● RTX Corp · FY 2020

Management Discussion

Despite successfully executing a massive portfolio transformation and corporate merger amidst severe COVID-19 headwinds, RTX's leadership assessment reveals critical gaps in operational discipline and risk anticipation. A $3.2 billion goodwill impairment on acquired units and significant deteriorating contract estimates at Pratt & Whitney indicate that execution control has not fully kept pace with the company’s rapid strategic growth.

RTX L1 Synthesis

● SYMBOLOGY.ONLINE l1 SYNTHESIS

Rtx Corp Management Discussion Analysis

Leadership Assessment: Raytheon Technologies Corporation (RTX)

Management's Discussion & Analysis Evaluation — FY2020 10-K

Executive Summary

RTX's management navigated an extraordinarily complex year in 2020, simultaneously executing a major merger (Raytheon), completing two corporate separations (Carrier, Otis), and managing severe COVID-19 headwinds in commercial aerospace. The MD&A reflects a leadership team with notable strengths in transparency and structural execution, but also reveals meaningful gaps in risk anticipation and certain operational controls.

1. TRANSPARENCY AND HONESTY IN DISCUSSING CHALLENGES

Strengths

Forthright disclosure of financial deterioration: Management explicitly quantifies the full scope of damage rather than obscuring it. The MD&A clearly states a $3.2 billion goodwill impairment on two Collins Aerospace reporting units, a swing from $4.9 billion operating profit in 2019 to a $(1.9) billion operating loss in 2020, and a net loss attributable to common shareowners of $(3.5) billion. These figures are presented without minimization.

Granular EAC adjustment disclosure: Management discloses aggregate EAC adjustments with unusual specificity — including a $334 million unfavorable EAC on a commercial engine aftermarket contract, a $129 million unfavorable EAC from customer contract restructuring, and an $86 million unfavorable EAC on legacy fleet retrofits at Pratt & Whitney. This level of contract-level transparency is commendable and goes beyond minimum disclosure requirements.

Candid COVID-19 impact assessment: The MD&A states directly that RPMs declined approximately 65% in the first eleven months of 2020 and that recovery to pre-COVID levels may not occur until 2023 or 2024. Management does not offer an optimistic near-term recovery narrative unsupported by data.

Honest disclosure of the Middle East contract reversal: Management transparently explains the reversal of $119 million in previously recognized sales, a $516 million unfavorable profit impact, and the cancellation of $755 million in backlog related to precision guided munitions contracts with a Middle East customer. The disclosure acknowledges that regulatory approval is no longer probable due to U.S. election outcomes — a politically sensitive admission that management handles directly rather than euphemistically.

Impairment sensitivity disclosure: Management provides specific sensitivity metrics for the Collins Aerospace reporting unit closest to impairment — noting that a 25 basis point increase in discount rate would reduce the fair value cushion from $1.2 billion (7%) to approximately $0.3 billion (2%), and a 10% reduction in cash flows would eliminate the cushion entirely. This is a notably honest signal that future impairments remain possible.

Weaknesses

Limited discussion of operational failures preceding impairment: While the goodwill impairment is disclosed, the MD&A does not adequately address whether management's original acquisition valuations for the Rockwell Collins assets (acquired November 2018) embedded overly optimistic assumptions that were vulnerable even before COVID-19. The two impaired Collins Aerospace reporting units are not named, limiting accountability.

Muted discussion of PW1000G Geared Turbofan issues: The MD&A references technical issues with the GTF engine only briefly in the Critical Accounting Estimates section, noting they have "resulted in financial impacts, including increased warranty provisions, customer contract settlements, and reductions in contract performance estimates." Given the materiality of this program to Pratt & Whitney's long-term economics, this disclosure is relatively sparse compared to the depth provided on COVID-19 impacts.

2. STRATEGIC THINKING AND FORWARD PLANNING

Strengths

Coherent portfolio transformation thesis: The simultaneous execution of the Raytheon merger and the Carrier/Otis separations reflects a deliberate strategic pivot — concentrating the company in aerospace and defense while divesting commercial HVAC and elevator businesses. The result is a materially different revenue mix: U.S. government sales grew from 19% of total net sales in 2018 to 46% in 2020, providing a significant hedge against commercial aerospace cyclicality. This diversification proved strategically valuable during the COVID-19 downturn.

Defense backlog as a strategic buffer: Management highlights defense backlog of $67.3 billion at year-end 2020 (up from $22.3 billion in 2019), providing multi-year revenue visibility. The explicit disclosure of defense bookings ($31.2 billion in 2020) as a leading indicator demonstrates forward-looking management of the defense pipeline.

Proactive restructuring with quantified savings targets: Management does not merely announce restructuring — it provides specific savings targets. The 2020 restructuring actions ($770 million in charges) are projected to generate approximately $1.1 billion in annual recurring pre-tax savings within one to two years. The 2019 actions are projected to yield $200 million annually. This specificity allows investors to evaluate whether restructuring investments are generating adequate returns.

Capital preservation actions were timely and comprehensive: In response to COVID-19, management implemented a broad set of capital preservation measures — suspending share buybacks, deferring merit increases, implementing temporary pay reductions, freezing non-essential hiring, reducing capex, and cutting discretionary R&D. The organic reduction in R&D spend ($0.3 billion at Pratt & Whitney and $0.2 billion at Collins Aerospace) demonstrates willingness to make difficult near-term trade-offs.

Long-term commercial aerospace optimism is calibrated, not blind: Management states belief in the "fundamental drivers of air travel demand" while simultaneously projecting recovery not until 2023-2024. This balanced framing — optimistic on the long-term thesis, realistic on near-term timing — reflects mature strategic judgment rather than promotional messaging.

Weaknesses

Insufficient forward guidance on RIS and RMD integration: Given that RIS ($10.8 billion revenue) and RMD ($11.7 billion revenue) together represent approximately 40% of 2020 net sales, the MD&A provides surprisingly limited discussion of integration strategy, synergy targets, or cross-segment opportunities. The disclosure is largely descriptive of what was acquired rather than forward-looking about how these businesses will be developed.

No explicit capital allocation framework post-merger: While management mentions a $5.0 billion share repurchase authorization and signals intent to resume buybacks in 2021, there is no articulated framework for how capital will be allocated across organic investment, debt reduction, dividends, and buybacks in the post-merger environment. Given the complexity of the balance sheet ($31.8 billion in total debt), this omission is notable.

R&D reduction risk not adequately addressed: The MD&A acknowledges reductions in company-funded R&D at both Collins Aerospace and Pratt & Whitney due to COVID-19 cost measures, but does not discuss the potential long-term competitive consequences of these reductions. In a technology-intensive industry, sustained R&D cuts can erode competitive positioning, and management does not address this tension.

3. EXECUTION CAPABILITIES BASED ON PAST PERFORMANCE

Strengths

Successful execution of highly complex simultaneous transactions: Completing the Carrier and Otis separations and the Raytheon merger on the same day (April 3, 2020) — during the onset of a global pandemic — represents a significant operational achievement. The fact that these transactions closed on schedule, with the required debt restructuring completed, demonstrates strong project management and financial engineering capabilities.

Maintained positive operating cash flow despite severe headwinds: Despite a $(1.9) billion operating loss (heavily influenced by non-cash impairments and acquisition accounting), management generated $4.3 billion in operating cash flow from continuing operations in 2020. This demonstrates effective working capital management and the underlying cash-generative nature of the business even under stress.

Debt reduction execution: Total debt declined from $43.3 billion in 2019 to $31.8 billion in 2020, and the debt-to-total-capitalization ratio improved from 49% to 30%. This deleveraging was executed while simultaneously managing COVID-19 impacts, demonstrating financial discipline.

Successful divestiture execution: The sale of Collins Aerospace's military GPS and space-based precision optics businesses for $2.3 billion in gross proceeds, generating $595 million in gains, demonstrates the ability to execute portfolio optimization transactions at favorable valuations.

Pension funding discipline: The discretionary $750 million contribution to Raytheon Company's U.S. qualified pension plans, which eliminates required contributions until 2022, reflects proactive liability management that reduces future cash flow uncertainty.

Weaknesses

Deteriorating EAC performance at Pratt & Whitney: Net unfavorable EAC adjustments at Pratt & Whitney increased by $544 million in 2020 compared to 2019. While COVID-19 is cited as a primary driver, the magnitude of these adjustments — including a $334 million single-contract adjustment — raises questions about the robustness of the company's contract estimation processes and whether management had adequate visibility into contract economics before the pandemic forced recognition.

Goodwill impairment suggests prior overvaluation: The $3.2 billion goodwill impairment on two Collins Aerospace reporting units, taken only approximately 18 months after the Rockwell Collins acquisition closed, suggests that either the original acquisition price embedded excessive optimism or that post-acquisition integration did not deliver expected value. While COVID-19 accelerated the impairment, the sensitivity analysis suggests these units were already operating with limited fair value cushion.

Middle East contract management failure: The $516 million charge related to precision guided munitions contracts represents a significant execution failure. Management recognized revenue on contracts for which regulatory approval had not yet been obtained, and then was required to reverse $119 million of previously recognized sales. This suggests inadequate contract risk management processes, particularly around regulatory approval dependencies for international defense sales.

Factoring activity decline as a cash flow concern: Operating cash flows were reduced by approximately $1.6 billion due to decreased factoring activity in 2020. While this is partially explained by lower sales volumes, it also indicates that the company had been relying on factoring as a structural cash flow management tool, which introduces complexity and potential fragility in the cash conversion cycle.

4. RISK AWARENESS AND MITIGATION STRATEGIES

Strengths

Multi-scenario goodwill impairment analysis: Management's use of three weighted scenarios (base 50%, downside 40%, upside 10%) for the Collins Aerospace impairment analysis demonstrates sophisticated risk modeling. The weighting toward downside scenarios reflects genuine risk awareness rather than optimistic bias.

Explicit identification of geopolitical risks: Management proactively identifies the Turkey/F-35 program suspension, potential Chinese sanctions related to Taiwan arms sales, and U.S. foreign policy uncertainty under the new administration as material risks. These disclosures are specific and actionable rather than generic boilerplate.

Liquidity risk management is robust: The maintenance of $8.8 billion in cash, $6.84 billion in available credit facilities, and a $5.0 billion commercial paper program provides substantial liquidity buffers. The average maturity of long-term debt of approximately 14 years significantly reduces near-term refinancing risk.

Supply chain risk identification: The disclosure of sole-sourced Turkish components for aerospace and military engines demonstrates awareness of supply chain concentration risks, even if the mitigation strategy is not fully articulated.

Environmental liability quantification: The $835 million environmental remediation reserve, with specific annual cash outflow projections, reflects disciplined contingent liability management.

Pension sensitivity disclosure: The provision of specific sensitivity tables for both discount rate changes (±25 bps = ±$2.1 billion impact on projected benefit obligation) and EROA changes (±25 bps = ±$116 million impact on net periodic benefit income) demonstrates rigorous risk quantification for one of the company's largest long-term liabilities.

