Total operating lease liabilities	$	(1,998)	$	(1,338)

The weighted-average remaining lease term related to our operating leases was 8.0 years and 8.6 years as of December 31, 2020 and December 31, 2019, respectively. The weighted-average discount rate related to our operating leases was 3.1% and 3.5% as of December 31, 2020 and December 31, 2019, respectively.

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NOTE 13: INCOME TAXES

Income Before Income Taxes. The sources of income from continuing operations before income taxes are:


(dollars in millions)	2020		2019		2018
United States	$	(2,762)	$	1,594	$	635
Foreign	409		2,558		1,869
	$	(2,353)	$	4,152	$	2,504

The Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2020, such undistributed earnings were approximately $12 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts.

Provision for Income Taxes. The income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018 consisted of the following components:


(dollars in millions)	2020		2019		2018
Current:
United States:
Federal	$	324	$	(100)	$	(68)
State	45		(58)		1
Foreign	305		541		402
	674		383		335
Future:
United States:
Federal	(264)		121		45
State	258		56		58
Foreign	(93)		(139)		660
	(99)		38		763
Income tax expense	$	575	$	421	$	1,098
Attributable to items credited (charged) to equity	$	(576)	$	40	$	501

Reconciliation of Effective Income Tax Rate. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:


	2020				2019				2018
(dollars in millions)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory U.S. federal income tax rate	$	(494)	21.0	%	$	872	21.0	%	$	526	21.0	%
Tax on international activities	35		(1.5)		32		0.7		(25)		(1.0)
Tax audit settlements	—		—		(290)		(7.0)		—		—
U.S. tax reform	—		—		—		—		744		29.7
Tax charges related to Separation Transactions and Raytheon Merger	416		(17.7)		—		—		—		—
Disposals of businesses	177		(7.5)		—		—		—		—
U.S. research and development credit	(142)		6.1		(101)		(2.4)		(73)		(2.9)
Goodwill impairment	668		(28.4)		—		—		—		—
State income tax, net	(56)		2.4		16		0.4		(6)		(0.2)
Foreign Derived Intangible Income (FDII)	(83)		3.5		(138)		(3.3)		(102)		(4.1)
Other	54		(2.3)		30		0.7		34		1.3
Effective income tax rate	$	575	(24.4)	%	$	421	10.1	%	$	1,098	43.8	%

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The 2020 negative effective tax rate is a result of having tax expense of $575 million on a loss from continuing operations before income taxes of $2,353 million. The loss from continuing operations before income taxes includes the $3,183 million goodwill impairment as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which is non-deductible for tax purposes. Tax expense includes net deferred tax charges of $367 million resulting from the Separation Transactions and the Raytheon Merger primarily related to the impairment of deferred tax assets, and incremental tax expense of $177 million related to the disposal of businesses, including the sales of the Collins Aerospace and RIS businesses and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets.” As a result of the Separation Transactions and the restructuring charges recognized in 2020, tax expense also includes $49 million related to revaluation of the tax benefit for certain international tax incentives, as the Company no longer expects to meet the incentive requirements. Also included in the 2020 effective tax rate are tax benefits of $142 million associated with U.S. research and development credits and $83 million associated with FDII.

The 2019 effective tax rate includes tax benefits of $290 million primarily associated with the conclusion of the audit by the Examination Division of the Internal Revenue Service for the Company’s 2014, 2015 and 2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority. The 2019 effective tax rate also includes tax benefits of $138 million associated with FDII and $101 million related to U.S. research and development credits.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted. The 2018 effective tax rate reflects a net charge of $744 million for TCJA related adjustments. The amount primarily relates to non-U.S. taxes that will become due when previously reinvested earnings of certain international subsidiaries are remitted. The 2018 effective tax rate also includes tax benefits of $102 million associated with FDII and $73 million related to U.S. research & development credits.

Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2020 and 2019 are as follows:


(dollars in millions)	2020		2019
Future income tax benefits:
Insurance and employee benefits	$	3,004	$	959
Inventory and contract balances	822		664

Warranty provisions	220		208
Other basis differences	637		614
Tax loss carryforwards	196		348
Tax credit carryforwards	959		930
Valuation allowances	(757)		(432)
	$	5,081	$	3,291
Future income taxes payable:
Goodwill and Intangible assets	$	7,786	$	4,205
Fixed assets	1,637		1,016
Other basis differences	151		638
	$	9,574	$	5,859

Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts.

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Tax Credit and Loss Carryforwards. At December 31, 2020, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:


(dollars in millions)	Tax Credit Carryforwards		Tax Loss Carryforwards
Expiration period:
2021-2025	$	50	$	126
2026-2030	38		58
2031-2040	341		179
Indefinite	530		801
Total	$	959	$	1,164

Unrecognized Tax Benefits. At December 31, 2020, we had gross tax-effected unrecognized tax benefits of $1,225 million, of which $1,216 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 is as follows:


(dollars in millions)	2020		2019		2018
Balance at January 1	$	1,347	$	1,619	$	1,189
Additions for tax positions related to the current year	125		131		192
Additions for tax positions of prior years	323		73		344
Reductions for tax positions of prior years	(83)		(101)		(91)
Settlements	(48)		(375)		(15)
Separation of Carrier and Otis	(439)
Balance at December 31	$	1,225	$	1,347	$	1,619
Gross interest expense related to unrecognized tax benefits	$	50	$	57	$	37
Total accrued interest balance at December 31	141		249		255

The unrecognized tax benefit table includes discontinued operations in 2018, 2019 and 2020.

