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OFFON

RAYTHEON TECHNOLOGIES CORPORATION

(RTX)
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RAYTHEON TECHNOLOGIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

07/27/2021 | 04:57pm EDT
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 of its business into
three independent, publicly traded companies - UTC, Carrier Global Corporation
(Carrier) and Otis Worldwide Corporation (Otis) (the Separation Transactions).
UTC distributed all of the outstanding shares of Carrier common stock and all of
the outstanding shares of Otis common stock to UTC shareowners who held shares
of UTC common stock as of the close of business on March 19, 2020, the record
date for the distributions (the Distributions) effective at 12:01 a.m., Eastern
Time, on April 3, 2020. Immediately following the Separation Transactions and
Distributions, on April 3, 2020, UTC and Raytheon Company completed their
all-stock merger of equals transaction (the Raytheon Merger), pursuant to which
Raytheon Company became a wholly-owned subsidiary of UTC and UTC was renamed
Raytheon Technologies Corporation. As a result of these transactions, we now
operate in four principal business segments: Collins Aerospace Systems (Collins
Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon
Missiles & Defense (RMD).
UTC was determined to be the accounting acquirer in the Raytheon Merger, and, as
a result, the financial statements of Raytheon Technologies include Raytheon
Company's financial position and results of operations for all periods
subsequent to the completion of the Raytheon Merger on April 3, 2020. RIS and
RMD follow a 4-4-5 fiscal calendar while Collins Aerospace and Pratt & Whitney
continue to use a quarter calendar end of June 30, 2021. Throughout this
Quarterly Report on Form 10-Q, when we refer to the quarters ended June 30, 2021
and June 30, 2020 with respect to RIS or RMD, we are referring to their July 4,
2021 and June 28, 2020 fiscal quarter ends, respectively. The historical results
of Carrier and Otis are presented as discontinued operations and, as such, have
been excluded from both continuing operations and segment results for all
periods presented. See "Note 3: Discontinued Operations" within Item 1 of this
Form 10-Q for additional information. Throughout this Quarterly Report on Form
10-Q, unless otherwise indicated, amounts and activity are presented on a
continuing operations basis.
Unless the context otherwise requires, the terms "we," "our," "us," "the
Company," "Raytheon Technologies," and "RTC" mean United Technologies
Corporation and its subsidiaries when referring to periods prior to the Raytheon
Merger and to the combined company, Raytheon Technologies Corporation, when
referring to periods after the Raytheon Merger. Unless the context otherwise
requires, the terms "Raytheon Company," or "Raytheon" mean Raytheon Company and
its subsidiaries prior to the Raytheon Merger.
The current status of significant factors affecting our business environment in
2021 is discussed below. For additional discussion, refer to the "Business
Overview" section in Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) in our 2020 Annual Report on Form 10-K.
Industry Considerations
Our worldwide operations can be affected by industrial, economic and political
factors on both a regional and global level. Our operations include original
equipment manufacturer (OEM) and extensive related aftermarket parts and
services related to our aerospace operations. Our defense business serves both
domestic and international customers primarily as a prime contractor or
subcontractor on a broad portfolio of defense and related programs for
government customers. Our business mix also reflects the combination of shorter
cycles on 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. Many of our aerospace operations' customers are covered
under long-term aftermarket service agreements at both Collins Aerospace and
Pratt & Whitney, which are inclusive of both spare parts and services.
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, were $7.7 billion and

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$7.3 billion for the quarters ended June 30, 2021 and 2020, or 48% and 52% of
total net sales for those periods, respectively. Total sales to the U.S.
government were $15.4 billion and $9.9 billion for the six months ended June 30,
2021 and 2020, or 50% and 39% of total sales for those periods, respectively.
Impact of the COVID-19 Pandemic
Beginning in 2020, the coronavirus disease 2019 (COVID-19) negatively impacted
both the U.S. and global economy and our business and operations and the
industries in which we operate. The continued disruption to air travel and
commercial activities and the significant restrictions and limitations on
businesses, particularly within the aerospace and commercial airline industries,
have negatively impacted global supply, demand and distribution capabilities. In
particular, the unprecedented decrease in air travel resulting from the COVID-19
pandemic has adversely affected our airline and airframer customers, and their
demand for the products and services of our Collins Aerospace and Pratt &
Whitney businesses.
In the six months ended June 30, 2020 we recorded write-downs of assets and
significant unfavorable Estimate at Completion (EAC) adjustments in our Collins
Aerospace and Pratt & Whitney businesses primarily related to:
•Goodwill impairment charges of $3.2 billion in the quarter ended June 30, 2020
related to two of our Collins Aerospace reporting units. Refer to "Note 2:
Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 1 of
this Form 10-Q for additional information,
•increased estimated credit losses on both our receivables and contract assets
of $237 million and $309 million in the quarter and six months ended June 30,
2020, respectively,
•contract asset and inventory impairments at Collins Aerospace due to the impact
of lower estimated future customer activity resulting from the expected
acceleration of fleet retirements of a commercial aircraft of $122 million and
$133 million in the quarter and six months ended June 30, 2020, respectively,
•unfavorable EAC adjustments on commercial aftermarket contracts at Pratt &
Whitney based on a change in estimated future customer activity of $57 million
in the quarter ended June 30, 2020,
•the impairment of a Collins Aerospace trade name of $17 million and
$57 million, in the quarter and six months ended June 30, 2020, respectively,
and
•an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead
costs to military contracts of $44 million in the quarter ended June 30, 2020.
Our RIS and RMD businesses, although experiencing minor impacts, have not
experienced significant business disruptions as a result of the COVID-19
pandemic.
Given the significant reduction in business and leisure passenger air travel,
the number of planes temporarily grounded, and continued travel restrictions
that have resulted from the ongoing COVID-19 pandemic, and the resulting impacts
on our customers and their business activities, we expect our future operating
results, particularly those of our Collins Aerospace and Pratt & Whitney
businesses, to continue to be negatively impacted when compared to pre-COVID-19
(2019) results. Our expectations regarding the COVID-19 pandemic and its
potential financial impact are based on available information and assumptions
that we believe are reasonable at this time; however, the actual financial
impact is highly uncertain and subject to a wide range of factors and future
developments. While we believe that the long-term outlook for the aerospace
industry remains positive due to the fundamental drivers of air travel demand,
there continues to be uncertainty with respect to the point at which commercial
air traffic capacity will return to and/or exceed pre-COVID-19 levels. We have
begun to see indications that commercial air travel is recovering in certain
areas of demand; however, other areas continue to lag. As a result, we continue
to estimate that a full recovery may occur in 2023 or 2024. New information may
emerge concerning the scope, severity and duration of the COVID-19 pandemic, as
well as any worsening of the pandemic, the effect of mutating strains and
whether additional outbreaks of the pandemic will continue to occur, actions to
contain the pandemic's spread or treat its impact, continued availability of
vaccines, and their distribution, acceptance and efficacy, and governmental,
business and individual personal actions taken in response to the pandemic
(including restrictions and limitations on travel and transportation, and
changes in leisure and business travel patterns and work environments) among
others. Some of these actions and related impacts may be trends that continue in
the future even after the pandemic no longer poses a significant public health
risk. As our commercial aerospace business begins to recover, we expect certain
employee-related and discretionary costs, which were subject to prior year cost
reduction actions, to return in 2021 and beyond. A recovery may also impact our
judgments around credit risk related to estimated credit losses.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains
numerous 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. In addition, Congress passed the
American Rescue Plan Act of 2021 (ARPA) in March 2021, which included pension
funding relief provisions. For further discussion, refer to the "FAS/CAS
operating adjustment" subsection under the "Segment Review" section below.

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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 business for the remainder of 2021 and in the future. 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, affiliates or partners, it
could potentially disrupt our business operations. The impact of potential
sanctions or other actions by China cannot be determined at this time.
The recent change in the U.S. administration 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, regulatory approvals previously granted for prior
sales can be paused or revoked if the products and services have not yet been
delivered to the customer. If we ultimately do not receive all of the regulatory
approvals, or those approvals are revoked, it could have a material effect on
our financial results. In particular, as of June 30, 2021, our contract
liabilities include approximately $440 million of advance payments received from
a certain Middle East customer on contracts for which we no longer believe we
will be able to execute on or obtain required regulatory approvals. These
advance payments may become refundable to the customer if the contracts are
ultimately terminated.
See Part II, Item 1A, "Risk Factors" in our 2020 Annual Report on Form 10-K for
further discussion of these items.
                         CRITICAL ACCOUNTING ESTIMATES
Preparation of our financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Management believes the most complex and sensitive
judgments, because of their significance to the Condensed Consolidated Financial
Statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. See "Critical Accounting Estimates"
within Item 7 and "Note 1: Basis of Presentation and Summary of Accounting
Principles" within Item 8 of our 2020 Annual Report on Form 10-K, which describe
the significant accounting estimates and policies used in preparation of the
Consolidated Financial Statements. Actual results in these areas could differ
from management's estimates. There have been no significant changes in our
critical accounting estimates during the six months ended June 30, 2021.
                             RESULTS OF OPERATIONS
As described in our "Cautionary Note Regarding Forward-Looking Statements" in
this Form 10-Q, our interim period results of operations and period-to-period
comparisons of such results, particularly at a segment level, may not be
indicative of our future operating results. The following discussions of
comparative results among periods, including the discussion of segment results,
should be viewed in this context. 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. As such, the results of RIS
and RMD for the quarter ended June 30, 2020 exclude results prior to the merger
date, the estimated impact of which is approximately $400 million of sales and
approximately $45 million of operating profit. These amounts have been excluded
from the organic changes disclosed throughout our Results of Operations
discussion. In addition, as a result of the Separation 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.