Weaknesses

COVID-19 recovery timeline uncertainty not adequately stress-tested: While management provides a 2023-2024 recovery estimate, the MD&A does not present a formal downside scenario analysis for what happens to liquidity and covenant compliance if recovery extends beyond 2024. Given the Collins Aerospace reporting unit's thin fair value cushion, a prolonged recovery could trigger additional impairments.

Regulatory approval risk in international defense sales was inadequately managed: The Middle East contract situation reveals a systemic gap in risk management — the company was executing on contracts and recognizing revenue without having secured required U.S. government regulatory approvals. This is not merely a one-time execution failure but suggests a process gap in how international commercial sales contracts are risk-assessed and revenue-recognized.

GTF engine technical risk disclosure is insufficient: The MD&A acknowledges ongoing technical issues with the PW1000G GTF engine but does not quantify the potential financial exposure or describe specific mitigation actions beyond noting that "Pratt & Whitney has addressed these issues through various improvements and modifications." For a program of this strategic importance, this level of risk disclosure is inadequate.

Supply chain concentration risk mitigation not articulated: While Turkish sole-source supply risks are identified, management does not describe specific mitigation actions (e.g., dual-sourcing programs, inventory buffers, alternative supplier qualification timelines). Risk identification without mitigation strategy is incomplete risk management disclosure.

Customer credit risk concentration: The MD&A notes $300 million in increased credit loss estimates driven by airline customer bankruptcies, and acknowledges "significant accounts receivable and contract assets balances" with airline and airframer customers. However, the specific concentration of exposure by customer is not disclosed, limiting investors' ability to assess the residual credit risk.

Overall Assessment Summary

Dimension	Rating	Key Evidence
Transparency & Honesty	Strong	Goodwill impairment disclosure, EAC specificity, Middle East contract reversal, sensitivity metrics
Strategic Thinking	Moderate-Strong	Portfolio transformation thesis is sound; gaps in integration strategy and capital allocation framework
Execution Capability	Moderate	Successful transaction execution and cash generation offset by EAC deterioration, impairment timing, and contract management failures
Risk Awareness & Mitigation	Moderate	Strong quantitative risk disclosure; gaps in mitigation articulation and regulatory approval process controls

Overall Leadership Assessment: RTX's management team demonstrates above-average transparency and has executed a strategically coherent portfolio transformation under genuinely difficult conditions. However, the combination of a large goodwill impairment shortly after a major acquisition, significant EAC deterioration at Pratt & Whitney, and the Middle East contract management failure suggests that execution discipline and risk management processes have not fully kept pace with the company's rapid growth through acquisition. The defense segment provides a valuable strategic buffer, but management must demonstrate improved contract risk controls and clearer integration execution to fully validate the merger thesis.

● RTX Corp · FY 2020

Management Discussion

Table of Contents

ITEM 7. 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. On April 3, 2020, United Technologies Corporation (UTC) completed the Separation Transactions as defined below, and on April 3, 2020, completed the Raytheon Merger as defined below, to form the new company, Raytheon Technologies Corporation. As a result of these transactions, we now operate in four principal business segments: Collins Aerospace Systems (Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).

Separation Transactions and Distributions. On April 3, 2020, UTC (since renamed Raytheon Technologies Corporation) completed the 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. Throughout this Annual Report on Form 10-K, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.

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 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."

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. Refer to "Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K for additional discussion on the Rockwell Acquisition.

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 for 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. 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. See "Note 3: Discontinued Operations" within Item 8 of this Form 10-K for additional information.

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 Aerospace 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. Our commercial aftermarket operations continue to evolve as a significant portion of our aerospace operations' customers are covered under long-term aftermarket service agreements at both Collins Aerospace and Pratt & Whitney. These agreements are comprehensive long-term spare part and service agreements with our customers.

RIS, RMD, and the defense operations of Collins Aerospace 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 from a new U.S. Administration and the global political environment. Total sales to the U.S. government, excluding foreign military sales (FMS), were $26.0 billion, $9.1 billion and $6.6 billion in 2020, 2019 and 2018 or 45.9%, 20.1% and 18.9% of total net sales for those years, respectively.

Impact of the 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 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 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" within Item 8 of this Form 10-K for additional information.

As described further in "Note 8: Commercial Aerospace Industry Assets and Commitments" within Item 8 of this Form 10-K, 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. For a discussion on the 2020 impacts see "Note 1: Basis of Presentation and Summary of Accounting Principles" within Item 8 of this Form 10-K.

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.

Other Matters

Global economic and political conditions, changes in raw material and commodity prices, 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 2021. With regard to political conditions, 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 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 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. In addition, in October 2020, the People's Republic of China (China) announced that it may sanction RTC in connection with a possible Foreign Military Sale to Taiwan of six MS-110 Reconnaissance Pods and related equipment manufactured by Collins Aerospace. Foreign Military Sales are government-to-government transactions that are initiated by, and carried out at the direction of, the U.S. government. To date, the Chinese government has not imposed sanctions on RTC or indicated the nature or timing of any future potential sanctions or other actions. If China were to impose sanctions or take other regulatory action against RTC, our suppliers, teammates 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.

The recent U.S. presidential and congressional election could result in changes to the U.S. government's foreign policies that may impact regulatory approval for direct commercial sales contracts for certain of our products and services to certain foreign customers. Likewise, it is uncertain whether approvals previously granted for prior sales could also 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, 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. 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.

See Item 1A. Risk Factors within Part I of this Form 10-K for further discussion of these items.

FINANCIAL SUMMARY

We use the following key financial performance measures to manage our business on a consolidated basis and by business segment, and to monitor and assess our results of operations:

Net Sales-a growth metric that measures our revenue for the current year;
Operating Profit-a measure of our profit from continuing operations for the year, before non-operating expenses, net and income taxes; and
Operating Margin-a measure of our operating profit as a percentage of total net sales.

(dollars in millions)202020192018

Total net sales$56,587 $45,349 $34,701

Operating profit (loss)(1,889)4,914 2,877

Operating margin(3.3)%10.8 %8.3 %

Operating cash flow from continuing operations$4,334 $5,821 $2,670

Total backlog150,119 111,665 93,844

Backlog, which is equivalent to our remaining performance obligations for our contracts, represents the dollar value of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity (IDIQ) type contracts). Backlog generally increases with bookings and/or orders and generally converts into sales as we incur costs under the related contractual commitments for our contracts recognized over time or as products are transferred to our customers for point in time contracts. Backlog is affected by changes in foreign exchange rates.

In addition, we maintain a strong focus on program execution and the prudent management of capital and investments in order to maximize operating income and cash. We focus on adjusted earnings per share (EPS) and measures to assess our cash generation and the efficiency and effectiveness of our use of capital, such as free cash flow (FCF) and return on invested capital (ROIC), all of which are not defined measurements under U.S. Generally Accepted Accounting Principles (GAAP) and may be calculated differently by other companies.

Considered together, we believe these metrics are strong indicators of our overall performance and our ability to create shareowner value. We feel these measures are balanced among long-term and short-term performance, efficiency and growth. We also use these and other performance metrics for executive compensation purposes.

A discussion of our results of operations and financial condition follows below in Results of Operations, Segment Review, and Liquidity and Financial Condition.

RESULTS OF OPERATIONS

As described in our "Cautionary Note Concerning Factors That May Affect Future Results" in this Form 10-K, our period-to-period comparisons of our 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. As discussed further above in "Business Overview," the results of RIS and RMD reflect the period subsequent to the completion of the Raytheon Merger on April 3, 2020. In addition, as a result of the Separations Transactions and the

Distributions, 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.

Net Sales

(dollars in millions)202020192018

Net sales$56,587 $45,349 $34,701

The factors contributing to the total change year-over-year in total net sales are as follows:

(dollars in millions)20202019

Organic (1)

$(10,438)$2,351

Foreign currency translation14 (73)

Acquisitions and divestitures, net21,662 8,370

Other- -

Total Change$11,238 $10,648

(1) We provide the organic change in net sales for our consolidated results of operations. We believe that this measure is useful to investors because it provides transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; and other significant non-recurring and non-operational items. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above.

Net sales decreased $10,438 million organically in 2020 compared to 2019. This decrease reflects lower organic sales of $6.6 billion at Collins Aerospace, primarily driven by lower commercial aerospace OEM sales and lower commercial aerospace aftermarket sales, partially offset by higher military sales. The declines in commercial aerospace OEM sales and commercial aerospace aftermarket sales were primarily due to the current economic environment principally driven by the COVID-19 pandemic, which has resulted in lower flight hours, aircraft fleet utilization and commercial OEM deliveries. The decrease in net sales also reflects lower organic sales of $4.1 billion at Pratt & Whitney primarily due to lower commercial aftermarket sales due to a significant reduction in shop visits and related spare part sales, and lower commercial OEM sales, primarily due to a significant reduction in commercial engine deliveries, all principally driven by the current economic and operating environment primarily due to the COVID-19 pandemic. The decrease at Pratt & Whitney was partially offset by higher military sales primarily driven by an increase in F135 engine sales and aftermarket growth on multiple platforms. The $21,662 million sales increase in Acquisitions and divestitures, net in 2020 compared to 2019, is primarily driven by the Raytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net was the sale of the Collins Aerospace military Global Positioning System (GPS) and space-based precision optics businesses sold in the third quarter of 2020, as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K.

Net sales increased $2,351 million organically in 2019 compared to 2018. This increase reflects higher organic sales of $1.6 billion at Pratt & Whitney, primarily driven by higher military, commercial OEM, and commercial aftermarket sales. The increase in net sales also reflects higher organic sales of $1.1 billion at Collins Aerospace primarily driven by higher commercial aftermarket and military sales, partially offset by lower commercial aerospace OEM sales. The $8,370 million sales increase in Acquisitions and divestitures, net in 2019 compared to 2018, is primarily driven by the Rockwell Acquisition.

The composition of external net sales by products and services sales for 2020 was approximately the following:

Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & Defense

Products80 %60 %75 %90 %

Services20 %40 %25 %10 %

% of Total Net Sales

(dollars in millions)202020192018202020192018

Net Sales

Products$43,319 $32,998 $24,141 77 %73 %70 %

Services13,268 12,351 10,560 23 %27 %30 %

Total net sales$56,587 $45,349 $34,701 100 %100 %100 %

Net products sales grew $10,321 million in 2020 compared to 2019 primarily due to an increase in external product sales of $18.4 billion due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external product sales of $5.3 billion

at Collins Aerospace and $2.8 billion at Pratt & Whitney. Net services sales grew $917 million in 2020 compared to 2019 primarily due to an increase in external services sales of $3.4 billion due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external services sales of $1.3 billion at Pratt & Whitney and $1.2 billion at Collins Aerospace.

