Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BUSINESS OVERVIEW

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

We operate in four principal business segments: Collins Aerospace Systems (Collins), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean Raytheon Technologies Corporation and its subsidiaries.

The current status of significant factors affecting our business environment in 2022 is discussed below. For additional discussion, refer to the “Business Overview” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2021 Annual Report on Form 10-K.

Industry Considerations

Our worldwide operations can be affected by industrial, economic and political factors on both a regional and global level. Our operations include original equipment manufacturer (OEM) and extensive related aftermarket parts and services related to our aerospace operations. Our defense business serves both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business primarily at RIS, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization.

Government legislation, policies and regulations, including regulations related to global warming, carbon footprint and fuel efficiency, can have a negative impact on our worldwide operations. Government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses.

Collins and Pratt & Whitney serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), available seat miles and the general economic health of airline carriers are key barometers for our commercial aerospace operations. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Many of our aerospace operations’ customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services.

RIS, RMD, and the defense operations of Collins and Pratt & Whitney are affected by U.S. Department of Defense (DoD) budget and spending levels, changes in demand, changes in policy positions or priorities and the global political environment.

Impact of the COVID-19 Pandemic

The coronavirus disease 2019 (COVID-19) pandemic continues to negatively affect the global economy, our business and operations, supply chains, and the industries in which we operate. However, we continue to see indications that commercial air travel is recovering in certain areas of demand. While we believe that the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, there continues to be uncertainty with respect to when commercial air traffic capacity will fully return to and/or exceed pre-COVID-19 levels. Our expectations regarding the COVID-19 pandemic and ongoing recovery and their potential financial impact are based on available information and assumptions that we believe are reasonable at this time; however, the actual financial impact is highly uncertain and subject to a wide range of factors and future developments.

Other Matters

Global economic and political conditions, changes in raw material and commodity prices, labor costs, interest rates, foreign currency exchange rates, energy costs, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.

In response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government has imposed broad economic sanctions and export controls targeting key industries, entities and individuals in Russia. These U.S. government measures, among other items, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software and technologies to Russia, including broadened export controls specifically targeting Russia’s aerospace sector. Governments of various other jurisdictions in which we operate, including Canada, the United Kingdom, the European Union and others, have implemented similar measures. These sanctions and export controls, as well as responses from Russia, have adversely affected and could continue to adversely affect the Company and/or our supply chain, business partners or customers; however, we do not believe this matter will have a material

adverse effect on our financial results. In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog, which would have been recognized over a span of approximately 10 years, and recorded certain impairment charges and increases to reserves related to operations at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q.

In addition, in October 2020, the People’s Republic of China (China) announced that it may sanction Raytheon in connection with a possible Foreign Military Sale to Taiwan of six MS-110 Reconnaissance Pods and related equipment manufactured by Collins. Foreign Military Sales are government-to-government transactions that are initiated by, and carried out at the direction of, the U.S. government. Similarly, in February 2022, China announced that it plans to take countermeasures against RTC in connection with an approved Foreign Military Sale of Patriot missile system upgrade services to Taiwan. To date, the Chinese government has not imposed sanctions on RTC or indicated the nature or timing of any future potential sanctions or other countermeasures. If China were to impose sanctions or take other regulatory action against any RTC entity, our suppliers, affiliates or partners, it could potentially disrupt our business operations. The impact of potential sanctions or other actions by China cannot be determined at this time.

Also, in July 2019, the U.S. government suspended Turkey’s participation in the F-35 Joint Strike Fighter program because Turkey accepted delivery of the Russian-built S-400 air and missile defense system. The U.S. has imposed, and may impose additional, sanctions on Turkey, as well as contractual restrictions on the use of Turkish sources on certain military programs, as a result of this or other political disputes. Turkish companies supply us with components, some of which are sole-sourced, primarily in our aerospace operations for commercial and military engines and aerospace products. Depending upon the scope and timing of U.S. sanctions or contractual prohibitions on Turkey and potential reciprocal actions, if any, such sanctions or actions could impact our sources of supply and could have a material adverse effect on our results of operations, cash flows or financial condition.

We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S. government review and approval have been pending. The U.S. government’s approval of these sales is subject to a range of factors, including its foreign policies related to these customers, which are subject to continuing review and potential changes. Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer. If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results. In particular, as of March 31, 2022, our Contract liabilities include approximately $420 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated.