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                                   Net Sales
                               Quarter Ended June 30,                Six Months Ended June 30,
 (dollars in millions)           2021               2020                 2021                 2020
 Net Sales               $     15,880$ 14,061$      31,131$ 25,421

The factors contributing to the total change year-over-year in total net sales for the quarter and six months ended June 30, 2021 are as follows:

                                                                  Quarter Ended         Six Months Ended
(dollars in millions)                                             June 30, 2021           June 30, 2021
Organic(1)                                                      $        1,582$       (1,598)
Acquisitions and divestitures, net                                         164                   7,203
Other                                                                       73                     105
Total change                                                    $        1,819$        5,710


(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
acquisitions and divestitures, net and the effect of foreign currency exchange
rate fluctuations and other significant non-recurring and non-operational items
("Other"). A reconciliation of this measure to reported U.S Generally Accepted
Accounting Principles (GAAP) amounts is provided in the table above.
Net sales increased $1,582 million organically in the quarter ended
June 30, 2021 compared to the quarter ended June 30, 2020 primarily due to
higher organic sales of $0.7 billion at Pratt & Whitney, $0.4 billion at Collins
Aerospace and $0.3 billion at RMD. The increase at Pratt & Whitney was primarily
driven by higher commercial aftermarket sales, primarily due to an increase in
shop visits and related spare part sales, and higher commercial OEM sales,
primarily due to an increase in commercial engine deliveries, all principally
driven by recovery from the prior year's unfavorable economic environment
principally driven by the COVID-19 pandemic. The increase at Collins Aerospace
was primarily driven by higher commercial aerospace aftermarket sales and higher
commercial aerospace OEM sales primarily due to an increase in flight hours,
aircraft fleet utilization and commercial OEM deliveries as commercial aerospace
begins to recover from the prior year's unfavorable economic environment
principally driven by the COVID-19 pandemic. The increase at RMD was primarily
driven by an international Patriot program due to a contract modification in the
second quarter of 2021, which included the recognition of previously deferred
precontract costs, and the StormBreaker program primarily due to the recognition
of previously deferred precontract costs based on a contract award in the second
quarter of 2021. The $164 million increase in net sales related to Acquisitions
and divestitures, net for the quarter ended June 30, 2021 compared to the
quarter ended June 30, 2020, was primarily driven by the Raytheon Merger on
April 3, 2020, partially offset by the sale of our Forcepoint business in the
first quarter of 2021 and the sale of the Collins Aerospace military GPS and
space-based precision optics businesses in the third quarter of 2020.
Net sales decreased $1,598 million organically for the six months ended June 30,
2021 compared to the six months ended June 30, 2020. This decrease reflects
lower organic sales of $1.5 billion at Collins Aerospace, primarily driven by
lower commercial aerospace OEM sales and lower commercial aerospace aftermarket
sales, primarily due to the change in the 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 $0.6 billion at Pratt & Whitney
primarily driven by lower commercial aftermarket sales, primarily due to a
reduction in shop visits and related spare part sales, and lower commercial OEM
sales, primarily due to a reduction in commercial engine deliveries, all
principally driven by the change in the economic environment primarily due to
the COVID-19 pandemic. The $7,203 million increase in net sales related to
Acquisitions and divestitures, net for the six months ended June 30, 2021
compared to the six months ended June 30, 2020, was primarily driven by the
Raytheon Merger on April 3, 2020, partially offset by the sale of the Collins
Aerospace military GPS and space-based precision optics businesses in the third
quarter of 2020.
                              Quarter Ended June 30,                % of Total Net Sales
(dollars in millions)           2021               2020               2021               2020
Net Sales
Products                $     12,179$ 10,768                    76.7  %     76.6  %
Services                       3,701               3,293                    23.3  %     23.4  %
Total net sales         $     15,880$ 14,061                     100  %      100  %

Refer to "Note 19: Segment Financial Data" within Item 1 of this Form 10-Q for the composition of external net sales by products and services by segment.

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Net products sales increased $1,411 million in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 primarily due to an increase in
external product sales of $0.7 billion at Pratt & Whitney and $0.4 billion at
RMD.
Net services sales increased $408 million in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 primarily due to an increase in
external services sales of $0.1 billion at RIS and $0.1 billion at Collins
Aerospace.
                              Six Months Ended June 30,                 % of Total Net Sales
(dollars in millions)             2021                 2020               2021               2020
Net Sales
Products                $      23,843$ 18,933                    76.6  %     74.5  %
Services                        7,288                  6,488                    23.4  %     25.5  %
Total net sales         $      31,131$ 25,421                     100  %      100  %


Net products sales increased $4,910 million in the six months ended June 30,
2021 compared to the six months ended June 30, 2020 primarily due to an increase
in external product sales of $3.8 billion at RMD and $2.9 billion at RIS, both
primarily due to the Raytheon Merger on April 3, 2020, partially offset by a
decrease in external product sales of $1.6 billion at Collins Aerospace.
Net services sales increased $800 million in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 primarily due to an increase in
external services sales of $0.9 billion at RIS and $0.4 billion at RMD, both
primarily due to the Raytheon Merger on April 3, 2020, partially offset by a
decrease in external services sales of $0.4 billion at Pratt & Whitney.
Our sales to major customers were as follows:
                                                  Quarter Ended June 30,                         % of Total Net Sales
(dollars in millions)                             2021                   2020                 2021                   2020
Sales to the U.S. government(1)           $      7,670$   7,328                   48.3  %                52.1  %
Foreign military sales through the U.S.
government                                       1,497                   1,342                    9.4  %                 9.5  %
Foreign government direct commercial
sales                                            1,313                   1,104                    8.3  %                 7.9  %
Commercial aerospace and other commercial
sales                                            5,400                   4,287                   34.0  %                30.5  %
Total net sales                           $     15,880$  14,061                    100  %                 100  %

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

                                               Six Months Ended June 30,                     % of Total Net Sales
(dollars in millions)                           2021                 2020                 2021                   2020
Sales to the U.S. government(1)           $      15,418$   9,856                   49.5  %                38.8  %
Foreign military sales through the U.S.
government                                        2,792              1,668                    9.0  %                 6.6  %
Foreign government direct commercial
sales                                             2,493              1,467                    8.0  %                 5.8  %
Commercial aerospace and other commercial
sales                                            10,428             12,430                   33.5  %                48.9  %
Total net sales                           $      31,131$  25,421                    100  %                 100  %


(1)  Excludes foreign military sales through the U.S. government.
                                 Cost of Sales
                              Quarter Ended June 30,              Six Months Ended June 30,
(dollars in millions)          2021             2020              2021                    2020
Total cost of sales       $    12,655$ 12,214$     25,192$ 20,786
Percentage of net sales          79.7   %        86.9  %            80.9   %               81.8  %



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The factors contributing to the change year-over-year in total cost of sales for
the quarter and six months ended June 30, 2021 are as follows:
                                                                   Quarter Ended          Six Months Ended
(dollars in millions)                                              June 30, 2021            June 30, 2021
Organic(1)                                                      $           

439 $ (1,234)


Acquisitions and divestitures, net                                           236                   5,907
Restructuring                                                               (182)                   (167)
FAS/CAS operating adjustment                                                 (69)                   (448)
Acquisition accounting adjustments                                           (24)                    259
Other                                                                         41                      89
Total change                                                    $            441          $        4,406


(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
acquisitions and divestitures, net; restructuring costs; the FAS/CAS operating
adjustment; costs related to certain acquisition accounting adjustments; and the
effect of foreign currency exchange rate translation fluctuations and other
significant non-recurring and non-operational items ("Other"). A reconciliation
of this measure to reported U.S. GAAP amounts is provided in the table above.
The organic increase in total cost of sales of $439 million for the quarter
ended June 30, 2021 compared to the quarter ended June 30, 2020 was primarily
driven by the organic sales increases at Pratt & Whitney and RMD noted above.
The increase in cost of sales related to Acquisitions and divestitures, net of
$236 million for the quarter ended June 30, 2021 compared to the quarter ended
June 30, 2020 is primarily driven by the Raytheon Merger on April 3, 2020,
partially offset by the sale of the Collins Aerospace military GPS and
space-based precision optics businesses in the third quarter of 2020 and the
sale of our Forcepoint business in the first quarter of 2021.
The organic decrease in total cost of sales of $1,234 million for the six months
ended June 30, 2021 compared to the six months ended June 30, 2020, was
primarily driven by the organic sales decreases at Collins Aerospace and Pratt &
Whitney noted above. The increase in cost of sales related to Acquisitions and
divestitures, net of $5,907 million for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 is primarily driven by the
Raytheon Merger on April 3, 2020, partially offset by the sale of the Collins
Aerospace military GPS and space-based precision optics businesses in the third
quarter of 2020.
For further discussion on Restructuring costs see the "Restructuring Costs"
section below. For further discussion on FAS/CAS operating adjustment see the
"FAS/CAS operating adjustment" subsection under the "Segment Review" section
below. For further discussion on Acquisition accounting adjustments, see the
"Acquisition accounting adjustments" subsection under the "Segment Review"
section below.
                              Quarter Ended June 30,                % of Total Net Sales
(dollars in millions)           2021               2020               2021               2020
Cost of sales
Products                $      9,997$  9,620                    63.0  %     68.4  %
Services                       2,658               2,594                    16.7  %     18.4  %
Total cost of sales     $     12,655$ 12,214                    79.7  %     86.9  %