Net products sales grew $8,857 million in 2019 compared to 2018 primarily due to an increase in external product sales of $7.3 billion at Collins Aerospace principally driven by the Rockwell Acquisition and an increase in external product sales of $1.6 billion at Pratt & Whitney. Net services sales grew $1,791 million in 2019 compared to 2018 primarily due to an increase in external services sales of $1.9 billion at Collins Aerospace primarily due to the Rockwell Acquisition.

Our sales to major customers were as follows:

% of Total Net Sales

(dollars in millions)202020192018202020192018

Sales to the U.S. government (1)

$25,962 $9,094 $6,560 46 %20 %19 %

Foreign military sales through the U.S. government4,585 1,571 902 8 %3 %3 %

Foreign government direct commercial sales3,974 1,498 1,275 7 %3 %4 %

Commercial aerospace and other commercial sales22,066 33,186 25,964 39 %73 %75 %

Total net sales$56,587 $45,349 $34,701 100 %100 %100 %

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

Cost of Products and Services Sold

(dollars in millions)202020192018

Total cost of products and services sold$48,056 $34,598 $27,465

Percentage of net sales85 %76 %79 %

The factors contributing to the change year-over-year in total cost of products and services sold are as follows:

(dollars in millions)20202019

Organic (1)

$(4,432)$1,781

Foreign currency translation8 (125)

Acquisitions and divestitures, net17,696 5,241

Restructuring220 89

FAS/CAS operating adjustment(965)-

Acquisition accounting adjustments939 424

Other(8)(277)

Total Change$13,458 $7,133

(1) We provide the organic change in cost of sales for our consolidated results of operations. We believe that this measure is useful to investors because it provides transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs; costs related to certain acquisition accounting adjustments and other significant non-recurring and non-operational items. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above.

The organic decrease in total cost of products and services sold in 2020 compared to 2019 of $4,432 million was primarily driven by the organic sales decreases noted above. The increase in Acquisitions and divestitures, net of $17,696 million in 2020 compared to 2019 is primarily driven by the Raytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net is the sale of the Collins Aerospace military GPS and space-based precision optics businesses sold in the third quarter of 2020, as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K and an unfavorable profit impact of $516 million related to inventory reserves, contract asset impairments and recognition of supplier related obligations for certain international contracts at RMD as further described in "Segment Review" below. Included in the decrease in Other of $8 million in 2020 compared to 2019 was prior year amortization of inventory fair value step-up associated with the Rockwell Collins acquisition of $181 million at Collins Aerospace, partially offset by an $89 million impairment of commercial aircraft program assets at Pratt & Whitney in the current year.

The organic increase in total cost of products and services sold in 2019 compared to 2018, of $1,781 million was primarily driven by the organic sales increases noted above. The increase in Acquisitions and divestitures, net of $5,241 million for 2019 compared to 2018 was primarily driven by the Rockwell Acquisition. The decrease in Other of $277 million primarily reflects the absence of a 2018 customer contract settlement at Pratt & Whitney.

For further discussion on Restructuring costs see "Restructuring Costs" section below. For further discussion on FAS/CAS operating adjustment see "FAS/CAS operating adjustment" section below. For further discussion on Acquisition accounting adjustments, see "Acquisition accounting adjustments" subsection under the "Segment Review" section below.

% of Total Net Sales

(dollars in millions)202020192018202020192018

Cost of sales

Products$38,137 $26,910 $21,083 67 %59 %61 %

Services9,919 7,688 6,382 18 %17 %18 %

Total cost of sales$48,056 $34,598 $27,465 85 %76 %79 %

Net products cost of sales grew $11,227 million in 2020 compared to 2019 primarily due to an increase in external product cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external product cost of sales at Collins Aerospace and Pratt & Whitney. Net services cost of sales grew $2,231 million in 2020 compared to 2019 primarily due to an increase in external services cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by a decrease in external services cost of sales at Collins Aerospace.

Net products cost of sales grew $5,827 million in 2019 compared to 2018 primarily due to an increase in external product cost of sales at Collins Aerospace, primarily due to the Rockwell Acquisition, and at Pratt & Whitney. Net services cost of sales grew $1,306 million in 2019 compared to 2018 primarily due to an increase in external services cost of sales at Collins Aerospace primarily due to the Rockwell Acquisition.

Research and Development

(dollars in millions)202020192018

Company-funded$2,582 $2,452 $1,878

Percentage of net sales4.6 %5.4 %5.4 %

Customer-funded (1)

$4,111 $2,283 $1,517

Percentage of net sales7.3 %5.0 %4.4 %

(1) Customer-funded research and development costs are included in cost of sales in our 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. The increase in company-funded research and development of $130 million in 2020 compared to 2019, was primarily driven by $0.6 billion related to the Raytheon Merger on April 3, 2020, partially offset by lower expenses of $0.3 billion across various commercial programs at Pratt & Whitney and $0.2 billion across various commercial programs at Collins Aerospace, both principally driven by cost reduction measures in response to the current economic environment primarily due to COVID-19. The increase in company-funded research and development of $574 million in 2019 compared to 2018, was primarily driven by $0.5 billion related to the Rockwell Acquisition. Excluding this impact, Collins Aerospace company-funded research and development increased $0.1 billion driven by higher expenses across various commercial programs.

The increase in customer-funded research and development of $1,828 million in 2020 compared to 2019, was primarily driven by $1.7 billion related to the Raytheon Merger on April 3, 2020. The increase in customer-funded research and development of $766 million in 2019 compared to 2018, was primarily driven by $0.8 billion related to the Rockwell Acquisition.

Selling, General and Administrative

(dollars in millions)202020192018

Selling, general and administrative$5,540 $3,711 $2,864

Percentage of net sales9.8 %8.2 %8.3 %

Selling, general and administrative expenses increased $1,829 million in 2020 compared to 2019, primarily driven by $1.6 billion related to the Raytheon Merger on April 3, 2020, excluding the impact of merger-related restructuring costs. The increase in Selling, general and administrative expenses also includes higher expenses of $0.4 billion related to increased estimates of expected credit losses primarily due to customer bankruptcies and additional allowances for credit losses at Pratt & Whitney and Collins Aerospace, higher general and administrative restructuring costs of $0.3 billion, and lower expenses due to cost reduction initiatives.

Selling, general and administrative expenses increased $847 million in 2019 compared to 2018, primarily driven by $0.6 billion of incremental selling, general and administrative expenses resulting from the Rockwell Acquisition and $0.1 billion of costs

associated with the Raytheon Merger. The increase in Selling, general and administrative expenses also includes higher expenses of $0.2 billion at Collins Aerospace, primarily driven by increased headcount and employee compensation related expenses partially offset by synergy capture related to the Rockwell Acquisition.

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. See "Note 14: Restructuring Costs" within Item 8 of this Form 10-K and Restructuring Costs, below, for further discussion.

Other Income, Net

(dollars in millions)202020192018

Other income, net$885 $326 $383

Other income, net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, as well as other ongoing and nonrecurring items. The increase in Other income, net of $559 million in 2020 compared to 2019 was primarily due to $595 million of gains on the sales of the Collins Aerospace businesses, as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K, and $225 million related to foreign government wage subsidies due to COVID-19 at Pratt & Whitney and Collins Aerospace, partially offset by a net unfavorable year-over-year impact of foreign exchange gains and losses of $138 million.

The decrease in Other income, net of $57 million in 2019 compared to 2018, was primarily due to a net unfavorable impact of foreign exchange gains and losses.

Operating Profit (Loss)

(dollars in millions)202020192018

Operating profit (loss)$(1,889)$4,914$2,877

Operating profit (loss) margin(3.3)%10.8 %8.3 %

The change in Operating profit (loss) of $6,803 million in 2020 compared to 2019 was primarily driven by the operating performance at our segments as described below in "Segment Review" and the $3,183 million goodwill impairment in the second quarter of 2020 related to two Collins Aerospace reporting units. Included in the change in Operating profit (loss) was an increase in acquisition accounting adjustments of $1,057 million related to the Raytheon Merger, an increase in restructuring costs of $527 million primarily related to restructuring actions taken at our Collins Aerospace segment and restructuring actions in connection with the Raytheon Merger on April 3, 2020 and an unfavorable profit impact of $516 million related to inventory reserves, contract asset impairments and recognition of supplier related obligations for certain international contracts at RMD as further described in "Segment Review" below.

The increase in Operating profit (loss) of $2,037 million in 2019 compared to 2018 was primarily driven by operating performance at our segments as described below in "Segment Review." Included in the increase in Operating profit (loss) was an increase in acquisition accounting adjustments of $375 million primarily related to the Rockwell acquisition and increase in restructuring costs of $93 million primarily related to actions taken at our Collins Aerospace and Pratt & Whitney segments.

Non-service Pension (Income) Expense

(dollars in millions)202020192018

Non-service pension (income) expense$(902)$(829)$(659)

The change in Non-service pension (income) expense of $73 million in 2020 compared to 2019 was primarily driven by the inclusion of Raytheon Company plans in 2020 as a result of the Raytheon Merger and a decrease in the interest rates at December 31, 2019 and during 2020 compared to December 31, 2018, partially offset by a decrease in the expected return on plan assets (EROA) assumption for the UTC plans in 2020 and a one-time curtailment gain of $98 million in 2019. The one-time curtailment gain was due to the recognition of previously unrecognized prior service credits as a result of an amendment to the UTC domestic defined benefit plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019.

The change in Non-service pension (income) expense of $170 million in 2019 compared to 2018 was primarily driven the inclusion of Rockwell Collins plans in 2019 as a result of the Rockwell Collins acquisition and a one-time curtailment gain of $98 million in 2019.

Interest Expense, Net

(dollars in millions)202020192018

Interest expense$1,408 $1,711 $1,182

Interest income(42)(120)(150)

Interest expense, net$1,366 $1,591 $1,032

Average interest expense rate - average outstanding borrowings during the year:

Short-term borrowings2.0 %1.7 %1.3 %

Total debt4.0 %3.6 %3.5 %

Average interest expense rate - outstanding borrowings as of December 31:

Short-term borrowings0.6 %2.3 %1.9 %

Total debt4.2 %3.6 %3.5 %

Interest expense, net decreased $225 million in 2020 as compared with 2019, primarily due to a decrease in interest expense principally driven by the repayment of long-term debt, partially offset by a decrease in interest income principally driven by interest income of $63 million related to tax settlements in the prior year. The average maturity of our long-term debt at December 31, 2020 was approximately 14 years.

Interest expense, net increased $559 million in 2019 as compared with 2018, primarily due to an increase in interest expense driven by debt acquired from the Rockwell Acquisition and the impact of the August 16, 2018 issuance of notes representing $11 billion in aggregate principal amount. The average maturity of our long-term debt at December 31, 2019 was approximately 10 years.

Income Taxes

202020192018

Effective income tax rate(24.4)%10.1 %43.8 %

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," within Item 8 of this Form 10-K, 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" within Item 8 of this Form 10-K. 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 Foreign Derived Intangible Income (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 (IRS) 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.