As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of $439 million and associated interest of approximately $165 million. Pursuant to the terms of the separation agreements, certain other unrecognized tax benefits retained by the Company will be subject to indemnification. Total unrecognized tax benefits at December 31, 2019 and 2018 include $437 million and $551 million of benefits related to discontinued operations, and associated interest of approximately $155 million in both periods.

In addition, as a result of the Raytheon Merger in April 2020, unrecognized tax benefits increased by $273 million, and associated interest of approximately $15 million, due to inclusion of items related to pre-merger Raytheon Company tax periods. The 2018 additions above include amounts related to the Rockwell Acquisition.

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.

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, Philippines, Poland, Singapore, 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.

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

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

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amnesty filing in Italy made to resolve certain tax litigation. The Company also recognized a non-cash gain of approximately $40 million, primarily tax, as a result of the closure of an IRS audit of the 2014 tax year of a subsidiary acquired as part of RTC’s acquisition of Rockwell Collins. This gain was partially offset by the unfavorable pre-tax impact of a reversal of a related indemnity asset of approximately $23 million. Finally, the Company recognized net non-cash gains of approximately $18 million, including pre-tax interest of approximately $5 million, as a result of various federal, state and non-U.S. statute of limitations expirations and settlements with tax authorities.

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

The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close within the next six 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 $50 million to $100 million, primarily tax, within the next six months.

It is reasonably possible that a net reduction within the range of $165 million to $475 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the courts, or the closure of tax statutes.

NOTE 14: 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 2020, we recorded net pre-tax restructuring costs totaling $777 million for new and ongoing restructuring actions. We recorded charges in the segments as follows:


(dollars in millions)
Pratt & Whitney	$	183
Collins Aerospace Systems	360
Corporate expenses and other unallocated items	234


Total	$	777

Restructuring charges incurred in 2020 primarily relate to actions initiated during 2020 and 2019, and were recorded as follows:


(dollars in millions)
Cost of sales	$	397
Selling, general & administrative	371
Restructuring costs recorded within operating expenses	768
Non-service pension (benefit)	9


Total	$	777

2020 Actions. During 2020, we recorded net pre-tax restructuring costs totaling $770 million for restructuring actions initiated in 2020, consisting of $401 million in Cost of sales, $360 million in Selling, general and administrative expenses and $9 million in Non-service pension expenses. 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 current 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.

We are targeting to complete in 2021 the majority of the remaining workforce and all facility related cost reduction actions initiated in 2020. No specific plans for significant other actions have been finalized at this time. The following table summarizes the accrual balances and utilization by cost type for the 2020 restructuring actions:


(dollars in millions)	Severance		Facility Exit and Other Costs		Total
Net pre-tax restructuring costs	$	744	$	26	$	770
Utilization, foreign exchange and other costs	(410)		(20)		(430)
Balance at December 31, 2020	$	334	$	6	$	340

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


(dollars in millions)	Expected Costs		Cost Incurred During 2020		Remaining Costs at December 31, 2020
Pratt & Whitney	$	205	$	(205)	$	—
Collins Aerospace Systems	373		(333)		40
Corporate expenses and other unallocated items	232		(232)		—

Total	$	810	$	(770)	$	40

2019 Actions. During 2020, we recorded net pre-tax restructuring costs totaling $10 million for restructuring actions initiated in 2019, consisting of a reversal of $2 million in Cost of sales and $12 million in Selling, general and administrative expenses. The 2019 actions relate to ongoing cost reduction efforts, including workforce reductions and the consolidation of field operations. The following table summarizes the accrual balances and utilization by cost type for the 2019 restructuring actions:


(dollars in millions)	Severance		Facility Exit and Other Costs		Total
Restructuring accruals at January 1, 2020	$	47	$	11	$	58
Net pre-tax restructuring costs	6		4		10
Utilization, foreign exchange and other costs	(41)		(5)		(46)
Balance at December 31, 2020	$	12	$	10	$	22

The following table summarizes expected, incurred and remaining costs for the 2019 programs by segment:


(dollars in millions)	Expected Costs		Costs Incurred During 2019		Costs Incurred During 2020		Remaining Costs at December 31, 2020
Pratt & Whitney	$	121	$	(133)	$	12	$	—
Collins Aerospace Systems	107		(27)		(22)		58
Corporate expenses and other unallocated items	2		(2)		—		—

Total	$	230	$	(162)	$	(10)	$	58

2018 and Prior Actions. During 2020, we reversed net pre-tax restructuring costs totaling $3 million for restructuring actions initiated in 2018 and prior. As of December 31, 2020, we have $45 million of accrual balances remaining related to 2018 and prior actions.

NOTE 15: FINANCIAL INSTRUMENTS

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the FASB ASC 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 $11.6 billion and $13.0 billion at December 31, 2020 and 2019, respectively. Additional information pertaining to foreign exchange and hedging activities is included in “Note 1: Basis of Presentation and Summary of Accounting Principles.”

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The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of December 31:


(dollars in millions)	Balance Sheet Location	2020		2019
Derivatives designated as hedging instruments:

Foreign exchange contracts	Other assets, current	$	197	$	23



	Other accrued liabilities	66		166


Derivatives not designated as hedging instruments:

Foreign exchange contracts	Other assets, current	44		23



	Other accrued liabilities	32		116

The effect of cash flow hedging relationships on accumulated other comprehensive income (loss) for the years ended December 31, 2020 and 2019 are presented in the table below. The amounts of gain or (loss) are attributable to foreign exchange contract activity and are recorded as a component of Product sales when reclassified from accumulated other comprehensive income (loss).


