|
|
|
||
(State or other jurisdiction of incorporation)
|
(Commission File Number)
|
(IRS Employer Identification No.)
|
|
|
(Address of principal executive offices, including zip code)
|
|
(Registrant’s telephone number, including area code)
(
|
|
(Former name or former address, if changed since last report)
|
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
||
(CUSIP 75513E 101)
|
||||
|
|
|
||
(CUSIP 75513E AB7)
|
||||
|
|
|
||
(CUSIP 75513E AA9)
|
•
|
Separation and Distribution Agreement;
|
•
|
Transition Services Agreement;
|
•
|
Tax Matters Agreement;
|
•
|
Employee Matters Agreement; and
|
•
|
Intellectual Property Agreement.
|
•
|
certain assets of, or related to, the Company’s Carrier operating segment prior to the Separation, covering HVAC, refrigeration, fire and security solutions (such business, the “Carrier Business” and such assets, the “Carrier Assets,”) are retained by or
transferred to Carrier or Carrier’s subsidiaries, including:
|
||
•
|
equity interests of Carrier’s subsidiaries as of immediately after the effective time of the Distributions;
|
||
•
|
assets (other than cash and cash equivalents) that are included on the Carrier unaudited pro forma balance sheet as of December
31, 2019, as well as assets that are of a nature or type that would have resulted in such assets being included on a pro forma combined balance sheet of Carrier and Carrier’s subsidiaries;
|
||
•
|
contracts (or portions thereof) that, subject to limited exceptions, solely or primarily relate to the Carrier Business;
|
||
•
|
permits used or held for use solely or primarily in the Carrier Business;
|
||
•
|
certain intellectual property rights and technology used or held for use in the Carrier Business;
|
||
•
|
information solely or primarily related to the Carrier Assets, the Carrier Liabilities (as defined below), the Carrier Business or
Carrier’s subsidiaries;
|
||
•
|
cash and cash equivalents held in bank or brokerage accounts owned exclusively by Carrier or Carrier’s subsidiaries as of the
effective time of the Distributions;
|
||
•
|
other assets expressly allocated to Carrier or Carrier’s subsidiaries pursuant to the terms of the separation and distribution
agreement or the other agreements entered into in connection with the Separation; and
|
•
|
subject to limited exceptions, other assets used or held for use solely or primarily in the Carrier Business.
|
||
•
|
certain liabilities of, or related to, the Carrier Business (the “Carrier Liabilities”) are retained by or transferred to Carrier
or Carrier’s subsidiaries, including:
|
||
•
|
liabilities that are included on the Carrier unaudited pro forma balance sheet as of December 31, 2019, as well as liabilities
that are of a nature or type that would have resulted in such liabilities being included on a pro forma combined balance sheet of Carrier and Carrier’s subsidiaries;
|
||
•
|
liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts, or
circumstances to the extent related to, arising out of or resulting from the Carrier Business or the Carrier Assets;
|
||
•
|
liabilities to the extent relating to, arising out of or resulting from the contracts, intellectual property rights, technology,
licenses, permits or financing arrangements that relate to the Carrier Business;
|
||
•
|
liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by third parties including directors, officers, stockholders, employees and agents
of Carrier, Otis or the Company, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of or result from the Carrier Business, the Carrier Assets or the other Carrier
Liabilities;
|
||
•
|
other liabilities expressly allocated to Carrier or Carrier’s subsidiaries pursuant to the terms of the separation and
distribution agreement or certain other agreements entered into in connection with the Separation; and
|
||
•
|
subject to limited exceptions, other liabilities to the extent arising out of or relating to the Carrier Business or a Carrier
Asset.
|
||
•
|
certain assets of, or related to, the Company’s Otis operating segment prior to the Separation, covering elevator and escalator
manufacturing, installation and service businesses (such business, the “Otis Business” and such assets, the “Otis Assets,”) are
retained by or transferred to Otis or Otis’ subsidiaries, including:
|
||
•
|
equity interests of Otis’ subsidiaries as of immediately after the effective time of the Distributions;
|
||
•
|
assets (other than cash and cash equivalents) that are included on the Otis unaudited pro forma balance sheet as of December 31,
2019, as well as assets that are of a nature or type that would have resulted in such assets being included on a pro forma combined balance sheet of Otis and Otis’ subsidiaries;
|
||
•
|
contracts (or portions thereof) that, subject to limited exceptions, solely or primarily relate to the Otis Business;
|
||
•
|
permits used or held for use solely or primarily in the Otis Business;
|
||
•
|
certain intellectual property rights and technology used or held for use in the Otis Business;
|
•
|
information solely or primarily related to the Otis Assets, the Otis Liabilities (as defined below), the Otis Business or Otis’
subsidiaries;
|
||
•
|
cash and cash equivalents held in bank or brokerage accounts owned exclusively by Otis or Otis’ subsidiaries as of the effective
time of the Distributions;
|
||
•
|
other assets expressly allocated to Otis or Otis’ subsidiaries pursuant to the terms of the separation and distribution agreement
or the other agreements entered into in connection with the Separation; and
|
||
•
|
subject to limited exceptions, other assets used or held for use solely or primarily in the Otis Business.
|
||
•
|
certain liabilities of, or related to, the Otis Business (the “Otis Liabilities”) are retained by or transferred to Otis or Otis’
subsidiaries, including:
|
||
•
|
liabilities that are included on the Otis unaudited pro forma balance sheet as of December 31, 2019, as well as liabilities that
are of a nature or type that would have resulted in such liabilities being included on a pro forma combined balance sheet of Otis and Otis’ subsidiaries;
|
||
•
|
liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts, or
circumstances to the extent related to, arising out of or resulting from the Otis Business or the Otis Assets;
|
||
•
|
liabilities to the extent relating to, arising out of or resulting from the contracts, intellectual property rights, technology,
licenses, permits or financing arrangements that relate to the Otis Business;
|
||
•
|
liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by
third parties, including directors, officers, stockholders, employees and agents of Carrier, Otis or the Company, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of
or result from the Otis Business, the Otis Assets or the other Otis Liabilities;
|
||
•
|
other liabilities expressly allocated to Otis or Otis’ subsidiaries pursuant to the terms of the separation and distribution
agreement or certain other agreements entered into in connection with the Separation; and
|
||
•
|
subject to limited exceptions, other liabilities to the extent arising out of or relating to the Otis Business or an Otis Asset.
|
||
•
|
all assets other than the Carrier Assets and the Otis Assets (the “Company Assets”) are retained by or transferred to the Company
or the Company’s subsidiaries, including:
|
•
|
assets expressly allocated to Company or the Company’s subsidiaries pursuant to the terms of the separation and distribution agreement or the other agreements entered into in connection with the Separation;
|
||
•
|
intellectual property rights and technology used or held for use in the Company’s Pratt & Whitney operating segment prior to the Separation, which supplies aircraft engines and aftermarket services for the commercial, military, business jet and general
aviation markets, and its Collins Aerospace Systems segment prior to the Separation, which provides technologically advanced aerospace products and aftermarket service solutions for aircraft manufacturers, airlines, regional, business and
general aviation markets, military, space and undersea operations (the “Company Business”);
|
||
•
|
permits used or held for use solely or primarily in the Company Business;
|
||
•
|
information not solely or primarily related to the Carrier Assets, the Carrier Liabilities, the Carrier Business, Carrier’s
subsidiaries, the Otis Assets, the Otis Liabilities, the Otis Business or Otis’ subsidiaries; and
|
||
•
|
cash and cash equivalents not held in bank or brokerage accounts owned exclusively by Carrier, Otis or their respective
subsidiaries as of the effective time.
|
||
•
|
all liabilities other than the Carrier Liabilities and the Otis Liabilities (the “Company Liabilities”) are retained by or
transferred to the Company or the Company’s subsidiaries, including:
|
||
•
|
liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or
circumstances occurring or existing prior to the effective time of the Distributions, of the Company or the Company’s subsidiaries, in each case that are not Carrier Liabilities or Otis Liabilities;
|
||
•
|
liabilities arising out of litigation or other claims (including in respect of environmental or asbestos-related matters) made by
third parties, including directors, officers, stockholders, employees and agents of Carrier, Otis or the Company, or any investigations, sanctions or orders, to the extent the facts underlying the applicable matter relate to, arise out of
or result from the Company Business, the Company Assets or the other Company Liabilities; and
|
||
•
|
other liabilities expressly allocated to the Company or the Company’s subsidiaries pursuant to the terms of the separation and
distribution agreement or certain other agreements entered into in connection with the Separation.
|
||
•
|
the Carrier Liabilities;
|
|
•
|
Carrier’s failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Carrier Liabilities, in accordance with their respective terms, whether prior to, at or after the
Distributions;
|
|
•
|
except to the extent relating to a Company Liability or an Otis Liability, any guarantee, indemnification or contribution
obligation for the benefit of Carrier by the Company or Otis that survives the Distributions;
|
|
•
|
any breach by Carrier of the separation and distribution agreement or any of the ancillary agreements; and
|
|
•
|
any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) all information contained in Carrier’s Form 10, including the Information Statement of
Carrier, dated March 16, 2020, or certain other Carrier disclosure documents other than information relating to Otis or its business, assets or liabilities or the Otis distribution, or statements made explicitly in the Company’s name, and
(2) all information in respect of Carrier or its business, assets or liabilities or the Carrier distribution in any Company disclosure document in respect of a reporting period beginning prior to the completion of the Distributions, or in
Otis’ Form 10, including the Information Statement of Otis, dated March 16, 2020, or certain other Otis disclosure documents.
|
|
•
|
the Otis Liabilities;
|
|
•
|
Otis’ failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Otis Liabilities, in
accordance with their respective terms, whether prior to, at or after the Distributions;
|
|
•
|
except to the extent relating to a Company Liability or a Carrier Liability, any guarantee, indemnification or contribution
obligation for the benefit of Otis by the Company or Carrier that survives the Distributions;
|
|
•
|
any breach by Otis of the separation and distribution agreement or any of the ancillary agreements; and
|
|
•
|
any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) all
information contained in Otis’ Form 10, including the Information Statement of Otis, dated March 16, 2020, or certain other Otis disclosure documents other than information relating to Carrier or its business, assets or liabilities or the
Carrier distribution, or statements made explicitly in the Company’s name, and (2) all information in respect of Otis or its business, assets or liabilities or the Otis distribution in any Company disclosure document in respect of a
reporting period beginning prior to the completion of the Distributions, or in Carrier’s Form 10, including the Information Statement of Carrier, dated March 16, 2020, or certain other Carrier disclosure documents.
|
|
•
|
the Company Liabilities;
|
•
|
the failure of the Company or any other person to pay, perform or otherwise promptly discharge any of the Company Liabilities in
accordance with their respective terms whether prior to, at or after the Distributions;
|
•
|
except to the extent relating to an Otis Liability or a Carrier Liability, any guarantee, indemnification or contribution
obligation for the benefit of the Company by Otis or Carrier, as applicable, that survives the Distributions;
|
|
•
|
any breach by the Company of the separation and distribution agreement or any of the ancillary agreements; and
|
|
•
|
any untrue statement or alleged untrue statement or omission or alleged omission of material fact with respect to (1) statements
made explicitly in the Company’s name in Carrier’s Form 10, including the Information Statement of Carrier, dated March 16, 2020 and Otis’ Form 10, including the Information Statement of Otis, dated March 16, 2020, or certain other Carrier
disclosure documents or Otis disclosure documents and (2) statements in any Company disclosure document other than information in respect of Carrier or Otis or their respective businesses, assets or liabilities or the Distributions, made in
any Company disclosure document in respect of a reporting period beginning prior to the Distributions.
|
|
Separation and Distribution Agreement, dated as of April 2, 2020, by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier
Global Corporation
|
||
Agreement and Plan of Merger, dated as of June 9, 2019, by and among United Technologies Corporation, Light Merger Sub Corp. and Raytheon Company
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 10, 2019)
|
||
Amendment No. 1 to the Agreement and Plan of Merger, dated as of March 9, 2020, by and among United Technologies Corporation, Light Merger Sub Corp.
and Raytheon Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 13, 2020)
|
||
Certificate of Amendment of Restated Certificate of Incorporation of United Technologies Corporation
|
||
Restated Certificate of Incorporation of Raytheon Technologies Corporation
|
||
Amended and Restated Bylaws of Raytheon Technologies Corporation
|
||
Transition Services Agreement, dated as of April 2, 2020, by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global
Corporation
|
||
Tax Matters Agreement, dated as of April 2, 2020, by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global
Corporation
|
||
Employee Matters Agreement, dated as of April 2, 2020, by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier Global
Corporation
|
||
Intellectual Property Agreement, dated as of April 2, 2020, by and among United Technologies Corporation, Otis Worldwide Corporation and Carrier
Global Corporation
|
||
Consent of PricewaterhouseCoopers LLP
|
||
Audited consolidated financial statements (and notes thereto) of Raytheon Company for the years ended December 31, 2019, 2018 and 2017
|
||
Unaudited pro forma combined financial information as of December 31, 2019 and for the years ended December 31, 2019, 2018 and 2017
|
||
104
|
Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document
|
|
RAYTHEON TECHNOLOGIES CORPORATION
|
||
Date: April 8, 2020
|
By:
|
/s/ Anthony F. O’Brien
|
Name: Anthony F. O’Brien
|
||
Title: Executive Vice President and Chief Financial Officer
|
Page
|
|||
ARTICLE I DEFINITIONS
|
2
|
||
ARTICLE II THE SEPARATION
|
18
|
||
2.1
|
Transfer of Assets and Assumption of Liabilities
|
18
|
|
2.2
|
Carrier Assets; Otis Assets; UTC Assets
|
21
|
|
2.3
|
Carrier Liabilities; Otis Liabilities; UTC Liabilities
|
25
|
|
2.4
|
Approvals, Notifications and Delays
|
29
|
|
2.5
|
Novation of Liabilities
|
30
|
|
2.6
|
Release of Guarantees
|
31
|
|
2.7
|
Termination of Agreements
|
32
|
|
2.8
|
Treatment of Shared Contracts
|
33
|
|
2.9
|
Bank Accounts; Cash Balances
|
34
|
|
2.10
|
Ancillary Agreements
|
35
|
|
2.11
|
Disclaimer of Representations and Warranties
|
35
|
|
2.12
|
Financing Arrangements; Cash Transfers.