For additional discussion of income taxes and the effective income tax rate, see "Income Taxes" within Critical Accounting Estimates, below, and "Note 13: Income Taxes" within Item 8 of this Form 10-K.

Net Income (Loss) from Continuing Operations Attributable to Common Shareowners

(dollars in millions, except per share amounts)202020192018

Net income (loss) from continuing operations attributable to common shareowners $(3,109)$3,510 $1,216

Diluted earnings (loss) per share from continuing operations$(2.29)$4.06 $1.50

Net loss from continuing operations attributable to common shareowners for 2020 includes the following:

•acquisition accounting adjustments primarily related to the Raytheon Merger of $1,435 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $1.06;

•restructuring charges of $598 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.44;

•$3,240 million of primarily non-deductible goodwill and intangibles impairment charges related to our Collins Aerospace segment, which had an unfavorable impact on diluted EPS from continuing operations of $2.37;

•significant unfavorable contract adjustments at Collins Aerospace and Pratt & Whitney of $667 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.49;

•$415 million of tax charges in connection with the Separation Transactions, including the impairment of deferred tax assets not expected to be utilized, which had an unfavorable impact on diluted EPS from continuing operations of $0.31;

•unfavorable profit impact at RMD of $412 million, net of tax, related to certain direct commercial sales contracts for precision guided munitions with a certain Middle East customer, which had an unfavorable impact on diluted EPS from continuing operations of $0.30;

•increased estimates of expected credit losses driven by customer bankruptcies and additional allowances for credit losses of $300 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.22; and

•gains on the sales of the Collins Aerospace businesses of $240 million, net of tax, which had a favorable impact on diluted EPS from continuing operations of $0.18.

Net income from continuing operations attributable to common shareowners for 2019 includes the following:

•acquisition accounting adjustments of $704 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.81;

•restructuring charges of $186 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.21;

•tax settlements and related interest income on tax settlements of $341 million, which had a favorable impact on diluted EPS from continuing operations of $0.39; and

•amortization on the inventory fair value step-up associated with the Rockwell Acquisition of $140 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.16.

Net income from continuing operations attributable to common shareowners for 2018 includes the following:

•acquisition accounting adjustments of $432 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.53;

•restructuring charges of $114 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.14;

•an income tax charge related to the estimated impact of the TCJA of $744 million, which had an unfavorable impact on diluted EPS from continuing operations of $0.92; and

•the unfavorable impact of customer contract matters at Pratt & Whitney of $220 million, net of tax, which had an unfavorable impact on diluted EPS from continuing operations of $0.27.

Net Income (Loss) from Discontinued Operations Attributable to Common Shareowners

(dollars in millions, except per share amounts)202020192018

Net income (loss) from discontinued operations attributable to common shareowners $(410)$2,027 $4,053

Diluted earnings (loss) per share from discontinued operations$(0.30)$2.35 $5.00

On April 3, 2020, we completed the separation of our commercial businesses, Carrier and Otis. Effective as of such date, the historical results of the Carrier and Otis segments have been reclassified to discontinued operations for all periods presented. See "Note 3: Discontinued Operations" within Item 8 of this Form 10-K for additional information.

The change in net income (loss) from discontinued operations attributable to common shareowners of $2,437 million and the related change in diluted earnings (loss) per share from discontinued operations of $2.65 in 2020 compared to 2019 was

primarily due to prior year Carrier and Otis operating activity, as the Separation Transactions occurred on April 3, 2020, partially offset by higher prior year costs associated with the separation of our commercial businesses as discussed below.

Net income (loss) from discontinued operations for 2020 and 2019 includes $888 million, net of tax, and $1,284 million, net of tax, respectively, of costs associated with the Company's separation of its commercial businesses. Separation costs in 2020 primarily related to debt extinguishment costs of $611 million in connection with the early repayment of outstanding principal.

The change in net income (loss) from discontinued operations attributable to common shareowners of $2,026 million and the related change in diluted earnings (loss) per share from discontinued operations of $2.65 in 2019 compared to 2018 was primarily due to the increased costs associated with the separation of our commercial businesses in 2019 and the absence of a gain on Carrier's sale of Taylor Company of $591 million, net of tax in 2018.

Net Income (Loss) Attributable to Common Shareowners

(dollars in millions, except per share amounts)202020192018

Net income (loss) attributable to common shareowners $(3,519)$5,537 $5,269

Diluted earnings (loss) per share from operations$(2.59)$6.41 $6.50

The change in net income (loss) attributable to common shareowners and diluted EPS from operations for 2020 compared to 2019 was driven by the decrease in continuing operations, as discussed above in Net Income (Loss) from Continuing Operations Attributable to Common Shareowners and the decrease from discontinued operations, as discussed above in Net Income (Loss) from Discontinued Operations Attributable to Common Shareowners.

The change in net income (loss) attributable to common shareowners and diluted EPS from operations for 2019 compared to 2018 was driven by the increase in continuing operations, as discussed above in Net Income (Loss) from Continuing Operations Attributable to Common Shareowners, partially offset by the decrease from discontinued operations, as discussed above in Net Income (Loss) from Discontinued Operations Attributable to Common Shareowners.

RESTRUCTURING COSTS

(dollars in millions)202020192018

Restructuring costs$777 $245 $158

Restructuring actions are an essential component of our operating margin improvement efforts and relate to existing and recently acquired operations. Charges generally arise from severance related to workforce reductions and facility exit costs associated with the consolidation of field and manufacturing operations and costs to exit legacy programs. We continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions.

2020 Actions. During 2020, we recorded net pre-tax restructuring charges of $770 million for restructuring efforts initiated in 2020, primarily related 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 the ongoing cost reduction efforts. We expect to incur additional restructuring and other charges of $40 million to complete these actions. We are targeting to complete in 2021 the majority of actions initiated in 2020. We expect recurring pre-tax savings in continuing operations related to these actions to reach approximately $1.1 billion annually within one to two years. Approximately 80% of the total pre-tax charge will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During 2020, we had cash outflows of approximately $400 million related to the 2020 actions.

2019 Actions. During 2020 and 2019, we recorded net pre-tax restructuring charges of $10 million and $162 million, respectively, for actions initiated in 2019. We expect to incur additional restructuring charges of $58 million to complete these actions. We are targeting to complete in 2021 the majority of the remaining workforce and all facility related cost reduction actions initiated in 2019. We expect annual recurring pre-tax savings in continuing operations related to these actions to reach approximately $200 million annually within two years of initiating these actions. Approximately 90% of the total pre-tax charge will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During 2020, we had cash outflows of approximately $40 million related to the 2019 actions.

In addition, during 2020, we reversed $3 million of net pre-tax restructuring costs for restructuring actions initiated in 2018 and prior. In 2019 and 2018, we recorded $83 million and $158 million, respectively, of net pre-tax restructuring costs for restructuring actions initiated in 2018 and prior. For additional discussion of restructuring, see "Note 14: Restructuring Costs" within Item 8 of this Form 10-K.

SEGMENT REVIEW

As discussed further above in Business Overview, on April 3, 2020, United Technologies Corporation (UTC) completed the Separation Transactions, and on April 3, 2020, completed the Raytheon Merger with United Technologies Corporation being renamed Raytheon Technologies Corporation. As a result of these transactions, we now operate in four principal business segments: Collins Aerospace Systems (Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). The results of RIS and RMD reflect the period subsequent to the completion of the Raytheon Merger 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.

For a detailed description of our businesses, see "Business" within Item 1 of this Form 10-K.

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 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 postretirement benefit (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.

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. For our defense contracts, where the primary customer is the U.S. government subject to Federal Acquisition Regulation (FAR) part 12, our intercompany sales and profit is generally recorded at cost-plus a specified fee, which may differ from what the selling entity would be able to obtain on sales to external customers. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment and certain corporate expenses, as further discussed below.

We attempt to quantify material factors within our discussion of the results of each segment whenever those factors are determinable. However, in some instances, the factors we cite within our segment discussion are based upon input measures or qualitative information that does not lend itself to quantification when discussed in the context of the financial results measured on an output basis and are not, therefore, quantified in the below discussions.

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.

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

(dollars in millions)202020192018

Collins Aerospace Systems$19,288 $26,028 $16,634

Pratt & Whitney16,799 20,902 19,402

Raytheon Intelligence & Space10,841 - -

Raytheon Missiles & Defense11,660 - -

Total segment58,588 46,930 36,036

Eliminations and other(2,001)(1,581)(1,335)

Consolidated$56,587 $45,349 $34,701

Operating Profit (Loss). Operating profit (loss) by segment was as follows:

(dollars in millions)202020192018

Collins Aerospace Systems$1,466 $4,508 $2,397

Pratt & Whitney(564)1,801 1,402

Raytheon Intelligence & Space1,014 - -

Raytheon Missiles & Defense890 - -

Total segment2,806 6,309 3,799

Eliminations and other(111)(140)(69)

Corporate expenses and other unallocated items(590)(367)(340)

FAS/CAS operating adjustment1,106 - -

Acquisition accounting adjustments(1)

(5,100)(888)(513)

Consolidated$(1,889)$4,914 $2,877

(1) Acquisition accounting adjustments in 2020 includes the $3.2 billion goodwill impairment loss in the second quarter of 2020 related to two Collins Aerospace reporting units. Refer to "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" in Item 8 of this Form 10-K for additional information.

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 reflect improved or deteriorated operating performance or award fee rates. For a full description of our EAC process, refer to "Note 1: Basis of Presentation and Summary of Accounting Principles" within Item 8 of this Form 10-K. 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, we have both favorable and unfavorable EAC adjustments. We had the following aggregate EAC adjustments for the periods presented:

(dollars in millions)202020192018

Gross favorable$994 $419 $579

Gross unfavorable(1,637)(488)(629)

Total net EAC adjustments$(643)$(69)$(50)

As a result of the Raytheon Merger, RIS's and RMD's long-term contracts that are accounted for on a percentage of completion basis, were reset to zero percent complete as of the merger date since only the unperformed portion of the contract at the merger date represents an obligation of the Company. This has had 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 reserves. The change in net EAC adjustments of $574 million in 2020 compared 2019 was primarily due to an increase in net unfavorable EAC adjustments of $544 million at Pratt & Whitney, principally due to the current economic and operating environment primarily driven by the COVID-19 pandemic. Net EAC adjustments in 2019 were relatively consistent with 2018. Significant EAC adjustments in the years ended December 31, 2020, 2019 and 2018 are discussed in each business segment's discussion below. Refer to the individual segment results for further information.

Defense Backlog and Defense Bookings. We believe defense backlog and defense bookings are relevant to an understanding of management's view of our defense operations' performance. Our defense operations consist primarily of our RIS and RMD businesses and operations in the defense businesses within our Collins Aerospace and Pratt & Whitney segments. Defense backlog was approximately $67.3 billion and $22.3 billion as of December 31, 2020 and 2019, respectively, out of total backlog, including commercial, of $150.1 billion and $111.7 billion as of December 31, 2020 and 2019, respectively. Defense bookings were approximately $31.2 billion, $16.9 billion and $14.1 billion for 2020, 2019 and 2018 respectively.