	Year Ended December 31,
(dollars in millions)	2020		2019
Gain (loss) recorded in Accumulated other comprehensive loss	$	181	$	(33)
Loss reclassified from Accumulated other comprehensive loss into Product sales	82		51

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.

We have approximately €500 million of euro-denominated long-term debt, which qualifies as a net investment hedge against our investments in European businesses*.* As of December 31, 2020, the net investment hedge is deemed to be effective.

Assuming current market conditions continue, a $23 million pre-tax gain is 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 December 31, 2020, 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 Consolidated Statement of Operations was as follows:


	Year Ended December 31,
(dollars in millions)	2020		2019
Foreign exchange contracts gain (loss)	$	(76)	$	91

NOTE 16: FAIR VALUE MEASUREMENTS

In accordance with the provisions of ASC 820, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Consolidated Balance Sheet as of December 31, 2020 and 2019:


	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)		—

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	December 31, 2019
(dollars in millions)	Total		Level 1		Level 2		Level 3
Recurring fair value measurements:
Available-for-sale securities	$	53	$	53	$	—	$	—
Derivative assets	46		—		46		—
Derivative liabilities	(282)		—		(282)		—

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 December 31, 2020, 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 Consolidated Balance Sheet at December 31:


	2020				2019
(dollars in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Customer financing notes receivable	$	271	$	264	$	220	$	220
Short-term borrowings	(247)		(247)		(2,293)		(2,293)
Long-term debt (excluding finance leases)	(31,512)		(38,615)		(40,883)		(45,887)
Long-term liabilities	(27)		(25)		(334)		(320)

The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Consolidated Balance Sheet as of December 31, 2020 and 2019:


	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)		—


	December 31, 2019
(dollars in millions)	Total		Level 1		Level 2		Level 3

Customer financing notes receivable	$	220	$	—	$	220	$	—
Short-term borrowings	(2,293)		—		—		(2,293)
Long-term debt (excluding finance leases)	(45,887)		—		(45,802)		(85)
Long-term liabilities	(320)		—		(320)		—

NOTE 17: 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,

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therefore, been consolidated. The carrying amounts and classification of assets and liabilities for variable interest entities in our Consolidated Balance Sheet as of December 31, 2020 and 2019 are as follows:


(dollars in millions)	2020		2019
Current assets	$	6,652	$	5,448
Noncurrent assets	868		894
Total assets	$	7,520	$	6,342
Current liabilities	$	7,365	$	6,971
Noncurrent liabilities	89		94
Total liabilities	$	7,454	$	7,065

NOTE 18: GUARANTEES

We extend a variety of financial, market value and product performance guarantees to third parties. As of December 31, 2020 and 2019, the following financial guarantees were outstanding:


	December 31, 2020				December 31, 2019
(dollars in millions)	Maximum Potential Payment		Carrying Amount of Liability		Maximum Potential Payment		Carrying Amount of Liability
Commercial aerospace financing guarantees	$	322	$	6	$	333	$	7

Performance guarantees	386		3		48		—

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. Collaborative partner share of these financing guarantees is $142 million at December 31, 2020 and 2019.

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 $120 million and $166 million at December 31, 2020 and 2019, respectively. For additional information regarding the environmental indemnifications, see “Note 19: 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 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 claim data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the years ended December 31, 2020 and 2019 are as follows:


(dollars in millions)	2020		2019
Balance as of January 1	$	1,033	$	929
Warranties and performance guarantees issued	311		444
Settlements	(292)		(330)
Other	5		(10)
Balance as of December 31	$	1,057	$	1,033

NOTE 19: COMMITMENTS AND CONTINGENCIES

Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.

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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. As described in “Note 1: Basis of Presentation and Summary of Accounting Principles,” 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. As of December 31, 2020 and 2019, we had $835 million and $725 million, respectively, reserved for environmental remediation. Additional information pertaining to environmental matters is included in “Note 1: Basis of Presentation and Summary of Accounting Principles.”

Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $13.4 billion and $15.0 billion as of December 31, 2020 and 2019, 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.

We also have other contractual commitments, including commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms, which are included in “Other commercial aerospace commitments” in the table below. Payments made on these contractual commitments are included within intangible assets as exclusivity assets and are amortized over the term of underlying economic benefit. We have entered into certain collaboration arrangements, which may include participation by our collaboration partners in these commitments. In addition, in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in IAE, additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments, which are also considered in “Other commercial aerospace commitments” below, are being capitalized as collaboration intangible assets.

The following is the expected maturity of commercial aerospace industry commitments as of December 31, 2020:


(dollars in millions)	Committed		2021		2022		2023		2024		2025		Thereafter
Commercial aerospace financing commitments	$	3,883	$	781	$	745	$	1,216	$	1,024	$	82	$	35
Other commercial aerospace commitments	9,534		521		533		602		510		410		6,958
Collaboration partners’ share	(4,902)		(415)		(437)		(667)		(587)		(150)		(2,646)
Total commercial aerospace commitments	$	8,515	$	887	$	841	$	1,151	$	947	$	342	$	4,347

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 $4.5 billion as of December 31, 2020.

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 December 31, 2020, the aggregate amount of our offset agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $11.0 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

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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 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-K, we do not expect these audits, investigations or disputes to have a material effect on our financial position, results of operations or liquidity, either individually or in the aggregate.

