ITEM 1. BUSINESS
General
Raytheon Technologies Corporation is an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The terms "we," "us," "our," "Raytheon Technologies," "RTC" and the "Company" mean Raytheon Technologies Corporation, unless the context indicates another meaning. We serve commercial and government customers in both the original equipment and aftermarket parts and services segments of the aerospace industry. Our defense business serves both domestic and international customers as a prime contractor or subcontractor on a broad portfolio of defense and related programs for military and government customers. Formerly known as United Technologies Corporation (UTC), Raytheon Technologies was incorporated in Delaware in 1934 and represents the combination of UTC's aerospace businesses and Raytheon Company through the Separation Transactions and Distributions and Raytheon Merger in April 2020, as described in more detail below.
The following description of our business should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" within Item 7 of this Form 10-K, including the information contained therein under the heading "Business Overview."
Separation Transactions and Distributions. On April 3, 2020, UTC 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") 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.
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 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."
Business Segments
Our operations are classified into four principal business segments: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense, with each segment comprised of groups of similar operations.
Collins Aerospace Systems. Collins Aerospace Systems (Collins Aerospace) is a leading global provider of technologically advanced aerospace and defense products and aftermarket service solutions for aircraft manufacturers, airlines, and regional, business and general aviation, as well as for defense and commercial space operations. Collins Aerospace's product lines include integrated avionics systems, communications systems, navigation systems, electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft seating and cargo systems, landing systems, including landing gear, wheels and braking systems, hoists and winches, fire and ice detection and protection systems, actuation systems, engine components, and propeller systems. Collins Aerospace also designs, produces and supports cabin interior, communications and aviation systems, oxygen systems, food and beverage preparation, storage and galley systems, lavatory and wastewater management systems. Collins Aerospace solutions support human space exploration with environmental control and power systems and extravehicular activity suits and support government and defense customer missions by providing airborne intelligence, surveillance and reconnaissance systems, test and training range systems, crew escape systems, and simulation and training solutions. Collins Aerospace also provides information management services through worldwide voice and data communication networks and solutions. Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, and information management services.
Collins Aerospace sells aerospace and defense products and services to aircraft manufacturers, airlines and other aircraft operators, the U.S. and foreign governments, defense contractors, maintenance, repair and overhaul providers, and independent distributors around the world. Collins Aerospace's largest customers are Boeing and Airbus with combined sales, prior to discounts and incentives, of 21%, 27% and 31% of total Collins Aerospace segment sales in 2020, 2019 and 2018, respectively.
In 2020, Collins Aerospace was awarded significant contracts for all four of the Future Vertical Lift (FVL) platforms, the Next Generation Ejection Seat (the ACES 5), Ground Based Strategic Deterrent, Bell H-1 Tail Drive System, the Next-Gen APU
Fuel Nozzle, and the Mounted Assured Positioning, Navigation and Timing System (MAPS GenII). Our products supported the first flight of the Boeing 777X, and enabled entry into service for the Embraer Praetor 500 and 600. Collins also delivered the first production Nacelle Enhancement Program (NEP) nacelle configuration on A350-900/1000. Significant product development activity continues, including major systems for Boeing's T-7A and VC-25B, the Irkut MC-21, the Dassault Falcon 6X, the Leonardo AW249, the Xian MA700, and the COMAC C919. Other significant development work includes Iridium Next, high-frequency (HF) Next, 6th-gen military aircraft, Tactical Combat Training Systems Increment II, NASA deep space exploration systems, distributed pulse oxygen system, Confident to Fly technologies, and the Federal Aviation Administration (FAA) CLEEN II demonstrator.
Pratt & Whitney. Pratt & Whitney is among the world's leading suppliers of aircraft engines for commercial, military, business jet and general aviation customers. Pratt & Whitney's Commercial Engines and Military Engines businesses design, develop, produce and maintain families of large engines for wide- and narrow-body and large regional aircraft for commercial customers and for fighter, bomber, tanker and transport aircraft for military customers. Pratt & Whitney's small engine business, Pratt & Whitney Canada (P&WC), is among the world's leading suppliers of engines powering regional airlines, general and business aviation, as well as helicopters. Pratt & Whitney also produces, sells and services military and commercial auxiliary power units. Pratt & Whitney provides fleet management services and aftermarket maintenance, repair and overhaul services in all of these segments.