Net products cost of sales increased $377 million in the quarter ended
June 30, 2021 compared to the quarter ended June 30, 2020 primarily due to an
increase in external product cost of sales at Pratt & Whitney and RMD
principally driven by the product sales increases noted above. These increases
are partially offset by a decrease in product cost of sales at Collins Aerospace
primarily due to favorable mix on commercial aftermarket programs, the impact of
the sale of the military GPS and space-based precision optics businesses in the
third quarter of 2020 and a decrease in restructuring costs.
Net services cost of sales increased $64 million in the quarter ended
June 30, 2021 compared to the quarter ended June 30, 2020 primarily due to an
increase in external services cost of sales at RIS and Collins Aerospace
principally driven by the services sales increases noted above.

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                              Six Months Ended June 30,                 % of Total Net Sales
(dollars in millions)             2021                 2020               2021               2020
Cost of sales
Products                $      19,971$ 16,249                    64.2  %     63.9  %
Services                        5,221                  4,537                    16.8  %     17.8  %
Total cost of sales     $      25,192$ 20,786                    80.9  %     81.8  %


Net products cost of sales increased $3,722 million in the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an
increase in external product cost of sales at RMD and RIS principally due to the
Raytheon Merger on April 3, 2020, partially offset by decreases in external
product cost of sales at Collins Aerospace, principally driven by the product
sales decreases noted above.
Net services cost of sales increased $684 million in the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 primarily due to an
increase in external services cost of sales at RIS and RMD principally due to
the Raytheon Merger on April 3, 2020, partially offset by a decrease in external
services cost of sales at Pratt & Whitney, principally driven by the services
sales decreases noted above.
                           Research and Development
                                                       Quarter Ended June 30,                       Six Months Ended June 30,
(dollars in millions)                                 2021                   2020                   2021                    2020
Company-funded                                 $              657       $          695       $             1,246       $        1,230
Percentage of net sales                                    4.1  %               4.9  %                    4.0  %               4.8  %
Customer-funded (1)                            $            1,157       $        1,198       $             2,289       $        1,825
Percentage of net sales                                    7.3  %               8.5  %                    7.4  %               7.2  %


(1)  Customer-funded research and development costs are included in cost of
sales in our Condensed Consolidated Statement of Operations.
Research and development spending is subject to the variable nature of program
development schedules and, therefore, year-over-year fluctuations in spending
levels are expected.
The decrease in company-funded research and development of $38 million for the
quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 was
primarily driven by lower expenses of $37 million at Collins Aerospace across
various commercial programs and includes the impact of cost reduction
initiatives.
The decrease in customer-funded research and development of $41 million for the
quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, was
primarily driven by lower expenses of $30 million on commercial and military
programs at Pratt & Whitney.
Company-funded research and development for the six months ended June 30, 2021
was relatively consistent with the six months ended June 30, 2020. Included in
the change in company-funded research and development was $0.2 billion related
to the Raytheon Merger on April 3, 2020, partially offset by lower expenses of
$0.1 billion across various commercial programs at Pratt & Whitney and Collins
Aerospace, which includes the impact of cost reduction initiatives.
The increase in customer-funded research and development of $464 million for the
six months ended June 30, 2021 compared to the six months ended June 30, 2020,
was primarily driven by $0.6 billion related to the Raytheon Merger on April 3,
2020.
                      Selling, General and Administrative
                                                      Quarter Ended June 30,                       Six Months Ended June 30,
(dollars in millions)                                2021                   2020                   2021                    2020
Selling, general and administrative expenses  $            1,368       $        1,811       $             2,588       $        2,788
Percentage of net sales                                   8.6  %              12.9  %                    8.3  %              11.0  %

Selling, general and administrative expenses decreased $443 million in the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 primarily driven by $237 million of prior year charges related to increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses at our Pratt & Whitney and Collins Aerospace segments, and lower general and administrative restructuring costs of $189 million related to restructuring actions taken at our Collins Aerospace and Pratt & Whitney segments in the prior year. The decrease also includes the benefit of cost reduction initiatives.

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Selling, general and administrative expenses decreased $200 million in the six
months ended June 30, 2021 compared to the six months ended June 30, 2020
primarily driven by $309 million of prior year charges related to increased
estimates of expected credit losses due to customer bankruptcies and additional
allowances for credit losses at our Pratt & Whitney and Collins Aerospace
segments and lower general and administrative restructuring costs of $169
million related to restructuring actions taken at our Collins Aerospace and
Pratt & Whitney segments in the prior year, partially offset by $0.4 billion
related to the Raytheon Merger on April 3, 2020. The decrease also includes the
benefit of cost reduction initiatives.
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 12: Restructuring Costs" within Item 1 of this Form 10-Q and
Restructuring Costs, below, for further discussion.
                               Other Income, Net
                                               Quarter Ended June 30,                   Six Months Ended June 30,
(dollars in millions)                         2021                 2020                  2021                 2020
Other income, net                        $         82          $       82          $         190          $      101


Other income, net includes equity earnings in unconsolidated entities, royalty
income, foreign exchange gains and losses, as well as other ongoing and
nonrecurring items. Other income, net in the quarter ended June 30, 2021, was
relatively consistent with the quarter ended June 30, 2020. Included in the
change in Other income, net were prior year foreign government wage subsidies of
$83 million due to COVID-19 primarily at Pratt & Whitney, which were partially
offset by favorable year-over-year impact of foreign exchange gains and losses,
with the remaining increase spread across multiple items with no common or
significant driver.
The increase in Other income, net of $89 million for the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 was primarily due
to the absence of a prior year impairment of a Collins Aerospace tradename of
$57 million resulting from the projected impact of COVID-19, partially offset by
a $39 million decrease in foreign government wage subsidies due to COVID-19
consisting of prior year subsidies at Collins Aerospace and Pratt & Whitney,
with the remaining increase spread across multiple items with no common or
significant driver.
                            Operating Profit (Loss)
                                                  Quarter Ended June 30,                         Six Months Ended June 30,
(dollars in millions)                           2021                    2020                    2021                     2020
Operating profit (loss)                  $            1,282       $        (3,760)       $             2,295       $        (2,465)
Operating profit (loss) margin                       8.1  %             (26.7)   %                    7.4  %              (9.7)   %


The change in Operating profit (loss) of $5,042 million for the quarter ended
June 30, 2021 compared to the quarter ended June 30, 2020 was primarily driven
by the absence of the prior year goodwill impairment loss related to two Collins
Aerospace reporting units of $3,183 million and the operating performance at our
segments as described below in the individual segment results. Included in the
increase in Operating profit was a decrease in restructuring costs of
$371 million primarily related to restructuring actions taken at our Collins
Aerospace and Pratt & Whitney segments in the prior year.
The change in Operating profit (loss) of $4,760 million for the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 was primarily
driven by the absence of the prior year goodwill impairment loss related to two
Collins Aerospace reporting units of $3,183 million, the operating performance
at our RIS and RMD segments primarily due to the Raytheon Merger, an increase in
our FAS/CAS operating adjustment of $492 million primarily due to the Raytheon
Merger and a decrease in restructuring costs of $336 million primarily related
to restructuring actions taken at our Collins Aerospace and Pratt & Whitney
segments in the prior year partially offset by an increase in acquisition
accounting adjustments of $259 million primarily related to the Raytheon Merger.
                      Non-service Pension (Income) Expense
                                                 Quarter Ended June 30,                    Six Months Ended June 30,
(dollars in millions)                           2021                 2020                  2021                  2020

Non-service pension (income) expense $ (490)$ (237) $ (981) $ (405)

The change in Non-service pension (income) expense of $253 million for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 was primarily driven by a decrease in the discount rate, the Raytheon domestic defined benefit pension plan amendment, as described below and prior year pension asset returns exceeding our expected return on assets (EROA) assumption.