See Part I, Item 1A, “Risk Factors” in our 2021 Annual Report on Form 10-K for further discussion of these items.

CRITICAL ACCOUNTING ESTIMATES

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. See “Critical Accounting Estimates” within Item 7 and “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2021 Annual Report on Form 10-K, which describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the quarter ended March 31, 2022.

RESULTS OF OPERATIONS

As described in our “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q, our interim period results of operations and period-to-period comparisons of such results, particularly at a segment level, may not be indicative of our future operating results. The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context.

We provide the organic change in Net sales and Cost of sales for our consolidated results of operations as well as the organic change in Net sales and Operating profit for our segments. We believe that these non-Generally Accepted Accounting Principles (non-GAAP) measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change in Net sales, Cost of sales and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation fluctuations and other significant non-recurring and non-operational items (“Other”). Additionally, the organic change in Cost of sales and Operating profit excludes restructuring costs, the FAS/CAS operating adjustment and costs related to certain

acquisition accounting adjustments. Restructuring costs generally arise from severance related to workforce reductions and facility exit costs. Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired.

Net Sales

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Net Sales			$	15,716					$	15,251

The factors contributing to the total change year-over-year in total net sales for the quarter ended March 31, 2022 are as follows:

(dollars in millions)			Quarter Ended March 31, 2022
Organic(1)			$	664
Acquisitions and divestitures, net			(168)
Other			(31)
Total change			$	465

(1) See “Results of Operations” for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

Net sales increased $664 million organically in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to higher organic sales of $0.5 billion at Pratt & Whitney and $0.5 billion at Collins, partially offset by lower organic sales of $0.3 billion at RMD. The $168 million decrease in net sales related to Acquisitions and divestitures, net for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

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

			Quarter Ended March 31,												% of Total Net Sales
(dollars in millions)			2022						2021						2022						2021
Net Sales
Products			$	11,862					$	11,664					75.5		%				76.5		%
Services			3,854						3,587						24.5		%				23.5		%
Total net sales			$	15,716					$	15,251					100		%				100		%

Refer to “Note 17: Segment Financial Data” within Item 1 of this Form 10-Q for the composition of external net sales by products and services by segment.

Net products sales increased $198 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to increases in external products sales of $0.3 billion at Collins and $0.2 billion at Pratt & Whitney, partially offset by a decrease in external products sales of $0.2 billion at RMD.

Net services sales increased $267 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to increases in external services sales of $0.3 billion at Pratt & Whitney and $0.1 billion at Collins, partially offset by a decrease in external services sales of $0.1 billion at RIS.

Our sales to major customers were as follows:

			Quarter Ended March 31,												% of Total Net Sales
(dollars in millions)			2022						2021						2022						2021
Sales to the U.S. government(1)			$	7,338					$	7,748					46.7		%				50.8		%
Foreign military sales through the U.S. government			1,176						1,295						7.5		%				8.5		%
Foreign government direct commercial sales			959						1,180						6.1		%				7.7		%
Commercial aerospace and other commercial sales			6,243						5,028						39.7		%				33.0		%
Total net sales			$	15,716					$	15,251					100		%				100		%

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

Cost of Sales

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Total cost of sales			$	12,560					$	12,537
Percentage of net sales			79.9		%				82.2		%

The factors contributing to the change year-over-year in total cost of sales for the quarter ended March 31, 2022 are as follows:

(dollars in millions)			Quarter Ended March 31, 2022
Organic(1)			$	53
Acquisitions and divestitures, net			(143)
Restructuring			(20)
FAS/CAS operating adjustment			37
Acquisition accounting adjustments			(41)
Other			137
Total change			$	23

(1) See “Results of Operations” for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

The organic increase in total cost of sales of $53 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily driven by the organic sales increases at Collins and Pratt & Whitney, partially offset by the organic sales decrease at RMD noted above.

The $143 million decrease in cost of sales related to Acquisitions and divestitures, net for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily driven by the sale of our global training and services business within our RIS segment in the fourth quarter of 2021.