Defense backlog, which is equivalent to our remaining performance obligations for our defense contracts, represents the dollar value of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., IDIQ type contracts). Defense backlog is affected by changes in foreign exchange rates.

Defense bookings generally represent the dollar value of new external defense contracts awarded to us during the reporting period and include firm orders for which funding has not been appropriated. We believe defense bookings are an important measure of future performance for our defense operations and are an indicator of potential future changes in these operations' total net sales, because we cannot record revenues under a new contract without first having a booking in the current or a preceding period.

Defense bookings exclude unexercised contract options and potential orders under ordering-type contracts (e.g., IDIQ type contracts), and are reduced for contract cancellations and terminations of bookings recognized in the current period. We reflect contract cancellations and terminations from prior year bookings, as well as the impact of changes in foreign exchange rates,

directly as an adjustment to backlog in the period in which the cancellation or termination occurs and the impact is determinable. Contract cancellations and terminations also include contract underruns on cost-type programs.

Defense bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: (1) the desired capability by the customer and urgency of customer needs, (2) customer budgets and other fiscal constraints, (3) political and economic and other environmental factors, (4) the timing of customer negotiations, (5) the timing of governmental approvals and notifications, and (6) the timing of option exercises or increases in scope. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis. As a result, we believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods and that shorter term changes in bookings may not necessarily indicate a material trend.

Collins Aerospace Systems

% Change

(dollars in millions)2020201920182020 compared with 2019

2019 compared with 2018

Net Sales$19,288 $26,028 $16,634 (26)%56 %

Operating Profit1,466 4,508 2,397 (67)%88 %

Operating Profit Margins7.6 %17.3 %14.4 %

2020 Compared with 2019

Factors Contributing to Total Change

(dollars in millions)Organic(1)

FXTranslationAcquisitions /Divestitures, netRestructuringCostsOtherTotal Change

Net Sales$(6,554)$15 $(201)$- $- $(6,740)

Operating Profit(3,598)(1)$(12)(258)827 (3,042)

2019 Compared with 2018

Factors Contributing to Total Change

(dollars in millions)Organic(1)

FXTranslationAcquisitions /Divestitures, netRestructuringCostsOtherTotal Change

Net Sales$1,068 $(72)$8,398 $- $- $9,394

Operating Profit47 32 2,005 58 (31)2,111

(1) We provide the organic change in net sales and operating profit for our Collins Aerospace and Pratt & Whitney segments. We believe that these 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 excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs and other significant non-recurring and non-operational items. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.

2020 Compared with 2019

The organic sales decrease of $6.6 billion in 2020 compared to 2019 primarily relates to lower commercial aerospace OEM sales of $3.7 billion and lower commercial aerospace aftermarket sales of $3.4 billion, including declines across all aftermarket sales channels. These reductions were primarily due to the current economic environment principally driven by the COVID-19 pandemic, which has resulted in lower flight hours, aircraft fleet utilization and commercial OEM deliveries. This decrease was partially offset by higher military sales of $0.6 billion. Included in the organic sales decrease were lower commercial aerospace OEM and aftermarket sales of approximately $1.0 billion related to the Boeing 737 Max program and fewer upgrades due to certain regulatory mandates that were primarily completed in early 2020.

The organic profit decrease of $3.6 billion in 2020 compared to 2019 is primarily due to lower commercial aerospace operating profit of $4.0 billion principally driven by the lower commercial aerospace OEM and aftermarket sales volume discussed above. Included in the lower commercial OEM operating profit were $157 million of significant unfavorable adjustments principally driven by the expected acceleration of fleet retirements of a certain aircraft. The decrease was partially offset by lower Research and development expenses of $0.2 billion, which includes the impact of cost reduction initiatives. Included in the operating profit decrease was $125 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses.

Included in organic profit in 2020 was other income of $72 million related to foreign government wage subsidies due to COVID-19 and $12 million related to the favorable impact of a contract related matter in the first quarter of 2020.

The decrease in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the sale of our Collins Aerospace military GPS and space-based precision optics businesses in the third quarter of 2020 as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K.

The increase in Other operating profit of $0.8 billion in 2020 compared to 2019 primarily relates to gains of $595 million on the sales of the Collins Aerospace businesses discussed above, the absence of prior year amortization of inventory fair value step-up associated with the Rockwell Acquisition of $181 million and the absence of a prior year loss on the sale of a business of $25 million.

2019 Compared with 2018

The organic sales increase of $1.1 billion in 2019 compared to 2018 primarily reflects higher commercial aerospace aftermarket sales of $0.8 billion and higher military sales of $0.4 billion, partially offset by lower commercial aerospace OEM sales of $0.1 billion.

Organic profit in 2019 was relatively consistent compared to 2018. Included in the change in organic profit was higher commercial aerospace margin contribution of $0.2 billion driven by the commercial aftermarket sales growth noted above partially offset by lower commercial aerospace OEM margin contribution, and higher military margin contribution of $0.1 billion driven by the sales growth noted above. This increase was partially offset by higher Selling, general and administrative expenses of $0.2 billion and higher Research and development costs of $0.1 billion.

The increase in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the acquisition of Rockwell Collins in 2018 as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K.

Pratt & Whitney

% Change

(dollars in millions)2020201920182020 compared with 20192019 compared with 2018

Net Sales$16,799$20,902$19,402(20)%8 %

Operating Profit(564)1,8011,402(131)%28 %

Operating Profit Margins(3.4)%8.6 %7.2 %

2020 Compared with 2019

Factors Contributing to Total Change

(dollars in millions)Organic(1)

Translation(2)

Acquisitions /Divestitures, netRestructuringCostsOtherTotal Change

Net Sales$(4,080)$(23)$- $- $- $(4,103)

Operating Profit(2,126)(5)- (47)(187)(2,365)

2019 Compared with 2018

Factors Contributing to Total Change

(dollars in millions)Organic(1)

Translation(2)

Acquisitions /Divestitures, netRestructuringCostsOtherTotal Change

Net Sales$1,576 $(48)$(28)$- $- $1,500

Operating Profit228 (7)(7)(140)325 399

(2) For Pratt & Whitney only, the transactional impact of foreign exchange hedging at Pratt & Whitney Canada (P&WC) has been netted against the translational foreign exchange impact for presentation purposes in the table above. For all other segments these foreign exchange transactional impacts are included within the organic/operational caption in their respective tables. Due to its significance to Pratt & Whitney's overall operating results, we believe it is useful to segregate the foreign exchange transactional impact in order to clearly identify the underlying financial performance.

2020 Compared with 2019

The organic sales decrease of $4.1 billion in 2020 compared to 2019 primarily reflects lower commercial aftermarket sales of $3.8 billion, due to a significant reduction in shop visits and related spare part sales, and lower commercial OEM sales of $1.1 billion, primarily due to a significant reduction in commercial engine deliveries, all principally driven by the current

economic and operating environment primarily due to the COVID-19 pandemic. These declines were partially offset by higher military sales of $0.8 billion primarily driven by an increase in F135 engine sales and aftermarket growth on multiple platforms. Included in the lower commercial aftermarket sales is a $0.4 billion impact to sales from the net unfavorable contract adjustments discussed further below.

The organic profit decrease of $2.1 billion in 2020 compared to 2019 was primarily driven by lower commercial aftermarket operating profit of $2.4 billion driven by the sales volume decrease discussed above, unfavorable mix, a $334 million unfavorable EAC adjustment on a commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period, an unfavorable EAC adjustment of $129 million related to lower estimated revenues due to the restructuring of a customer contract, and $86 million related to an unfavorable EAC adjustment and increased allowances for warranty for legacy fleet related retrofits. The decrease was also driven by higher Selling, general and administrative expenses of $0.2 billion primarily driven by $257 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses. This decrease in organic profit was partially offset by lower Research and development costs of $0.3 billion, which includes the impact of cost reduction initiatives, and other income of $153 million related to foreign government wage subsidies due to COVID-19.

Included in organic profit was an increase in net unfavorable EAC adjustments of $544 million, which included the unfavorable EAC adjustments discussed above and significant net unfavorable EAC adjustments of $62 million based on a portfolio review of our commercial aftermarket programs in the second quarter of 2020 in consideration of the estimated lower flight hours, a change in the estimated number of shop visits and the related amount of estimated costs. Also included was an unfavorable EAC adjustment of $44 million in the second quarter of 2020 on a military program primarily driven by a shift in estimated overhead costs due to the lower commercial engine activity discussed above.

The decrease in Other operating profit of $187 million in 2020 compared to 2019 was primarily due to an $89 million impairment of commercial aircraft program assets in the current year and $43 million of reserves related to a commercial financing arrangement in the current year.

2019 Compared with 2018

The organic sales increase of $1.6 billion primarily reflects higher military sales of $0.8 billion, higher commercial OEM sales of $0.5 billion, and higher commercial aftermarket sales of $0.2 billion.

The organic profit increase of $0.2 billion was primarily driven by higher military margin contribution of $0.2 billion, driven by the sales increase noted above and higher commercial OEM margin contribution of $0.1 billion primarily driven by continued year-over-year cost reduction and favorable mix on large commercial engine shipments. These increases were partially offset by higher Research and development costs and Selling, general and administrative expenses of $0.1 billion.

The $0.3 billion increase in Other operating profit primarily reflects the absence of a 2018 customer contract settlement.

Raytheon Intelligence & Space

% Change

(dollars in millions)2020201920182020 compared with 20192019 compared with 2018

Net Sales$10,841- - NMNM

Operating Profit1,014- - NMNM

Operating Profit Margins9.4 %- -

Bookings$10,243- - NMNM

NM = Not meaningful

The increase in net sales of $10,841 million in 2020 compared to 2019 was due to the Raytheon Merger on April 3, 2020.

The increase in operating profit of $1,014 million and the related increase in operating profit margins in 2020 compared to 2019 was due to the Raytheon Merger. Included in operating profit in 2020 were $124 million of unfavorable EAC adjustments for loss reserves related to a domestic classified fixed price development program in a net loss position, of which $87 million was recorded in the fourth quarter of 2020.

Backlog and Bookings- Backlog was $18,676 million at December 31, 2020 compared to zero at December 31, 2019. The increase in backlog of $18,676 million was due to the Raytheon Merger. In 2020, RIS booked $3,294 million on a number of classified contracts, $236 million to produce and deliver Silent Knight radar systems and spares for the U.S. Special Operations Command, $229 million to perform operations and sustainment for the U.S. Air Force's Launch and Test Range System (LTRS), $201 million on the Development, Operations and Maintenance (DOMino) cyber program for the Department of

Homeland Security (DHS), $193 million on the Global Aircrew Strategic Network Terminal (Global ASNT) program for the U.S. Air Force, and $157 million for the Military GPS User Equipment Increment 2 Miniature Serial Interface Receiver Card (MGUE INC 2 MSI) program for the U.S. Air Force.