Pratt & Whitney sells products and services principally to aircraft manufacturers, airlines and other aircraft operators, aircraft leasing companies and the U.S. and foreign governments. Pratt & Whitney's largest customer by sales is Airbus, with sales, prior to discounts and incentives, of 30%, 31% and 36% of total Pratt & Whitney segment sales in 2020, 2019 and 2018, respectively.
Pratt & Whitney produces the PW1000G Geared Turbofan engine family, the first of which, the PW1100G-JM, entered into service in January 2016. The PW1000G Geared Turbofan engine has demonstrated a significant reduction in fuel burn and noise levels and lower environmental emissions when compared to legacy engines. The PW1100G-JM engine is offered on the Airbus A320neo family of aircraft. PW1000G Geared Turbofan engine models also power the Airbus A220 passenger aircraft and Embraer's E-Jet E2 family of aircraft and have been selected to power the new Irkut MC-21 passenger aircraft. Mitsubishi and Pratt & Whitney have signed a contract in recognition of the formal pause in MRJ70 and MRJ90 engine development for the SpaceJet program. In addition, P&WC's PW800 engine has been selected to exclusively power Gulfstream's new G500 and G600 business jets, as well as to power Dassault's new Falcon 6X business jet, which is scheduled to enter into service in 2022.
Pratt & Whitney is under contract to produce and sustain the F135 engine for the U.S. government's F-35 Joint Program Office to power the single-engine F-35 Lightning II aircraft (commonly known as the Joint Strike Fighter) produced by Lockheed Martin. F135 propulsion system configurations are used for the U.S Air Force's F-35A, the U.S. Marine Corps' F-35B and the U.S. Navy's F-35C jets. F135 engines are also used on F-35 aircraft purchased by Joint Strike Fighter partner countries and foreign military sales countries. Pratt & Whitney is also under contract to build engines for the U.S. Air Force's B-21 long-range strike bomber and to develop next-generation adaptive engines for the U.S. Air Force.
The development of new engines and improvements to current production engines present important growth opportunities for Pratt & Whitney. In view of the risks and costs associated with developing new engines, Pratt & Whitney has entered into some collaboration arrangements in which revenues, costs and risks are shared with third parties. At December 31, 2020, the interests of third-party collaboration participants in Pratt & Whitney-directed commercial jet engine programs ranged, in the aggregate per program, from approximately 13% to 49%. See "Note 1: Basis of Presentation and Summary of Accounting Principles" within Item 8 of this Form 10-K for a description of our accounting for collaboration arrangements. Pratt & Whitney also continues to enhance its programs through performance improvement measures and product base expansion.
In 2020, Pratt & Whitney reached significant milestones on the Geared Turbofan (GTF) engine program, including achieving an industry-leading engine dispatch reliability rate of 99.98% for the GTF engines for the Airbus A320neo. The GTF engine family now powers more than 900 aircraft across 50 airlines and three aircraft platforms: Airbus A320neo family, Airbus A220 and Embraer E-Jets E2 family. Pratt & Whitney also delivered the 50,000th PT6 turboprop engine in the General Aviation segment. Also in 2020, Pratt & Whitney received a significant number of contract awards for the F135 program, which powers all three variants of the F-35 Lightning II fighter aircraft. F135 production milestones achieved included the delivery of the 600th and 700th production engines. From a sustainment perspective, the F135 team supported the activation of half a dozen bases and ships around the world, including the first U.S. Navy aircraft carrier ready to deploy with F-35C aircraft on board. Significant activity continues on Adaptive Engine Transition Program, 6th-gen propulsion, and other development programs.
Raytheon Intelligence & Space. Raytheon Intelligence & Space (RIS) is a global leading developer and provider of integrated sensor and communication systems for advanced missions, advanced training, and cyber and software solutions to intelligence, defense, federal and commercial customers. RIS capabilities include space-based sensors and data processing systems; multi-
domain intelligence solutions; electronic warfare solutions, including high-energy laser weapons systems; command and control systems; modernization, training and mission support services; and advanced cyber analytics, systems defense and services.
RIS serves as a prime contractor or major subcontractor on contracts with the U.S. Intelligence Community, U.S. Department of Defense (DoD), Department of Homeland Security, the FAA, National Aeronautics and Space Administration, and other international and classified customers.