The increase in other cost of sales of $137 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily driven by charges at Pratt & Whitney and Collins related to impairment of customer financing assets for products under lease, inventory reserves, purchase order obligations, and the impairment of contract fulfillment costs that are no longer recoverable, all due to global sanctions on and export controls with respect to Russia. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

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

			Quarter Ended March 31,												% of Total Net Sales
(dollars in millions)			2022						2021						2022						2021
Cost of sales
Products			$	9,820					$	9,974					62.5		%				65.4		%
Services			2,740						2,563						17.4		%				16.8		%
Total cost of sales			$	12,560					$	12,537					79.9		%				82.2		%

Net products cost of sales decreased $154 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to a decrease at RIS and RMD, partially offset by an increase at Collins. The decrease at RIS was primarily driven by productivity improvements across numerous programs. The changes at RMD and Collins were related to the changes in products sales noted above.

Net services cost of sales increased $177 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to an increase in external services cost of sales at Pratt & Whitney driven by the services sales increase noted above.

Research and Development

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Company-funded			$	635					$	589
Percentage of net sales			4.0		%				3.9		%
Customer-funded (1)			$	1,086					$	1,132
Percentage of net sales			6.9		%				7.4		%

(1) Included in cost of sales in our Condensed Consolidated Statement of Operations.

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

Company-funded research and development as a percentage of net sales for the quarter ended March 31, 2022 was relatively consistent with the quarter ended March 31, 2021, with the increase principally driven by an increase in research and development spending at Pratt & Whitney.

The decrease in customer-funded research and development of $46 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily driven by lower expenses on various military programs at Collins and Pratt and Whitney, partially offset by higher expenses at RMD primarily driven by the Next Generation Interceptor (NGI) program awarded in the second quarter of 2021.

Selling, General and Administrative

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Selling, general and administrative expenses			$	1,469					$	1,220
Percentage of net sales			9.3		%				8.0		%

Selling, general and administrative expenses increased $249 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily driven by higher expenses of $0.2 billion at Collins and Pratt & Whitney principally driven by $71 million of charges related to increased estimates for credit losses due to global sanctions on and export controls with respect to Russia, and higher employee-related costs. Also included in the increase was higher Corporate selling, general and administrative expenses driven by higher restructuring costs of $34 million and unallocated state taxes of $30 million related to the impact of capitalization of research or experimental expenditures for tax-purposes. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information on Russia sanctions.

We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive. As appropriate, the amounts reflected above include the beneficial impact of previous restructuring actions on Selling, general and administrative expenses.

Other Income, Net

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Other income, net			$	28					$	108

Other income, net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, and other ongoing and nonrecurring items. The decrease in Other income, net of $80 million for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021 was primarily due to the absence of prior year foreign government wage subsidies related to COVID-19 at Pratt & Whitney of $29 million, and a loss resulting from the exit of our investment in a Russia-based joint venture at Collins in the quarter ended March 31, 2022.

Operating Profit

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Operating profit			$	1,080					$	1,013
Operating profit margin			6.9		%				6.6		%

The increase in Operating profit of $67 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily driven by the operating performance at our segments as described below in the individual segment results.

Non-service Pension Income

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Non-service pension income			$	(480)					$	(491)

The change in Non-service pension income of $11 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to an increase in the discount rate, partially offset by prior years’ pension asset returns exceeding our expected return on assets (EROA) assumption.

Interest Expense, Net

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Interest expense			$	322					$	342
Interest income			(31)						(11)
Other non-operating expense (income)(1)			27						15
Interest expense, net			$	318					$	346
Average interest expense rate			4.0		%				4.1		%

(1) Primarily consists of the unrealized gains or losses on marketable securities held in trusts associated with certain of our nonqualified deferred compensation and employee benefit plans.

The decrease in interest expense, net of $28 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to repayments of higher interest rate long-term debt during 2021, partially offset by debt issuances with lower interest rates during 2021, and adjustments of certain tax-related interest reserves in the quarter ended March 31, 2022.

Income Taxes

			Quarter Ended March 31,
			2022						2021
Effective income tax rate			9.3		%				29.8		%

The effective tax rate in the quarter ended March 31, 2022 includes a benefit of 5 percentage points primarily related to an incremental Foreign Derived Intangible Income (FDII) benefit and other effects created by the capitalization of research or experimental expenditures for tax-purposes, which was enacted as part of the Tax Cuts and Jobs Act of 2017 and became effective on January 1, 2022. The effective tax rate for the quarter ended March 31, 2021 includes tax charges incremental to the U.S. statutory rate of $148 million associated with the sale of the Forcepoint business, as described in “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q. Subsequently, in the fourth quarter of 2021, we recognized an incremental $104 million tax benefit due to the revaluation of that Forcepoint tax benefit as a result of completing the divestiture of RIS’s global training and services business.