Raytheon Missiles & Defense

% Change

(dollars in millions)2020201920182020 compared with 20192019 compared with 2018

Net Sales$11,660- - NMNM

Operating Profit890- - NMNM

Operating Profit Margins7.6 %- -

Bookings$10,041- - NMNM

NM = Not meaningful

The increase in net sales of $11,660 million in 2020 compared to 2019 was due to the Raytheon Merger on April 3, 2020.

The increase in operating profit of $890 million and the related increase in operating profit margins in 2020 compared to 2019 was due to the Raytheon Merger. Included in operating profit in 2020 was an unfavorable net impact of $516 million related to certain international contracts as further described below, and a $25 million net favorable EAC adjustment due to a revised estimate in costs to complete an industrial cooperation agreement obligation on multiple contracts for an international customer based upon an agreement signed in the fourth quarter of 2020.

In the fourth quarter of 2020, RMD reversed $119 million of sales for work performed subsequent to the date of the Raytheon Merger through the end of the third quarter of 2020, and the related operating profit, on our direct commercial sales contracts for precision guided munitions with a certain Middle East customer, for which we have not yet obtained regulatory approval. As discussed in the "Other Matters" subsection of the "Business Overview" section above, due to the recent 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 regulatory approvals for these contracts. RMD also recognized an unfavorable profit impact of $516 million related to these contracts, 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.

Backlog and Bookings- Backlog was $29,593 million at December 31, 2020 compared to zero at December 31, 2019. The increase in backlog of $29,593 million was due to the Raytheon Merger. In 2020, RMD booked $2,426 million on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Kingdom of Saudi Arabia (KSA), $351 million for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA) and an international customer, $340 million for StormBreaker for the U.S. Air Force, $268 million for the AN/TPY-2 radar sustainment program for the MDA, and $237 million for Tube-launched, Optically-tracked, Wireless-guided (TOW) missiles for the U.S. Army and international customers. RMD also booked $1,503 million on a number of classified contracts, including $354 million on a major contract. In 2020, RMD recorded a backlog adjustment of $755 million on certain international contracts as discussed above.

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, including Forcepoint, LLC, which was acquired as part of the Raytheon Merger and subsequently disposed of in January 2021, as further discussed in "Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K.

Net SalesOperating Profit

(dollars in millions)202020192018202020192018

Inter-segment eliminations$(2,528)$(1,594)$(1,347)$(83)$(208)$(181)

Other non-reportable segments527 13 12 (28)68 112

Eliminations and other$(2,001)$(1,581)$(1,335)$(111)$(140)$(69)

The increase in inter-segment eliminations sales in 2020 compared to 2019, was primarily due to the Raytheon Merger on April 3, 2020.

The increase in other non-reportable segment sales in 2020 compared to 2019, was primarily related to Forcepoint sales.

The decrease in other non-reportable segments operating profit in 2020 compared to 2019, was primarily due to the impact of foreign currency translation, partially offset by operating profit related to Forcepoint.

Other non-reportable segment sales in 2019 were relatively consistent with 2018.

The decrease in other non-reportable segments operating profit in 2019 compared to 2018, was primarily due to the impact of foreign currency translation.

Corporate expenses and other unallocated items

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 and merger 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 which was acquired as part of the Raytheon Merger, and certain reserves. See Restructuring Costs, above, for a more detailed discussion of our restructuring costs.

(dollars in millions)202020192018

Corporate expenses and other unallocated items$(590)$(367)$(340)

The change in Corporate expenses and other unallocated items of $223 million for 2020 compared to 2019 was primarily driven by increased restructuring costs of $201 million, $130 million of net expenses related to the LTAMDS project acquired as part of the Raytheon Merger and an increase in merger-related costs for the Raytheon Merger of $82 million, partially offset by $40 million of merger-related costs for the Rockwell Acquisition in 2019 and other unallocated items with no individual or common significant driver.

Corporate expenses and other unallocated items in 2019 was relatively consistent with 2018. Included in the change were merger-related costs for the Raytheon Merger of $83 million in 2019 and a decrease in merger-related costs for the Rockwell Acquisition of $78 million.

FAS/CAS operating adjustment

The segment results of RIS and RMD only include pension and PRB expense as determined under U.S. government CAS, which we generally recover through the pricing of our products and services to the U.S. government. The difference between our CAS expense and the FAS service cost attributable to these segments under U.S. GAAP is the FAS/CAS operating adjustment. The FAS/CAS operating adjustment results in consolidated pension expense in operating profit equal to the service cost component of FAS expense under U.S. GAAP. The segment results of Collins Aerospace and Pratt & Whitney include FAS service cost.

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

(dollars in millions)202020192018

FAS service cost (expense)$(354)$- $-

CAS expense1,460 - -

FAS/CAS operating adjustment$1,106 $- $-

The change in our FAS/CAS operating adjustment of $1,106 million in 2020 compared to 2019 was due to the Raytheon Merger on April 3, 2020.

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:

(dollars in millions)202020192018

Goodwill impairment charge$(3,183)$- $-

Amortization of acquired intangibles (2,142)(1,211)(689)

Amortization of property, plant and equipment fair value adjustment(69)(23)(76)

Amortization of customer contractual obligations related to acquired loss-making and below-market contracts294 346 252

Acquisition accounting adjustments$(5,100)$(888)$(513)

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

(dollars in millions)202020192018

Collins Aerospace Systems$(3,926)$(605)$(235)

Pratt & Whitney(117)(283)(278)

Raytheon Intelligence & Space(394)- -

Raytheon Missiles & Defense(607)- -

Total segment(5,044)(888)(513)

Eliminations and other(56)- -

Acquisition accounting adjustments$(5,100)$(888)$(513)

The change in the Acquisition accounting adjustments of $4,212 million in 2020 compared to 2019, is primarily driven by the $3.2 billion goodwill impairment in the second quarter of 2020 related to two Collins Aerospace reporting units and an increase of $1.1 billion related to the Raytheon Merger, primarily related to the amortization of acquired intangibles. Refer to "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K for additional information on the goodwill impairment.

The change in the Acquisition accounting adjustments of $375 million in 2019 compared to 2018, is primarily driven by a change of $370 million at Collins Aerospace primarily related to the Rockwell Acquisition.

LIQUIDITY AND FINANCIAL CONDITION

(dollars in millions)20202019

Cash and cash equivalents$8,802 $4,937

Total debt31,823 43,252

Total equity73,852 44,231

Total capitalization (total debt plus total equity)105,675 87,483

Total debt to total capitalization30 %49 %

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 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. We had $6.84 billion available under our various credit facilities at December 31, 2020.

As discussed above in Business Overview, in response to the COVID-19, we have taken actions to preserve capital and protect the long-term needs of our business. Although our business has been and will continue to be significantly impacted by COVID-19, we currently believe we have sufficient liquidity to withstand the potential impacts.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), along with earlier issued IRS guidance, provides for a net deferral of payroll tax payments. We did not realize any cash flows benefit in 2020, and do not expect an impact to future years' cash flows, from a net deferral of payroll tax payments. In addition, deferrals of required estimated federal, foreign and state income tax payments due to the CARES Act and other similar state and foreign stimulus incentives only impacted the timing of these payments within the year. The CARES Act, among other things, also contains numerous other provisions which may impact us. We continue to refine our understanding of the impact of the CARES Act on our business, and ongoing government guidance related to COVID-19 that may be issued. We may be entitled to recovery for certain costs through the

pricing of our products and services to the U.S. government; however, we do not believe these costs are probable of recovery at this time, and therefore, have not assumed any recovery within our EACs.

At December 31, 2020, we had cash and cash equivalents of $8.8 billion, of which approximately 45% 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 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, RTC will continue to permanently reinvest these earnings. We repatriated $2.3 billion and $1.6 billion of cash for the year ended December 31, 2020 and 2019, respectively.

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 $30 million and $24 million respectively.

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

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 had $160 million of commercial paper borrowings as of December 31, 2020. The maximum amount of short-term commercial paper borrowings outstanding at any point in time during the year ended December 31, 2020 was $1,904 million. 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. Refer to "Note 10: Borrowings and Lines of Credit" within Item 8 of this Form 10-K for additional information.

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.

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 has offered a voluntary supply chain finance (SCF) program with a global financial institution for more than 10 years, 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, amounts due to suppliers that have elected to participate in the SCF program are included in Accounts payable on our Consolidated Balance Sheet and all payment activity related to amounts due to suppliers that elected to participate in the SCF program are reflected in cash flows from operating activities in our Consolidated Statement of Cash Flow. As of December 31, 2020, and December 31, 2019, the amount due to suppliers participating in the SCF program and included in Accounts payable was approximately $394 million and $460 million, respectively. The decrease from December 31, 2019 to December 31, 2020 is due to decreases in our underlying supply chain purchases. The SCF program does not impact our overall liquidity.

We believe our 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

(dollars in millions)202020192018

Net cash flows provided by operating activities from continuing operations$4,334 $5,821 $2,670

Net cash flows (used in) provided by operating activities from discontinued operations(728)3,062 3,652

2020 Compared with 2019 - Continuing Operations

Cash generated from operating activities in 2020 was $1,487 million lower than 2019. This decrease is primarily due to a decrease in net income after adjustments for depreciation and amortization, the 2020 goodwill impairment charge, the deferred income tax provision, stock compensation costs and net periodic pension and other post retirement (income) expense of $1,950 million primarily driven by a decrease at Pratt & Whitney and Collins Aerospace as a result of the current economic environment primarily driven by COVID-19, partially offset by net income from RIS and RMD following the Raytheon Merger. Included in the decrease in operating cash flows was an increase in pension contributions, as further discussed below, and an unfavorable impact from accounts payable primarily at Collins Aerospace and Pratt & Whitney due to a decline in volume principally driven by the current economic environment primarily driven by COVID-19, which was partially offset by a favorable change in inventory at Collins Aerospace and Pratt & Whitney due to the decline in volume and a favorable change in accounts receivable and contract assets due to the timing of billings and collections in 2020 across our segments.

The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Factoring activity resulted in a decrease of approximately $1.6 billion in cash flows from operating activities during the year ended December 31, 2020, as compared to the prior year. This decrease in factoring activity was driven by a decrease in factoring levels at Collins Aerospace and Pratt & Whitney primarily driven by lower sales volume.

2019 Compared with 2018 - Continuing Operations

Cash generated from operating activities in 2019 was $3.2 billion higher than 2018. The increase is largely driven by an increase in Net income after adjustments for depreciation and amortization, the deferred income tax provision, stock compensation costs, and the net periodic pension and other postretirement (income) expense of $2.3 billion and an increase in other long term assets and liabilities cash flows of $1.1 billion, partially offset by a decrease in working capital cash flows of $0.7 billion.