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The change in Non-service pension (income) expense of $576 million for the six
months ended June 30, 2021 compared to the six months ended June 30, 2020 was
primarily driven by the inclusion of the Raytheon Company plans as a result of
the Raytheon Merger, and to a lesser extent, a decrease in the discount rate,
prior year pension asset returns exceeding our expected return on assets (EROA)
assumption and the Raytheon domestic defined benefit pension plan amendment, as
described below.
In December 2020, we approved a change to the Raytheon domestic defined benefit
pension plans for non-union participants to cease future benefit accruals based
on an employee's years of service and compensation effective December 31, 2022.
The plan change does not impact participants' historical benefit accruals.
Benefits for service after December 31, 2022 will be based on a cash balance
formula.
                             Interest Expense, Net
                                                 Quarter Ended June 30,                       Six Months Ended June 30,
(dollars in millions)                           2021                   2020                   2021                    2020
Interest expense                         $              346       $          346       $               703       $          685
Interest income                                         (4)                 (11)                      (15)                 (18)
Interest expense, net                    $              342       $          335       $               688       $          667
Average interest expense rate                        4.2  %               3.8  %                    4.1  %               3.8  %


Interest expense, net in the quarter ended June 30, 2021, was relatively
consistent with the quarter ended June 30, 2020. Included in interest expense
was a $39 million favorable change in the mark-to-market fair value of
marketable securities held in trusts associated with certain of our nonqualified
deferred compensation and employee benefit plans, which was offset by an
increase in interest expense primarily due to the increase in the average
interest rate. The average maturity of long-term debt at June 30, 2021 is
approximately 14 years.
Interest expense, net in the six months ended June 30, 2021, was relatively
consistent with the six months ended June 30, 2020.
                                  Income Taxes
                                                  Quarter Ended June 30,                          Six Months Ended June 30,
                                                2021                    2020                    2021                     2020
Effective income tax rate                           23.9  %                 1.0  %                  26.5  %                 (22.0) %


The effective tax rate for the quarter ended June 30, 2021 includes tax charges
of $73 million associated with the revaluation of deferred taxes resulting from
the increase in the United Kingdom (U.K.) corporate tax rate to 25% effective in
2023. The loss from continuing operations before income taxes for the quarter
ended June 30, 2020 includes the $3.2 billion goodwill impairment as described
in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within
Item 1 of this Form 10-Q, most of which is non-deductible for tax purposes. The
effective tax rate for the quarter ended June 30, 2020 includes tax charges of
$60 million related to the June 2020 debt exchange, and tax charges of $46
million associated with a revaluation of certain international tax incentives.
The effective tax rate for the six months ended June 30, 2021 includes tax
charges of $148 million associated with the sale of our Forcepoint business and
$73 million associated with the U.K. tax rate change. The loss from continuing
operations before income taxes for the six months ended June 30, 2020 includes
the $3.2 billion goodwill impairment, most of which is non-deductible for tax
purposes. The effective tax rate for the six months ended June 30, 2020 also
includes tax charges of $415 million resulting from the Separation Transactions
or the Raytheon Merger, primarily related to the impairment of deferred tax
assets, tax charges of $60 million related to the June 2020 debt exchange, and
tax charges of $46 million associated with a revaluation of certain
international tax incentives.
In the third quarter of 2021, we expect to realize a deferred tax benefit
associated with legal entity and operational reorganizations anticipated to be
implemented in the third quarter. As a result, we currently expect our full year
2021 annual effective income tax rate to be approximately 16%, excluding
restructuring and non-operational nonrecurring items.
Net Income (Loss) from Continuing Operations Attributable to Common Shareowners
                                                  Quarter Ended June 30,                  Six Months Ended June 30,
(dollars in millions, except per share
amounts)                                         2021                2020                 2021                 2020
Net income (loss) from continuing
operations attributable to common
shareowners                                 $     1,040$   (3,844)$      1,812$   (3,406)
Diluted earnings (loss) per share from
continuing operations                       $      0.69$    (2.56)$       1.20$    (2.78)



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Net income (loss) from continuing operations attributable to common shareowners
for the quarter ended June 30, 2021 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$403 million, net of tax, which had an unfavorable impact on diluted earnings
per share (EPS) from continuing operations of $0.26;
•restructuring charges of $49 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.03; and
•tax expense of $73 million associated with the revaluation of deferred taxes
resulting from the increase in the United Kingdom (U.K.) corporate tax rate to
25% effective in 2023, which had an unfavorable impact on diluted EPS from
continuing operations of $0.05.
Net income (loss) from continuing operations attributable to common shareowners
for the quarter ended June 30, 2020 includes the following:
•$3,200 million of goodwill and intangibles impairment charges related to our
Collins Aerospace segment, which had an unfavorable impact on diluted EPS from
continuing operations of $2.13;
•acquisition accounting adjustments of $424 million, net of tax, which had an
unfavorable impact on diluted EPS from continuing operations of $0.28;
•restructuring charges of $322 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.21;
•increased estimates of expected credit losses driven by customer bankruptcies
and additional allowances for credit losses of $189 million, net of tax, which
had an unfavorable impact on diluted EPS from continuing operations of $0.13;
and
•significant unfavorable contract adjustments at Collins Aerospace and Pratt &
Whitney of $183 million, net of tax, which had an unfavorable impact on diluted
EPS from continuing operations of $0.12.
Net income (loss) from continuing operations attributable to common shareowners
for the six months ended June 30, 2021 includes the following:
•acquisition accounting adjustments primarily related to the Raytheon Merger of
$802 million, net of tax, which had an unfavorable impact on diluted EPS from
continuing operations of $0.53;
•tax expense of $148 million related to the sale of our Forcepoint business,
which had an unfavorable impact on diluted EPS from continuing operations of
$0.10;
•tax expense of $73 million associated with the revaluation of deferred taxes
resulting from the increase in the United Kingdom (U.K.) corporate tax rate to
25% effective in 2023, which had an unfavorable impact on diluted EPS from
continuing operations of $0.05; and
•restructuring charges of $81 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.05.
Net income (loss) from continuing operations attributable to common shareowners
for the six months ended June 30, 2020 includes the following:
•$3,240 million of goodwill and intangibles impairment charges related to our
Collins Aerospace segment, which had an unfavorable impact on diluted earnings
per share from continuing operations of $2.63;
•acquisition accounting adjustments of $603 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
$0.34;
•restructuring charges of $328 million, net of tax, which had an unfavorable
impact on diluted EPS from continuing operations of $0.27;
•increased estimates of expected credit losses driven by customer bankruptcies
and additional general allowances for credit losses of $244 million, net of tax,
which had an unfavorable impact on diluted EPS from continuing operations of
$0.16; and
•significant unfavorable contract adjustments at Collins Aerospace and Pratt &
Whitney of $200 million, net of tax, which had an unfavorable impact on diluted
EPS from continuing operations of $0.13.

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     Net Income (Loss) from Discontinued Operations Attributable to Common
                                  Shareowners
                                                   Quarter Ended June 30,                   Six Months Ended June 30,
(dollars in millions, except per share
amounts)                                          2021                 2020                  2021                 2020
Net income (loss) from discontinued
operations attributable to common
shareowners                                 $          (8)         $        9          $         (27)         $     (512)
Diluted earnings (loss) per share from
discontinued operations                     $       (0.01)         $     

0.01 $ (0.02)$ (0.42)



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 1 of
this Form 10-Q for additional information.
Net income (loss) from discontinued operations attributable to common
shareowners and the related change in diluted earnings (loss) per share from
discontinued operations in the quarter ended June 30, 2021 was relatively
consistent with the quarter ended June 30, 2020.
The change in net income (loss) from discontinued operations attributable to
common shareowners of $485 million and the related change in diluted earnings
(loss) per share from discontinued operations of $0.40 in the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 was primarily due
to higher prior year costs associated with the separation of our commercial
businesses, including debt extinguishment costs of $611 million, net of tax, in
connection with the early repayment of outstanding principal, partially offset
by prior year Carrier and Otis operating activity, as the Separation
Transactions occurred on April 3, 2020.
              Net Income (Loss) Attributable to Common Shareowners
                                                  Quarter Ended June 30,                  Six Months Ended June 30,
(dollars in millions, except per share
amounts)                                         2021                2020                 2021                 2020
Net income (loss) attributable to common
shareowners                                 $     1,032$   (3,835)$      1,785$   (3,918)
Diluted earnings (loss) per share from
operations                                  $      0.68          $    

(2.55) $ 1.18$ (3.20)



The increase in net income (loss) attributable to common shareowners and diluted
earnings (loss) per share from operations for the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 was primarily driven by the increase
in continuing operations, as discussed above in Net Income (Loss) from
Continuing Operations Attributable to Common Shareowners.
The increase in net income (loss) attributable to common shareowners and diluted
earnings (loss) per share from operations for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 was driven by the increase in
continuing operations, as discussed above in Net Income (Loss) from Continuing
Operations Attributable to Common Shareowners and the change from discontinued
operations, as discussed above in Net Income (Loss) from Discontinued Operations
Attributable to Common Shareholders.
                              RESTRUCTURING COSTS
                                                         Quarter Ended June 30,                Six Months Ended June 30,
(dollars in millions)                                    2021               2020                2021                2020

Restructuring costs                                 $        56          $  

427 $ 99 $ 435



Restructuring actions are an essential component of our operating margin
improvement efforts and relate to both existing operations and recent mergers
and acquisitions. 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.
2021 Actions. During the quarter and six months ended June 30, 2021, we recorded
net pre-tax restructuring charges of $65 million and $101 million, respectively,
primarily related to ongoing cost reduction efforts including workforce
reductions and the consolidation of facilities initiated in 2021. We expect to
incur additional restructuring charges of $46 million to complete these actions.
We are targeting to complete the majority of the remaining workforce and
facility related cost reduction actions initiated in 2021 by 2022. We expect
recurring pre-tax savings related to these actions to reach approximately $115
million annually within one to two years. Approximately 70% of the restructuring
costs will require cash payments, which we