In 2020, RIS continued to invest in advancing its current products and services and developing next generation capabilities to meet evolving customer missions. Significant advancements include laser technologies; intelligence surveillance and reconnaissance electro-optical/infrared (EO/IR) products; radar for 5th and 6th generation aircraft; classified space mission systems; offensive and defensive cyber solutions; and the Next Generation Jammer system. RIS continued to grow its classified business, receiving a number of significant contracts. In addition, in December 2020, RIS completed its previously announced acquisition of Blue Canyon Technologies, a leading provider of small satellites and spacecraft components to the U.S. Air Force, NASA, and the Defense Advanced Research Projects Agency (DARPA).
Raytheon Missiles & Defense. Raytheon Missiles & Defense (RMD) is a leading designer, developer, integrator producer and sustainer of integrated air and missile defense systems; defensive and combat solutions; large land- and sea-based radars; command, control, communications and intelligence solutions; and naval and undersea sensor solutions for the U.S. and foreign government customers. RMD's integrated air and missile defense systems include the proven Patriot missile defense system and next-generation radar systems to defeat advanced threats. Its defensive solutions include counter-unmanned aircraft systems and ship defense systems. Its combat solutions include precision munitions, missiles, hypersonics, high power microwave and other weapons. Its command, control, communications and intelligence solutions include integrated, networked, actionable combat solutions for air and land combat commanders. RMD's naval and undersea solutions include combat and ship electronic and sensing systems, as well as undersea sensing and effects solutions. Its sustainment solutions include maintenance, depot support, training and predictive analytics services.
RMD serves as a prime contractor or major subcontractor on numerous programs with the U.S. DoD, including the U.S. Navy, U.S. Army, Missile Defense Agency, and U.S. Air Force, and international governments.
In 2020, the following programs and awards continued to drive revenue and strategic imperatives for RMD growth: the Lower Tier Air and Missile Defense System (LTAMDS), the Advanced Medium Range Air-to-Air Missile (AMRAAM), the Standard Missile Family (Standard Missile 2 (SM-2), Standard Missile 3 (SM-3) and Standard Missile 6 (SM-6)), Tomahawk variants, the Patriot Engineering Services, the Qatar National Advanced Surface-to-Air Missile System (NASAMS), the Air and Missile Defense Radar (AMDR)/SPY-6, Poland Patriot, the Kingdom of Saudi Arabia Transportable Radar Surveillance and Control Model 2 (KSA TPY-2), the Air Intercept Missile (AIM-9X), Qatar Early Warning Radar (EWR), Army Navy/Transportable Radar Surveillance and Control Model 2 (AN/TPY-2)and Phalanx SeaRAM. The Missile Defense Agency (MDA) awarded RMD significant contracts for AN/TPY-2 radars and the SM-3 missile. In addition, RMD was down-selected in the competition for the sole provider for the Long Range Stand Off (LRSO) Strike Initiative and the U.S. Air Force approved RMD's StormBreaker smart weapon for fielding on the F-15 Eagle. Also, as part of a historic MDA demonstration, RMD's advanced SM-3 Block IIA ballistic missile defense interceptor intercepted and destroyed an intercontinental ballistic missile target outside Earth's atmosphere for the first time ever.
Other Matters Relating to Our Business
As worldwide businesses, our operations can be affected by a variety of economic, industry and other factors, including those described in this section, in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 1, "Cautionary Note Concerning Factors That May Affect Future Results," and in Item 1A, "Risk Factors" in this Form 10-K.
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. 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, as well as public sentiments regarding air travel. 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 segments. 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. They 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.
In response to the COVID-19 impacts on our businesses, 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 buyback program in 2020, deferring merit increases and implementing temporary pay reductions, freezing non-essential hiring, repositioning employees to defense work, furloughing employees when needed, and reducing personnel. Our former Raytheon Company businesses, Raytheon Intelligence & Space and Raytheon Missiles & Defense, although experiencing minor impacts, have not experienced significant business disruptions as a result of the COVID-19 pandemic.
For additional information related to the COVID-19 pandemic, see Item 1A. "Risk Factors" in this Form 10-K.
Raytheon Merger Integration. We continue to make progress on our integration activities to realize the benefits of the Raytheon Merger, including synergies, cost savings, innovation and enterprise-wide technology sharing opportunities (including technology-driven revenue synergies) and operational efficiencies. We continue to integrate our business processes and systems, identify and mature technology and revenue synergy opportunities, achieve significant cost savings, harmonize our organizational model and policies, as well as promote a strong single-company culture. Numerous aspects of these activities will continue into 2021.