|
36
|
|
2.13
|
Financial Information Certifications
|
37
|
|
2.14
|
Transition Committee
|
38
|
|
ARTICLE III THE DISTRIBUTIONS
|
38
|
||
3.1
|
Sole and Absolute Discretion; Cooperation
|
38
|
|
3.2
|
Actions Prior to the Distribution
|
39
|
|
3.3
|
Conditions to Each Distribution
|
40
|
|
3.4
|
The Distributions
|
42
|
|
ARTICLE IV MUTUAL RELEASES; INDEMNIFICATION
|
44
|
||
4.1
|
Release of Pre-Distribution Claims
|
44
|
|
4.2
|
Indemnification by Carrier
|
47
|
|
4.3
|
Indemnification by Otis
|
48
|
|
4.4
|
Indemnification by UTC
|
49
|
|
4.5
|
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
|
49
|
|
4.6
|
Procedures for Indemnification of Third-Party Claims
|
50
|
|
4.7
|
Additional Matters
|
52
|
|
4.8
|
Right of Contribution
|
53
|
|
4.9
|
Covenant Not to Sue
|
54
|
|
4.10
|
Remedies Cumulative
|
54
|
|
4.11
|
Survival of Indemnities
|
55
|
|
ARTICLE V CERTAIN OTHER MATTERS
|
55
|
||
5.1
|
Insurance Matters
|
55
|
|
5.2
|
Late Payments
|
58
|
|
5.3
|
Inducement
|
58
|
|
5.4
|
Post-Effective Time Conduct
|
58
|
5.5
|
Director and Officer Insurance
|
59
|
|
ARTICLE VI EXCHANGE OF INFORMATION; CONFIDENTIALITY
|
59
|
||
6.1
|
Agreement for Exchange of Information
|
59
|
|
6.2
|
Ownership of Information
|
60
|
|
6.3
|
Compensation for Providing Information
|
60
|
|
6.4
|
Record Retention
|
61
|
|
6.5
|
Limitations of Liability
|
61
|
|
6.6
|
Other Agreements Providing for Exchange of Information
|
61
|
|
6.7
|
Production of Witnesses; Records; Cooperation
|
61
|
|
6.8
|
Privileged Matters
|
62
|
|
6.9
|
Confidentiality
|
65
|
|
6.10
|
Protective Arrangements
|
66
|
|
ARTICLE VII DISPUTE RESOLUTION
|
67
|
||
7.1
|
Good Faith Officer Negotiation
|
67
|
|
7.2
|
Mediation
|
67
|
|
7.3
|
Arbitration
|
68
|
|
7.4
|
Litigation and Unilateral Commencement of Arbitration
|
68
|
|
7.5
|
Conduct During Dispute Resolution Process
|
69
|
|
7.6
|
Dispute Resolution Coordination
|
69
|
|
ARTICLE VIII FURTHER ASSURANCES AND ADDITIONAL COVENANTS
|
69
|
||
8.1
|
Further Assurances
|
69
|
|
ARTICLE IX TERMINATION
|
70
|
||
9.1
|
Termination
|
70
|
|
9.2
|
Effect of Termination
|
71
|
|
ARTICLE X MISCELLANEOUS
|
71
|
||
10.1
|
Counterparts; Entire Agreement; Corporate Power
|
71
|
|
10.2
|
Governing Law
|
72
|
|
10.3
|
Assignability
|
72
|
|
10.4
|
Third-Party Beneficiaries
|
72
|
|
10.5
|
Notices
|
72
|
|
10.6
|
Severability
|
74
|
|
10.7
|
Force Majeure
|
74
|
|
10.8
|
No Set-Off
|
75
|
|
10.9
|
Expenses
|
75
|
|
10.10
|
Headings
|
75
|
|
10.11
|
Survival of Covenants
|
75
|
|
10.12
|
Waivers of Default
|
75
|
|
10.13
|
Specific Performance
|
75
|
|
10.14
|
Amendments
|
76
|
|
10.15
|
Interpretation
|
76
|
|
10.16
|
Limitations of Liability
|
77
|
|
10.17
|
Performance
|
77
|
10.18
|
Mutual Drafting
|
77
|
|
10.19
|
Ancillary Agreements
|
77
|
SCHEDULES
|
|
Schedule 1.1
|
Carrier Discontinued or Divested Businesses
|
Schedule 1.2
|
Carrier Contracts
|
Schedule 1.3
|
Carrier Transferred Entities
|
Schedule 1.4
|
Otis Discontinued or Divested Businesses
|
Schedule 1.5
|
Otis Contracts
|
Schedule 1.6
|
Otis Transferred Entities
|
Schedule 2.1(a)
|
Plan of Reorganization
|
Schedule 2.2(a)(ix)(A)
|
Carrier Former Captive Assets
|
Schedule 2.2(a)(x)
|
Carrier Assets
|
Schedule 2.2(b)(ix)(A)
|
Otis Former Captive Assets
|
Schedule 2.2(b)(x)
|
Otis Assets
|
Schedule 2.2(c)
|
UTC Assets
|
Schedule 2.3(a)(iii)
|
Carrier Liabilities
|
Schedule 2.3(a)(iv)
|
Carrier Business Liabilities
|
Schedule 2.3(a)(viii)
|
Carrier Specified Litigation Liabilities
|
Schedule 2.3(b)(iii)
|
Otis Liabilities
|
Schedule 2.3(b)(iv)
|
Otis Business Liabilities
|
Schedule 2.3(b)(viii)
|
Otis Specified Litigation Liabilities
|
Schedule 2.3(c)(i)
|
UTC Liabilities
|
Schedule 2.5(a)
|
Novation of Liabilities
|
Schedule 2.7(b)(ii)
|
Intercompany Agreements
|
Schedule 2.12(a)
|
Carrier Financing Arrangements
|
Schedule 2.12(b)
|
Otis Financing Arrangements
|
Schedule 4.4(e)
|
Specified UTC Information
|
Schedule 5.1(b)
|
Insurance Access Limitations
|
Schedule 10.9
|
Allocation of Certain Costs and Expenses
|
EXHIBITS
|
|
Exhibit A
|
Amended and Restated Certificate of Incorporation of Carrier Global Corporation
|
Exhibit B
|
Amended and Restated Bylaws of Carrier Global Corporation
|
Exhibit C
|
Amended and Restated Certificate of Incorporation of Otis Worldwide Corporation
|
Exhibit D
|
Amended and Restated Bylaws of Otis Worldwide Corporation
|
If to UTC, to:
|
||
United Technologies Corporation
|
||
10 Farm Springs Road
|
||
Farmington, Connecticut 06032
|
||
Attention:
|
Sean Moylan, Corporate Vice President and Associate General Counsel | |
E-mail:
|
Sean.Moylan@utc.com
|
|
with a copy to:
|
||
Wachtell, Lipton, Rosen & Katz
|
||
51 West 52nd Street
|
||
New York, New York 10019
|
||
Attention:
|
Joshua R. Cammaker
|
|
Edward J. Lee
|
||
Jenna E. Levine
|
||
Mark A. Stagliano
|
||
E-mail:
|
JRCammaker@wlrk.com
|
|
EJLee@wlrk.com
|
||
JELevine@wlrk.com
|
||
MAStagliano@wlrk.com
|
||
If to Carrier, to:
|
||
Carrier Global Corporation
|
||
13995 Pasteur Boulevard
|
||
Palm Beach Gardens, Florida 33418
|
||
Attention: General Counsel
|
||
E-mail:
|
Kevin.OConnor@carrier.com
|
|
with a copy to:
|
||
Wachtell, Lipton, Rosen & Katz
|
||
51 West 52nd Street
|
||
New York, New York 10019
|
||
Attention:
|
Joshua R. Cammaker
|
|
Edward J. Lee
|
||
Jenna E. Levine
|
||
Mark A. Stagliano
|
||
E-mail:
|
JRCammaker@wlrk.com
|
|
EJLee@wlrk.com
|
||
JELevine@wlrk.com
|
||
MAStagliano@wlrk.com
|
If to Otis, to:
|
||
Otis Worldwide Corporation
|
||
One Carrier Place
|
||
Farmington, Connecticut 06032
|
||
Attention:
|
General Counsel | |
E-mail:
|
Nora.LaFreniere@otis.com
|
|
with a copy to:
|
||
Wachtell, Lipton, Rosen & Katz
|
||
51 West 52nd Street
|
||
New York, New York 10019
|
||
Attention:
|
Joshua R. Cammaker
|
|
Edward J. Lee
|
||
Jenna E. Levine
|
||
Mark A. Stagliano
|
||
E-mail:
|
JRCammaker@wlrk.com
|
|
EJLee@wlrk.com
|
||
JELevine@wlrk.com
|
||
MAStagliano@wlrk.com
|
UNITED TECHNOLOGIES CORPORATION
|
|||
By:
|
/s/ Michael R. Dumais
|
||
Name:
|
Michael R. Dumais
|
||
Title:
|
Executive Vice President, Operations & Strategy
|
||
OTIS WORLDWIDE CORPORATION
|
|||
By:
|
/s/ Michael P. Ryan
|
||
Name:
|
Michael P. Ryan
|
||
Title:
|
Vice President, Controller
|
||
CARRIER GLOBAL CORPORATION
|
|||
By:
|
/s/ Kyle Crockett
|
||
Name:
|
Kyle Crockett
|
||
Title:
|
Vice President, Controller
|
UNITED TECHNOLOGIES CORPORATION
|
||
By:
|
/s/ Peter J. Graber-Lipperman
|
|
Name: Peter J. Graber-Lipperman
|
||
Title: Corporate Vice President, Secretary & Associate General Counsel
|
1.
|
The name of this corporation is RAYTHEON TECHNOLOGIES CORPORATION. The original Certificate of Incorporation was filed on July 21, 1934. The name under which this corporation was
originally incorporated is United Aircraft Corporation.
|
2.
|
This Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL, and is to become effective as of 8:31 a.m., Eastern
Time, on April 3, 2020.
|
3.
|
This Restated Certificate of Incorporation restates the original Certificate of Incorporation, as previously amended, including as it was amended on April 3, 2020, to read in its entirety as follows:
|
RAYTHEON TECHNOLOGIES CORPORATION
|
||
By:
|
/s/ Frank R. Jimenez
|
|
Name:
|
Frank R. Jimenez
|
|
Title:
|
Executive Vice President and General Counsel
|
SECTION 1.12 |
Inclusion of Shareholder Director Nominations in the Corporation’s Proxy Materials.
|
Page
|
|||
ARTICLE I DEFINITIONS
|
1
|
||
Section 1.01.
|
Definitions
|
1
|
|
ARTICLE II SERVICES
|
8
|
||
Section 2.01.
|
Services
|
8
|
|
Section 2.02.
|
Performance of Services
|
9
|
|
Section 2.03.
|
Charges for Services
|
11
|
|
Section 2.04.
|
Reimbursement for Out-of-Pocket Costs and Expenses
|
11
|
|
Section 2.05.
|
Changes in the Performance of Services
|
11
|
|
Section 2.06.
|
Transitional Nature of Services
|
12
|
|
Section 2.07.
|
Subcontracting
|
12
|
|
Section 2.08.
|
Local Agreements
|
12
|
|
ARTICLE III OTHER ARRANGEMENTS
|
13
|
||
Section 3.01.
|
Access
|
13
|
|
Section 3.02.
|
Controls
|
14
|
|
ARTICLE IV BILLING; TAXES
|
15
|
||
Section 4.01.
|
Procedure
|
15
|
|
Section 4.02.
|
Late Payments
|
15
|
|
Section 4.03.
|
Taxes
|
15
|
|
Section 4.04.
|
No Set-Off
|
15
|
|
Section 4.05.
|
Audit Rights
|
15
|
|
ARTICLE V TERM AND TERMINATION
|
16
|
||
Section 5.01.
|
Term
|
16
|
|
Section 5.02.
|
Extension of a Service Period
|
16
|
|
Section 5.03.
|
Early Termination
|
17
|
|
Section 5.04.
|
Interdependencies
|
18
|
|
Section 5.05.
|
Effect of Termination
|
18
|
|
Section 5.06.
|
Information Transmission
|
19
|
|
ARTICLE VI CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS
|
19
|
||
Section 6.01.
|
Obligations of UTC, Carrier and Otis
|
19
|
|
Section 6.02.
|
No Release; Return or Destruction
|
20
|
|
Section 6.03.
|
Privacy and Data Protection Laws
|
20
|
|
Section 6.04.
|
Protective Arrangements
|
20
|
ARTICLE VII LIMITED LIABILITY AND INDEMNIFICATION
|
21
|
||
Section 7.01.
|
Limitations on Liability
|
21
|
|
Section 7.02.
|
Obligation to Re-Perform; Liabilities
|
24
|
|
Section 7.03.
|
Third-Party Claims
|
24
|
|
Section 7.04.
|
Service Provider Indemnity
|
24
|
|
Section 7.05.
|
Indemnification Procedures
|
25
|
|
ARTICLE VIII MISCELLANEOUS
|
25
|
||
Section 8.01.
|
Mutual Cooperation
|
25
|
|
Section 8.02.
|
Further Assurances
|
25
|
|
Section 8.03.
|
Audit Assistance
|
25
|
|
Section 8.04.
|
Title to Intellectual Property
|
26
|
|
Section 8.05.
|
Independent Contractors
|
26
|
|
Section 8.06.
|
Counterparts; Entire Agreement; Corporate Power
|
26
|
|
Section 8.07.
|
Governing Law
|
27
|
|
Section 8.08.
|
Assignability
|
27
|
|
Section 8.09.
|
Third-Party Beneficiaries
|
29
|
|
Section 8.10.
|
Notices
|
29
|
|
Section 8.11.
|
Severability
|
30
|
|
Section 8.12.
|
Force Majeure
|
30
|
|
Section 8.13.
|
Headings
|
30
|
|
Section 8.14.
|
Waivers of Default
|
30
|
|
Section 8.15.
|
Dispute Resolution
|
31
|
|
Section 8.16.
|
Specific Performance
|
32
|
|
Section 8.17.
|
Amendments
|
32
|
|
Section 8.18.
|
Precedence of Schedules
|
32
|
|
Section 8.19.
|
Interpretation
|
32
|
|
Section 8.20.