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have funded and expect to continue to fund with cash generated from operations.
During the six months ended June 30, 2021, we had cash outflows of $6 million
related to the 2021 actions.
2020 Actions. During the quarters ended June 30, 2021 and 2020, we reversed
$24 million and recorded $444 million, respectively, of net pre-tax
restructuring charges for actions initiated in 2020. During the six months ended
June 30, 2021 and 2020, we reversed $20 million and recorded $446 million,
respectively, of net pre-tax restructuring charges for actions initiated in
2020. We expect to incur additional restructuring charges of $9 million to
complete these actions. We are targeting to complete in 2021 the majority of the
remaining workforce and facility related cost reduction actions initiated in
2020. We expect annual recurring pre-tax savings related to these actions to
reach approximately $1.2 billion annually within two years of initiating these
actions. Approximately 85% of the restructuring costs will require cash
payments, which we have funded and expect to continue to fund with cash
generated from operations. During the six months ended June 30, 2021 and 2020,
we had cash outflows of $161 million and $50 million, respectively, related to
the 2020 actions.
In addition, during the quarters ended June 30, 2021 and 2020, we recorded
$15 million and reversed $17 million, respectively, of net pre-tax restructuring
charges for restructuring actions initiated in 2019 and prior. During the six
months ended June 30, 2021 and 2020, we recorded $18 million and reversed
$11 million, respectively, of net pre-tax restructuring charges for
restructuring actions initiated in 2019 and prior. For additional discussion of
restructuring, see "Note 12: Restructuring Costs" within Item 1 of this Form
10-Q.
                                 SEGMENT REVIEW
As discussed further above in Business Overview, on April 3, 2020, we completed
the Separation Transactions, Distributions and the Raytheon Merger. 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.
As previously announced, effective January 1, 2021, we reorganized certain
product areas of our RIS and RMD businesses to more efficiently leverage our
capabilities. The amounts and presentation of our business segments, including
intersegment activity, set forth in this Form 10-Q reflect this reorganization.
The reorganization does not impact our previously reported Collins Aerospace
Systems and Pratt & Whitney segment results, or our consolidated balance sheets,
statements of operations or statements of cash flows. Refer to "Note 19: Segment
Financial Data" within Item 1 of this Form 10-Q for revised financial results
for the fiscal quarters and year ended 2020.
As a result of the Raytheon Merger, we now present a FAS/CAS operating
adjustment outside of segment results, which represents the difference between
the service cost component of our pension and PRB expense under the Financial
Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting
Principles (GAAP) and our pension and postretirement benefit (PRB) expense under
U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and
RMD segments. While the ultimate liability for pension and PRB costs under FAS
and CAS is similar, the pattern of cost recognition is different. We generally
expect to recover the related RIS and RMD pension and PRB liabilities over time
through the pricing of our products and services to the U.S. government. Because
the Collins Aerospace and Pratt & Whitney segments generally record pension and
PRB expense on a FAS basis, historical results were not impacted by this change
in segment reporting.
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.
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.

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Total Net Sales. Total net sales by segment were as follows:
                                                   Quarter Ended June 30,                     Six Months Ended June 30,
(dollars in millions)                             2021                   2020                  2021                 2020
Collins Aerospace Systems                 $      4,545$    4,202$       8,915$   10,640
Pratt & Whitney                                  4,280                    3,487                  8,310               8,840
Raytheon Intelligence & Space                    3,805                    3,387                  7,570               3,387
Raytheon Missiles & Defense                      3,985                    3,506                  7,778               3,506
Total segment                                   16,615                   14,582                 32,573              26,373
Eliminations and other                            (735)                    (521)                (1,442)               (952)

Consolidated                              $     15,880$   14,061$      31,131$   25,421

Operating Profit. Operating profit by segment was as follows:

                                             Quarter Ended June 30,                  Six Months Ended June 30,
(dollars in millions)                       2021                2020                 2021                 2020
Collins Aerospace Systems              $       506$     (317)$        820$      929
Pratt & Whitney                                112                (457)                  132                  18
Raytheon Intelligence & Space                  415                 309                   803                 309
Raytheon Missiles & Defense                    532                 398                 1,028                 398
Total segment                                1,565                 (67)                2,783               1,654
Eliminations and other                         (40)                (27)                  (71)                (52)
Corporate expenses and other
unallocated items                             (149)               (277)                 (230)               (407)
FAS/CAS operating adjustment                   425                 356                   848                 356
Acquisition accounting adjustments            (519)             (3,745)               (1,035)             (4,016)
Consolidated                           $     1,282$   (3,760)$      2,295$   (2,465)


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 5: Changes in Contract
Estimates at Completion" within Item 1 of this Form 10-Q. Given that we have
thousands of individual contracts and given the types and complexity of the
assumptions and estimates we must make on an on-going basis, we have both
favorable and unfavorable EAC adjustments.
We had the following aggregate EAC adjustments for the periods presented:
                                                     Quarter Ended June 30,                  Six Months Ended June 30,
(dollars in millions)                               2021                2020                  2021                 2020
Gross favorable                                $       309$      151          $         621          $      288
Gross unfavorable                                     (282)               (302)                  (582)               (418)
Total net EAC adjustments                      $        27$     (151)         $          39          $     (130)


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 because only the unperformed portion of the
contract at the merger date represents an obligation of the Company. This had
the impact of reducing gross favorable and unfavorable EAC adjustments for these
segments in the prior year. The increase in net EAC adjustments of $178 million
in the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020
was primarily due to a favorable change in net EAC adjustments of $98 million at
Pratt & Whitney principally driven by the absence of unfavorable EAC adjustments
in the quarter ended June 30, 2020 based on a portfolio review of our commercial
aftermarket programs and a benefit resulting from a favorable contract
modification on a commercial aftermarket program in the quarter ended
June 30, 2021, both due to changes in estimated flight hours, number of shop
visits and the related amount of costs. The increase was also due to a favorable
change in net EAC adjustments of $53 million at RIS and $43 million at RMD,
which was spread across numerous programs and primarily a result of the Raytheon
Merger and the associated reset to zero percent complete for contracts accounted
for on a percentage of completion basis discussed above.

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The increase in net EAC adjustments of $169 million in the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 was primarily due
to a favorable change in net EAC adjustments of $81 million at RIS and $78
million at RMD, primarily due to the Raytheon Merger, and a favorable change in
net EAC adjustments of $88 million at Pratt & Whitney principally driven by the
absence of unfavorable EAC adjustments in the quarter ended June 30, 2020 based
on a portfolio review of our commercial aftermarket programs and a benefit
resulting from a favorable contract modification on a commercial aftermarket
program in the quarter ended June 30, 2021, both due to changes in estimated
flight hours, number of shop visits and the related amount of costs. This was
partially offset by an unfavorable change in net EAC adjustments of $78 million
at Collins Aerospace spread across numerous individual programs with no
individual or common significant driver. Significant EAC adjustments, when they
occur, are discussed in each business segment's discussion below.
Backlog and Defense Bookings. Total backlog was approximately $151.8 billion and
$150.1 billion as of June 30, 2021 and December 31, 2020, respectively, which
includes defense backlog of $66.1 billion and $67.3 billion as of June 30, 2021
and December 31, 2020, respectively. 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 bookings were
approximately $11.9 billion and $10.2 billion for the quarters ended June 30,
2021 and 2020, and approximately $20.4 billion and $13.4 billion for the six
months ended June 30, 2021 and 2020, respectively.
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
                                                          Quarter Ended June 30,                            Six Months Ended June 30,
(dollars in millions)                              2021               2020       Change               2021               2020        Change
Net Sales                                      $       4,545$    4,202          8  %       $       8,915$    10,640        (16) %
Operating Profit                                         506            (317)            NM                 820               929        (12) %
Operating Profit Margins                             11.1  %          (7.5) %                            9.2  %           8.7   %


NM = Not Meaningful

Quarter Ended June 30, 2021 Compared with Quarter Ended June 30, 2020

                                                     Factors Contributing to Total Change
                                                                   Acquisitions /             Restructuring
 (dollars in millions)               Organic(1)                   Divestitures, net               Costs                 Other             Total Change
Net Sales                         $          444                $             (135)         $            -          $       34          $         343

Operating Profit                             723                               (31)                    139                  (8)                   823


(1)  We provide the organic change in net sales and operating profit for our
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
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above.
The organic sales increase of $0.4 billion in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 primarily relates to higher
commercial aerospace aftermarket sales of $0.3 billion, including increases
across all aftermarket sales channels, and higher commercial aerospace OEM sales
of $0.2 billion. These increases were primarily due to an increase in flight
hours, aircraft fleet utilization and commercial OEM deliveries as commercial
aerospace begins to recover from the prior year's unfavorable economic
environment principally driven by the COVID-19 pandemic. Military sales were
down slightly in the quarter ended June 30, 2021 compared to the quarter ended
June 30, 2020.
The organic profit increase of $0.7 billion in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 was primarily due to higher
commercial aerospace operating profit of $0.5 billion principally driven by the
higher commercial aerospace aftermarket sales discussed above. Included in the
higher commercial aerospace operating profit was $122 million of significant
unfavorable contract adjustments in the quarter ended June 30, 2020 principally
driven by the expected acceleration of fleet retirements of a certain aircraft
and a $33 million favorable impact from a contract related matter in the quarter
ended June 30, 2021. Also contributing to the organic profit increase was lower
Selling, general and administrative expenses and Research and development costs
of $0.2 billion in total, primarily driven by the absence of an $89 million
charge related to

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increased estimates of expected credit losses due to customer bankruptcies and
additional allowances for credit losses in the quarter ended June 30, 2020 and
the impact of cost reduction initiatives.
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.