Net Income from Continuing Operations Attributable to Common Shareowners

			Quarter Ended March 31,
(dollars in millions, except per share amounts)			2022						2021
Net income from continuing operations attributable to common shareowners			$	1,103					$	772
Diluted earnings per share from continuing operations			$	0.74					$	0.51

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

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

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

Net income from continuing operations attributable to common shareowners for the quarter ended March 31, 2021 includes the following:

• acquisition accounting adjustments of $398 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.26; and

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

Net Income Attributable to Common Shareowners

			Quarter Ended March 31,
(dollars in millions, except per share amounts)			2022						2021
Net income attributable to common shareowners			$	1,084					$	753
Diluted earnings per share from operations			$	0.72					$	0.50

The increase in net income attributable to common shareowners and diluted earnings per share from operations for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily driven by the increase in continuing operations, as discussed above in Net Income from Continuing Operations Attributable to Common Shareowners.

SEGMENT REVIEW

Our operations, for the periods presented herein, are classified into four principal segments: Collins, Pratt & Whitney, RIS and RMD. Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. Segment total net sales and operating profit include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment and certain corporate expenses, as further discussed below.

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

We provide the organic change in Net sales and Operating profit for our segments as discussed above in “Results of Operations”. We believe that these non-GAAP measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. For Pratt & Whitney only, Other also includes the transactional impact of foreign exchange hedging at Pratt & Whitney Canada due to its significance to Pratt & Whitney’s overall operating results.

Total Net Sales. Total net sales by segment were as follows:

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Collins Aerospace Systems			$	4,824					$	4,370
Pratt & Whitney			4,529						4,030
Raytheon Intelligence & Space			3,572						3,765
Raytheon Missiles & Defense			3,527						3,793
Total segment			16,452						15,958
Eliminations and other			(736)						(707)
Consolidated			$	15,716					$	15,251

Operating Profit. Operating profit by segment was as follows:

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Collins Aerospace Systems			$	440					$	314
Pratt & Whitney			151						20
Raytheon Intelligence & Space			378						388
Raytheon Missiles & Defense			387						496
Total segment			1,356						1,218
Eliminations and other			(34)						(31)
Corporate expenses and other unallocated items			(136)						(81)
FAS/CAS operating adjustment			378						423
Acquisition accounting adjustments			(484)						(516)
Consolidated			$	1,080					$	1,013

Included in segment operating profit are Estimate at Completion (EAC) adjustments, which relate to changes in operating profit and margin due to revisions to total estimated revenues and costs at completion. These changes may reflect improved or deteriorated operating performance, as well as changes in facts and assumptions related to contract options, contract modifications, incentive and award fees associated with program performance, customer activity levels, and other customer-directed changes. For a full description of our EAC process, refer to “Note 4: Changes in Contract Estimates at Completion” within Item 1 of this Form 10-Q. Given that we have thousands of individual contracts and given the types and complexity of the assumptions and estimates we must make on an on-going basis and the nature of the work required to perform under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course.

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

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Gross favorable			$	374					$	312
Gross unfavorable			(338)						(300)
Total net EAC adjustments			$	36					$	12

The change in net EAC adjustments of $24 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to a favorable change in net EAC adjustments of $58 million at Collins, partially offset by an unfavorable change in net EAC adjustments of $42 million at RMD, both spread across numerous individual programs with no individual or common significant driver.

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

Backlog and Defense Bookings. Total backlog was approximately $154 billion and $156 billion as of March 31, 2022 and December 31, 2021, respectively, which includes defense backlog of $62 billion and $63 billion as of March 31, 2022 and December 31, 2021, respectively. In the quarter ended March 31, 2022, we reversed $1.3 billion of backlog at our Pratt & Whitney and Collins businesses, as discussed further in “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q. Our defense operations consist primarily of our RIS and RMD businesses and operations in the defense businesses within our Collins and Pratt & Whitney segments. Defense bookings were approximately $8 billion and $9 billion for the quarters ended March 31, 2022 and 2021, respectively.

Defense bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: the desired capability by the customer and urgency of customer needs, customer budgets and other fiscal constraints, political and economic and other environmental factors, the timing of customer negotiations, and the timing of governmental approvals and notifications. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis.