|
Mutual Drafting
|
33
|
Annex A:
|
TSA Committee |
UNITED TECHNOLOGIES CORPORATION
|
||
By:
|
/s/ Michael R. Dumais
|
|
Name: Michael R. Dumais
|
||
Title: Executive Vice President, Operations & Strategy
|
||
CARRIER GLOBAL CORPORATION
|
||
By:
|
/s/ Kyle Crockett
|
|
Name: Kyle Crockett
|
||
Title: Vice President, Controller
|
||
OTIS WORLDWIDE CORPORATION
|
||
By:
|
/s/ Michael P. Ryan
|
|
Name: Michael P. Ryan
|
||
Title: Vice President, Controller
|
Page
|
|||
Section 1.
|
Definition of Terms
|
2
|
|
Section 2.
|
Allocation of Tax Liabilities
|
15
|
|
Section 2.01
|
General Rule.
|
15
|
|
|
|||
Section 2.02
|
Allocation of United States Federal Income Tax and Federal Other Tax
|
16
|
|
|
|||
Section 2.03
|
Allocation of State Income and State Other Taxes
|
17
|
|
Section 2.04
|
Allocation of Foreign Taxes
|
18
|
|
Section 2.05
|
Certain Transaction and Other Taxes
|
19
|
|
Section 3.
|
Proration of Taxes for Straddle Periods
|
20
|
|
Section 4.
|
Preparation and Filing of Tax Returns.
|
21
|
|
Section 4.01
|
General
|
21
|
|
Section 4.02
|
UTC’s Responsibility
|
21
|
|
Section 4.03
|
Carrier’s Responsibility
|
21
|
|
Section 4.04
|
Otis’s Responsibility
|
22
|
|
Section 4.05
|
Tax Accounting Practices
|
22
|
|
Section 4.06
|
Consolidated or Combined Tax Returns
|
23
|
|
Section 4.07
|
Right to Review Tax Returns
|
23
|
|
Section 4.08
|
SpinCo Carrybacks and Claims for Refund
|
24
|
|
Section 4.09
|
Apportionment of Earnings and Profits and Tax Attributes
|
25 | |
Section 4.10
|
Gain Recognition Agreements
|
25
|
|
Section 4.11
|
Transfer Pricing
|
25
|
|
Section 5.
|
Tax Payments
|
26
|
|
Section 5.01
|
Payment of Taxes with Respect Tax Returns
|
26
|
|
|
|||
Section 5.02
|
Indemnification Payments
|
26
|
Section 6.
|
Tax Benefits
|
27
|
|
Section 6.01
|
Tax Benefits
|
27
|
|
Section 6.02
|
UTC, Carrier, and Otis Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation
|
29
|
|
Section 7.
|
Tax-Free Status
|
29
|
|
Section 7.01
|
Representations
|
29
|
|
Section 7.02
|
Restrictions on Carrier and Otis
|
30
|
|
Section 7.03
|
Restrictions on UTC
|
36 | |
Section 7.04
|
Procedures Regarding Opinions and Rulings
|
36
|
|
Section 7.05
|
Liability for Tax-Related Losses and Specified Income Taxes
|
37
|
|
Section 7.06
|
Section 336(e) Election
|
42
|
|
Section 7.07
|
Certain Assumptions
|
43
|
|
Section 8.
|
Assistance and Cooperation
|
43
|
|
Section 8.01
|
Assistance and Cooperation
|
43
|
|
|
|||
Section 8.02
|
Income Tax Return Information
|
44 | |
|
|||
Section 8.03
|
Reliance by UTC
|
44
|
|
|
|||
Section 8.04
|
Reliance by Carrier
|
44
|
|
|
|||
Section 8.05
|
Reliance by Otis
|
44
|
|
|
|||
Section 9.
|
Tax Records
|
45
|
|
Section 9.01
|
Retention of Tax Records
|
45
|
|
|
|||
Section 9.02
|
Access to Tax Records
|
45
|
|
Section 10.
|
Tax Contests
|
45
|
|
Section 10.01
|
Notice
|
45
|
|
|
|||
Section 10.02
|
Control of Tax Contests
|
46
|
Section 11.
|
Effective Date; Termination of Prior Intercompany Tax Allocation Agreements
|
48
|
|
Section 12.
|
Survival of Obligations
|
49
|
|
Section 13.
|
Treatment of Payments; Tax Gross Up
|
49
|
|
Section 13.01
|
Treatment of Tax Indemnity and Tax Benefit Payments
|
49
|
|
|
|||
Section 13.02
|
Tax Gross Up
|
50
|
|
|
|||
Section 13.03
|
Interest
|
50
|
|
Section 14.
|
Disagreements
|
50
|
|
Section 15.
|
Late Payments
|
51 | |
Section 16.
|
Expenses
|
51
|
|
Section 17.
|
General Provisions
|
51
|
|
Section 17.01
|
Addresses and Notices
|
51
|
|
|
|||
Section 17.02
|
Binding Effect
|
52
|
|
|
|||
Section 17.03
|
Waiver
|
52
|
|
|
|||
Section 17.04
|
Severability
|
52
|
|
|
|||
Section 17.05
|
Authority
|
52 | |
|
|||
Section 17.06
|
Further Action
|
52 | |
|
|||
Section 17.07
|
Integration
|
52 | |
|
|||
Section 17.08
|
Construction
|
53
|
|
|
|||
Section 17.09
|
No Double Recovery
|
53
|
|
|
|||
Section 17.10
|
Counterparts
|
53 | |
|
|||
Section 17.11
|
Governing Law
|
53 | |
|
|||
Section 17.13
|
Amendment
|
53 | |
|
|||
Section 17.14
|
SpinCo Subsidiaries
|
54
|
|
|
|||
Section 17.15
|
Successors
|
54 | |
|
|||
Section 17.16
|
Injunctions
|
54 |
If to UTC, to:
United Technologies Corporation
10 Farm Springs Road
Farmington, Connecticut 06032
Attention: Ross Kearney, Corporate VP – Taxes
E-mail: Ross.kearney@utc.com
|
with a copy to:
United Technologies Corporation
10 Farm Springs Road
Farmington, Connecticut 06032
Attention: Sean Moylan, Corporate Vice President and Associate General Counsel
E-mail: Sean.Moylan@utc.com
|
If to Carrier, to:
Carrier Global Corporation
13995 Pasteur Boulevard
Palm Beach Gardens, Florida 33418
Attention: Michael Cenci, VP, Tax
E-mail: Michael.Cenci@carrier.com
|
with a copy to:
Carrier Global Corporation
13995 Pasteur Boulevard
Palm Beach Gardens, Florida 33418
Attention: General Counsel
E-mail: Kevin.OConnor@carrier.com
|
If to Otis, to:
Otis Worldwide Corporation
One Carrier Place
Farmington, Connecticut 06032
Attention: Gregory Marshall, VP, Tax
E-mail: Gregory.Marshall@otis.com
|
with a copy to:
Otis Worldwide Corporation
One Carrier Place
Farmington, Connecticut 06032
Attention: General Counsel
E-mail: Nora.LaFreniere@otis.com
|
UNITED TECHNOLOGIES CORPORATION
|
|||
By:
|
/s/ Michael R. Dumais
|
||
Name: Michael R. Dumais
|
|||
Title: Executive Vice President, Operations & Strategy
|
|||
CARRIER GLOBAL CORPORATION
|
|||
By:
|
/s/ Kyle Crockett
|
||
Name: Kyle Crockett
|
|||
Title: Vice President, Controller
|
|||
OTIS WORLDWIDE CORPORATION
|
|||
By:
|
/s/ Michael P. Ryan
|
||
Name: Michael P. Ryan
|
|||
Title: Vice President, Controller
|
ARTICLE I DEFINITIONS
|
2
|
||
Section 1.01.
|
Definitions
|
2
|
|
Section 1.02.
|
Interpretation
|
11
|
|
ARTICLE II GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
|
11
|
||
Section 2.01.
|
General Principles
|
11
|
|
Section 2.02.
|
Service Credit
|
13
|
|
Section 2.03.
|
Adoption and Transfer and Assumption of Benefit Plans
|
14
|
|
ARTICLE III ASSIGNMENT OF EMPLOYEES
|
16
|
||
Section 3.01.
|
Active Employees
|
16
|
|
Section 3.02.
|
Individual Agreements
|
17
|
|
Section 3.03.
|
Consultation with Labor Representatives; Labor Agreements
|
18
|
|
Section 3.04.
|
Non-Solicitation
|
19
|
|
ARTICLE IV EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
|
19
|
||
Section 4.01.
|
General Rules and Adoption of Equity Plans
|
19
|
|
Section 4.02.
|
Equity Incentive Awards
|
20
|
|
Section 4.03.
|
Cash Payment for Fractional Shares
|
31
|
|
Section 4.04.
|
Non-Equity Incentive Plans
|
31
|
|
Section 4.05.
|
Director Compensation
|
31
|
|
ARTICLE V U.S. QUALIFIED RETIREMENT PLANS
|
32
|
||
Section 5.01.
|
UTC Employee Retirement Plan
|
32
|
|
Section 5.02.
|
UTC Savings Plans
|
32
|
|
ARTICLE VI NONQUALIFIED DEFERRED COMPENSATION PLANS
|
34
|
||
Section 6.01.
|
UTC Retained Nonqualified Deferred Compensation Plans
|
34
|
|
Section 6.02.
|
UTC Bifurcated Nonqualified Deferred Compensation Plans
|
35
|
|
ARTICLE VII NON-U.S. RETIREMENT PLANS
|
37
|
||
Section 7.01.
|
Retention of UK Pension Scheme
|
37
|
|
ARTICLE VIII WELFARE BENEFIT PLANS
|
37
|
||
Section 8.01.
|
Welfare Plans
|
37
|
|
Section 8.02.
|
COBRA
|
38
|
|
Section 8.03.
|
Flexible Benefit Plans
|
39
|
|
Section 8.04.
|
Vacation, Holidays and Leaves of Absence
|
39
|
|
Section 8.05.
|
Disability Plans
|
40
|
Section 8.06.
|
Life Insurance
|
40
|
|
Section 8.07.
|
Retiree Medical
|
40
|
|
Section 8.08.
|
Severance, Retention and Unemployment Compensation
|
40
|
|
Section 8.09.
|
Workers’ Compensation
|
41
|
|
Section 8.10.
|
Insurance Contracts
|
41
|
|
Section 8.11.
|
Third-Party Vendors
|
41
|
|
ARTICLE IX MISCELLANEOUS
|
41
|
||
Section 9.01.
|
Information Sharing and Access
|
41
|
|
Section 9.02.
|
Preservation of Rights to Amend
|
42
|
|
Section 9.03.
|
Fiduciary Matters
|
42
|
|
Section 9.04.
|
Reimbursement of Costs and Expenses
|
43
|
|
Section 9.05.
|
Dispute Resolution
|
43
|
|
Section 9.06.
|
No Third-Party Beneficiaries
|
43
|
|
Section 9.07.
|
Incorporation of Separation Agreement Provisions
|
43
|
UNITED TECHNOLOGIES CORPORATION
|
|||
By:
|
/s/ Michael R. Dumais
|
||
Name:
|
Michael R. Dumais
|
||
Title:
|
Executive Vice President,
Operations & Strategy
|
||
OTIS WORLDWIDE CORPORATION
|
|||
By:
|
/s/ Michael P. Ryan
|
||
Name:
|
Michael P. Ryan
|
||
Title:
|
Vice President, Controller
|
||
CARRIER GLOBAL CORPORATION
|
|||
By:
|
/s/ Kyle Crockett
|
||
Name:
|
Kyle Crockett
|
||
Title:
|
Vice President, Controller
|
ARTICLE I DEFINITIONS
|
2
|
||
1.1
|
Defined Terms
|
2
|
|
ARTICLE II ASSIGNMENT OF SOLELY OWNED INTELLECTUAL PROPERTY RIGHTS
|
7
|
||
2.1
|
Assigned Intellectual Property Rights
|
7
|
|
ARTICLE III LICENSING OF INTELLECTUAL PROPERTY RIGHTS
|
8
|
||
3.1
|
Licensed Intellectual Property Rights
|
8
|
|
3.2
|
Reserved Intellectual Property Rights
|
10
|
|
3.3
|
No Rescission
|
10
|
|
ARTICLE IV TRADEMARKS
|
10
|
||
4.1
|
Ownership of United Technologies Trademarks
|
10
|
|
4.2
|
Use of United Technologies Trademarks
|
11
|
|
4.3
|
Special Trademark Provisions.
|
12
|
|
ARTICLE V EXCLUDED AGREEMENTS
|
12
|
||
5.1
|
No Change to Excluded Agreements
|
12
|
|
ARTICLE VI CONFIDENTIALITY
|
12
|
||
6.1
|
Received Information and Materials
|
12
|
|
6.2
|
Confidential Information
|
12
|
|
6.3
|
Obligations
|
13
|
|
6.4
|
Termination of UTC NDA
|
13
|
|
ARTICLE VII LIMITATIONS AND DISCLAIMERS
|
13
|
||
7.1
|
Subsequent Delivery of Intellectual Property Rights
|
13
|
|
7.2
|
No Additional Obligations
|
14
|
|
7.3
|
DISCLAIMER
|
14
|
|
7.4
|
Limitations of Liability
|
14
|
|
ARTICLE VIII GOVERNING LAW AND DISPUTE RESOLUTION
|
15
|
||
8.1
|
Governing Law
|
15
|
|
8.2
|
Alternative Dispute Resolution
|
15
|
|
8.3
|
Confidentiality
|
13
|
|
8.4
|
Equitable Relief
|
13
|
ARTICLE IX GENERAL PROVISIONS
|
16
|
||
9.1
|
Entire Agreement; Conflict Among Agreements
|
16
|
|
9.2
|
Assignment and Change of Control; Successor and Assigns
|
16
|
|
9.3
|
Bankruptcy
|
17
|
|
9.4
|
Amendments and Waivers
|
17
|
|
9.5
|
Notice
|
18
|
|
9.6
|
Severability
|
18
|
|
9.7
|
Counterparts
|
18
|
|
9.8
|
Further Assurances
|
18
|
|
9.9
|
Interpretation
|
19
|
To UTC:
|
||
United Technologies Corporation
|
||
10 Farm Springs
|
||
Farmington, CT 06302
|
||
Attention: Chief Intellectual Property Counsel
|
||
To Otis:
|
||
Otis Worldwide Corporation
|
||
One Carrier Place
|
||
Farmington, CT 06032
|
||
Attention: Chief Intellectual Property Counsel
|
||
To Carrier:
|
||
Carrier Global Corporation
|
||
13995 Pasteur Boulevard
|
||
Palm Beach Gardens, FL 33418
|
||
Attention: Chief Intellectual Property Counsel
|
UNITED TECHNOLOGIES CORPORATION
|
|||
By:
|
/s/ Michael R. Dumais
|
||
Name:
|
Michael R. Dumais
|
||
Title:
|
Executive Vice President, Operations & Strategy
|
||
OTIS WORLDWIDE CORPORATION
|
|||
By:
|
/s/ Michael P. Ryan
|
||
Name:
|
Michael P. Ryan
|
||
Title:
|
Vice President, Controller
|
||
CARRIER GLOBAL CORPORATION
|
|||
By:
|
/s/ Kyle Crockett
|
||
Name:
|
Kyle Crockett
|
||
Title:
|
Vice President, Controller
|
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the
effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control – Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Based on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2019, based on
criteria in Internal Control – Integrated Framework, issued by the COSO in 2013. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which is included below.