Legal Proceedings. The Company and its subsidiaries are subject to various 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 ($681 million at December 31, 2020). 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 ($113 million at December 31, 2020). 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

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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 ($69 million at December 31, 2020), 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

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 since 2009. We are cooperating fully with the DOJ’s investigation. At this time, the Company is unable to predict the outcome of the investigation. 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. Four 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 the Missiles & Defense business. 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.

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 for breach of fiduciary duty, and also asserts claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). 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.

Other. As described in “Note 18: 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. Of note, the design, development, production and support of new aerospace technologies is inherently complex and subject to risk. Since the PW1000G Geared TurboFan engine entered into service in 2016, technical issues have been identified and experienced with the engine, which is usual for new engines and new aerospace technologies. Pratt & Whitney has addressed these issues through various improvements and modifications. These issues have resulted in financial impacts, including increased warranty provisions, customer contract settlements, and reductions in contract performance estimates. Additional technical issues, either related to this program or other programs, may also arise in the normal course, which may result in financial impacts that could be material to the Company’s financial position, results of operations and cash flows.

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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, results of operations, cash flows or financial condition.

NOTE 20: ACCUMULATED OTHER COMPREHENSIVE INCOME

A summary of the changes in each component of Accumulated other comprehensive (loss) income, net of tax for the years ended December 31, 2020, 2019 and 2018 is provided below:


(dollars in millions)	Foreign Currency Translation		Defined Benefit Pension and Postretirement Plans		Unrealized Gains (Losses) on Available-for- Sale Securities		Unrealized Hedging (Losses) Gains		Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2017	$	(2,950)	$	(4,652)	$	5	$	72	$	(7,525)
Other comprehensive loss before reclassifications, net	(486)		(1,736)		—		(307)		(2,529)
Amounts reclassified, pre-tax	(2)		344		—		(16)		326
Tax benefit (expense)	(4)		326		—		78		400
ASU 2016-01 adoption impact	—		—		(5)		—		(5)
Balance at December 31, 2018	$	(3,442)	$	(5,718)	$	—	$	(173)	$	(9,333)
Other comprehensive income (loss) before reclassifications, net	280		(584)		—		(33)		(337)
Amounts reclassified, pre-tax	2		170		—		51		223
Tax benefit (expense)	(43)		97		—		(11)		43
ASU 2018-02 adoption impact	(8)		(737)		—		—		(745)
Balance at December 31, 2019	$	(3,211)	$	(6,772)	$	—	$	(166)	$	(10,149)
Other comprehensive income before reclassifications, net	609		1,842		—		181		2,632
Amounts reclassified, pre-tax	—		373		—		82		455
Tax benefit (expense)	25		(510)		—		(62)		(547)
Separation of Carrier and Otis, net of tax	3,287		584		—		4		3,875
Balance at December 31, 2020	$	710	$	(4,483)	$	—	$	39	$	(3,734)

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). The standard allows companies to reclassify to retained earnings the stranded tax effects in Accumulated other comprehensive income (AOCI) from the TCJA. We elected to reclassify the income tax effects of TCJA from AOCI of $745 million to retained earnings, effective January 1, 2019.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Upon adoption, investments that do not result in consolidation and are not accounted for under the equity method generally must be carried at fair value, with changes in fair value recognized in net income. We had approximately $5 million of unrealized gains on these securities recorded in Accumulated other comprehensive loss in our Consolidated Balance Sheet as of December 31, 2017. We adopted this standard effective January 1, 2018, with these amounts recorded directly to retained earnings as of that date.

Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net losses recognized during each period presented. These costs are recorded as components of net periodic pension cost for each period presented.

All noncontrolling interests with redemption features, such as put options, that are not solely within our control (redeemable noncontrolling interests) are reported in the mezzanine section of the Consolidated Balance Sheet, between liabilities and equity, at the greater of redemption value or initial carrying value.

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NOTE 21: STOCK-BASED COMPENSATION

RTC’s long-term incentive plans authorize various types of market and performance based incentive awards that may be granted to officers and employees. The Raytheon Technologies Corporation 2018 Long-Term Incentive Plan (2018 LTIP) was approved by shareowners on April 30, 2018 (formerly the United Technologies Corporation 2018 Long-Term Incentive Plan).

Upon the separation of Carrier and Otis that occurred on April 3, 2020, the shares remaining for future issuance under the 2018 LTIP were adjusted, in accordance with plan rules. With this adjustment, a total of 81.3 million shares have been authorized for issuance pursuant to awards under the 2018 LTIP. As of December 31, 2020, approximately 48 million shares remain available for awards under the 2018 LTIP. The 2018 LTIP does not contain an aggregate annual award limit, however, it sets an annual award limit per participant. Unless shareowners approve a proposal to extend the term of the 2018 LTIP at the Company’s Annual Meeting on April 26, 2021, the 2018 LTIP will expire after all authorized shares have been awarded or April 30, 2028, whichever is sooner. If shareowners approve the proposed extension, the 2018 LTIP will expire after all authorized shares have been awarded or April 26, 2031, whichever is sooner.

As a result of the Raytheon Merger, Raytheon Company shares of restricted stock, restricted stock units (RSUs) and performance share units outstanding prior to the merge, which were issued originally under the Raytheon Company 2010 Stock Plan, as amended and restated, and the Raytheon Company 2018 Stock Plan (together “legacy Raytheon Company Plans”), were converted to Raytheon Technologies shares of restricted stock and RSUs, which resulted in 4.5 million new shares of restricted stock and 2.0 million new RSUs. The conversion of the stock awards resulted in de minimis incremental compensation cost. No new equity awards will be issued under the legacy Raytheon Company Plans.