Sales and Customers
We have substantial U.S. government sales, which we conduct through all four of our business segments. Raytheon Intelligence & Space and Raytheon Missiles & Defense together represent a significant portion of those sales. In addition, as a global company, all four of our business segments have substantial international sales.
U.S. Government Sales. Our U.S. government sales were as follows:
(dollars in millions)202020192018
Sales to the U.S. government (1)
$25,962 $9,094 $6,560
Sales to the U.S. government as a percentage of total net sales (1)
46 %20 %19 %
(1) Excludes foreign military sales through the U.S. government. See "Note 22: Segment Financial Data" within Item 8 of this Form 10-K for additional information.
International Sales. Our international sales were as follows:
(dollars in millions)202020192018
Total international sales (1)
$22,027 $23,952 $19,035
Total international sales as a percentage of total net sales (1)
39 %53 %55 %
(1) Includes foreign military sales through the U.S. government. See "Note 22: Segment Financial Data" within Item 8 of this Form 10-K for additional information.
Backlog. Backlog, which is equivalent to our remaining performance obligations (RPO), represents the aggregate amount of total contract transaction price related to firm orders that are unsatisfied or partially unsatisfied. Segment backlog does not include intercompany backlog. Our backlog by segment was as follows:
(dollars in millions)20202019
Collins Aerospace Systems$23,005 $26,260
Pratt & Whitney78,135 85,183
Raytheon Intelligence & Space18,676 -
Raytheon Missiles & Defense29,593 -
Our consolidated RPO also includes the RPO of certain smaller non-reportable segments, which are not reflected in the table above.
Approximately 70% of our consolidated backlog as of December 31, 2020 is not expected to be realized as sales in the next twelve months.
Defense backlog primarily relates to backlog with government customers and is included within our total backlog. At December 31, 2020, our defense backlog was approximately 45% of total backlog.
Competition
All of our businesses are subject to significant competition. Our businesses compete on a variety of factors such as price, delivery schedule, past performance, reliability, customer service, product development, innovation and technology. Many of our competitors have substantial financial resources and significant technological capabilities. Further, some non-U.S. competitors receive government research and development assistance, marketing subsidies and other assistance for their products beyond the assistance that may be available to us as a U.S. company. In addition, the competitive landscapes in the industry segments we serve continue to evolve with trends such as increased vertical integration by competitors and customers and the emergence of more commercial competitors on defense development programs.
Our aerospace businesses compete with numerous domestic and foreign manufacturers, customers and companies that obtain regulatory agency approval to manufacture spare parts. Customer selections of aircraft engines, components and systems can also have a significant impact on future sales of parts and services. In addition, the U.S. government's and other governments' policies of purchasing parts from suppliers other than the original equipment manufacturer affect military spare parts sales. Some competitors may offer substantial discounts and other financial incentives, performance and operating cost guarantees, and participation in financing arrangements in an effort to compete for the aftermarket associated with these products.
Our defense businesses compete with numerous U.S. and foreign companies in most defense and government electronics, space, information technology and technical services and support segments. We frequently partner on defense programs with our major suppliers, some of whom are, from time to time, competitors on other programs.
People
As a technology and innovation-driven global company, RTC depends on a highly educated and skilled workforce. We seek to advance a diverse, equitable and inclusive work environment for all employees. Our ability to attract, develop and retain the best talent, particularly those with technical, engineering and science backgrounds or experience, is critical for us to execute our strategy and grow our businesses. In addition to providing market competitive compensation and benefits, we invest in our workforce through education, training and development programs. Additionally, we regularly conduct succession planning to ensure that we continue to cultivate the leadership pipeline of talent needed to execute our strategy.
We continuously monitor the hiring, retention and management of our employees by business and function. We regularly conduct confidential surveys to seek feedback from our employees and use those results to improve our workplace. In addition, we have industry-leading health and safety as well as ethics and compliance programs to help mitigate associated employee risks.
As of December 31, 2020, our global employee population consisted of a total of approximately 181,000 employees, including approximately 61,000 engineers and approximately 41,000 employees represented by labor unions and other employee representative bodies. Our employees are located in 71 countries, with approximately 71% of our employees located in the U.S., approximately 4% of our employees located in Canada, approximately 14% of our employees located in Europe, approximately 9% of our employees located in the Asia Pacific region, approximately 1% of our employees located in the Middle East and North Africa region and approximately 1% of our employees located in other regions.