/s/ Thomas A. Kennedy |
|
/s/ Anthony F. O’Brien |
Thomas A. Kennedy |
|
Anthony F. O’Brien |
Chairman and Chief Executive Officer |
|
Vice President and Chief Financial Officer |
(In millions, except per share amount) December 31:
|
2019
|
2018
|
||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
4,292
|
$
|
3,608
|
||||
Receivables, net
|
1,364
|
1,648
|
||||||
Contract assets
|
6,122
|
5,594
|
||||||
Inventories
|
671
|
758
|
||||||
Prepaid expenses and other current assets
|
633
|
529
|
||||||
Total current assets
|
13,082
|
12,137
|
||||||
Property, plant and equipment, net
|
3,353
|
2,840
|
||||||
Operating lease right-of-use assets
|
875
|
805
|
||||||
Goodwill
|
14,882
|
14,864
|
||||||
Other assets, net
|
2,374
|
2,024
|
||||||
Total assets
|
$
|
34,566
|
$
|
32,670
|
||||
Liabilities, Redeemable Noncontrolling Interests and Equity
|
||||||||
Current liabilities
|
||||||||
Commercial paper and current portion of long-term debt
|
$
|
1,499
|
$
|
300
|
||||
Contract liabilities
|
3,267
|
3,309
|
||||||
Accounts payable
|
1,796
|
1,964
|
||||||
Accrued employee compensation
|
1,813
|
1,509
|
||||||
Other current liabilities
|
1,416
|
1,381
|
||||||
Total current liabilities
|
9,791
|
8,463
|
||||||
Accrued retiree benefits and other long-term liabilities
|
8,553
|
6,922
|
||||||
Long-term debt
|
3,261
|
4,755
|
||||||
Operating lease liabilities
|
706
|
647
|
||||||
Commitments and contingencies (Note 10)
|
||||||||
Redeemable noncontrolling interests
|
32
|
411
|
||||||
Equity
|
||||||||
Raytheon Company stockholders’ equity
|
||||||||
Common stock, par value, $0.01 per share, 1,450 shares authorized, 278 and 282 shares outstanding at December 31, 2019 and 2018, respectively
|
3
|
3
|
||||||
Additional paid-in capital
|
—
|
—
|
||||||
Accumulated other comprehensive loss
|
(9,260
|
)
|
(8,618
|
)
|
||||
Retained earnings
|
21,480
|
20,087
|
||||||
Total Raytheon Company stockholders’ equity
|
12,223
|
11,472
|
||||||
Noncontrolling interests in subsidiaries
|
—
|
—
|
||||||
Total equity
|
12,223
|
11,472
|
||||||
Total liabilities, redeemable noncontrolling interests and equity
|
$
|
34,566
|
$
|
32,670
|
(In millions, except per share amounts) Years Ended December 31:
|
2019
|
2018
|
2017
|
|||||||||
Net sales
|
||||||||||||
Products
|
$
|
24,435
|
$
|
22,633
|
$
|
21,416
|
||||||
Services
|
4,741
|
4,425
|
3,932
|
|||||||||
Total net sales
|
29,176
|
27,058
|
25,348
|
|||||||||
Operating expenses
|
||||||||||||
Cost of sales—products
|
17,747
|
16,108
|
15,252
|
|||||||||
Cost of sales—services
|
3,666
|
3,465
|
3,088
|
|||||||||
General and administrative expenses
|
2,989
|
2,947
|
2,777
|
|||||||||
Total operating expenses
|
24,402
|
22,520
|
21,117
|
|||||||||
Operating income
|
4,774
|
4,538
|
4,231
|
|||||||||
Non-operating (income) expense, net
|
||||||||||||
Retirement benefits non-service expense
|
688
|
1,230
|
913
|
|||||||||
Interest expense
|
180
|
184
|
205
|
|||||||||
Interest income
|
(42
|
)
|
(31
|
)
|
(21
|
)
|
||||||
Other (income) expense, net
|
(38
|
)
|
8
|
21
|
||||||||
Total non-operating (income) expense, net
|
788
|
1,391
|
1,118
|
|||||||||
Income from continuing operations before taxes
|
3,986
|
3,147
|
3,113
|
|||||||||
Federal and foreign income taxes
|
658
|
264
|
1,114
|
|||||||||
Income from continuing operations
|
3,328
|
2,883
|
1,999
|
|||||||||
Income (loss) from discontinued operations, net of tax
|
1
|
(1
|
)
|
2
|
||||||||
Net income
|
3,329
|
2,882
|
2,001
|
|||||||||
Less: Net income (loss) attributable to noncontrolling interests in subsidiaries
|
(14
|
)
|
(27
|
)
|
(23
|
)
|
||||||
Net income attributable to Raytheon Company
|
$
|
3,343
|
$
|
2,909
|
$
|
2,024
|
||||||
Basic earnings per share attributable to Raytheon Company common stockholders:
|
||||||||||||
Income from continuing operations
|
$
|
11.93
|
$
|
10.16
|
$
|
6.95
|
||||||
Income (loss) from discontinued operations, net of tax
|
—
|
—
|
0.01
|
|||||||||
Net income
|
11.94
|
10.16
|
6.96
|
|||||||||
Diluted earnings per share attributable to Raytheon Company common stockholders:
|
||||||||||||
Income from continuing operations
|
$
|
11.92
|
$
|
10.15
|
$
|
6.94
|
||||||
Income (loss) from discontinued operations, net of tax
|
—
|
—
|
0.01
|
|||||||||
Net income
|
11.93
|
10.15
|
6.95
|
|||||||||
Amounts attributable to Raytheon Company common stockholders:
|
||||||||||||
Income from continuing operations
|
$
|
3,342
|
$
|
2,910
|
$
|
2,022
|
||||||
Income (loss) from discontinued operations, net of tax
|
1
|
(1
|
)
|
2
|
||||||||
Net income
|
$
|
3,343
|
$
|
2,909
|
$
|
2,024
|
(In millions) Years Ended December 31:
|
2019
|
2018
|
2017
|
|||||||||
Net income
|
$
|
3,329
|
$
|
2,882
|
$
|
2,001
|
||||||
Other comprehensive income (loss), before tax:
|
||||||||||||
Pension and other postretirement benefit plans, net:
|
||||||||||||
Prior service cost arising during period
|
(1
|
)
|
(10
|
)
|
(15
|
)
|
||||||
Amortization of prior service cost
|
5
|
6
|
4
|
|||||||||
Actuarial loss arising during period
|
(1,886
|
)
|
(626
|
)
|
(1,816
|
)
|
||||||
Amortization of net actuarial loss
|
1,060
|
1,362
|
1,187
|
|||||||||
Loss due to settlements
|
3
|
287
|
3
|
|||||||||
Effect of exchange rates
|
(3
|
)
|
9
|
(14
|
)
|
|||||||
Pension and other postretirement benefit plans, net
|
(822
|
)
|
1,028
|
(651
|
)
|
|||||||
Foreign exchange translation
|
7
|
(36
|
)
|
80
|
||||||||
Cash flow hedges
|
4
|
(12
|
)
|
10
|
||||||||
Unrealized gains (losses) on investments and other, net
|
(3
|
)
|
1
|
(1
|
)
|
|||||||
Other comprehensive income (loss), before tax
|
(814
|
)
|
981
|
(562
|
)
|
|||||||
Income tax benefit (expense) related to items of other comprehensive income (loss)
|
172
|
(213
|
)
|
38
|
||||||||
Other comprehensive income (loss), net of tax
|
(642
|
)
|
768
|
(524
|
)
|
|||||||
Reclassification of stranded tax effects
|
—
|
(1,451
|
)
|
—
|
||||||||
Total comprehensive income (loss)
|
2,687
|
2,199
|
1,477
|
|||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests in subsidiaries
|
(14
|
)
|
(27
|
)
|
(23
|
)
|
||||||
Comprehensive income (loss) attributable to Raytheon Company
|
$
|
2,701
|
$
|
2,226
|
$
|
1,500
|
(In millions)
|
Common
stock
|
Additional
paid-in
capital
|
Accumulated
other
comprehensive
income (loss) |
Retained earnings
|
Total
Raytheon
Company
stockholders’
equity
|
Noncontrolling
interests in
subsidiaries(1)
|
Total equity
|
|||||||||||||||||||||
Balance at December 31, 2016
|
$
|
3
|
$
|
—
|
$
|
(7,411
|
)
|
$
|
17,565
|
$
|
10,157
|
$
|
—
|
$
|
10,157
|
|||||||||||||
Net income (loss)
|
2,024
|
2,024
|
—
|
2,024
|
||||||||||||||||||||||||
Other comprehensive income (loss), net of tax
|
(524
|
)
|
(524
|
)
|
(524
|
)
|
||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value
|
(41
|
)
|
(41
|
)
|
(41
|
)
|
||||||||||||||||||||||
Dividends declared
|
2
|
(929
|
)
|
(927
|
)
|
(927
|
)
|
|||||||||||||||||||||
Common stock plans activity
|
159
|
159
|
159
|
|||||||||||||||||||||||||
Share repurchases
|
(161
|
)
|
(724
|
)
|
(885
|
)
|
(885
|
)
|
||||||||||||||||||||
Balance at December 31, 2017
|
3
|
—
|
(7,935
|
)
|
17,895
|
9,963
|
—
|
9,963
|
||||||||||||||||||||
Net income (loss)
|
2,909
|
2,909
|
—
|
2,909
|
||||||||||||||||||||||||
Other comprehensive income (loss), net of tax
|
768
|
768
|
768
|
|||||||||||||||||||||||||
Reclassification of stranded tax effects
|
(1,451
|
)
|
1,451
|
—
|
—
|
|||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value
|
73
|
73
|
73
|
|||||||||||||||||||||||||
Dividends declared
|
2
|
(991
|
)
|
(989
|
)
|
(989
|
)
|
|||||||||||||||||||||
Common stock plans activity
|
166
|
166
|
166
|
|||||||||||||||||||||||||
Share repurchases
|
(168
|
)
|
(1,250
|
)
|
(1,418
|
)
|
(1,418
|
)
|
||||||||||||||||||||
Balance at December 31, 2018
|
3
|
—
|
(8,618
|
)
|
20,087
|
11,472
|
—
|
11,472
|
||||||||||||||||||||
Net income (loss)
|
3,343
|
3,343
|
—
|
3,343
|
||||||||||||||||||||||||
Other comprehensive income (loss), net of tax
|
(642
|
)
|
(642
|
)
|
(642
|
)
|
||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value
|
1
|
1
|
1
|
|||||||||||||||||||||||||
Acquisition of redeemable noncontrolling interest
|
(75
|
)
|
(125
|
)
|
(200
|
)
|
(200
|
)
|
||||||||||||||||||||
Dividends declared
|
2
|
(1,054
|
)
|
(1,052
|
)
|
(1,052
|
)
|
|||||||||||||||||||||
Common stock plans activity
|
170
|
170
|
170
|
|||||||||||||||||||||||||
Share repurchases
|
(97
|
)
|
(772
|
)
|
(869
|
)
|
(869
|
)
|
||||||||||||||||||||
Balance at December 31, 2019
|
$
|
3
|
$
|
—
|
$
|
(9,260
|
)
|
$
|
21,480
|
$
|
12,223
|
$
|
—
|
$
|
12,223
|
(1) |
Excludes redeemable noncontrolling interests which are not considered equity. See “Note 11: Redeemable Noncontrolling Interests” for additional information.