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

                                                                 Factors 

Contributing to Total Change

                                                                  Acquisitions /             Restructuring
(dollars in millions)                     Organic(1)             Divestitures, net               Costs                 Other             Total Change
Net Sales                              $       (1,520)         $             (271)         $            -          $       66$      (1,725)

Operating Profit                                 (136)                        (76)                    127                 (24)                  (109)


(1)  We provide the organic change in net sales and operating profit for our
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
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above.
The organic sales decrease of $1.5 billion in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 primarily relates to lower
commercial aerospace OEM sales of $0.8 billion and lower commercial aerospace
aftermarket sales of $0.7 billion, including declines across all aftermarket
sales channels. These decreases were primarily due to the change in the 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 $0.1 billion.
The organic profit decrease of $0.1 billion in the six months ended June 30,
2021 compared to the six months ended June 30, 2020 is primarily due to lower
commercial aerospace operating profit of $0.4 billion principally driven by the
lower commercial aerospace aftermarket sales discussed above, partially offset
by the absence of $144 million of significant unfavorable adjustments in the six
months ended June 30, 2020 principally driven by the expected acceleration of
fleet retirements of a certain aircraft and a $33 million favorable impact from
a contract related matter in the quarter ended June 30, 2021. The organic profit
decrease was also partially offset by lower Selling, general and administrative
expenses of $0.2 billion primarily driven by the absence of a $99 million charge
related to increased estimates of expected credit losses due to customer
bankruptcies and additional allowances for credit losses in the six months ended
June 30, 2020, and lower Research and development expenses of $0.1 billion,
which includes the impact of cost reduction initiatives.
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.
Pratt & Whitney
                                                          Quarter Ended June 30,                           Six Months Ended June 30,
(dollars in millions)                              2021               2020       Change               2021               2020       Change
Net Sales                                      $       4,280$    3,487         23  %       $       8,310$    8,840         (6) %
Operating Profit                                         112            (457)            NM                 132               18        633  %
Operating Profit Margins                              2.6  %         (13.1) %                            1.6  %           0.2  %


NM = Not Meaningful

Quarter Ended June 30, 2021 Compared with Quarter Ended June 30, 2020

                                                     Factors Contributing to Total Change
                                                                  Acquisitions /             Restructuring
(dollars in millions)                Organic(1)                  Divestitures, net               Costs                 Other             Total Change
Net Sales                          $        744                $                -          $            -          $       49          $         793

Operating Profit                            437                                 -                     123                   9                    569


(1)  We provide the organic change in net sales and operating profit for our
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
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above. For
Pratt & Whitney only, Other also includes the transactional impact of foreign
exchange hedging at Pratt & Whitney Canada due to its significance to Pratt &
Whitney's overall operating results.
The organic sales increase of $0.7 billion in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 primarily reflects higher commercial
aftermarket sales of $0.6 billion, primarily due to an increase in shop visits
and related

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spare part sales, and higher commercial OEM sales of $0.2 billion, primarily due
to an increase in commercial engine deliveries, all principally driven by
recovery from the prior year's unfavorable economic environment principally
driven by the COVID-19 pandemic. Military sales were down slightly in the
quarter ended June 30, 2021 compared to the quarter ended June 30, 2020.
The organic profit increase of $0.4 billion in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 was primarily driven by higher
commercial aerospace operating profit of $0.3 billion principally due to the
aftermarket sales volume increase discussed above and favorable year-over-year
EAC adjustments of $70 million, principally driven by $71 million of net
unfavorable EAC adjustments in the quarter ended June 30, 2020 based on a
portfolio review of our commercial aftermarket programs and a benefit resulting
from a favorable contract modification on a commercial aftermarket program in
the quarter ended June 30, 2021, both due to changes in estimated flight hours,
number of shop visits and the related amount of costs, partially offset by an
unfavorable net change in other EAC adjustments. The higher commercial aerospace
operating profit was also driven by favorable mix. The organic profit increase
also includes lower Selling, general and administrative expenses of $0.1 billion
primarily driven by the absence of a $148 million charge related to increased
estimates of expected credit losses due to customer bankruptcies and additional
allowances for credit losses in the quarter ended June 30, 2020. Included in
organic profit in the quarter ended June 30, 2020 was other income of $59
million related to foreign government wage subsidies due to COVID-19 and an
unfavorable EAC adjustment of $44 million on a military program primarily driven
by a shift in estimated overhead costs due to lower commercial engine activity.

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Factors Contributing to Total Change

                                                                   Acquisitions /                   Restructuring
(dollars in millions)                    Organic(1)              Divestitures, net                      Costs                      Other              Total Change
Net Sales                              $        (608)       $                          -       $                      -       $             78       $       (530)

Operating Profit                                 (11)                                  -                            103                     22                114


(1)  We provide the organic change in net sales and operating profit for our
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
acquisitions and divestitures, net; restructuring costs; and the effect of
foreign currency exchange rate translation fluctuations and other significant
non-recurring and non-operational items ("Other"). A reconciliation of these
measures to reported U.S. GAAP amounts is provided in the table above. For
Pratt & Whitney only, Other also includes the transactional impact of foreign
exchange hedging at Pratt & Whitney Canada due to its significance to Pratt &
Whitney's overall operating results.
The organic sales decrease of $0.6 billion in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 primarily reflects lower
commercial aftermarket sales of $0.3 billion, primarily due to a reduction in
shop visits and related spare part sales, and lower commercial OEM sales of $0.3
billion, primarily due to a reduction in commercial engine deliveries, all
principally driven by the change in the economic environment primarily due to
the COVID-19 pandemic. Military sales were up slightly in the six months ended
June 30, 2021 compared to the six months ended June 30, 2020.
The organic profit decrease of $11 million in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 was primarily driven by lower
commercial aerospace operating profit of $0.3 billion principally due to the
aftermarket sales volume decrease discussed above and unfavorable mix, partially
offset by favorable year-over-year EAC adjustments of $73 million principally
driven by $71 million of net unfavorable EAC adjustments in the quarter ended
June 30, 2020 based on a portfolio review of our commercial aftermarket programs
and a benefit resulting from a favorable contract modification on a commercial
aftermarket program in the quarter ended June 30, 2021, both due to changes in
estimated flight hours, number of shop visits and the related amount of costs,
partially offset by an unfavorable net change in other EAC adjustments. This
decrease was partially offset by lower Selling, general and administrative
expenses of $0.2 billion primarily driven by the absence of a $210 million
charge related to increased estimates of expected credit losses due to customer
bankruptcies and additional allowances for credit losses. Included in the change
in organic profit was other income of $44 million in the six months ended
June 30, 2021 and $59 million in the six months ended June 30, 2020 related to
foreign government wage subsidies due to COVID-19 and an unfavorable EAC
adjustment of $44 million in the quarter ended June 30, 2020 on a military
program primarily driven by a shift in estimated overhead costs due to lower
commercial engine activity.
In the six months ended June 30, 2021, Pratt & Whitney had two notable defense
bookings for $593 million in total for F-135 sustainment services.

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Raytheon Intelligence & Space
                                                        Quarter Ended June 30,                        Six Months Ended June 30,
(dollars in millions)                             2021             2020       Change              2021              2020      Change
Net Sales                                      $    3,805$ 3,387            12  %       $     7,570$ 3,387             NM
Operating Profit                                      415           309            34  %               803           309             NM
Operating Profit Margins                          10.9  %           9.1  %                         10.6  %           9.1  %
Bookings                                       $    3,952$ 3,712             6  %       $     7,678$ 3,712             NM


NM = Not Meaningful

Quarter Ended June 30, 2021 Compared with Quarter Ended June 30, 2020

                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          165                $              230                $        23          $         418


(1)  We provide the organic change in net sales for our segments. 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 acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                  Factors Contributing to Change in Operating Profit
                                                Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)      Volume                  adjustments              Divestitures, net             performance              Total Change

Operating Profit      $           11          $               53          $               20          $              22          $         106


The organic sales increase of $165 million in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 was primarily driven by higher net
sales of $64 million on certain Airborne Intelligence, Surveillance and
Reconnaissance (ISR) programs within sensing and effects primarily due to
increased production driven by customer demand, and higher volume of $45 million
on certain classified cyber programs within cyber, training and services
primarily due to increases in customer-determined activity levels.
The increase in operating profit of $106 million and the related increase in
operating profit margins in the quarter ended June 30, 2021 compared to the
quarter ended June 30, 2020, was primarily due to the net change in EAC
adjustments of $53 million, which was spread across numerous programs and
primarily a result of the Raytheon Merger and the associated reset to zero
percent complete for contracts accounted for on a percentage of completion
basis. Included in mix and other performance is a $18 million gain on a real
estate transaction in the quarter ended June 30, 2021.
The increase in net sales and operating profit due to acquisitions /
divestitures, net primarily relates to the Raytheon Merger on April 3, 2020.
  Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          165                $            3,995                $        23$       4,183