Factoring activity resulted in a decrease of approximately $200 million in cash generated from operating activities during the year ended December 31, 2019, as compared to the prior year. This decrease in factoring activity was primarily driven by a decrease in factoring levels at Pratt & Whitney, partially offset by an increase at Collins Aerospace.

We make both required and discretionary contributions to our pension plans. Required contributions are primarily determined by Employee Retirement Income Security Act of 1974 (ERISA) funding rules, which require us to fully fund our U.S qualified pension plans over a rolling seven-year period as determined annually based on the Pension Protection Act of 2006 (PPA) calculated funded status at the beginning of each year. The funding requirements are primarily based on the year's expected service cost and amortization of other previously unfunded liabilities, which are dependent upon many factors, including returns on invested assets, the level of market interest rates and actuarial assumptions. We can contribute cash or RTC shares to our plans at our discretion, subject to applicable regulations. As of December 31, 2020, the total investment by the U.S. qualified pension plans in RTC shares was less than 1% of total plan assets.

We made the following contributions to our U.S. qualified and international defined benefit and PRB plans' trusts during the years ended December 31:

(dollars in millions)202020192018

U.S. qualified defined benefit plans

$885 $25 $-

International defined benefit plans

125 30 79

PRB plans15 - -

Total$1,025 $55 $79

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.

Global pension and PRB cash funding requirements are expected to be $370 million, $850 million and $750 million in 2021, 2022 and 2023, respectively, which includes benefit payments to be paid directly by the company.

Operating Activities - Discontinued Operations

The $3,790 million decrease in cash flows provided by operating activities from discontinued operations in 2020 compared to 2019 primarily relates to a decrease in net income from discontinued operations driven by the absence of operating activity for the majority of the year, as the Separation Transactions occurred on April 3, 2020. The $590 million decrease in cash flows provided by operating activities from discontinued operations in 2019 compared to 2018 primarily relates to a decrease in net income from discontinued operations, partially offset by an increase in working capital cash inflows.

Cash Flow-Investing Activities

(dollars in millions)202020192018

Net cash flows provided by (used in) investing activities from continuing operations$3,343 $(2,676)$(17,259)

Net cash flows (used in) provided by investing activities from discontinued operations(241)(416)286

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.

2020 Compared with 2019 - Continuing Operations

The $6.0 billion increase in cash flows used in investing activities in 2020 compared to 2019 primarily relates to cash acquired in the Raytheon Merger of $3.2 billion, the sale of our Collins Aerospace military GPS and space-based precision optics businesses for a combined $2.3 billion in gross cash proceeds and a net increase in the source of cash from customer financing assets of $747 million, partially offset by an increase in cash outflows resulting from the Blue Canyon Technologies acquisition of $419 million.

Additions to property, plant and equipment were as follows:

(dollars in millions)202020192018

Additions to property, plant and equipment$(1,795)$(1,868)$(1,467)

Capital expenditures decreased by $73 million in 2020 compared to 2019 as reductions at Collins Aerospace of $321 million and Pratt & Whitney of $257 million were largely offset by increased capital expenditures driven by the Raytheon Merger.

Dispositions of businesses in 2020 of $2,556 million primarily related to the sale of our Collins Aerospace military GPS and space-based precision optics businesses for a combined $2.3 billion in gross cash proceeds.

Increases to customer financing assets is primarily driven by additional Geared Turbofan engines to support customer fleets and was a use of cash of $280 million and $787 million in 2020 and 2019, respectively. The decline within increases to customer financing assets is due to fewer engines added in 2020 compared to 2019. The decrease in customer financing assets which provided a source of cash of $368 million in 2020 compared to $128 million in 2019 is driven by a sale and leaseback transaction for the sale of equipment in 2020. Refer to "Note 12: Leases" within Item 8 of this Form 10-K for additional discussion of the sale lease-back transaction.

In 2020, we increased our collaboration intangible assets by approximately $172 million, which primarily relates to payments made under our 2012 agreement to acquire Rolls-Royce's collaboration interests in International Aero Engines AG (IAE).

At December 31, 2020, we had commercial aerospace financing and other contractual commitments, including exclusivity and collaboration payments of approximately $13.4 billion. Refer to "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K for further details on our commercial aerospace financing and other contractual commitments.

As discussed in "Note 15: Financial Instruments" within Item 8 of this Form 10-K, we enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under the Derivatives and Hedging Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (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. During the years ended December 31, 2020 and 2019, we had net cash receipts of approximately $32 million and $342 million, respectively, from the settlement of these derivative instruments not designated as hedging instruments.

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.

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.

2019 Compared with 2018 - Continuing Operations

The $14.6 billion decrease in cash flows used in investing activities in 2019 compared to 2018 primarily relates to the absence of cash paid to acquire Rockwell Collins of $14.9 billion in November 2018.

Capital expenditures of $1.9 billion for 2019 increased $401 million from 2018. This increase primarily relates to several projects at Collins Aerospace and investments in production and aftermarket capacity at Pratt & Whitney.

Dispositions of businesses in 2019 of $134 million primarily consisted of the businesses sold in connection with the Rockwell Acquisition.

Increases to customer financing assets is primarily driven by additional Geared Turbofan engines to support customer fleets and was a use of cash of $787 million and $988 million in 2019 and 2018, respectively. The decrease in the source of cash related to customer financing assets of $128 million in 2019 compared to $604 million in 2018 is driven by lower repayments on customer financing.

In 2019, we increased our collaboration intangible assets by approximately $351 million, which primarily relates to payments made under our 2012 agreement to acquire Rolls-Royce's collaboration interests in IAE.

Investing Activities - Discontinued Operations

The $175 million increase in cash flows used in investing activities from discontinued operations in 2020 compared to 2019 primarily relates to a reduction in capital expenditures at Carrier and Otis of approximately $300 million, partially offset by a reduction in investment cash of approximately $135 million. The $702 million decrease in cash flows provided by investing activities from discontinued operations in 2019 compared to 2018 primarily relates to the absence of $1.0 billion in proceeds from the sale of Taylor Company in June 2018 by Carrier, partially offset by a decrease in business acquisition activity.

Cash Flow-Financing Activities

(dollars in millions)202020192018

Net cash flows (used in) provided by financing activities from continuing operations$(3,860)$(1,913)$12,209

Net cash flows used in financing activities from discontinued operations(1,414)(2,651)(4,244)

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

2020 Compared with 2019 - Continuing Operations

Financing activities were a cash outflow of $3.9 billion in 2020 compared to a cash outflow of $1.9 billion in 2019. This change is driven by increases in long-term debt repayments of $13.4 billion, a $4.4 billion change in net cash transfers to discontinued operations, an increase in short-term borrowing repayments of $2.9 billion, and an increase in dividends paid on common stock of $0.3 billion, partially offset by an increase in long-term debt issuances of $19.2 billion. The 2020 debt issuances reflect debt incurred by Carrier and Otis of approximately $6 billion and $11 billion, respectively. The net proceeds of these issuances and draws were primarily utilized by UTC 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, management had remaining authority to repurchase approximately $5.0 billion of our common stock under the December 7, 2020 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. We expect to engage in share repurchase activity in 2021. Our ability to repurchase shares is subject to applicable law.

2019 Compared with 2018 - Continuing Operations

Financing activities was a cash outflow of $1.9 billion in 2019 compared to a cash inflow of $12.2 billion in 2018. This change is driven by the absence of $13.4 billion of long-term debt issuances in the prior year which was primarily utilized to fund the

Rockwell Acquisition, an increase in dividends paid on common stock of $0.3 billion and an increase in debt repayments of $0.2 billion, partially offset by an increase in short term borrowings of $1.3 billion and a reduction in common stock repurchases of $0.2 billion.

Our share repurchases were as follows for the years ended December 31:

(dollars in millions; shares in thousands)202020192018

$Shares$Shares$Shares

Shares of Common Stock repurchased$47 330 $151 1,133 $325 2,727

Our Board of Directors authorized the following cash dividends for the years ended December 31:

(dollars in millions, except per share amounts)202020192018

Dividends per share of Common Stock$2.160 $2.940 $2.840

Total dividends paid$2,732 $2,442 $2,170

On February 6, 2021, the Board of Directors declared a dividend of $0.475 per share payable March 25, 2021 to shareowners of record at the close of business on February 26, 2021.

We had the following issuances of long-term debt during 2020 and 2018, 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 DateDescription of NotesAggregate Principal Balance (in millions)

May 18, 20202.250% notes due 2030

$1,000

3.125% notes due 2050

$1,000

March 27, 2020Term Loan due 2023 (Otis) (1)

$1,000

Term Loan due 2023 (Carrier) (1)

$1,750

February 27, 20201.923% 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

August 16, 20183.350% notes due 2021 (2)

$1,000

3.650% notes due 2023 (2)

$2,250

3.950% notes due 2025 (2)

$1,500

4.125% notes due 2028 (2)

$3,000

4.450% notes due 2038 (2)

$750

4.625% notes due 2048 (3)

$1,750

LIBOR plus 0.65% floating rate notes due 2021 (2)

$750

May 18, 20181.150% notes due 2024 (4)

€750

2.150% notes due 2030 (4)

$500

EURIBOR plus 0.20% floating rate notes due 2020 (4)

$750

(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.

(2) The net proceeds received from these debt issuances were used to partially finance the cash consideration portion of the purchase price for Rockwell Collins and fees, expenses and other amounts related to the Rockwell Acquisition.

(3) The net proceeds from these debt issuances were used to fund the repayment of commercial paper and for other general corporate purposes.

(4) The net proceeds received from these debt issuances were used for general corporate purposes.

We had no issuances of long-term debt during 2019.

We made the following repayments of debt during 2020, 2019 and 2018:

Repayment DateDescription of NotesAggregate Principal Balance (in millions)

October 15, 20203.125% notes due 2020 (1)

$1,000

May 19, 20203.650% notes due 2023 (2)(3)

$410

May 15, 2020EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)(3)

$817

March 29, 20204.500% 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, 20201.900% 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, 20204.875% notes due 2020 (2)(3)

$171

February 28, 20203.650% notes due 2023 (2)(3)

$1,669

2.650% notes due 2026 (2)(3)

$431

November 15, 20198.875% notes

$271

November 13, 2019EURIBOR plus 0.15% floating rate notes

€750

November 1, 2019LIBOR plus 0.350% floating rate notes

$350

1.500% notes

$650

July 15, 20191.950% notes (4)

$300

5.250% notes (4)

$300

December 14, 2018Variable-rate term loan due 2020 (1 month LIBOR plus 1.25%) (4)

$482

May 4, 20181.778% junior subordinated notes

$1,100

February 22, 2018EURIBOR plus 0.80% floating rate notes

€750

February 1, 20186.80% notes

$99

(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.