|
(In millions) Years Ended December 31:
|
2019
|
2018 |
|
2017
|
||||||||
Cash flows from operating activities
|
||||||||||||
Net income
|
$ |
3,329
|
$
|
2,882
|
$ |
2,001
|
||||||
(Income) loss from discontinued operations, net of tax
|
(1
|
)
|
1
|
(2
|
)
|
|||||||
Income from continuing operations
|
3,328
|
2,883
|
1,999
|
|||||||||
Adjustments to reconcile to net cash provided by (used in) operating activities from continuing operations, net of the effect of acquisitions and divestitures
|
||||||||||||
Depreciation and amortization
|
605
|
568
|
550
|
|||||||||
Stock-based compensation
|
184
|
165
|
173
|
|||||||||
Loss on repayment of long-term debt
|
—
|
—
|
39
|
|||||||||
Deferred income taxes
|
(28
|
)
|
(24
|
)
|
252
|
|||||||
Changes in assets and liabilities
|
||||||||||||
Receivables, net
|
296
|
(327
|
)
|
(157
|
)
|
|||||||
Contract assets and contract liabilities
|
(534
|
)
|
28
|
88
|
||||||||
Inventories
|
87
|
(166
|
)
|
14
|
||||||||
Prepaid expenses and other current assets
|
45
|
73
|
204
|
|||||||||
Income taxes receivable/payable
|
(275
|
)
|
174
|
(193
|
)
|
|||||||
Accounts payable
|
(168
|
)
|
406
|
(94
|
)
|
|||||||
Accrued employee compensation
|
295
|
165
|
111
|
|||||||||
Other current liabilities
|
71
|
(108
|
)
|
106
|
||||||||
Accrued retiree benefits
|
731
|
(421
|
)
|
(250
|
)
|
|||||||
Other, net
|
(155
|
)
|
12
|
(95
|
)
|
|||||||
Net cash provided by (used in) operating activities from continuing operations
|
4,482
|
3,428
|
2,747
|
|||||||||
Net cash provided by (used in) operating activities from discontinued operations
|
(2
|
)
|
—
|
(2
|
)
|
|||||||
Net cash provided by (used in) operating activities
|
4,480
|
3,428
|
2,745
|
|||||||||
Cash flows from investing activities
|
||||||||||||
Additions to property, plant and equipment
|
(942
|
)
|
(763
|
)
|
(543
|
)
|
||||||
Proceeds from sales of property, plant and equipment
|
25
|
2
|
46
|
|||||||||
Additions to capitalized internal-use software
|
(65
|
)
|
(58
|
)
|
(68
|
)
|
||||||
Purchases of short-term investments
|
—
|
—
|
(696
|
)
|
||||||||
Maturities of short-term investments
|
—
|
309
|
517
|
|||||||||
Payments for purchases of acquired companies, net of cash received
|
(8
|
)
|
—
|
(93
|
)
|
|||||||
Proceeds from sale of business, net of transaction costs
|
—
|
11
|
—
|
|||||||||
Payments for settlement of treasury rate lock
|
(17
|
)
|
—
|
—
|
||||||||
Other
|
1
|
(22
|
)
|
20
|
||||||||
Net cash provided by (used in) investing activities from continuing operations
|
(1,006
|
)
|
(521
|
)
|
(817
|
)
|
||||||
Net cash provided by (used in) investing activities from discontinued operations
|
3
|
—
|
—
|
|||||||||
Net cash provided by (used in) investing activities
|
(1,003
|
)
|
(521
|
)
|
(817
|
)
|
||||||
Cash flows from financing activities
|
||||||||||||
Dividends paid
|
(1,036
|
)
|
(975
|
)
|
(910
|
)
|
||||||
Net borrowings (payments) on commercial paper
|
(300
|
)
|
—
|
300
|
||||||||
Repayments of long-term debt
|
—
|
—
|
(591
|
)
|
||||||||
Loss on repayment of long-term debt
|
—
|
—
|
(38
|
)
|
||||||||
Repurchases of common stock under share repurchase programs
|
(800
|
)
|
(1,325
|
)
|
(800
|
)
|
||||||
Repurchases of common stock to satisfy tax withholding obligations
|
(69
|
)
|
(93
|
)
|
(85
|
)
|
||||||
Acquisition of noncontrolling interest in Forcepoint
|
(588
|
)
|
—
|
—
|
||||||||
Contribution from noncontrolling interest in Forcepoint
|
—
|
—
|
8
|
|||||||||
Other
|
(10
|
)
|
(5
|
)
|
—
|
|||||||
Net cash provided by (used in) financing activities
|
(2,803
|
)
|
(2,398
|
)
|
(2,116
|
)
|
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
674
|
509
|
(188
|
)
|
||||||||
Cash, cash equivalents and restricted cash at beginning of year
|
3,624
|
3,115
|
3,303
|
|||||||||
Cash, cash equivalents and restricted cash at end of year
|
$ |
4,298
|
$ |
3,624
|
$ |
3,115
|
(In millions, except per share amounts)
|
2019(1)
|
2018(1)
|
2017
|
|||||||||
Operating income
|
$
|
520
|
$
|
492
|
$
|
442
|
||||||
Income from continuing operations attributable to Raytheon Company
|
411
|
389
|
287
|
|||||||||
Diluted EPS from continuing operations attributable to Raytheon Company
|
$
|
1.47
|
$
|
1.36
|
$
|
0.98
|
(1) |
Amounts reflect a U.S. statutory tax rate of 21%, which became effective in 2018 with the adoption of the Tax Cuts and Jobs Act of 2017 (2017 Act).
|
(In millions)
|
2019
|
2018
|
||||||
U.S. government contracts (including foreign military sales)
|
$
|
777
|
$
|
1,121
|
||||
Other customers
|
594
|
539
|
||||||
Allowance for doubtful accounts
|
(7
|
)
|
(12
|
)
|
||||
Total receivables, net
|
$
|
1,364
|
$
|
1,648
|
(In millions)
|
2019
|
2018
|
||||||
Materials and purchased parts
|
$
|
78
|
$
|
75
|
||||
Work in process
|
574
|
662
|
||||||
Finished goods
|
19
|
21
|
||||||
Total
|
$
|
671
|
$
|
758
|
Years
|
||||
Machinery and equipment
|
3–10
|
|||
Buildings
|
20–45
|
(In millions)
|
Pension and
PRB plans,
net(1)
|
Foreign
exchange
translation
|
Cash flow
hedges(2)
|
Unrealized
gains (losses)
on investments
and other, net(3)
|
Total
|
|||||||||||||||
Balance at December 31, 2016
|
$
|
(7,234
|
)
|
$
|
(175
|
)
|
$
|
—
|
$
|
(2
|
)
|
$
|
(7,411
|
)
|
||||||
Before tax amount
|
(651
|
)
|
80
|
10
|
(1
|
)
|
(562
|
)
|
||||||||||||
Tax (expense) benefit
|
42
|
—
|
(4
|
)
|
—
|
38
|
||||||||||||||
Net of tax amount
|
(609
|
)
|
80
|
6
|
(1
|
)
|
(524
|
)
|
||||||||||||
Balance at December 31, 2017
|
(7,843
|
)
|
(95
|
)
|
6
|
(3
|
)
|
(7,935
|
)
|
|||||||||||
Before tax amount
|
1,028
|
(36
|
)
|
(12
|
)
|
1
|
981
|
|||||||||||||
Tax (expense) benefit
|
(216
|
)
|
—
|
3
|
—
|
(213
|
)
|
|||||||||||||
Net of tax amount
|
812
|
(36
|
)
|
(9
|
)
|
1
|
768
|
|||||||||||||
Reclassification of stranded tax effects
|
(1,452
|
)
|
—
|
1
|
—
|
(1,451
|
)
|
|||||||||||||
Balance at December 31, 2018
|
(8,483
|
)
|
(131
|
)
|
(2
|
)
|
(2
|
)
|
(8,618
|
)
|
||||||||||
Before tax amount
|
(822
|
)
|
7
|
4
|
(3
|
)
|
(814
|
)
|
||||||||||||
Tax (expense) benefit
|
173
|
—
|
(1
|
)
|
—
|
172
|
||||||||||||||
Net of tax amount
|
(649
|
)
|
7
|
3
|
(3
|
)
|
(642
|
)
|
||||||||||||
Balance at December 31, 2019
|
$
|
(9,132
|
)
|
$
|
(124
|
)
|
$
|
1
|
$
|
(5
|
)
|
$
|
(9,260
|
)
|
(1) |
Pension and PRB plans, net, is shown net of cumulative tax benefits of $2,428 million and $2,255 million at December 31, 2019 and December 31, 2018, respectively.
|
(2) |
Cash flow hedges are shown net of cumulative tax of zero and tax benefits of $1 million at December 31, 2019 and December 31, 2018, respectively.
|
(3) |
Unrealized gains (losses) on investments and other, net, are shown net of cumulative tax expense of $1 million at both December 31, 2019 and December 31, 2018.
|
(In millions)
|
2019
|
2018
|
||||||
Asset derivatives related to foreign currency forward contracts
|
$
|
29
|
$
|
26
|
||||
Liability derivatives related to foreign currency forward contracts
|
15
|
34
|
Level 1: |
Quoted prices in active markets for identical assets or liabilities.
|
Level 2: |
Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or that we corroborate with observable market data
for substantially the full term of the related assets or liabilities.
|
Level 3: |
Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities.
|
2019
|
2018
|
2017
|
||||||||||
Basic EPS attributable to Raytheon Company common stockholders:
|
||||||||||||
Distributed earnings
|
$
|
3.76
|
$
|
3.46
|
$
|
3.18
|
||||||
Undistributed earnings
|
8.17
|
6.70
|
3.77
|
|||||||||
Total
|
$
|
11.93
|
$
|
10.16
|
$
|
6.95
|
||||||
Diluted EPS attributable to Raytheon Company common stockholders:
|
||||||||||||
Distributed earnings
|
$
|
3.76
|
$
|
3.45
|
$
|
3.18
|
||||||
Undistributed earnings
|
8.16
|
6.70
|
3.76
|
|||||||||
Total
|
$
|
11.92
|
$
|
10.15
|
$
|
6.94
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Income from continuing operations attributable to participating securities
|
$
|
32
|
$
|
30
|
$
|
24
|
||||||
Income (loss) from discontinued operations, net of tax attributable to participating securities
|
—
|
—
|
—
|
|||||||||
Net income attributable to participating securities
|
$
|
32
|
$
|
30
|
$
|
24
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Shares for basic EPS(1)
|
280.0
|
286.5
|
291.1
|
|||||||||
Effect of dilutive securities
|
0.2
|
0.3
|
0.3
|
|||||||||
Shares for diluted EPS
|
280.2
|
286.8
|
291.4
|
(1) |
Includes participating securities of 2.7 million, 2.9 million and 3.5 million for 2019, 2018 and 2017, respectively.
|
(In millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information and
Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Balance at December 31, 2017
|
$
|
1,706
|
$
|
2,967
|
$
|
4,154
|
$
|
4,106
|
$
|
1,938
|
$
|
14,871
|
||||||||||||
Acquisitions and divestitures
|
—
|
—
|
—
|
(3
|
)
|
—
|
(3
|
)
|
||||||||||||||||
Effect of foreign exchange rates and other
|
(2
|
)
|
(2
|
)
|
—
|
—
|
—
|
(4
|
)
|
|||||||||||||||
Balance at December 31, 2018
|
1,704
|
2,965
|
4,154
|
4,103
|
1,938
|
14,864
|
||||||||||||||||||
Acquisitions and divestitures
|
—
|
19
|
—
|
—
|
—
|
19
|
||||||||||||||||||
Effect of foreign exchange rates and other
|
(1
|
)
|
—
|
—
|
—
|
—
|
(1
|
)
|
||||||||||||||||
Balance at December 31, 2019
|
$
|
1,703
|
$
|
2,984
|
$
|
4,154
|
$
|
4,103
|
$
|
1,938
|
$
|
14,882
|
(In millions)
|
2019
|
2018
|
$ Change
|
% Change
|
||||||||||||
Contract assets
|
$
|
6,122
|
$
|
5,594
|
$
|
528
|
9.4
|
%
|
||||||||
Contract liabilities—current
|
(3,267
|
)
|
(3,309
|
)
|
42
|
1.3
|
%
|
|||||||||
Contract liabilities—noncurrent
|
(143
|
)
|
(150
|
)
|
7
|
4.7
|
%
|
|||||||||
Net contract assets (liabilities)
|
$
|
2,712
|
$
|
2,135
|
$
|
577
|
27.0
|
%
|
(In millions)
|
2019
|
2018
|
||||||
Unbilled
|
$
|
13,308
|
$
|
12,058
|
||||
Progress payments
|
(7,186
|
)
|
(6,464
|
)
|
||||
Total contract assets
|
$
|
6,122
|
$
|
5,594
|
(In millions)
|
2019
|
2018
|
||||||
Land
|
$
|
81
|
$
|
84
|
||||
Buildings and improvements
|
3,068
|
2,835
|
||||||
Machinery and equipment
|
5,436
|
4,844
|
||||||
Property, plant and equipment, gross
|
8,585
|
7,763
|
||||||
Accumulated depreciation and amortization
|
(5,232
|
)
|
(4,923
|
)
|
||||
Total
|
$
|
3,353
|
$
|
2,840
|
(In millions)
|
2019
|
2018
|
||||||
Marketable securities held in trusts(1)
|
$
|
753
|
$
|
642
|
||||
Computer software, net of accumulated amortization of $1,249 and $1,201 at December 31, 2019 and 2018, respectively
|
252
|
261
|
||||||
Other intangible assets, net of accumulated amortization of $873 and $760 at December 31, 2019 and 2018, respectively
|
283
|
361
|
||||||
Deferred tax asset(2)
|
534
|
331
|
||||||
Other noncurrent assets, net
|
552
|
429
|
||||||
Total
|
$
|
2,374
|
$
|
2,024
|
(1) |
For further details, refer to “Note 14: Pension and Other Employee Benefits.”
|
(2) |
For further details, refer to “Note 15: Income Taxes.”
|
(In millions, except percentages)
|
2019
|
2018
|
||||||
$500 notes due 2020, 4.40%
|
$
|
500
|
$
|
499
|
||||
$1,000 notes due 2020, 3.125%
|
999
|
998
|
||||||
$1,100 notes due 2022, 2.50%
|
1,097
|
1,096
|
||||||
$300 notes due 2024, 3.15%
|
298
|
298
|
||||||
$382 notes due 2027, 7.20%
|
374
|
373
|
||||||
$185 notes due 2028, 7.00%
|
185
|
185
|
||||||
$600 notes due 2040, 4.875%
|
592
|
592
|
||||||
$425 notes due 2041, 4.70%
|
420
|
419
|
||||||
$300 notes due 2044, 4.20%
|
295
|
295
|
||||||
Total debt issued and outstanding
|
$
|
4,760
|
$
|
4,755
|
(In millions)
|
2019
|
2018
|
||||||
Fair value of long-term debt(1)
|
$
|
5,337
|
$
|
5,063
|
(1) |
Fair value of long-term debt at December 31, 2019 includes current portion of long-term debt fair value of $1,513 million.
|
(In millions)
|
2019
|
2018
|
||||||
Principal
|
$
|
4,792
|
$
|
4,792
|
||||
Unamortized issue discounts
|
(26
|
)
|
(30
|
)
|
||||
Unamortized interest rate lock costs
|
(6
|
)
|
(7
|
)
|
||||
Total
|
$
|
4,760
|
$
|
4,755
|
(In millions)
|
||||
2020
|
$
|
1,500
|
||
2021
|
—
|
|||
2022
|
1,100
|
|||
2023
|
—
|
|||
2024
|
300
|
|||
Thereafter
|
1,892
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Operating lease cost
|
$
|
240
|
$
|
236
|
$
|
232
|
||||||
Variable lease cost(1)
|
—
|
—
|
—
|
|||||||||
Sublease income
|
(1
|
)
|
(4
|
)
|
(3
|
)
|
||||||
Total lease cost
|
$
|
239
|
$
|
232
|
$
|
229
|
(1) |
Variable lease cost was less than $1 million for 2019, 2018 and 2017, respectively.