In 2020, our workforce was significantly impacted by the Separation Transactions, the Raytheon Merger and the COVID-19 pandemic.
Upon completion of the Separation Transactions, a total of approximately 122,000 former UTC employees became employees of Carrier and Otis. Further, as a result of the Raytheon Merger, 71,000 Raytheon Company employees joined the 124,000 employees of UTC's aerospace businesses as RTC employees. Following the Raytheon Merger, we have undertaken a number of actions to reduce our workforce and achieve cost synergies while retaining key talent necessary for RTC's success. We are working towards a harmonized set of human resources systems and applications, programs and processes that will enable employees to more easily move across our businesses and functions and advance their careers within RTC. We also have engaged in additional succession planning as a result of the changes in our senior management team in connection with the Separation Transactions and the Raytheon Merger.
In addition, we have taken extraordinary measures to protect our workforce in response to the COVID-19 pandemic. We implemented extensive safety protocols to support our essential employees required to work onsite. We also enabled approximately 100,000 of our employees to work remotely, and we have sought to ensure that they have the technology, flexible work schedules, dependent care and other services needed during this time to enable them to work effectively from home.
Due to the impact of the pandemic on our businesses in 2020, we have taken a number of actions, including deferring merit increases and implementing temporary pay reductions, freezing non-essential hiring, repositioning employees to defense work and making personnel reductions. In particular, Collins Aerospace and Pratt & Whitney have taken steps to adjust their workforces to align with current and expected demand for their products and services. At Collins Aerospace, 11% of the workforce was impacted by reductions (excluding divestitures), and at Pratt & Whitney, 13% of the workforce was impacted by reductions. Our RIS and RMD businesses units have not been as severely impacted by the pandemic as Collins Aerospace and Pratt & Whitney, and continued to hire in 2020 to support the growth of their businesses.
Research and Development and Operations
Our innovative products and services incorporate advanced technologies. As a result, we invest substantial amounts in research and development (R&D) activities using our own funds and under contractual arrangements with our customers, to enhance existing products and services and develop future technologies to meet our customers' changing needs and requirements, as well as to address new business opportunities.
We manufacture and service our products in over 240 manufacturing, production or overhaul facilities in approximately 30 countries, including the U.S. In addition, RTC has offices in another 10 countries.
Intellectual Property
We maintain a portfolio of patents, trademarks, copyrights, trade secrets, licenses and franchises related to our businesses. We rely on a combination of these rights, along with nondisclosure agreements, IT security systems, internal controls and compliance systems and other measures to protect our intellectual property. The U.S. government and foreign governments have licenses to certain of our intellectual property, including certain patents, which are developed or used in the performance of government contracts. Commercial customers also have licenses to certain of our intellectual property largely in connection with the sale of our products. While our intellectual property rights in the aggregate are important to the operation of each of our businesses, we do not believe that our business would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement.
Suppliers and Raw Materials
We are dependent upon the availability of materials and major components and the performance of our suppliers and subcontractors. Some of our products require relatively scarce raw materials. We generally have not experienced significant difficulties in procuring the necessary raw materials, components and other supplies for our products, but we may experience supply impacts related to the COVID-19 pandemic if its impact on commercial aerospace continues. We are monitoring supplier liquidity and working continuously with our supply base to ensure an adequate source of supply and to reduce costs. We pursue cost reductions through a number of mechanisms, including consolidating our purchases, reducing the number of suppliers, strategic global sourcing and competitions among potential suppliers. In some instances, we depend upon a single source of supply or participate in commodity markets that may be subject to allocations of limited supplies by suppliers. Like other users in the U.S., we are largely dependent upon foreign sources for certain raw materials, such as cobalt, tantalum, chromium, rhenium and nickel. We have a number of ongoing programs to manage this dependence and the accompanying risk, including long-term agreements and the conservation of materials through scrap reclamation and new manufacturing processes. In addition, in some cases, we must comply with specific procurement requirements, which may limit the suppliers and subcontractors we may utilize.
Regulatory Matters
Our businesses are subject to extensive regulation in the industries we serve. We deal with numerous U.S. government agencies and entities, including but not limited to all of the branches of the DoD, the FAA, and the Department of Homeland Security. Similar government authorities exist in all of the countries in which we do business.