Collins Aerospace Systems

			Quarter Ended March 31,
(dollars in millions)			2022						2021			Change
Net Sales			$	4,824					$	4,370		10		%
Operating Profit			440						314			40		%
Operating Profit Margins			9.1		%				7.2		%

Quarter Ended March 31, 2022 Compared with Quarter Ended March 31, 2021

			Factors Contributing to Total Change
(dollars in millions)			Organic**(1)**												Acquisitions / Divestitures, net						Restructuring Costs						Other						Total Change
Net Sales			$	474											$	3					$	—					$	(23)					$	454
Operating Profit			248												(4)						15						(133)						126

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $0.5 billion in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily relates to higher commercial aerospace aftermarket sales of $0.5 billion, including increases across all aftermarket sales channels, primarily due to an increase in flight hours and aircraft fleet utilization as commercial aerospace continues to recover from the unfavorable economic environment principally driven by the COVID-19 pandemic. The increase also includes higher commercial aerospace OEM sales of $0.2 billion primarily due to narrow-body growth. These increases were partially offset by lower military sales of $0.2 billion in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 primarily due to supply chain constraints and lower F-35 volume.

The organic profit increase of $0.2 billion in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to higher commercial aerospace operating profit of $0.4 billion principally driven by the higher commercial aerospace aftermarket sales discussed above. This increase in commercial aerospace operating profit was partially offset by lower military operating profit of $0.1 billion principally driven by the lower military sales volume discussed above, and higher selling, general and administrative expenses of $0.1 billion primarily due to higher employee-related costs.

The decrease in Other operating profits of $133 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to $141 million of pretax charges related to increased estimates for credit losses, inventory reserves, recognition of purchase order obligations and a loss resulting from the exit of our investment in a Russia-based joint venture, all due to global sanctions on and export controls with respect to Russia. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

Pratt & Whitney

			Quarter Ended March 31,
(dollars in millions)			2022						2021			Change
Net Sales			$	4,529					$	4,030		12		%
Operating Profit			151						20			655		%
Operating Profit Margins			3.3		%				0.5		%

Quarter Ended March 31, 2022 Compared with Quarter Ended March 31, 2021

			Factors Contributing to Total Change
(dollars in millions)			Organic**(1)**												Acquisitions / Divestitures, net						Restructuring Costs						Other						Total Change
Net Sales			$	507											$	—					$	—					$	(8)					$	499
Operating Profit			269												—						18						(156)						131

(1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

The organic sales increase of $0.5 billion in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 reflects higher commercial aftermarket sales of $0.6 billion primarily due to an increase in shop visits and related spare part sales as commercial aerospace continues to recover from the unfavorable economic environment principally driven by the COVID-19 pandemic. The increase also includes higher commercial OEM sales of $0.1 billion primarily driven by favorable mix on large commercial engine shipments. These increases were partially offset by lower military sales of $0.2 billion

primarily due to lower sales on F-135 production due to the timing of awards and lower volume, partially offset by higher F-135 sustainment volume.

The organic profit increase of $0.3 billion in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily driven by higher commercial aerospace operating profit of $0.5 billion principally due to the aftermarket sales volume increase discussed above, favorable OEM mix, and higher Pratt & Whitney Canada OEM volume. This increase was partially offset by an increase in selling, general and administrative expenses and research and development costs of $0.1 billion combined and slightly lower military operating profit principally due to the military sales volume decrease discussed above. The change in organic operating profit was also affected by the absence of prior year foreign government wage subsidies related to COVID-19 of $29 million.

The decrease in Other operating profits of $156 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to $155 million of pretax charges related to impairment of customer financing assets for products under lease, increased estimates for credit losses, inventory reserves and recognition of purchase order obligations, all due to global sanctions on and export controls with respect to Russia. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information.

Defense Bookings – In addition to a number of smaller bookings, in the quarter ended March 31, 2022 Pratt & Whitney booked $251 million for tanker production Lots 7 and 8.