|
(In millions)
|
||||
2020
|
$
|
242
|
||
2021
|
217
|
|||
2022
|
168
|
|||
2023
|
116
|
|||
2024
|
71
|
|||
Thereafter
|
238
|
|||
Total future lease payments(1)
|
1,052
|
|||
Imputed interest
|
(133
|
)
|
||
Total lease liabilities
|
$
|
919
|
(1) |
Total future lease payments exclude future lease payments related to leases that were signed but had not yet commenced. There were none as of December 31, 2019.
|
(In millions)
|
||||
Operating lease liabilities—current
|
$
|
213
|
||
Operating lease liabilities—noncurrent
|
706
|
|||
Total lease liabilities
|
$
|
919
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
243
|
$
|
250
|
$
|
218
|
||||||
Right-of-use assets obtained in exchange for new operating lease obligations
|
271
|
182
|
239
|
(In millions, except percentages)
|
2019
|
2018
|
||||||
Total remediation costs—undiscounted
|
$
|
188
|
$
|
193
|
||||
Weighted-average discount rate
|
5.1
|
%
|
5.1
|
%
|
||||
Total remediation costs—discounted
|
$
|
124
|
$
|
128
|
||||
Recoverable portion
|
81
|
82
|
(In millions)
|
||||
2020
|
$
|
25
|
||
2021
|
16
|
|||
2022
|
13
|
|||
2023
|
11
|
|||
2024
|
11
|
|||
Thereafter
|
112
|
(In millions)
|
2019
|
2018
|
||||||
Guarantees
|
$
|
219
|
$
|
201
|
||||
Letters of credit
|
3,485
|
2,503
|
||||||
Surety bonds
|
83
|
166
|
(In millions)
|
Forcepoint
|
RGNext
|
Total
|
|||||||||
Balance at December 31, 2017
|
$
|
512
|
$
|
—
|
$
|
512
|
||||||
Net income (loss)
|
(27
|
)
|
—
|
(27
|
)
|
|||||||
Other comprehensive income (loss), net of tax
|
(1
|
)
|
—
|
(1
|
)
|
|||||||
Adjustment of noncontrolling interests to redemption value
|
(73
|
)
|
—
|
(73
|
)
|
|||||||
Balance at December 31, 2018
|
411
|
—
|
411
|
|||||||||
RGNext initial recognition
|
—
|
32
|
32
|
|||||||||
Net income (loss)
|
(19
|
)
|
5
|
(14
|
)
|
|||||||
Other comprehensive income (loss), net of tax(1)
|
—
|
—
|
—
|
|||||||||
Distributions related to noncontrolling interest
|
—
|
(5
|
)
|
(5
|
)
|
|||||||
Adjustment of noncontrolling interests to redemption value
|
(1
|
)
|
—
|
(1
|
)
|
|||||||
Acquisition of noncontrolling interest in Forcepoint
|
(391
|
)
|
—
|
(391
|
)
|
|||||||
Balance at December 31, 2019
|
$
|
—
|
$
|
32
|
$
|
32
|
(1) |
Other comprehensive income (loss), net of tax, related to Forcepoint was income of less than $1 million in 2019.
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Beginning balance
|
282.1
|
288.4
|
292.8
|
|||||||||
Stock plans activity
|
1.1
|
0.9
|
1.1
|
|||||||||
Share repurchases
|
(4.8
|
)
|
(7.2
|
)
|
(5.5
|
)
|
||||||
Ending balance
|
278.4
|
282.1
|
288.4
|
2019
|
2018
|
2017
|
||||||||||||||||||||||
(In millions)
|
$ |
Shares
|
$ |
Shares
|
$ |
Shares
|
||||||||||||||||||
Shares repurchased under our share repurchase programs
|
$
|
800
|
4.4
|
$
|
1,325
|
6.7
|
$
|
800
|
4.9
|
|||||||||||||||
Shares repurchased to satisfy tax withholding obligations
|
69
|
0.4
|
93
|
0.5
|
85
|
0.6
|
||||||||||||||||||
Total share repurchases
|
$
|
869
|
4.8
|
$
|
1,418
|
7.2
|
$
|
885
|
5.5
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Stock-based compensation expense
|
||||||||||||
Restricted stock expense
|
$
|
99
|
$
|
98
|
$
|
94
|
||||||
RSU expense
|
35
|
32
|
28
|
|||||||||
LTPP expense
|
37
|
36
|
38
|
|||||||||
Total stock-based compensation expense
|
$
|
171
|
$
|
166
|
$
|
160
|
||||||
Stock-based tax benefit recognized
|
35
|
29
|
30
|
Shares/units
(in thousands)
|
Weighted-
average
grant date
fair value per
share
|
|||||||
Outstanding at December 31, 2016
|
3,294
|
$
|
106.56
|
|||||
Granted
|
1,025
|
152.93
|
||||||
Vested
|
(1,194
|
)
|
91.77
|
|||||
Forfeited
|
(229
|
)
|
120.33
|
|||||
Outstanding at December 31, 2017
|
2,896
|
127.98
|
||||||
Granted
|
774
|
212.96
|
||||||
Vested
|
(977
|
)
|
112.54
|
|||||
Forfeited
|
(215
|
)
|
150.67
|
|||||
Outstanding at December 31, 2018
|
2,478
|
158.66
|
||||||
Granted
|
959
|
180.05
|
||||||
Vested
|
(882
|
)
|
130.35
|
|||||
Forfeited
|
(166
|
)
|
172.50
|
|||||
Outstanding at December 31, 2019
|
2,389
|
$
|
176.73
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Fair value of restricted stock and RSUs vested
|
$
|
160
|
$
|
206
|
$
|
193
|
||||||
Tax benefit realized related to vested restricted stock/RSUs(1)
|
30
|
39
|
63
|
(1) |
Includes $11 million, $18 million and $29 million of excess tax benefits realized in 2019, 2018 and 2017, respectively.
|
2019
|
2018
|
2017
|
||||||||||
Expected stock price volatility
|
18.48
|
%
|
16.87
|
%
|
18.74
|
%
|
||||||
Peer group stock price volatility
|
20.67
|
%
|
18.41
|
%
|
20.01
|
%
|
||||||
Correlations of returns
|
54.49
|
%
|
52.49
|
%
|
56.55
|
%
|
||||||
Risk free interest rate
|
2.49
|
%
|
2.21
|
%
|
1.53
|
%
|
Units
(in thousands)
|
Weighted-
average
grant date
fair value per
share
|
|||||||
Outstanding at December 31, 2016
|
665
|
$
|
110.32
|
|||||
Granted
|
142
|
152.29
|
||||||
Increase due to expected performance
|
193
|
125.14
|
||||||
Vested
|
(273
|
)
|
97.59
|
|||||
Forfeited
|
(4
|
)
|
137.57
|
|||||
Outstanding at December 31, 2017
|
723
|
127.16
|
||||||
Granted
|
117
|
205.76
|
||||||
Increase due to expected performance
|
71
|
135.27
|
||||||
Vested
|
(303
|
)
|
112.15
|
|||||
Forfeited
|
(24
|
)
|
164.58
|
|||||
Outstanding at December 31, 2018
|
584
|
150.15
|
||||||
Granted
|
145
|
176.13
|
||||||
Increase due to expected performance
|
96
|
187.90
|
||||||
Vested
|
(236
|
)
|
120.52
|
|||||
Forfeited
|
(10
|
)
|
170.42
|
|||||
Outstanding at December 31, 2019
|
579
|
$
|
174.72
|
(1) |
This table excludes dividend equivalent units outstanding of 33 thousand at both December 31, 2019 and December 31, 2018 and 28 thousand at December 31, 2017, based on expected performance at each reporting date.
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Fair value of LTPP awards vested
|
$
|
45
|
$
|
67
|
$
|
44
|
||||||
Tax benefit realized related to vested LTPP awards(1)
|
10
|
24
|
15
|
(1) |
Includes $3 million, $13 million and $7 million of excess tax benefits realized in 2019, 2018 and 2017, respectively.
|
2019
|
2018
|
2017
|
||||||||||
Unit Price
|
$
|
1,244.48
|
$
|
1,508.01
|
$
|
1,101.31
|
||||||
Expected life (in years)
|
1.99
|
3.01
|
2.29
|
|||||||||
Expected unit price volatility
|
39.19
|
%
|
43.66
|
%
|
49.51
|
%
|
||||||
Risk free interest rate
|
2.06
|
%
|
2.69
|
%
|
1.46
|
%
|
||||||
Dividend yield
|
—
|
%
|
—
|
%
|
—
|
%
|
||||||
Grant date fair value
|
$
|
368.61
|
$
|
486.94
|
$
|
339.72
|
(In millions)
|
2019
|
2018
|
||||||
Domestic Pension Benefits plan
|
$
|
20,366
|
$
|
18,488
|
||||
Foreign Pension Benefits plan
|
951
|
833
|
(In millions)
|
2019
|
2018
|
||||||
Marketable securities held in trusts
|
$
|
753
|
$
|
642
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Required pension contributions
|
$
|
343
|
$
|
889
|
$
|
615
|
||||||
Discretionary pension contributions
|
—
|
1,250
|
1,000
|
|||||||||
PRB contributions
|
37
|
22
|
27
|
|||||||||
Total
|
$
|
380
|
$
|
2,161
|
$
|
1,642
|
(In millions)
|
Pension
Benefits
|
PRB
|
||||||
2020
|
$
|
1,984
|
$
|
61
|
||||
2021
|
1,874
|
58
|
||||||
2022
|
1,806
|
55
|
||||||
2023
|
1,646
|
53
|
||||||
2024
|
1,583
|
50
|
||||||
Thereafter (next 5 years)
|
7,641
|
218
|
Pension Benefits
|
||||||||||||
Components of Net Periodic Pension Expense (Income) (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Operating expense
|
||||||||||||
Service cost
|
$
|
420
|
$
|
504
|
$
|
473
|
||||||
Non-operating expense
|
||||||||||||
Interest cost
|
1,046
|
1,004
|
1,088
|
|||||||||
Expected return on plan assets
|
(1,436
|
)
|
(1,435
|
)
|
(1,377
|
)
|
||||||
Amortization of prior service cost
|
5
|
6
|
5
|
|||||||||
Amortization of net actuarial loss
|
1,050
|
1,351
|
1,177
|
|||||||||
Loss recognized due to settlements
|
1
|
286
|
1
|
|||||||||
Total pension non-service expense
|
666
|
1,212
|
894
|
|||||||||
Net periodic pension expense (income)
|
$
|
1,086
|
$
|
1,716
|
$
|
1,367
|
PRB
|
||||||||||||
Components of Net Periodic PRB Expense (Income) (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Operating expense
|
||||||||||||
Service cost
|
$
|
3
|
$
|
5
|
$
|
6
|
||||||
Non-operating expense
|
||||||||||||
Interest cost
|
28
|
27
|
30
|
|||||||||
Expected return on plan assets
|
(18
|
)
|
(21
|
)
|
(21
|
)
|
||||||
Amortization of prior service cost
|
—
|
—
|
(1
|
)
|
||||||||
Amortization of net actuarial loss
|
10
|
11
|
10
|
|||||||||
Loss recognized due to settlements
|
2
|
1
|
1
|
|||||||||
Total PRB non-service expense
|
22
|
18
|
19
|
|||||||||
Net periodic PRB expense (income)
|
$
|
25
|
$
|
23
|
$
|
25
|
Pension Benefits
|
PRB
|
|||||||||||||||
Funded Status – Amounts Recognized on our Balance Sheets
(in millions) December 31:
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Noncurrent assets
|
$
|
174
|
$
|
126
|
$
|
—
|
$
|
—
|
||||||||
Current liabilities
|
(160
|
)
|
(150
|
)
|
(18
|
)
|
(18
|
)
|
||||||||
Noncurrent liabilities
|
(7,687
|
)
|
(6,111
|
)
|
(369
|
)
|
(354
|
)
|
||||||||
Net amount recognized on our balance sheets
|
$
|
(7,673
|
)
|
$
|
(6,135
|
)
|
$
|
(387
|
)
|
$
|
(372
|
)
|
Pension Benefits
|
PRB
|
|||||||||||||||
Reconciliation of Amounts Recognized on our Balance Sheets
(in millions) December 31:
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Accumulated other comprehensive loss:
|
||||||||||||||||
Prior service (cost) credit
|
$
|
(23
|
)
|
$
|
(27
|
)
|
$
|
—
|
$
|
—
|
||||||
Net actuarial loss
|
(11,389
|
)
|
(10,590
|
)
|
(148
|
)
|
(121
|
)
|
||||||||
Accumulated other comprehensive loss
|
(11,412
|
)
|
(10,617
|
)
|
(148
|
)
|
(121
|
)
|
||||||||
Accumulated contributions in excess of (below) net periodic expense
|
3,739
|
4,482
|
(239
|
)
|
(251
|
)
|
||||||||||
Net amount recognized on our balance sheets
|
$
|
(7,673
|
)
|
$
|
(6,135
|
)
|
$
|
(387
|
)
|
$
|
(372
|
)
|
Pension Benefits
|
PRB
|
|||||||||||||||
Sources of Change in Accumulated Other Comprehensive Loss
(in millions)
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Prior service (cost) credit arising during period
|
$
|
(1
|
)
|
$
|
(10
|
)
|
$
|
—
|
$
|
—
|
||||||
Amortization of prior service cost (credit) included in net income
|
5
|
6
|
—
|
—
|
||||||||||||
Net change in prior service (cost) credit not recognized in net income during the period
|
4
|
(4
|
)
|
—
|
—
|
|||||||||||
Actuarial gain (loss) arising during period
|
(1,847
|
)
|
(630
|
)
|
(39
|
)
|
4
|
|||||||||