(1)  We provide the organic change in net sales for our segments. 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 acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                 Factors Contributing to Change in Operating Profit
                                               Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)      Volume                 adjustments              Divestitures, net             performance              Total Change

Operating Profit      $          11          $               53          $              408          $              22          $         494


The organic sales increase of $165 million in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 was primarily driven by higher
net sales of $64 million on certain Airborne Intelligence, Surveillance and
Reconnaissance (ISR) programs within sensing and effects primarily due to
increased production driven by customer demand, and higher

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volume of $45 million on certain classified cyber programs within cyber,
training and services primarily due to increases in customer-determined activity
levels.
The increase in operating profit of $494 million and the related increase in
operating profit margins in the six months ended June 30, 2021 compared to the
six months ended June 30, 2020, was primarily the change in acquisitions /
divestitures, net of $408 million.
The increase in net sales and operating profit due to acquisitions /
divestitures, net primarily relates to the Raytheon Merger on April 3, 2020.
Backlog and Bookings- Backlog was $19,442 million at June 30, 2021 and
$19,166 million at December 31, 2020. In the quarter ended June 30, 2021, RIS
booked $1,112 million on a number of classified contracts, $365 million on the
Standard Terminal Automation Replacement System (STARS) program for the Federal
Aviation Administration (FAA), $211 million to provide additional upgrades to
the Global Positioning System Next Generation Operational Control System (GPS
OCX) program for the U.S. Air Force and $172 million on the Next Generation
Jammer (NGJ) Mid-Band Low Rate Initial Production (LRIP) contract with the U.S.
Navy. In addition to the bookings noted above, in the six months ended June 30,
2021, RIS booked $1,427 million on a number of classified contracts, $227
million on a missile warning and defense contract, $199 million on an
international tactical airborne radar sustainment contract and $185 million on
an international training contract with the U.K. Royal Navy.
In the six months ended June 30, 2020, RIS booked $1,418 million on a number of
classified contracts and $166 million on the Global Aircrew Strategic Network
Terminal (Global ASNT) program for the U.S. Air Force.
Raytheon Missiles & Defense
                                                        Quarter Ended June 30,                        Six Months Ended June 30,
(dollars in millions)                             2021             2020       Change              2021              2020      Change
Net Sales                                      $    3,985$ 3,506            14  %       $     7,778$ 3,506             NM
Operating Profit                                      532           398            34  %             1,028           398             NM
Operating Profit Margins                          13.4  %          11.4  %                         13.2  %          11.4  %
Bookings                                       $    6,054$ 4,109            47  %       $     8,586$ 4,109             NM


NM = Not Meaningful

Quarter Ended June 30, 2021 Compared with Quarter Ended June 30, 2020

                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          259                $              206                $        14          $         479


(1)  We provide the organic change in net sales for our segments. 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 acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                  Factors Contributing to Change in Operating Profit
                                                Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)      Volume                  adjustments              Divestitures, net             performance              Total Change

Operating Profit      $           21          $               43          $               25          $              45          $         134


The organic sales increase of $259 million in the quarter ended June 30, 2021
compared to the quarter ended June 30, 2020 was primarily due to higher net
sales of $92 million on an international Patriot program driven by a contract
modification in the second quarter of 2021, which included the recognition of
previously deferred precontract costs, and $66 million on the StormBreaker
program primarily due to the recognition of previously deferred precontract
costs based on a contract award in the second quarter of 2021. The change in
organic sales also includes a decrease of $54 million related to sales on our
direct commercial sales contracts for precision guided munitions with a certain
Middle East customer that had been recognized in the quarter ended June 30,
2020, but subsequently reversed in the fourth quarter of 2020. We have not yet
obtained regulatory

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approval on these contracts, and we subsequently reversed these sales because we
determined, due to then-current events, that it was no longer probable that we
will be able to obtain regulatory approvals for these contracts.
The increase in operating profit of $134 million and the related increase in
operating profit margins in the quarter ended June 30, 2021 compared to the
quarter ended June 30, 2020, was primarily due to a change in mix and other
performance of $45 million, a net change in EAC adjustments of $43 million and a
change in acquisitions / divestitures, net of $25 million. The change in mix and
other performance was principally driven by activity on an international Patriot
program as described above in organic sales. The net change in EAC adjustments
was spread across numerous programs and primarily a result of the Raytheon
Merger and the associated reset to zero percent complete for contracts accounted
for on a percentage of completion basis.
The increase in net sales and operating profit due to acquisitions /
divestitures, net relates to the Raytheon Merger on April 3, 2020.
  Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020
                                         Factors Contributing to Total Change in Net Sales
                                                                         Acquisitions /
(dollars in millions)                      Organic(1)                   Divestitures, net                   Other              Total Change
Net Sales                               $          259                $            3,999                $        14$       4,272


(1)  We provide the organic change in net sales for our segments. 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 acquisitions and divestitures, net,
and the effect of foreign currency exchange rate translation fluctuations and
other significant non-recurring and non-operational items ("Other"). A
reconciliation of this measure to the reported U.S. GAAP amount is provided in
the table above.
                                                 Factors Contributing to Change in Operating Profit
                                               Net change in EAC            Acquisitions /              Mix and other
(dollars in millions)      Volume                 adjustments              Divestitures, net             performance              Total Change

Operating Profit      $          21          $               43          $              521          $              45          $         630


The organic sales increase of $259 million in the six months ended June 30, 2021
compared to the six months ended June 30, 2020 was primarily due to higher net
sales of $92 million on an international Patriot program driven by a contract
modification in the second quarter of 2021, which included the recognition of
previously deferred precontract costs, and $66 million on the StormBreaker
program primarily due to the recognition of previously deferred precontract
costs based on a contract award in the second quarter of 2021. The change in
organic sales also includes a decrease of $54 million related to sales on our
direct commercial sales contracts for precision guided munitions with a certain
Middle East customer as discussed above.
The increase in operating profit of $630 million and the related increase in
operating profit margins in the six months ended June 30, 2021 compared to the
six months ended June 30, 2020 was primarily due to a change in acquisitions /
divestitures, net of $521 million.
The increase in net sales and operating profit due to acquisitions /
divestitures, net relates to the Raytheon Merger on April 3, 2020.
Backlog and Bookings- Backlog was $29,656 million at June 30, 2021 and
$29,103 million at December 31, 2020. In the quarter ended June 30, 2021, RMD
booked approximately $2 billion for the Long Range Standoff (LRSO) Weapon System
Engineering and Manufacturing Development (EMD) contract for the U.S. Air Force,
$1,315 million for the Next Generation Interceptor (NGI) for the Missile Defense
Agency (MDA), $327 million for AIM-9X Sidewinder short-range air-to-air missiles
for the U.S. Navy and Air Force and international customers, $242 million on the
Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for
the MDA, and $213 million for StormBreaker for the U.S. Air Force and Navy. In
addition to the bookings noted above, in the six months ended June 30, 2021, RMD
booked $518 million for Advanced Medium-Range Air-to-Air Missile (AMRAAM) for
the U.S. Air Force and Navy and international customers and $247 million to
provide Patriot engineering services support for the U.S. Army and international
customers.
In the six months ended June 30, 2020, RMD booked $2,253 million on the AN/TPY-2
radar program for the Kingdom of Saudi Arabia (KSA) and $299 million for
Standard Missile-3 (SM-3) for the MDA and an international customer.
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, which
was acquired as part

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Table of Contents of the Raytheon Merger and subsequently disposed of on January 8, 2021, as further discussed in "Note 2: Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 1 of this Form 10-Q.

                                             Net Sales                         Operating Profit
                                       Quarter Ended June 30,               Quarter Ended June 30,
(dollars in millions)                     2021                2020             2021             2020
Inter segment eliminations      $       (743)$ (665)$       (31)$ (23)
Other non-reportable segments              8                   144               (9)              (4)
Eliminations and other          $       (735)$ (521)$       (40)$ (27)

The decrease in other non-reportable segment sales for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020, was primarily related to the sale of our Forcepoint business in the first quarter of 2021. Other non-reportable segment operating profit for the quarter ended June 30, 2021 was relatively consistent with the quarter ended June 30, 2020.

                                                               Net Sales                             Operating Profit
                                                       Six Months Ended June 30,                Six Months Ended June 30,
(dollars in millions)                                   2021                 2020                2021                 2020
Inter segment eliminations                        $      (1,458)$  (1,101)$        (56)$     (36)
Other non-reportable segments                                16                149                   (15)               (16)
Eliminations and other                            $      (1,442)$    (952)$        (71)$     (52)


The decrease in other non-reportable segment sales for the six months ended
June 30, 2021 compared to the six months ended June 30, 2020, was primarily
related to the sale of our Forcepoint business in the first quarter of 2021.
Other non-reportable segments operating profit for the six months ended June 30,
2021 was relatively consistent with the six months ended June 30, 2020.
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.
                                            Quarter Ended June 30,                    Six Months Ended June 30,
(dollars in millions)                      2021                 2020                  2021                  2020
Corporate expenses and other
unallocated items                     $       (149)$     (277)         $         (230)         $     (407)


The decrease in Corporate expenses and other unallocated items of $128 million
for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020
was primarily driven by lower restructuring costs of $109 million and a decrease
in merger-related costs related to the Raytheon Merger of $70 million, partially
offset by other unallocated items with no individual or common significant
driver.
The decrease in Corporate expenses and other unallocated items of $177 million
for the six months ended June 30, 2021 compared to the six months ended June 30,
2020 was primarily driven by lower restructuring costs of $106 million and a
decrease in merger-related costs related to the Raytheon Merger of $82 million,
partially offset by an increase in net expenses related to the LTAMDS project.
FAS/CAS operating adjustment
The segment results of RIS and RMD 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 generally include FAS service cost.