Raytheon Intelligence & Space

			Quarter Ended March 31,
(dollars in millions)			2022						2021			Change
Net Sales			$	3,572					$	3,765		(5)		%
Operating Profit			378						388			(3)		%
Operating Profit Margins			10.6		%				10.3		%
Bookings			$	2,592					$	3,726		(30)		%

Quarter Ended March 31, 2022 Compared with Quarter Ended March 31, 2021

			Factors Contributing to Total Change in Net Sales
(dollars in millions)			Organic**(1)**												Acquisitions / Divestitures, net												Other						Total Change
Net Sales			$	(17)											$	(171)											$	(5)					$	(193)

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

			Factors Contributing to Change in Operating Profit
(dollars in millions)			Volume						Net change in EAC adjustments						Acquisitions / Divestitures, net						Mix and other performance						Total Change
Operating Profit			$	(1)					$	16					$	(28)					$	3					$	(10)

Organic sales in the quarter ended March 31, 2022 were relatively consistent with the quarter ended March 31, 2021. Included in the organic change in sales were lower command and control and communications sales of $0.1 billion primarily driven by a planned decrease in production volumes on certain tactical communications systems programs and slightly lower sensing and effects sales, nearly offset by an increase in cyber, training and services sales on certain classified cyber programs.

The decrease in operating profit of $10 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily due to acquisition / divestitures, net described below, which was partially offset by the net favorable change in EAC adjustments of $16 million, which was spread across numerous programs. The increase in operating profit margins in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily due to the net favorable change in EAC adjustments, partially offset by the impact of acquisitions / divestitures, net.

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

Backlog and Bookings– Backlog was $17 billion at March 31, 2022 and $18 billion at December 31, 2021. In the quarter ended March 31, 2022, RIS booked $1.1 billion on a number of classified contracts and $311 million on the Next-Generation Overhead Persistent Infrared (Next-Gen OPIR) GEO missile warning and defense contract for the U.S. Space Force.

Raytheon Missiles & Defense

			Quarter Ended March 31,
(dollars in millions)			2022						2021			Change
Net Sales			$	3,527					$	3,793		(7)		%
Operating Profit			387						496			(22)		%
Operating Profit Margins			11.0		%				13.1		%
Bookings			$	4,100					$	2,532		62		%

Quarter Ended March 31, 2022 Compared with Quarter Ended March 31, 2021

			Factors Contributing to Total Change in Net Sales
(dollars in millions)			Organic**(1)**												Acquisitions / Divestitures, net												Other						Total Change
Net Sales			$	(260)											$	—											$	(6)					$	(266)

(1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above.

			Factors Contributing to Change in Operating Profit
(dollars in millions)			Volume						Net change in EAC adjustments						Acquisitions / Divestitures, net						Mix and other performance						Total Change
Operating Profit			$	(24)					$	(42)					$	—					$	(43)					$	(109)

The organic sales decrease of $260 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to lower net sales of $0.2 billion on our Land Warfare and Air Defense programs, primarily driven by lower material receipts as a result of supply chain constraints and planned decreases in production on certain programs. Also included in the decrease in organic sales were lower net sales of $85 million on the Advanced Medium Range Air-to-Air Missile (AMRAAM) program and higher net sales of $80 million on the NGI program.

The decrease in operating profit of $109 million and the related decrease in operating margin in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily due to the change in mix and other performance of $43 million primarily driven by the lower sales on the Land Warfare and Air Defense programs discussed above, and a net unfavorable change in EAC adjustments of $42 million, which was spread across numerous programs with no individual or common significant driver.

Backlog and Bookings– Backlog was $29 billion at both March 31, 2022 and December 31, 2021. In the quarter ended March 31, 2022, RMD booked $1.2 billion on a number of classified contracts, including a strategic competitive award. RMD also booked $651 million for the SPY-6 Hardware Production and Sustainment contract for the U.S. Navy, $384 million for Excalibur Rapid Demonstration Phase 2 for the U.S. Army, $219 million for Air Intercept Missile (AIM-9X) Sidewinder short-range air-to-air missiles for the U.S. Navy and Air Force and international customers and $218 million to provide Patriot engineering support services for the U.S. Army and international customers.

Corporate and Eliminations and other

Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller non-reportable business segments. Corporate expenses and other unallocated items consists of costs and certain other unallowable corporate costs not considered part of management’s evaluation of reportable segment operating performance including restructuring costs related to the Raytheon merger, net costs associated with corporate research and development, including the Lower Tier Air and Missile Defense Sensor (LTAMDS) program and certain reserves.

			Net Sales												Operating Profit
			Quarter Ended March 31,												Quarter Ended March 31,
(dollars in millions)			2022						2021						2022						2021
Eliminations and other			$	(736)					$	(707)					$	(34)					$	(31)
Corporate expenses and other unallocated items			—						—						(136)						(81)

The increase in eliminations and other sales of $29 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was primarily due to an increase in intersegment eliminations, principally driven by Collins.