U.S. Government Contracts. As previously discussed, the U.S. government is our largest customer, representing a substantial majority of our total defense sales. U.S. government contracts are subject to termination by the government, either for convenience or for default in the event of our failure to perform under the applicable contract. In the case of a termination for convenience, we would normally be entitled to reimbursement for our allowable costs incurred, termination costs and a reasonable profit. If terminated by the government as a result of our default, we could be liable for payments made to us for undelivered goods or services, additional costs the government incurs in acquiring undelivered goods or services from another source and any other damages it suffers. Our U.S. government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government; department-specific regulations that implement or supplement the FAR, such as the DoD's Defense Federal Acquisition Regulation Supplement (DFARS); and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export,
security, contract pricing and cost, contract termination and adjustment, audit and product integrity requirements. A contractor's failure to comply with these regulations and requirements could result in reductions to the value of contracts, contract modifications or termination, cash withholds on contract payments, forfeiture of profits, and/or the assessment of civil or criminal penalties and fines, and could lead to suspension or debarment, for cause, from U.S. government contracting or subcontracting for a period of time.
For further discussion of risks related to government contracting, including on-going litigation associated with U.S. government audits and investigations, see Item 1A, "Risk Factors" and Item 3, "Legal Proceedings," in this Form 10-K and "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K.
Commercial Aerospace Product Regulation. Our commercial aerospace products generally are subject to regulations by the FAA, foreign aviation administration authorities and international regulatory bodies, including on production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. In addition, commercial aerospace regulations and regulator approaches differ across jurisdictions and changes in such regulations and implementing legislation can impact our operations.
Environmental Regulation. Our operations are subject to and affected by environmental regulation by federal, state and local authorities in the U.S. and regulatory authorities with jurisdiction over our international operations, including with respect to the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We use hazardous substances and generate hazardous wastes in our operations and have incurred, and will likely continue to incur, costs associated with environmental compliance and management of sites with pollutants. A portion of these costs are eligible for future recovery through the pricing of our products and services under our contracts with the U.S. government. We do not anticipate that compliance with current provisions or requirements relating to the protection of the environment or that any payments we may be required to make for cleanup liabilities will have a material adverse effect upon our cash flows, competitive position, financial condition or results of operations. Environmental matters are further addressed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" within Item 7 of this Form 10-K and "Note 1: Basis of Presentation and Summary of Accounting Principles" and "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K.
Most of the U.S. laws governing environmental matters include criminal provisions. If we were convicted of a violation of the federal Clean Air Act or Clean Water Act, the facility or facilities involved in the violation could be deemed ineligible to be used in performing any U.S. government contract we are awarded until the Environmental Protection Agency thereafter certifies that the condition giving rise to the violation has been corrected. We also manage various government-owned facilities on behalf of the U.S. government. At such facilities, environmental compliance and remediation costs have historically been primarily the responsibility of the U.S. government and we have relied (and continue to rely with respect to past practices) upon U.S. government funding to pay such costs.
In addition, we could be affected by future laws or regulations imposed in response to concerns over climate change. Changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas emissions, could lead to new or additional investment in product designs and could increase environmental compliance expenditures, including increased energy and raw materials costs.
For further discussion of risks related to environmental matters and other government regulations, see Item 1A, "Risk Factors" and Item 3, "Legal Proceedings," in this Form 10-K and "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K.
Other Applicable Regulations. We conduct our businesses through subsidiaries and affiliates worldwide. As a result, our businesses and operations are subject to both U.S. and non-U.S. government laws, regulations and procurement policies and practices, including regulations relating to import-export controls, tariffs, investment, exchange controls, anti-corruption, and cash repatriation. Our international sales are also subject to varying currency, political and economic risks.