As a result of the Separation Transactions and Distributions, outstanding awards granted to employees under the 2018 LTIP and under its predecessor plan (the amended and restated United Technologies Long-Term Incentive Plan) were converted into Carrier, Otis, and RTC stock-based awards, depending on whether awards were vested or unvested as of April 2, 2020. Vested awards were converted into vested awards of RTX, Carrier and Otis, and unvested awards were generally converted into unvested awards of the employee’s post-separation employer. This conversion resulted in an incremental 1.7 million stock options, 47.1 million stock appreciation rights, 2.7 million performance share units and 5.5 million RSUs. The conversion of the awards resulted in de minimis incremental compensation cost.

Additionally, concurrent with the Separation Transactions and Distributions, all performance share units outstanding on April 3, 2020 were converted to RSUs using payout metrics based on a combination of actual performance and the target for the remainder of the performance period. As a result, the performance share units were converted to 4.0 million RSUs, which were then converted into RTC, Carrier or Otis RSUs, as described above.

Of these converted awards, 1.4 million stock options, 47.9 million stock appreciation rights and 7.1 million RSUs were converted into Carrier and Otis awards and became obligations of Carrier and Otis due to the Separation Transactions and Distributions.

Under the 2018 LTIP, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and RSUs held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to performance goals. We have historically repurchased shares of our common stock in an amount at least equal to the number of shares issued under our equity compensation arrangements and will continue to evaluate this policy in conjunction with our overall share repurchase program.

We measure the cost of all share-based payments, including stock options and stock appreciation rights, at fair value on the grant date and recognize this cost in the Consolidated Statement of Operations, net of expected forfeitures, as follows:


(dollars in millions)			2020						2019						2018
Total compensation cost recognized			$	330					$	268					$	169

The associated future income tax benefit recognized was $63 million, $47 million and $31 million for the years ended December 31, 2020, 2019 and 2018, respectively.

For the years ended December 31, 2020, 2019 and 2018, the amount of cash received from the exercise of stock options was $15 million, $27 million and $36 million, respectively, with an associated tax benefit realized of $48 million, $75 million and $59 million, respectively. In addition, for the years ended December 31, 2020, 2019 and 2018, the associated tax benefit realized from the vesting of performance share units, restricted stock awards and RSUs was $58 million, $36 million and $13 million, respectively.

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At December 31, 2020, there was $315 million of total unrecognized compensation cost related to non-vested equity awards granted under long-term incentive plans. This cost is expected to be recognized ratably over a weighted-average period of 2.6 years.

A summary of the transactions under our long-term incentive plans for the years ended December 31, 2020 follows. The amounts in the tables and paragraphs below have not been recast for discontinued operations.


	Stock Options			Stock Appreciation Rights			Performance Share Units			Restricted Stock and RSUs
(shares and units in thousands)	Shares	Average Price (1)		Shares	Average Price (1)		Units	Average Price (1)		Units	Average Price (1)
Outstanding at:











December 31, 2019	1,568	$	106.75	32,713	$	108.61	1,919	$	120.04	3,319	$	119.34
Granted	262	153.00		6,346	152.45		—	—		1,718	119.86

Exercised / earned	(144)	77.02		(3,755)	83.78		(527)	111.17		(2,622)	72.13
Cancelled	(18)	92.36		(991)	95.30		(48)	110.18		(267)	79.66
Conversion impact - Separation and Distribution (2)	276	43.71		(763)	38.00		(1,344)	46.58		2,404	42.69
Conversion impact - Raytheon Merger (3)	—	—		—	—		—	—		6,482	51.00
December 31, 2020	1,944	$	77.88	33,550	$	77.93	—	$	—	11,034	$	62.92

(1) Weighted-average grant / exercise price.

(2) Represents UTC awards converted for the Separation and Distribution and conversion of performance share units to RSUs as discussed further above.

(3) Represents Raytheon Company awards converted to RTC restricted stock and RSUs in accordance with the Raytheon Merger.

The weighted-average grant date fair value of stock options and stock appreciation rights granted during 2020, 2019 and 2018 was $23.37, $20.81 and $20.24, respectively. The weighted-average grant date fair value of performance share units, which vest upon achieving certain performance metrics, granted during 2019 and 2018 was $117.87 and $131.55, respectively. The total fair value of awards vested during the years ended December 31, 2020, 2019 and 2018 was $284 million, $211 million and $149 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during the years ended December 31, 2020, 2019 and 2018 was $206 million, $383 million and $283 million, respectively. The total intrinsic value (which is the stock price at vesting multiplied by the number of underlying shares) of performance share units and other restricted awards vested was $295 million, $188 million and $74 million during the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes information about equity awards outstanding that are vested and expected to vest as well as equity awards outstanding that are exercisable at December 31, 2020:


	Equity Awards Vested and Expected to Vest						Equity Awards That Are Exercisable
(shares in thousands; aggregate intrinsic value in millions)	Awards	Average Price (1)		Aggregate Intrinsic Value		Remaining Term (2)	Awards	Average Price (1)		Aggregate Intrinsic Value		Remaining Term (2)
Stock Options	1,923	$	77.82	$	—	6.49	754	$	74.28	$	2,414	3.86
Stock Appreciation Rights	33,164	77.86		—		6.34	16,766	75.51		42,783		4.45

Restricted Stock and RSUs	10,589	63.07		—		1.63

(1) Weighted-average exercise price per share.