Amortization of net actuarial (gain) loss
|
1,050
|
1,351
|
10
|
11
|
||||||||||||
Loss recognized due to settlements
|
1
|
286
|
2
|
1
|
||||||||||||
Net change in actuarial gain (loss) not included in net income during the period
|
(796
|
)
|
1,007
|
(27
|
)
|
16
|
||||||||||
Effect of exchange rates
|
(3
|
)
|
9
|
—
|
—
|
|||||||||||
Total change in accumulated other comprehensive loss during period
|
$
|
(795
|
)
|
$
|
1,012
|
$
|
(27
|
)
|
$
|
16
|
(In millions)
|
Pension
Benefits
|
PRB
|
||||||
Amortization of net actuarial gain (loss)
|
$
|
(1,197
|
)
|
$
|
(13
|
)
|
||
Amortization of prior service (cost) credit
|
(4
|
)
|
—
|
|||||
Total
|
$
|
(1,201
|
)
|
$
|
(13
|
)
|
(In millions)
|
2019
|
2018
|
||||||
PBO for domestic qualified pension plans
|
$
|
26,597
|
$
|
23,359
|
||||
ABO for domestic qualified pension plans
|
24,213
|
21,595
|
||||||
Asset values for domestic qualified pension plans
|
20,366
|
18,488
|
Pension Benefits
|
PRB
|
|||||||||||||||
Change in Projected Benefit Obligation (in millions)
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
PBO at beginning of year
|
$
|
25,456
|
$
|
28,569
|
$
|
672
|
$
|
745
|
||||||||
Service cost
|
420
|
504
|
3
|
5
|
||||||||||||
Interest cost
|
1,046
|
1,004
|
28
|
27
|
||||||||||||
Plan participants’ contributions
|
4
|
6
|
58
|
49
|
||||||||||||
Amendments
|
1
|
10
|
—
|
—
|
||||||||||||
Plan settlements
|
(7
|
)
|
(474
|
)
|
(9
|
)
|
(10
|
)
|
||||||||
Actuarial loss (gain)
|
3,926
|
(1,580
|
)
|
71
|
(39
|
)
|
||||||||||
Foreign exchange loss (gain)
|
24
|
(56
|
)
|
—
|
—
|
|||||||||||
Benefits paid
|
(1,880
|
)
|
(2,527
|
)
|
(112
|
)
|
(105
|
)
|
||||||||
PBO at end of year
|
$
|
28,990
|
$
|
25,456
|
$
|
711
|
$
|
672
|
Pension Benefits
|
PRB
|
|||||||||||||||
Change in Plan Assets (in millions)
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Fair value of plan assets at beginning of year
|
$
|
19,321
|
$
|
21,002
|
$
|
300
|
$
|
358
|
||||||||
Actual return (loss) on plan assets
|
3,516
|
(775
|
)
|
50
|
(14
|
)
|
||||||||||
Company contributions
|
343
|
2,139
|
37
|
22
|
||||||||||||
Plan participants’ contributions
|
4
|
6
|
58
|
49
|
||||||||||||
Plan settlements
|
(7
|
)
|
(474
|
)
|
(9
|
)
|
(10
|
)
|
||||||||
Foreign exchange gain (loss)
|
20
|
(50
|
)
|
—
|
—
|
|||||||||||
Benefits paid
|
(1,880
|
)
|
(2,527
|
)
|
(112
|
)
|
(105
|
)
|
||||||||
Fair value of plan assets at end of year
|
$
|
21,317
|
$
|
19,321
|
$
|
324
|
$
|
300
|
Pension Benefits
|
||||||||||||
Weighted-Average Net Periodic Benefit Cost Assumptions
|
2019
|
2018
|
2017
|
|||||||||
Discount rate
|
4.28
|
%
|
3.68
|
%
|
4.31
|
%
|
||||||
Expected long-term rate of return on plan assets
|
7.38
|
%
|
7.38
|
%
|
7.39
|
%
|
||||||
Rate of compensation increase
|
||||||||||||
Range
|
2%–7
|
%
|
2%–7
|
%
|
2%–7
|
%
|
||||||
Average
|
4.43
|
%
|
4.43
|
%
|
4.43
|
%
|
PRB
|
||||||||||||
Weighted-Average Net Periodic Benefit Cost Assumptions
|
2019
|
2018
|
2017
|
|||||||||
Discount rate
|
4.31
|
%
|
3.72
|
%
|
4.28
|
%
|
||||||
Expected long-term rate of return on plan assets
|
6.25
|
%
|
6.25
|
%
|
6.25
|
%
|
||||||
Rate of compensation increase
|
||||||||||||
Range
|
2%–7
|
%
|
2%–7
|
%
|
2%–7
|
%
|
||||||
Average
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
||||||
Health care trend rate*
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
Pension Benefits
|
PRB
|
|||||||||||||||
Weighted-Average Year-End Benefit Obligation Assumptions
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Discount rate
|
3.25
|
%
|
4.28
|
%
|
3.29
|
%
|
4.31
|
%
|
||||||||
Rate of compensation increase
|
||||||||||||||||
Range
|
3%–8
|
%
|
2%–7
|
%
|
3%–8
|
%
|
2%–7
|
%
|
||||||||
Average
|
4.40
|
%
|
4.40
|
%
|
4.50
|
%
|
4.50
|
%
|
||||||||
Health care trend rate*
|
3.50
|
%
|
4.00
|
%
|
Percentile
|
2019
|
2018
|
2017
|
|||||||||
35th
|
5.49
|
%
|
5.67
|
%
|
5.82
|
%
|
||||||
65th
|
7.57
|
%
|
7.81
|
%
|
7.96
|
%
|
Asset Category
|
||||
Global equity (combined U.S. and international equity)
|
30%-60
|
%
|
||
U.S. equities
|
20%-35
|
%
|
||
International equities
|
10%-25
|
%
|
||
Fixed income
|
20%-45
|
%
|
||
Cash and cash equivalents
|
0%-10
|
%
|
||
Private equity and private real estate funds
|
10%-20
|
%
|
||
Real assets
|
0%-4
|
%
|
||
Other (including absolute return funds)
|
5%-15
|
%
|
December 31, 2019 (in millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Not subject to
leveling(7)
|
|||||||||||||||
U.S. equities(1)
|
$
|
5,563
|
$
|
715
|
$
|
—
|
$
|
—
|
$
|
4,848
|
||||||||||
International equities(1)
|
3,403
|
2,838
|
13
|
—
|
552
|
|||||||||||||||
Real assets(2)
|
157
|
—
|
—
|
—
|
157
|
|||||||||||||||
Fixed income
|
||||||||||||||||||||
U.S. government and agency securities
|
2,026
|
1,836
|
190
|
—
|
—
|
|||||||||||||||
Corporate debt securities/instruments(3)
|
3,039
|
378
|
2,308
|
—
|
353
|
|||||||||||||||
Global multi-sector fixed income(4)
|
303
|
303
|
—
|
—
|
—
|
|||||||||||||||
Securitized and structured credit(5)
|
573
|
—
|
—
|
—
|
573
|
|||||||||||||||
Cash and cash equivalents(6)
|
603
|
43
|
—
|
—
|
560
|
|||||||||||||||
Absolute return funds
|
1,564
|
—
|
—
|
—
|
1,564
|
|||||||||||||||
Private equity funds
|
1,579
|
—
|
—
|
—
|
1,579
|
|||||||||||||||
Private real estate funds
|
1,403
|
—
|
—
|
—
|
1,403
|
|||||||||||||||
Insurance contracts
|
32
|
—
|
—
|
32
|
—
|
|||||||||||||||
Total investments
|
20,245
|
6,113
|
2,511
|
32
|
11,589
|
|||||||||||||||
Net receivables and payables
|
121
|
—
|
—
|
—
|
121
|
|||||||||||||||
Total assets
|
$
|
20,366
|
$
|
6,113
|
$
|
2,511
|
$
|
32
|
$
|
11,710
|
(1) |
U.S. and International equities primarily include investments across the spectrum of large, medium and small market capitalization stocks.
|
(2) |
Real assets primarily include investments in physical and permanent assets, including infrastructure.
|
(3) |
Corporate debt securities/instruments primarily include investments in investment grade and non-investment grade fixed income securities.
|
(4) |
Global multi-sector fixed income primarily includes investments that invest globally among several sectors including governments, investment grade corporate bonds, high yield corporate bonds and emerging market securities.
|
(5) |
Securitized and structured credit primarily includes investments that pool together various cash flow producing financial assets that are structured in a way that can achieve desired targeted credit, maturity or other characteristics
and are typically collateralized by residential mortgages, commercial mortgages and other assets, and other fixed income related securities.
|
(6) |
Cash and cash equivalents are primarily investments in highly liquid money market funds and bank sponsored collective funds. Included in cash and cash equivalents is excess cash in investment manager accounts which is available for
immediate use and is used to fund daily operations and execute the investment policy. Excess cash in investment manager accounts is not considered to be part of the cash target allocation set forth in the investment policy.
|
(7) |
Receivables, payables and certain investments that are valued using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this
table are intended to permit reconciliation of the fair value hierarchy to the amount presented for the total domestic pension benefits plan assets.
|
December 31, 2018 (in millions)
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Not subject to
leveling(7)
|
|||||||||||||||
U.S. equities(1)
|
$
|
4,701
|
$
|
2,189
|
$
|
—
|
$
|
—
|
$
|
2,512
|
||||||||||
International equities(1)
|
3,141
|
2,522
|
4
|
—
|
615
|
|||||||||||||||
Real assets(2)
|
53
|
—
|
—
|
—
|
53
|
|||||||||||||||
Fixed income
|
||||||||||||||||||||
U.S. government and agency securities
|
1,923
|
1,727
|
196
|
—
|
—
|
|||||||||||||||
Corporate debt securities/instruments(3)
|
2,907
|
329
|
2,088
|
—
|
490
|
|||||||||||||||
Global multi-sector fixed income(4)
|
400
|
400
|
—
|
—
|
—
|
|||||||||||||||
Securitized and structured credit(5)
|
534
|
—
|
—
|
—
|
534
|
|||||||||||||||
Cash and cash equivalents(6)
|
486
|
39
|
—
|
—
|
447
|
|||||||||||||||
Absolute return funds
|
1,432
|
—
|
—
|
—
|
1,432
|
|||||||||||||||
Private equity funds
|
1,419
|
—
|
—
|
—
|
1,419
|
|||||||||||||||
Private real estate funds
|
1,264
|
—
|
—
|
—
|
1,264
|
|||||||||||||||
Insurance contracts
|
31
|
—
|
—
|
31
|
—
|
|||||||||||||||
Total investments
|
18,291
|
7,206
|
2,288
|
31
|
8,766
|
|||||||||||||||
Net receivables and payables
|
197
|
—
|
—
|
—
|
197
|
|||||||||||||||
Total assets
|
$
|
18,488
|
$
|
7,206
|
$
|
2,288
|
$
|
31
|
$
|
8,963
|
(1) |
U.S. and International equities primarily include investments across the spectrum of large, medium and small market capitalization stocks.
|
(2) |
Real assets primarily include investments in physical and permanent assets, including infrastructure.
|
(3) |
Corporate debt securities/instruments primarily include investments in investment grade and non-investment grade fixed income securities.
|
(4) |
Global multi-sector fixed income primarily includes investments that invest globally among several sectors including governments, investment grade corporate bonds, high yield corporate bonds and emerging market securities.
|
(5) |
Securitized and structured credit primarily includes investments that pool together various cash flow producing financial assets that are structured in a way that can achieve desired targeted credit, maturity or other characteristics
and are typically collateralized by residential mortgages, commercial mortgages and other assets, and other fixed income related securities.
|
(6) |
Cash and cash equivalents are primarily investments in highly liquid money market funds and bank sponsored collective funds. Included in cash and cash equivalents is excess cash in investment manager accounts which is available for
immediate use and is used to fund daily operations and execute the investment policy. Excess cash in investment manager accounts is not considered to be part of the cash target allocation set forth in the investment policy.
|
(7) |
Receivables, payables and certain investments that are valued using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this
table are intended to permit reconciliation of the fair value hierarchy to the amount presented for the total domestic pension benefits plan assets.