Eliminations and other operating profit in the quarter ended March 31, 2022 was relatively consistent with the quarter ended March 31, 2021.

The increase in Corporate expenses and other unallocated items of $55 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily due to higher restructuring costs of $34 million and unallocated state taxes of $30 million related to the impact of capitalization of research or experimental expenditures for tax-purposes.

FAS/CAS operating adjustment

We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and PRB expense under the Financial Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting Principles (GAAP) and our pension and postretirement benefit (PRB) expense under U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related RIS and RMD pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis.

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

			Quarter Ended March 31,
(dollars in millions)			2022						2021
FAS service cost (expense)			$	(91)					$	(101)
CAS expense			469						524
FAS/CAS operating adjustment			$	378					$	423

The change in our FAS/CAS operating adjustment of $45 million in the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was driven by a $55 million decrease in CAS expense, partially offset by a $10 million decrease in FAS service cost. The decrease in CAS expense was primarily due to an increase in applicable discount rates as a result of U.S. qualified pension plan funding relief included in the American Rescue Plan Act of 2021 (ARPA).

Acquisition accounting adjustments

Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired. These adjustments are not considered part of management’s evaluation of segment results.

The components of Acquisition accounting adjustments were as follows:

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Amortization of acquired intangibles			$	(477)					$	(587)
Amortization of property, plant and equipment fair value adjustment			(32)						(19)
Amortization of customer contractual obligations related to acquired loss-making and below-market contracts			25						90
Acquisition accounting adjustments			$	(484)					$	(516)

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

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Collins Aerospace Systems			$	(206)					$	(149)
Pratt & Whitney			(57)						(22)
Raytheon Intelligence & Space			(84)						(139)
Raytheon Missiles & Defense			(137)						(206)
Total segment			(484)						(516)
Eliminations and other			—						—
Acquisition accounting adjustments			$	(484)					$	(516)

The change in the Acquisition accounting adjustments of $32 million for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily driven by a decrease in RIS and RMD intangibles amortization related to the

Raytheon merger in 2020, partially offset by the absence of $47 million of amortization of customer contractual obligations due to the accelerated liquidation of a below-market contract reserve at Collins driven by the termination of a customer contract recognized in the quarter ended March 31, 2021.

LIQUIDITY AND FINANCIAL CONDITION

(dollars in millions)						March 31, 2022						December 31, 2021
Cash and cash equivalents						$	6,040					$	7,832
Total debt						31,472						31,485
Total equity						73,986						74,664
Total capitalization (total debt plus total equity)						105,458						106,149
Total debt to total capitalization						30		%				30		%

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is cash flows from operating activities. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in and divestitures of businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms.

At March 31, 2022, we had cash and cash equivalents of $6.0 billion, of which approximately 42% was held by RTC’s foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The Company does not intend to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. Taxes associated with the future remittance of these earnings have been recorded. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTC will continue to permanently reinvest these earnings.

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

From time to time, we use commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments and repurchases of our common stock. The commercial paper notes have original maturities of not more than 90 days from the date of issuance. As of March 31, 2022, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. We had no commercial paper outstanding at March 31, 2022.

As of March 31, 2022, we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion, consisting of a $5.0 billion revolving credit agreement, which expires in April 2025, and a $2.0 billion revolving credit agreement, which expires in May 2022 and is expected to be renewed in the second quarter of 2022. As of March 31, 2022, there were no borrowings outstanding under these agreements.

We have an existing universal shelf registration statement, which we filed with the Securities and Exchange Commission (SEC) on September 27, 2019, for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement.

The Company offers a voluntary supply chain finance (SCF) program with a global financial institution which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institution at a rate that leverages our credit rating, which might be beneficial to them. Our suppliers’ participation in the SCF program does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the program. In addition, we provide no guarantees or otherwise pay for any of the costs of the program incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institution, as it relates to the program. As such, the SCF program does not impact our overall liquidity.

We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate.