(2) Weighted-average contractual remaining term in years.

The fair value of each option award is estimated on the date of grant using a binomial lattice model. The following table indicates the assumptions used in estimating fair value for awards granted during 2020, 2019 and 2018. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows:


	2020		2019		2018
Expected volatility	18.8%		18.8% - 19.7%		17.5% - 21.1%
Weighted-average volatility	19	%	20	%	18	%
Expected term (in years)	6.5		6.5 - 6.6		6.5 - 6.6
Expected dividend yield	1.9	%	2.4	%	2.2	%
Risk-free rate	1.4% - 1.6%		2.3% - 2.7%		1.3% - 2.7%

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Expected volatilities are based on the returns of our stock, including implied volatilities from traded options on our stock for the binomial lattice model. We use historical data to estimate equity award exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant.

NOTE 22: 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.

Collins Aerospace Systems is a leading global provider of technologically advanced aerospace and defense products and aftermarket service solutions for aircraft manufacturers, airlines, and regional, business and general aviation, as well as for defense and commercial space operations. Collins Aerospace’s product lines include integrated avionics systems, communications systems, navigation systems, electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft seating and cargo systems, landing systems, including landing gear, wheels and braking systems, hoists and winches, fire and ice detection and protection systems, actuation systems, engine components, and propeller systems. Collins Aerospace also designs, produces and supports cabin interior, communications and aviation systems, oxygen systems, food and beverage preparation, storage and galley systems, lavatory and wastewater management systems. Collins Aerospace solutions support human space exploration with environmental control and power systems and extravehicular activity suits and support government and defense customer missions by providing airborne intelligence, surveillance and reconnaissance systems, test and training range systems, crew escape systems, and simulation and training solutions. Collins Aerospace also provides information management services through worldwide voice and data communication networks and solutions. Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, and information management services.

Pratt & Whitney is among the world’s leading suppliers of aircraft engines for commercial, military, business jet and general aviation customers. Pratt & Whitney’s Commercial Engines and Military Engines businesses design, develop, produce and maintain families of large engines for wide- and narrow-body and large regional aircraft for commercial customers and for fighter, bomber, tanker and transport aircraft for military customers. Pratt & Whitney’s small engine business, Pratt & Whitney Canada (P&WC), is among the world’s leading suppliers of engines powering regional airlines, general and business aviation, as well as helicopters. Pratt & Whitney also produces, sells and services military and commercial auxiliary power units. Pratt & Whitney provides fleet management services and aftermarket maintenance, repair and overhaul services in all of these segments.

Raytheon Intelligence & Space is a global leading developer and provider of integrated sensor and communication systems for advanced missions, advanced training, and cyber and software solutions to intelligence, defense, federal and commercial customers. RIS capabilities include space-based sensors and data processing systems; multi-domain intelligence solutions; electronic warfare solutions, including high-energy laser weapons systems; command and control systems; modernization, training and mission support services; and advanced cyber analytics, systems defense and services.

Raytheon Missiles & Defense is a leading designer, developer, integrator producer and sustainer of integrated air and missile defense systems; defensive and combat solutions; large land- and sea-based radars; command, control, communications and intelligence solutions; and naval and undersea sensor solutions for the U.S. and foreign government customers. RMD’s integrated air and missile defense systems include the proven Patriot missile defense system and next-generation radar systems to defeat advanced threats. Its defensive solutions include counter-unmanned aircraft systems and ship defense systems. Its combat solutions include precision munitions, missiles, hypersonics, high power microwave and other weapons. Its command, control, communications and intelligence solutions include integrated, networked, actionable combat solutions for air and land combat commanders. RMD’s naval and undersea solutions include combat and ship electronic and sensing systems, as well as undersea sensing and effects solutions. Its sustainment solutions include maintenance, depot support, training and predictive analytics services.

Segment Information. 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.

In conjunction with the Raytheon Merger, we revised our measurement of segment performance to reflect how management now reviews and evaluates operating performance. Under the new segment performance measurement, certain acquisition

Table of C ontents

accounting adjustments are now excluded from segments’ results in order to better represent the ongoing operational performance of those segments. In addition, the majority of Corporate expenses are now allocated to the segments, excluding certain items that remain at Corporate because they are not included in management’s review of the segments’ results. Historical results, discussion and presentation of our business segments reflect the impact of these adjustments for all periods presented.

Also 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. GAAP and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time we generally expect to recover the related RIS and RMD pension and PRB liabilities through the pricing of our products and services to the U.S. government. 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.

Segment information for the years ended December 31 is as follows:


	Net Sales						Operating Profit (Loss)						Operating Profit (Loss) Margins
(dollars in millions)	2020		2019		2018		2020		2019		2018		2020		2019		2018
Collins Aerospace Systems	$	19,288	$	26,028	$	16,634	$	1,466	$	4,508	$	2,397	7.6	%	17.3	%	14.4	%
Pratt & Whitney	16,799		20,902		19,402		(564)		1,801		1,402		(3.4)	%	8.6	%	7.2	%
Raytheon Intelligence & Space	10,841		—		—		1,014		—		—		9.4	%	—	%	—	%
Raytheon Missiles & Defense	11,660		—		—		890		—		—		7.6	%	—	%	—	%
Total segment	58,588		46,930		36,036		2,806		6,309		3,799		4.8	%	13.4	%	10.5	%
Eliminations and other (1)	(2,001)		(1,581)		(1,335)		(111)		(140)		(69)
Corporate expenses and other unallocated items (2)	—		—		—		(590)		(367)		(340)
FAS/CAS operating adjustment	—		—		—		1,106		—		—
Acquisition accounting adjustments(3)	—		—		—		(5,100)		(888)		(513)
Consolidated	$	56,587	$	45,349	$	34,701	$	(1,889)	$	4,914	$	2,877	(3.3)	%	10.8	%	8.3	%

(1) Includes the operating results of certain smaller non-reportable business segments, including Forcepoint, LLC, which was acquired as part of the Raytheon Merger, and subsequently disposed of in January 2021.