Financing Activities - Discontinued Operations

The $1.2 billion decrease in cash flows used in financing activities from discontinued operations in 2020 compared to 2019 primarily relates to $703 million of debt extinguishment costs related to the early repayment of debt in 2020 and cash distributions made to Carrier and Otis of $2.8 billion, which were more than offset by a change in net transfer activity of $4.5 billion. The $1.6 billion decrease in cash flows used in financing activities from discontinued operations in 2019 compared to 2018 primarily relates to the change in net transfers to continuing operations.

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 Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. The most significant areas involving management judgments and estimates are described below. Actual results in these areas could differ from management's estimates.

Long-Term Contract Accounting. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace aftermarket contracts. We measure progress toward completion of these contracts on a percentage of completion basis, using costs incurred to date relative to total estimated costs at completion. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management's judgment. 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. In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost growth. 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 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 on 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)202020192018

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.

As a result of the Raytheon Merger, Raytheon Company's contracts accounted for on a percentage of completion basis were reset to zero percent complete as of the merger date, since only the unperformed portion of the contract at the merger date represents the obligation of the Company. For additional information related to the Raytheon Merger, see "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 8 of this Form 10-K.

Costs incurred for engineering and development of aerospace products under contracts with customers are capitalized as contract fulfillment costs, to the extent recoverable from the associated contract margin and customer funding, and subsequently amortized as the OEM products are delivered to the customer. The estimation of contract margin requires management's judgment. We regularly assess capitalized contract fulfillment costs for impairment.

Income Taxes. Management believes that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits, which may be realized over an extended period of time. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided.

In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through an increase to tax expense in the period in which that determination is made or when tax law changes are enacted. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to tax expense in the period in which that determination is made.

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. In addition, we have entered into certain internal legal entity restructuring transactions necessary to effectuate the Separation Transactions. We have accrued tax on these transactions based on our interpretation of the applicable tax laws and our determination of appropriate entity valuations. See "Note 1: Basis of Presentation and Summary of Accounting Principles" and "Note 13: Income Taxes" within Item 8 of this Form 10-K for further discussion.

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.

Goodwill and Intangible Assets. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets acquired in business combinations consist of patents, trademarks/tradenames, developed technology, customer relationships, and other intangible assets. The fair value for acquired customer relationship intangibles is determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the follow-on revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair value of the trademark and tradename intangible assets are 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 an appropriate discount rate. See "Note 1: Basis of Presentation and Summary of Accounting Principles" within Item 8 of this Form 10-K for further details.

We applied these approaches to the valuation of intangibles for the Raytheon Merger, for which the most significant intangible assets identified were customer relationships and tradenames. Specific to these intangible assets, our estimates of market participant future cash flows 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. For the customer relationships, where appropriate, the net cash flows were 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. In addition, the net cash flows were discounted using an appropriate discount rate that requires judgment by management. The estimated fair value of identifiable intangible assets acquired in connection with the Raytheon Merger was approximately $19.1 billion.

Also included within intangible assets are exclusivity assets, which are payments made to secure certain contractual rights to provide products on new commercial aerospace platforms. 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. The gross value of these contractual commitments at December 31, 2020 was approximately $11.6 billion, of which approximately $3.3 billion has been paid to date. We regularly assess the recoverability of these intangibles, which is dependent upon our assumptions around the future success and profitability of the underlying aircraft platforms including the associated aftermarket revenue streams, and the related future cash flows.

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 impairment test compares carrying values of the reporting units to its 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, 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 and 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.

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.

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. 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%. All other factors equal, if the discount rate used for the annual impairment analysis increased by 25 basis points, the fair value in excess of book value for the Collins Aerospace reporting unit would have been approximately $0.3 billion or 2%. Alternatively, all other factors equal, if the cash flows were decreased by 10%, the fair value for the Collins Aerospace reporting unit would have decreased by approximately $1.8 billion. Material changes in these estimates could occur and result in additional impairments in future periods.

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.

Contingent Liabilities. Our operating units include businesses which sell products and services and conduct operations throughout the world. As described in "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K, contractual, regulatory and other matters in the normal course of business may arise that subject us to claims or litigation. 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 typical 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.

Additionally, we have significant contracts with the U.S. government, subject to government oversight and audit, which may require significant adjustment of contract prices. We accrue for liabilities associated with these matters 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 then currently available facts with respect to each matter. When no amount within a range of estimates is more likely, the minimum is accrued. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution.

Employee Benefit Plans. We sponsor domestic and foreign defined benefit pension and PRB plans. Assumptions used to calculate our funded status are determined based on company data and appropriate market indicators. They are evaluated annually at December 31 and when significant events require a mid-year remeasurement. A change in any of these assumptions or actual experience that differs from these assumptions are subject to recognition in pension and postretirement net periodic benefit (income) expense reported in the Consolidated Financial Statements.

Assumptions used in the accounting for these employee benefit plans require judgement. Major assumptions include the discount rate and EROA. Other assumptions include mortality rates, demographic assumptions (such as retirement age), rate of increase in employee compensation levels, and health care cost increase projections.

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 expense by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows.

The following table shows the sensitivity of our pension and PRB plan liabilities and net periodic benefit income to a 25 basis point change in the discount rates for benefit obligations, interest cost and service cost as of December 31, 2020:

(dollars in millions)Increase in Discount Rate of 25 bpsDecrease in Discount Rate of 25 bps

Projected benefit obligation$(2,072)$2,183

Net periodic benefit income(7)8

The discount rate sensitivities assume no change in the shape of the yield curve that will be applied to the projected cash outflows for future benefit payments in order to calculate interest and service cost. A flattening of the yield curve, results in a narrowing of the spread between interest and obligation discount rates and would decrease our net periodic benefit income. Conversely, a steepening of the yield curve would result in an increase in the spread between interest and obligation discount rates and would increase our net periodic benefit income.

The EROA is the average rate of earnings expected over the long term on assets invested to fund anticipated future benefit payment obligations. 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. Differences between actual asset returns in a given year and the EROA do not necessarily indicate a change in the assumption is required, as the EROA represents the expected average returns over a long-term horizon.

Net periodic benefit income is also sensitive to changes in the EROA. An increase or decrease of 25 basis points in the EROA would have increased or decreased our 2020 net periodic benefit income by approximately $116 million.

We must apply both Financial Accounting Standards (FAS) requirements under U.S. GAAP (as described above) and U.S. government Cost Accounting Standards (CAS) requirements to calculate pension and PRB expense. Both FAS and CAS expense use long term assumptions requiring judgement, but the CAS expense calculation is different from the FAS requirements and calculation methodology. While the ultimate liability for pension costs under FAS and CAS is similar, the pattern of cost recognition is different. Our CAS pension expense is comprised primarily of CAS service cost as well as amortization amounts resulting from demographic or economic experience different than expected, changes in assumptions, or changes in plan provisions. CAS requires contractors to compare the liability using a discount rate based on the EROA to a liability using a discount rate based on high-quality corporate bonds, and use the greater of the two liability calculations in developing CAS expense. Additionally, unlike FAS, CAS expense is only recognized for plans that are not fully funded. Consequently, if plans become or cease to be fully funded under CAS due to our asset or liability experience, our CAS expense will change accordingly.

ACCOUNTING STANDARDS

For a discussion of recent accounting pronouncements, see the Accounting Pronouncements section in "Note 1: Basis of Presentation and Summary of Accounting Principles" within Item 8 of this Form 10-K.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We extend a variety of financial guarantees to third parties in support of unconsolidated affiliates and for potential financing requirements of commercial aerospace customers. We also have obligations arising from sales of certain businesses and assets, including indemnities for representations and warranties and environmental, health and safety, tax and employment matters. Circumstances that could cause the contingent obligations and liabilities arising from these arrangements to come to fruition include changes in an underlying transaction (e.g., hazardous waste discoveries, etc.), nonperformance under a contract, customer requests for financing, or deterioration in the financial condition of the guaranteed party.

A summary of our consolidated contractual obligations and commitments as of December 31, 2020 is as follows:

Payments Due by Period

(dollars in millions)Total20212022-20232024-2025Thereafter

Long-term debt-principal$31,470 $550 $2,805 $2,844 $25,271

Long-term debt-future interest19,915 1,328 2,532 2,390 13,665

Operating leases2,470 632 803 389 646

Purchase obligations22,111 14,407 6,669 874 161

Other long-term liabilities3,642 587 2,001 261 793

Total contractual obligations$79,608 $17,504 $14,810 $6,758 $40,536

Purchase obligations include amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders. Where it is not practically feasible to determine the legally enforceable portion of our obligation under certain of our long-term purchase agreements, we include additional expected purchase obligations beyond what is legally enforceable. Approximately 60% of our purchase obligations disclosed above represent purchase orders for products to be delivered under firm contracts with the U.S. government for which we have full recourse under customary contract termination clauses.

Other long-term liabilities primarily include those amounts on our December 31, 2020 balance sheet representing performance and operating cost guarantees, estimated environmental remediation costs and expected cash funding requirements under employee benefit programs. Amounts beyond 2023 for cash funding requirements under employee benefits plans are not included. The timing of expected cash flows associated with these obligations is based upon management's estimates over the terms of these agreements and is largely based upon historical experience.

The above table also does not reflect unrecognized tax benefits of $1,225 million, the timing of which is uncertain, except for $36 million that may become payable during 2021. Refer to "Note 13: Income Taxes" within Item 8 of this Form 10-K for additional discussion on unrecognized tax benefits.

COMMITMENTS AND CONTINGENCIES

Refer to "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K for discussion on contractual commitments and contingencies.

ENVIRONMENTAL MATTERS

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 a result, we have established, and continually update, policies relating to environmental standards of performance for our operations worldwide. We believe that expenditures necessary to comply with the present regulations governing environmental protection will not have a material effect upon our competitive position, results of operations, cash flows or financial condition.

We have been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), more commonly known as a Superfund, for a number of sites. The nature and extent of environmental concerns vary from site to site and our share of responsibility varies from sole responsibility to very little responsibility. In estimating our liability for remediation, we consider our likely proportionate share of the anticipated remediation expense and the ability of other potentially responsible parties to fulfill their obligations. We also lease certain government-owned properties and generally are not liable for remediation of preexisting environmental contamination at these sites. As a result, we generally do not provide for these costs in our Consolidated Financing Statements.

At December 31, 2020 and 2019, we had $835 million and $725 million reserved for environmental remediation, respectively. Cash outflows for environmental remediation were $53 million in 2020, $44 million in 2019, and $41 million in 2018. We estimate that ongoing environmental remediation expenditures in each of the next two years will not exceed approximately $100 million.

GOVERNMENT MATTERS

As described above in "Critical Accounting Estimates-Contingent Liabilities," our contracts with the U.S. government are subject to audits. Such audits may recommend that certain contract prices should be reduced to comply with various government regulations, or that certain payments be delayed or withheld. We are also the subject of one or more investigations and legal proceedings initiated by the U.S. government with respect to government contract matters. See Item 3. Legal Proceedings, within Part I, and "Note 13: Income Taxes" and "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K for further discussion of these and other government matters.