Cash Flow - Operating Activities

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Net cash flows provided by operating activities from continuing operations			$	476					$	723

Cash generated by operating activities from continuing operations in the quarter ended March 31, 2022 was $0.2 billion lower than the same period in 2021, primarily driven by an unfavorable change in inventory primarily due to current year increases to support anticipated sales volume growth at Pratt & Whitney and Collins, partially offset by a favorable change in accounts receivable primarily driven by the timing of engine deliveries and related billings at Pratt & Whitney. The remaining favorable change in accounts receivable was primarily driven by collaborator receivables at Pratt & Whitney, which was mostly offset with an unfavorable change in accounts payable and accrued liabilities primarily driven by collaborator payables. In addition, current year working capital also reflects a $0.5 billion increase in accounts payable and accrued liabilities related to a non-cash charge to income tax expense driven by the capitalization of research and experimental expenditures for tax purposes, as discussed further below. Net income after adjusting for this non-cash charge, as well as adjustments for depreciation and amortization, deferred income tax (benefit) provision, stock compensation costs, and net periodic pension and other postretirement benefit was consistent with the prior year.

The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Factoring activity resulted in an increase of approximately $0.5 billion in cash provided by operating activities during the quarter ended March 31, 2022, compared to an increase in cash flows provided by operating activities of approximately $0.6 billion during the quarter ended March 31, 2021. Factoring activity includes amounts factored on certain aerospace receivables at the customers’ request for which we may be compensated by the customer.

We made net tax payments of $133 million and $113 million in the quarters ended March 31, 2022 and 2021, respectively. A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. If this provision is not deferred, our full year 2022 tax payments are expected to increase by an estimated $2 billion, which has a significant impact on our tax payable and deferred tax balances. The increased payments will begin later in 2022.

Cash Flow - Investing Activities

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Net cash flows (used in) provided by investing activities from continuing operations			$	(518)					$	582

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

The $1.1 billion change in cash flows (used in) provided by investing activities from continuing operations in the quarter ended March 31, 2022 compared to March 31, 2021 primarily relates to the absence of the prior year sale of our Forcepoint business described below.

Capital expenditures in the quarter ended March 31, 2022 increased by $52 million from the quarter ended March 31, 2021 primarily due to investments in production facilities at Pratt & Whitney.

Dispositions of businesses in the quarter ended March 31, 2021 were $1.0 billion primarily related to the sale of our Forcepoint business. For additional detail, see “Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets” within Item 1 of this Form 10-Q.

Customer financing assets payments, net were $19 million and $81 million in quarters ended March 31, 2022 and 2021, respectively, and include purchases and sales of engines in our leased asset pool as well as customer financing. The decrease in customer financing assets payments, net was primarily due to the absence of a prior year sale and leaseback transaction for the sale of equipment.

During the quarters ended March 31, 2022 and 2021, we increased our collaboration intangible assets by $50 million and $32 million, respectively, which primarily relates to payments made under our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE).

As discussed in “Note 11: Financial Instruments” within Item 1 of this Form 10-Q, we enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates,

foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures. During the quarters ended March 31, 2022 and 2021, we had net cash payments of $33 million and receipts of $49 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

Cash Flow - Financing Activities

			Quarter Ended March 31,
(dollars in millions)			2022						2021
Net cash flows used in financing activities from continuing operations			$	(1,745)					$	(1,544)

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

Financing activities were a cash outflow of $1.7 billion in the quarter ended March 31, 2022 compared to a cash outflow of $1.5 billion in the quarter ended March 31, 2021. This change was driven by an increase in share repurchases of $0.4 billion and an increase in taxes paid on employee stock awards of $0.1 billion, partially offset by the absence of the prior year repayment of long-term debt of $0.3 billion.

Refer to “Note 8: Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on debt issuances and repayments.

At March 31, 2022, management had remaining authority to repurchase approximately $5.2 billion of our common stock under the December 7, 2021 share repurchase program. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan. Our ability to repurchase shares is subject to applicable law.

Our share repurchases were as follows:

						Quarter Ended March 31,
(dollars in millions; shares in thousands)						2022									2021
						$			Shares						$			Shares
Shares of Common Stock repurchased (1)						$	743		7,758						$	375		5,197

(1) Relates to share repurchases that were settled in cash during the period.

Our Board of Directors authorized the following cash dividends:

			Quarter Ended March 31,
(dollars in millions, except per share amounts)			2022						2021
Dividends paid per share of Common Stock			$	0.510					$	0.475
Total dividends paid			$	745					$	705

On April 25, 2022, the Board of Directors declared a dividend of $0.55 per share payable June 16, 2022 to shareowners of record at the close of business on May 20, 2022.