(2) The net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) project of $130 million in 2020 are included in Corporate operating profit as they are not included in management’s evaluation of business segment results. No amounts were recorded in 2019 or 2018.

(3) Operating profit (loss) in 2020 includes the $3.2 billion goodwill impairment charge in the second quarter of 2020 related to two Collins Aerospace reporting units. Refer to “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information.


	Total Assets				Capital Expenditures						Depreciation & Amortization
(dollars in millions)	2020		2019		2020		2019		2018		2020		2019		2018
Collins Aerospace Systems (1)	$	68,701	$	74,049	$	638	$	959	$	515	$	736	$	695	$	396
Pratt & Whitney (1)	32,780		31,170		565		822		866		729		614		574
Raytheon Intelligence & Space (1)	20,911		—		214		—		—		152		—		—
Raytheon Missiles & Defense (1)	29,999		—		284		—		—		230		—		—
Total segment	152,391		105,219		1,701		1,781		1,381		1,847		1,309		970
Corporate, eliminations and other	9,698		2,573		94		87		86		155		165		161
Acquisition accounting adjustments											2,154		1,234		765
Assets related to discontinued operations	64		31,823
Consolidated	$	162,153	$	139,615	$	1,795	$	1,868	$	1,467	$	4,156	$	2,708	$	1,896

(1) Total assets include acquired intangible assets and property, plant and equipment fair value adjustment. Related amortization expense is included in Acquisition accounting adjustments.

Geographic External Sales by Origin and Long-Lived Assets. Geographic external sales are attributed to the geographic regions based on their location of origin. U.S. external sales include export sales to commercial customers outside the U.S. and sales to the U.S. government, commercial and affiliated customers, which are known to be for resale to customers outside the U.S. Long-lived assets are net fixed assets attributed to the specific geographic regions.

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	External Net Sales						Long-Lived Assets
(dollars in millions)	2020		2019		2018		2020		2019
United States Operations	$	48,560	$	35,125	$	26,646	$	11,560	$	7,048
International Operations
Europe	3,696		4,419		3,092		1,371		1,268
Asia Pacific	1,574		1,989		1,645		893		917
Middle East and North Africa	103		203		226		137		132
Other	2,654		3,613		3,092		1,001		957
Consolidated	$	56,587	$	45,349	$	34,701	$	14,962	$	10,322

Disaggregation of Revenue. We also disaggregate our contracts from customers by geographic location based on customer location, by customer and by sales type. Our geographic location based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location. In addition, for our RIS and RMD segments, we disaggregate our contracts from customers by contract type. We 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 years ended December 31, 2020, 2019 and 2018 are as follows:


	2020
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
United States	$	10,132	$	8,534	$	8,500	$	7,110	$	284	$	34,560
Asia Pacific	1,810		4,024		613		1,156		41		7,644
Middle East and North Africa	421		505		376		2,111		30		3,443
Europe	4,643		2,726		307		1,031		149		8,856
Canada and All Other	904		1,001		83		73		23		2,084
Consolidated net sales	17,910		16,790		9,879		11,481		527		56,587
Inter-segment sales	1,378		9		962		179		(2,528)		—
Business segment sales	$	19,288	$	16,799	$	10,841	$	11,660	$	(2,001)	$	56,587


	2019
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
United States	$	12,762	$	8,622	$	—	$	—	$	13	$	21,397
Asia Pacific	2,473		5,462		—		—		—		7,935
Middle East and North Africa	693		837		—		—		—		1,530
Europe	7,051		4,327		—		—		—		11,378
Canada and All Other	1,452		1,657		—		—		—		3,109
Consolidated net sales	24,431		20,905		—		—		13		45,349
Inter-segment sales	1,597		(3)		—		—		(1,594)		—
Business segment sales	$	26,028	$	20,902	$	—	$	—	$	(1,581)	$	45,349

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	2018
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
United States	$	7,079	$	8,575	$	—	$	—	$	12	$	15,666
Asia Pacific	1,525		5,112		—		—		—		6,637
Middle East and North Africa	425		457		—		—		—		882
Europe	5,508		4,023		—		—		—		9,531
Canada and All Other	748		1,237		—		—		—		1,985
Consolidated net sales	15,285		19,404		—		—		12		34,701
Inter-segment sales	1,349		(2)		—		—		(1,347)		—
Business segment sales	$	16,634	$	19,402	$	—	$	—	$	(1,335)	$	34,701

Segment sales disaggregated by customer for the years ended December 31, 2020, 2019 and 2018 are as follows:


	2020
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
U.S. government (1)	$	5,159	$	5,193	$	8,309	$	7,099	$	202	$	25,962
Foreign military sales through the U.S. government	218		1,229		593		2,545		—		4,585
Foreign government direct commercial sales	923		583		729		1,736		3		3,974
Commercial aerospace and other commercial	11,610		9,785		248		101		322		22,066
Consolidated net sales	17,910		16,790		9,879		11,481		527		56,587
Inter-segment sales	1,378		9		962		179		(2,528)		—
Business segment sales	$	19,288	$	16,799	$	10,841	$	11,660	$	(2,001)	$	56,587

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


	2019
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
U.S. government (1)	$	4,781	$	4,313	$	—	$	—	$	—	$	9,094
Foreign military sales through the U.S. government	255		1,316		—		—		—		1,571
Foreign government direct commercial sales	937		561		—		—		—		1,498
Commercial aerospace and other commercial	18,458		14,715		—		—		13		33,186
Consolidated net sales	24,431		20,905		—		—		13		45,349
Inter-segment sales	1,597		(3)		—		—		(1,594)		—
Business segment sales	$	26,028	$	20,902	$	—	$	—	$	(1,581)	$	45,349

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

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	2018
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
U.S. government (1)	$	2,643	$	3,917	$	—	$	—	$	—	$	6,560
Foreign military sales through the U.S. government	195		707		—		—		—		902
Foreign government direct commercial sales	737		538		—		—		—		1,275
Commercial aerospace and other commercial	11,710		14,242		—		—		12		25,964
Consolidated net sales	15,285		19,404		—		—		12		34,701
Inter-segment sales	1,349		(2)		—		—		(1,347)		—
Business segment sales	$	16,634	$	19,402	$	—	$	—	$	(1,335)	$	34,701

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

Sales to Airbus primarily relate to Pratt & Whitney and Collins Aerospace products, and prior to discounts and incentives were approximately $7,299 million, $9,879 million and $10,025 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Segment sales disaggregated by sales type for the years ended December 31, 2020, 2019 and 2018 are as follows:


	2020
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
Product	$	14,664	$	10,186	$	7,531	$	10,476	$	462	$	43,319
Service	3,246		6,604		2,348		1,005		65		13,268
Consolidated net sales	17,910		16,790		9,879		11,481		527		56,587
Inter-segment sales	1,378		9		962		179		(2,528)		—
Business segment sales	$	19,288	$	16,799	$	10,841	$	11,660	$	(2,001)	$	56,587


	2019
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
Product	$	19,991	$	12,994	$	—	$	—	$	13	$	32,998
Service	4,440		7,911		—		—		—		12,351
Consolidated net sales	24,431		20,905		—		—		13		45,349
Inter-segment sales	1,597		(3)		—		—		(1,594)		—
Business segment sales	$	26,028	$	20,902	$	—	$	—	$	(1,581)	$	45,349


	2018
(dollars in millions)	Collins Aerospace Systems		Pratt & Whitney		Raytheon Intelligence & Space		Raytheon Missiles & Defense		Other		Total
Product	$	12,708	$	11,421	$	—	$	—	$	12	$	24,141
Service	2,577		7,983		—		—		—		10,560
Consolidated net sales	15,285		19,404		—		—		12		34,701
Inter-segment sales	1,349		(2)		—		—		(1,347)		—
Business segment sales	$	16,634	$	19,402	$	—	$	—	$	(1,335)	$	34,701

Table of C ontents

RIS and RMD segment sales disaggregated by contract type for the year ended December 31, 2020 are as follows:


	2020
(dollars in millions)	Raytheon Intelligence & Space		Raytheon Missiles & Defense
Fixed-price	$	4,319	$	7,287
Cost-type	5,560		4,194
Consolidated net sales	$	9,879	$	11,481

NOTE 23: QUARTERLY OPERATING RESULTS (UNAUDITED)


	2020 Quarters								2019 Quarters
(dollars in millions, except per share amounts)	First		Second		Third		Fourth		First		Second		Third		Fourth
Net Sales	$	11,360	$	14,061	$	14,747	$	16,419	$	10,953	$	11,329	$	11,373	$	11,694
Gross margin	2,788		1,847		1,743		2,153		2,534		2,775		2,864		2,578
Income (loss) from continuing operations attributable to common shareowners	438		(3,844)		151		146		712		1,183		958		657
Income (loss) from discontinued operations attributable to common shareowners	(521)		9		113		(11)		634		717		190		486
Net income (loss) attributable to common shareowners	$	(83)	$	(3,835)	$	264	$	135	$	1,346	$	1,900	$	1,148	$	1,143
Earnings per share of Common Stock - Basic:
Income (loss) from continuing operations attributable to common shareowners	$	0.51	$	(2.56)	$	0.10	$	0.10	$	0.84	$	1.38	$	1.12	$	0.77
Income (loss) from discontinued operations	(0.61)		0.01		0.08		(0.01)		0.74		0.84		0.22		0.56
Net income (loss) attributable to common shareowners	$	(0.10)	$	(2.55)	$	0.17	$	0.09	$	1.58	$	2.22	$	1.34	$	1.33
Earnings (loss) per share of Common Stock - Diluted:
Income (loss) from continuing operations attributable to common shareowners	$	0.50	$	(2.56)	$	0.10	$	0.10	$	0.83	$	1.37	$	1.11	$	0.76
Income (loss) from discontinued operations	(0.60)		0.01		0.08		(0.01)		0.73		0.83		0.22		0.56
Net income (loss) attributable to common shareowners	$	(0.10)	$	(2.55)	$	0.17	$	0.09	$	1.56	$	2.20	$	1.33	$	1.32

Table of C ontents

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