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The components of the FAS/CAS operating adjustment were as follows:
                                            Quarter Ended June 30,                    Six Months Ended June 30,
(dollars in millions)                      2021                 2020                  2021                  2020
FAS service cost (expense)            $       (101)$     (109)         $         (202)         $     (109)
CAS expense                                    526                 465                   1,050                 465
FAS/CAS operating adjustment          $        425$      356          $          848          $      356


The change in our FAS/CAS operating adjustment of $69 million in the quarter
ended June 30, 2021 compared to the quarter ended June 30, 2020 was driven by a
$61 million increase in CAS expense, as well as a $8 million decrease in FAS
service cost. The increase in CAS expense was primarily due to the Raytheon
Merger on April 3, 2020, and to a lesser extent, changes in actuarial
assumptions.
The change in our FAS/CAS operating adjustment of $492 million in the six months
ended June 30, 2021 compared to the six months ended June 30, 2020 was driven by
a $585 million increase in CAS expense, partially offset by a $93 million
increase in FAS service cost both primarily due to the inclusion of the Raytheon
Company plans as a result of the Raytheon Merger.
In response to the economic environment resulting from the COVID-19 pandemic,
Congress passed the American Rescue Plan Act of 2021 (ARPA) in March 2021, which
included pension funding relief provisions. These provisions extend and expand
upon existing pension funding relief, most notably by increasing the liability
interest rates used to determine the required cash contributions for our U.S.
qualified pension plans. As a result, we expect required cash contributions to
our U.S. qualified pension plans to be reduced beginning in 2022.
The ARPA pension funding relief provisions are expected to result in decreases
to CAS expense, and the related recovery under our contracts, for our U.S.
qualified pension plans beginning in 2022 as the interest rates used to
determine pension funding requirements for these plans are also used in
determining CAS expense.
Acquisition accounting adjustments
Acquisition accounting adjustments include the amortization of acquired
intangible assets related to acquisitions, the amortization of the property,
plant and equipment fair value adjustment acquired through acquisitions and the
amortization of customer contractual obligations related to loss making or below
market contracts acquired. These adjustments are not considered part of
management's evaluation of segment results.
The components of Acquisition accounting adjustments were as follows:
                                                   Quarter Ended June 30,                Six Months Ended June 30,
(dollars in millions)                              2021               2020                 2021                2020
Goodwill impairment charge                     $        -          $ (3,183)         $           -          $ (3,183)
Amortization of acquired intangibles                 (592)             (611)                (1,179)             (951)
Amortization of property, plant and equipment
fair value adjustment                                 (44)              (20)                   (63)              (27)
Amortization of customer contractual
obligations related to acquired loss-making
and below-market contracts                            117                69                    207               145
Acquisition accounting adjustments             $     (519)         $ 

(3,745) $ (1,035)$ (4,016)

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

                                                       Quarter Ended June 30,                Six Months Ended June 30,
(dollars in millions)                                  2021               2020                 2021                2020
Collins Aerospace Systems                          $     (121)$ (3,381)$        (270)$ (3,579)
Pratt & Whitney                                           (29)              (11)                   (51)              (84)
Raytheon Intelligence & Space                            (162)             (128)                  (301)             (128)
Raytheon Missiles & Defense                              (207)             (200)                  (413)             (200)
Total segment                                            (519)           (3,720)                (1,035)           (3,991)
Eliminations and other                                      -               (25)                     -               (25)
Acquisition accounting adjustments                 $     (519)         $ 

(3,745) $ (1,035)$ (4,016)

The change in the Acquisition accounting adjustments of $3,226 million for the quarter ended June 30, 2021 compared to the

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quarter ended June 30, 2020, was primarily driven by the $3.2 billion goodwill
impairment loss in the second quarter of 2020 related to two Collins Aerospace
reporting units. Included in Acquisitions accounting adjustments in the quarter
ended June 30, 2021 was $69 million of amortization of customer contractual
obligations due to the accelerated liquidation of a below-market contract
reserve at Collins Aerospace driven by the termination of a customer contract
and $19 million of amortization of the property, plant and equipment fair value
adjustment related to the sale of real estate at RIS. Refer to "Note 2:
Acquisitions, Dispositions, Goodwill and Intangible Assets" within Item 1 of
this Form 10-Q for additional information on the goodwill impairment loss.
The change in the Acquisition accounting adjustments of $2,981 million for the
six months ended June 30, 2021 compared to the six months ended June 30, 2020,
is primarily driven by the $3.2 billion goodwill impairment loss in the second
quarter of 2020 related to two Collins Aerospace reporting units, partially
offset by an increase of $361 million for acquisition accounting adjustments
related to the Raytheon Merger, primarily due to the timing of the merger in the
prior year. Included in Acquisition accounting adjustments in the six months
ended June 30, 2021 was $116 million of amortization of customer contractual
obligations due to the accelerated liquidation of below-market contract reserves
at Collins Aerospace driven by the termination of two customer contracts.
                       LIQUIDITY AND FINANCIAL CONDITION
(dollars in millions)                                                 June 30, 2021         December 31, 2020
Cash and cash equivalents                                            $      8,051          $          8,802
Total debt                                                                 31,482                    31,823
Total equity                                                               72,721                    73,852
Total capitalization (total debt plus total equity)                       104,203                   105,675
Total debt to total capitalization                                             30  %                     30  %


We assess our liquidity in terms of our ability to generate cash to fund our
operating, investing and financing activities. Our principal source of liquidity
is cash flows from operating activities. In addition to operating cash flows,
other significant factors that affect our overall management of liquidity
include: capital expenditures, customer financing requirements, investments in
and divestitures of businesses, dividends, common stock repurchases, pension
funding, access to the commercial paper markets, adequacy of available bank
lines of credit, redemptions of debt, and the ability to attract long-term
capital at satisfactory terms. We had $6.84 billion available under our various
credit facilities at June 30, 2021.
Although our business has been and will continue to be impacted by COVID-19, as
discussed above in Business Overview, we currently believe we have sufficient
liquidity to withstand the potential impacts.
At June 30, 2021, we had cash and cash equivalents of $8.1 billion, of which
approximately 54% was held by RTC's foreign subsidiaries. We manage our
worldwide cash requirements by reviewing available funds among the many
subsidiaries through which we conduct our business and the cost effectiveness
with which those funds can be accessed. The Company does not intend to reinvest
certain undistributed earnings of its international subsidiaries that have been
previously taxed in the U.S. Taxes associated with the future remittance of
these earnings have been recorded. For the remainder of the Company's
undistributed international earnings, unless tax effective to repatriate, RTC
will continue to permanently reinvest these earnings. We did not repatriate cash
in the six months ended June 30, 2021.
Historically, our strong credit ratings and financial position have enabled us
to issue long-term debt at favorable interest rates.
As of June 30, 2021, our maximum commercial paper borrowing limit was $5.0
billion as the commercial paper is backed by our $5.0 billion revolving credit
agreement. We had $160 million of commercial paper borrowings as of June 30,
2021. The maximum amount of short-term commercial paper borrowings outstanding
at any point in time during the six months ended June 30, 2021 was $660 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 May 2021, we renewed our $2.0 billion revolving credit agreement, which now
expires in May 2022. As of June 30, 2021, we had revolving credit agreements
with various banks permitting aggregate borrowings of up to $7.0 billion
consisting of a $5.0 billion revolving credit agreement that became available
upon completion of the Raytheon Merger on April 3, 2020, and the $2.0 billion
revolving credit agreement that we renewed in May 2021 and there were no
borrowings outstanding under these agreements.
We 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.

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The Company has offered a voluntary supply chain finance (SCF) program with a
global financial institution which enables our suppliers, at their sole
discretion, to sell their receivables from the Company to the financial
institution at a rate that leverages our credit rating, which might be
beneficial to them. Our suppliers' participation in the SCF program does not
impact or change our terms and conditions with those suppliers, and therefore,
we have no economic interest in a supplier's decision to participate in the
program. In addition, we provide no guarantees or otherwise pay for any of the
costs of the program incurred by those suppliers that choose to participate, and
have no direct financial relationship with the financial institution, as it
relates to the program. As such, amounts due to suppliers that have elected to
participate in the SCF program are included in Accounts payable on our Condensed
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 Condensed Consolidated Statement of Cash
Flows. As of June 30, 2021, and December 31, 2020, the amount due to suppliers
participating in the SCF program and included in Accounts payable was
approximately $406 million and $394 million, respectively. 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.

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