Cautionary Note Concerning Factors That May Affect Future Results
This Form 10-K contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "outlook," "confident," "on track" and other words of similar meaning. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, tax payments and rates, research and development spending, other measures of financial performance, potential future plans, strategies or transactions, credit ratings and net indebtedness, other anticipated benefits to RTC of the Rockwell Collins acquisition, the Raytheon Merger or the Separation Transactions, including estimated synergies and customer cost savings resulting from the Raytheon Merger and the anticipated benefits and costs of the Separation Transactions and other statements that are not solely historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation:
•the effect of economic conditions in the industries and countries in which RTC operates in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end-customer demand in both the commercial and defense segments of the aerospace industry, levels of air travel, financial condition of commercial airlines, the impact of pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand and distribution capabilities as the COVID-19 pandemic continues and results in an increasingly prolonged period of disruption to air travel and commercial activities generally, and significant restrictions and limitations on businesses, particularly within the aerospace and commercial airlines industries), aviation safety concerns, weather conditions and natural disasters, the financial condition of our customers and suppliers, and the risks associated with U.S. government sales (including changes or shifts in defense spending due to budgetary constraints, spending cuts resulting from sequestration or the allocation of funds to governmental responses to COVID-19, a government shutdown, or otherwise, and uncertain funding of programs);
•challenges in the development, production, delivery, support, performance, safety, regulatory compliance and realization of the anticipated benefits (including our expected returns under customer contracts) of advanced technologies and new products and services;
•the scope, nature, impact or timing of acquisition and divestiture activity, including among other things the integration of UTC and Raytheon Company's businesses and the integration of RTC with other businesses acquired before and after the Raytheon Merger, and realization of synergies and opportunities for growth and innovation and incurrence of related costs and expenses, including the possibility that the anticipated benefits from the combination of UTC and Raytheon Company's businesses or other acquired businesses cannot be realized in full or may take longer to realize than expected, or the possibility that costs or difficulties related to the integration of UTC's businesses with Raytheon Company's or other acquired businesses will be greater than expected or may not result in the achievement of estimated synergies within the contemplated time frame or at all;
•RTC's levels of indebtedness, capital spending and research and development spending;
•future availability of credit and factors that may affect such availability, including credit market conditions and our capital structure;
•the timing and scope of future repurchases by RTC of its common stock, which are subject to a number of uncertainties and may be discontinued, accelerated, suspended or delayed at any time due to various factors, including market conditions and the level of other investing activities and uses of cash;
•delays and disruption in delivery of materials and services from suppliers;
•company and customer-directed cost reduction efforts and restructuring costs and savings and other consequences thereof (including the potential termination of U.S. government contracts and performance under undefinitized contract actions and the potential inability to recover termination costs);
•new business and investment opportunities;
•the ability to realize the intended benefits of organizational changes;
•the anticipated benefits of diversification and balance of operations across product lines, regions and industries;
•the outcome of legal proceedings, investigations and other contingencies;
•pension plan assumptions and future contributions;
•the impact of the negotiation of collective bargaining agreements and labor disputes;
•the effect of changes in political conditions in the U.S. and other countries in which RTC and its businesses operate,
including the effect of changes in U.S. trade policies, on general market conditions, global trade policies and currency exchange rates in the near term and beyond;
•potential changes in policy positions or priorities that emerge from a new U.S. Administration, including changes in DoD policies or priorities;
•the effect of changes in tax (including U.S. tax reform enacted on December 22, 2017, which is commonly referred to as the TCJA), environmental, regulatory and other laws and regulations (including, among other things, export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anti-corruption requirements, including the Foreign Corrupt Practices Act, industrial cooperation agreement obligations, and procurement and other regulations) in the U.S. and other countries in which RTC and its businesses operate;
•the ability of RTC to retain and hire key personnel and the ability of our personnel to continue to operate our facilities and businesses around the world in light of, among other factors, the COVID-19 pandemic; and
•the intended qualification of (1) the Raytheon Merger as a tax-free reorganization and (2) the Separation Transactions and other internal restructurings as tax-free to UTC and former UTC shareowners, in each case, for U.S. federal income tax purposes
In addition, this Form 10-K includes important information as to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See "Note 19: Commitments and Contingencies" within Item 8 of this Form 10-K, the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Business Overview," "Critical Accounting Estimates," "Results of Operations," and "Liquidity and Financial Condition," within Item 7 of this Form 10-K, and the sections titled Item 1A, "Risk Factors" and Item 3, "Legal Proceedings," of this Form 10-K. This Form 10-K also includes important information as to these factors in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Restructuring Costs," "Environmental Matters" and "Governmental Matters," within Item 7 of this Form 10-K, and in the "Business" section under the headings "General," "Description of Business by Segment" and "Other Matters Relating to Our Business as a Whole." The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the Securities and Exchange Commission (SEC).