|
% of Plan Assets at Dec 31:
|
||||||||
Asset category
|
2019
|
2018
|
||||||
Fixed income securities
|
43
|
%
|
42
|
%
|
||||
U.S. equities
|
38
|
%
|
36
|
%
|
||||
International equities
|
10
|
%
|
10
|
%
|
||||
Cash and cash equivalents
|
9
|
%
|
12
|
%
|
||||
Total
|
100
|
%
|
100
|
%
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Current income tax expense (benefit)
|
||||||||||||
Federal
|
$
|
638
|
$
|
245
|
$
|
822
|
||||||
Foreign
|
48
|
43
|
40
|
|||||||||
State
|
—
|
—
|
—
|
|||||||||
Deferred income tax expense (benefit)
|
||||||||||||
Federal
|
(26
|
)
|
(42
|
)
|
235
|
|||||||
Foreign
|
1
|
15
|
18
|
|||||||||
State
|
(3
|
)
|
3
|
(1
|
)
|
|||||||
Total
|
$
|
658
|
$
|
264
|
$
|
1,114
|
2019
|
2018
|
2017
|
||||||||||
Statutory tax rate
|
21.0
|
%
|
21.0
|
%
|
35.0
|
%
|
||||||
Foreign derived intangible income (FDII)
|
(3.3
|
)
|
(4.2
|
)
|
—
|
|||||||
Research and development tax credit (R&D tax credit)
|
(2.3
|
)
|
(2.4
|
)
|
(1.5
|
)
|
||||||
Equity compensation
|
(0.3
|
)
|
(1.0
|
)
|
(1.2
|
)
|
||||||
Foreign income tax rate differential
|
0.8
|
1.3
|
0.2
|
|||||||||
Prior year true-up
|
0.4
|
(1.1
|
)
|
0.1
|
||||||||
Tax benefit related to discretionary pension contributions
|
—
|
(3.0
|
)
|
—
|
||||||||
R&D tax credit claims related to the 2014–2017 tax years
|
—
|
(2.1
|
)
|
—
|
||||||||
Irish restructuring
|
—
|
(2.0
|
)
|
—
|
||||||||
Change in valuation allowance
|
—
|
2.0
|
—
|
|||||||||
Domestic manufacturing deduction benefit
|
—
|
—
|
(2.5
|
)
|
||||||||
Remeasurement of deferred taxes
|
—
|
—
|
3.2
|
|||||||||
One-time transition tax on previously undistributed foreign earnings
|
—
|
—
|
2.3
|
|||||||||
Other items, net
|
0.2
|
(0.1
|
)
|
0.2
|
||||||||
Effective tax rate
|
16.5
|
%
|
8.4
|
%
|
35.8
|
%
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Domestic income from continuing operations before taxes
|
$
|
3,889
|
$
|
2,937
|
$
|
3,027
|
||||||
Foreign income from continuing operations before taxes
|
97
|
210
|
86
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Federal
|
$
|
754
|
$
|
(69
|
)
|
$
|
765
|
|||||
Foreign
|
43
|
63
|
77
|
|||||||||
State
|
34
|
23
|
36
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
Unrecognized tax benefits, beginning of year
|
$
|
92
|
$
|
9
|
$
|
7
|
||||||
Additions based on current year tax positions
|
46
|
20
|
1
|
|||||||||
Additions based on prior year tax positions
|
90
|
68
|
4
|
|||||||||
Reductions based on prior year tax positions
|
—
|
(5
|
)
|
(1
|
)
|
|||||||
Settlements based on prior year tax positions
|
(1
|
)
|
—
|
(2
|
)
|
|||||||
Unrecognized tax benefits, end of year
|
$
|
227
|
$
|
92
|
$
|
9
|
(In millions)
|
2019
|
2018
|
||||||
Noncurrent deferred tax assets (liabilities)
|
||||||||
Accrued employee compensation and benefits
|
$
|
246
|
$
|
209
|
||||
Other accrued expenses and reserves
|
(21
|
)
|
77
|
|||||
Contract balances and inventories
|
(611
|
)
|
(494
|
)
|
||||
Pension benefits
|
1,701
|
1,306
|
||||||
Other retiree benefits
|
68
|
67
|
||||||
Operating lease right-of-use assets
|
(204
|
)
|
(187
|
)
|
||||
Operating lease liabilities
|
214
|
196
|
||||||
Net operating loss and tax credit carryforwards
|
405
|
83
|
||||||
Depreciation and amortization
|
(921
|
)
|
(827
|
)
|
||||
Partnership outside basis difference
|
(25
|
)
|
(29
|
)
|
||||
Other
|
21
|
12
|
||||||
Valuation allowance
|
(360
|
)
|
(84
|
)
|
||||
Deferred income taxes—noncurrent
|
$
|
513
|
$
|
329
|
Total Net Sales (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
6,927
|
$
|
6,180
|
$
|
5,804
|
||||||
Intelligence, Information and Services
|
7,151
|
6,722
|
6,177
|
|||||||||
Missile Systems
|
8,726
|
8,298
|
7,787
|
|||||||||
Space and Airborne Systems
|
7,427
|
6,748
|
6,430
|
|||||||||
Forcepoint
|
658
|
634
|
608
|
|||||||||
Eliminations
|
(1,712
|
)
|
(1,514
|
)
|
(1,423
|
)
|
||||||
Total business segment sales
|
29,177
|
27,068
|
25,383
|
|||||||||
Acquisition Accounting Adjustments
|
(1
|
)
|
(10
|
)
|
(35
|
)
|
||||||
Total
|
$
|
29,176
|
$
|
27,058
|
$
|
25,348
|
Intersegment Sales (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
87
|
$
|
65
|
$
|
64
|
||||||
Intelligence, Information and Services
|
700
|
666
|
666
|
|||||||||
Missile Systems
|
210
|
161
|
132
|
|||||||||
Space and Airborne Systems
|
686
|
596
|
540
|
|||||||||
Forcepoint
|
29
|
26
|
21
|
|||||||||
Total
|
$
|
1,712
|
$
|
1,514
|
$
|
1,423
|
Operating Income (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
1,111
|
$
|
1,023
|
$
|
935
|
||||||
Intelligence, Information and Services(1)
|
658
|
538
|
455
|
|||||||||
Missile Systems
|
959
|
973
|
1,010
|
|||||||||
Space and Airborne Systems
|
991
|
884
|
862
|
|||||||||
Forcepoint
|
8
|
5
|
33
|
|||||||||
Eliminations
|
(184
|
)
|
(170
|
)
|
(148
|
)
|
||||||
Total business segment operating income
|
3,543
|
3,253
|
3,147
|
|||||||||
Acquisition Accounting Adjustments
|
(112
|
)
|
(126
|
)
|
(160
|
)
|
||||||
FAS/CAS Operating Adjustment
|
1,454
|
1,428
|
1,303
|
|||||||||
Corporate and Reclassification(1)(2)
|
(111
|
)
|
(17
|
)
|
(59
|
)
|
||||||
Total
|
$
|
4,774
|
$
|
4,538
|
$
|
4,231
|
(1) |
In the third quarter of 2019, the Company revalued an investment in equity securities of a non-publicly traded company due to the availability of updated pricing data from a recent transaction and recognized a non-cash gain of $14
million. The gain is included in IIS’s operating income in 2019 as it is part of management’s evaluation of the segment’s performance and reclassified to other (income) expense, net on our consolidated statements of operations for
financial reporting purposes as the gain is not related to our core operations. No amounts were recorded in 2018 or 2017.
|
(2) |
In the fourth quarter of 2019, we were selected by the U.S. Army for the Lower Tier Air and Missile Defense Sensor (LTAMDS). The net expenses related to the LTAMDS project of $13 million in 2019 are included in Corporate operating
income as they are not included in management’s evaluation of business segment results. No amounts were recorded in 2018 or 2017.
|
Intersegment Operating Income (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
8
|
$
|
6
|
$
|
5
|
||||||
Intelligence, Information and Services
|
68
|
68
|
64
|
|||||||||
Missile Systems
|
20
|
15
|
13
|
|||||||||
Space and Airborne Systems
|
67
|
60
|
51
|
|||||||||
Forcepoint
|
21
|
21
|
15
|
|||||||||
Total
|
$
|
184
|
$
|
170
|
$
|
148
|
(In millions)
|
2019
|
2018
|
2017
|
|||||||||
FAS/CAS Pension Operating Adjustment
|
$
|
1,439
|
$
|
1,415
|
$
|
1,291
|
||||||
FAS/CAS PRB Operating Adjustment
|
15
|
13
|
12
|
|||||||||
FAS/CAS Operating Adjustment
|
$
|
1,454
|
$
|
1,428
|
$
|
1,303
|
Capital Expenditures (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
309
|
$
|
242
|
$
|
200
|
||||||
Intelligence, Information and Services
|
50
|
46
|
22
|
|||||||||
Missile Systems
|
232
|
337
|
221
|
|||||||||
Space and Airborne Systems
|
304
|
136
|
158
|
|||||||||
Forcepoint
|
17
|
13
|
14
|
|||||||||
Corporate
|
28
|
24
|
19
|
|||||||||
Total(1)
|
$
|
940
|
$
|
798
|
$
|
634
|
(1) |
Total capital expenditures may not agree to our consolidated statements of cash flows due to non-cash transactions.
|
Depreciation and Amortization (in millions)
|
2019
|
2018
|
2017
|
|||||||||
Integrated Defense Systems
|
$
|
118
|
$
|
98
|
$
|
98
|
||||||
Intelligence, Information and Services
|
49
|
51
|
50
|
|||||||||
Missile Systems
|
129
|
98
|
84
|
|||||||||
Space and Airborne Systems
|
132
|
140
|
132
|
|||||||||
Forcepoint
|
14
|
17
|
17
|
|||||||||
Acquisition Accounting Adjustments
|
111
|
116
|
125
|
|||||||||
Corporate
|
52
|
48
|
44
|
|||||||||
Total
|
$
|
605
|
$
|
568
|
$
|
550
|
Total Assets (in millions)
|
2019
|
2018(2)
|
||||||
Integrated Defense Systems(1)
|
$
|
5,103
|
$
|
4,826
|
||||
Intelligence, Information and Services(1)
|
4,291
|
4,238
|
||||||
Missile Systems(1)
|
8,408
|
8,229
|
||||||
Space and Airborne Systems(1)
|
6,979
|
6,740
|
||||||
Forcepoint(1)
|
2,424
|
2,529
|
||||||
Corporate
|
7,361
|
6,108
|
||||||
Total
|
$
|
34,566
|
$
|
32,670
|
(1) |
Total assets includes intangible assets. Related amortization expense is included in Acquisition Accounting Adjustments.
|
(2) |
Amounts have been recast to reflect the adoption of ASU 2016-02, Leases (Topic 842). Operating lease right-of-use assets are all recorded at Corporate.
|
Property, Plant and Equipment, Net, by Geographic Area (in millions)
|
2019
|
2018
|
||||||
United States
|
$
|
3,251
|
$
|
2,751
|
||||
All other (principally Europe)
|
102
|
89
|
||||||
Total
|
$
|
3,353
|
$
|
2,840
|
2019
|
||||||||||||||||||||||||||||
Disaggregation of Total Net Sales
(in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Other
|
Total
|
|||||||||||||||||||||
United States
|
||||||||||||||||||||||||||||
Sales to the U.S. government(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
$
|
897
|
$
|
1,035
|
$
|
3,175
|
$
|
2,696
|
$
|
179
|
$
|
—
|
$
|
7,982
|
||||||||||||||
Cost-type contracts
|
1,854
|
4,461
|
2,986
|
2,812
|
16
|
—
|
12,129
|
|||||||||||||||||||||
Direct commercial sales and other U.S. sales
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
6
|
122
|
33
|
121
|
175
|
—
|
457
|
|||||||||||||||||||||
Cost-type contracts
|
—
|
22
|
—
|
3
|
1
|
—
|
26
|
|||||||||||||||||||||
Asia/Pacific
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
174
|
245
|
487
|
163
|
—
|
—
|
1,069
|
|||||||||||||||||||||
Cost-type contracts
|
70
|
37
|
58
|
33
|
—
|
—
|
198
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
719
|
181
|
169
|
238
|
67
|
—
|
1,374
|
|||||||||||||||||||||
Cost-type contracts
|
78
|
—
|
2
|
—
|
—
|
—
|
80
|
|||||||||||||||||||||
Middle East and North Africa
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
740
|
12
|
594
|
322
|
—
|
—
|
1,668
|
|||||||||||||||||||||
Cost-type contracts
|
290
|
21
|
11
|
84
|
—
|
—
|
406
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
1,221
|
39
|
592
|
43
|
34
|
—
|
1,929
|
|||||||||||||||||||||
Cost-type contracts
|
—
|
—
|
92
|
—
|
—
|
—
|
92
|
|||||||||||||||||||||
All other (principally Europe)
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
555
|
1
|
138
|
68
|
—
|
—
|
762
|
|||||||||||||||||||||
Cost-type contracts
|
50
|
—
|
37
|
8
|
—
|
—
|
95
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
176
|
230
|
139
|
150
|
156
|
—
|
851
|
|||||||||||||||||||||
Cost-type contracts
|
10
|
45
|
3
|
—
|
—
|
—
|
58
|
|||||||||||||||||||||
Total net sales
|
6,840
|
6,451
|
8,516
|
6,741
|
628
|
—
|
29,176
|
|||||||||||||||||||||
Intersegment sales
|
87
|
700
|
210
|
686
|
29
|
(1,712
|
)
|
—
|
||||||||||||||||||||
Acquisition Accounting Adjustments
|
—
|
—
|
—
|
—
|
1
|
(1
|
)
|
—
|
||||||||||||||||||||
Reconciliation to business segment sales
|
$
|
6,927
|
$
|
7,151
|
$
|
8,726
|
$
|
7,427
|
$
|
658
|
$
|
(1,713
|
)
|
$
|
29,176
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2019
|
||||||||||||||||||||||||
Total Net Sales by Geographic Area (in millions)
|
Integrated
Defense Systems |
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
United States
|
$
|
2,757
|
$
|
5,640
|
$
|
6,194
|
$
|
5,632
|
$
|
371
|
$
|
20,594
|
||||||||||||
Asia/Pacific
|
1,041
|
463
|
716
|
434
|
67
|
2,721
|
||||||||||||||||||
Middle East and North Africa
|
2,251
|
72
|
1,289
|
449
|
34
|
4,095
|
||||||||||||||||||
All other (principally Europe)
|
791
|
276
|
317
|
226
|
156
|
1,766
|
||||||||||||||||||
Total net sales
|
$
|
6,840
|
$
|
6,451
|
$
|
8,516
|
$
|
6,741
|
$
|
628
|
$
|
29,176
|
2019
|
||||||||||||||||||||||||
Total Net Sales by Major Customer (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems |
Space and
Airborne
Systems |
Forcepoint
|
Total
|
||||||||||||||||||
Sales to the U.S. government(1)
|
$
|
2,751
|
$
|
5,496
|
$
|
6,161
|
$
|
5,508
|
$
|
195
|
$
|
20,111
|
||||||||||||
U.S. direct commercial sales and other U.S. sales
|
6
|
144
|
33
|
124
|
176
|
483
|
||||||||||||||||||
Foreign military sales through the U.S. government
|
1,879
|
316
|
1,325
|
678
|
—
|
4,198
|
||||||||||||||||||
Foreign direct commercial sales and other foreign sales(1)
|
2,204
|
495
|
997
|
431
|
257
|
4,384
|
||||||||||||||||||
Total net sales
|
$
|
6,840
|
$
|
6,451
|
$
|
8,516
|
$
|
6,741
|
$
|
628
|
$
|
29,176
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2019
|
||||||||||||||||||||||||
Total Net Sales by Contract-Type (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Fixed-price contracts
|
$
|
4,488
|
$
|
1,865
|
$
|
5,327
|
$
|
3,801
|
$
|
611
|
$
|
16,092
|
||||||||||||
Cost-type contracts
|
2,352
|
4,586
|
3,189
|
2,940
|
17
|
13,084
|
||||||||||||||||||
Total net sales
|
$
|
6,840
|
$
|
6,451
|
$
|
8,516
|
$
|
6,741
|
$
|
628
|
$
|
29,176
|
2018
|
||||||||||||||||||||||||||||
Disaggregation of Total Net Sales
(in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Other
|
Total
|
|||||||||||||||||||||
United States
|
||||||||||||||||||||||||||||
Sales to the U.S. government(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
$
|
818
|
$
|
1,008
|
$
|
2,953
|
$
|
2,480
|
$
|
118
|
$
|
—
|
$
|
7,377
|
||||||||||||||
Cost-type contracts
|
1,706
|
4,110
|
2,675
|
2,565
|
14
|
—
|
11,070
|
|||||||||||||||||||||
Direct commercial sales and other U.S. sales
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
5
|
118
|
41
|
111
|
209
|
—
|
484
|
|||||||||||||||||||||
Cost-type contracts
|
1
|
18
|
—
|
3
|
—
|
—
|
22
|
|||||||||||||||||||||
Asia/Pacific
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
189
|
243
|
450
|
152
|
—
|
—
|
1,034
|
|||||||||||||||||||||
Cost-type contracts
|
79
|
45
|
61
|
22
|
—
|
—
|
207
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
711
|
198
|
173
|
211
|
70
|
—
|
1,363
|
|||||||||||||||||||||
Cost-type contracts
|
117
|
—
|
1
|
1
|
—
|
—
|
119
|
|||||||||||||||||||||
Middle East and North Africa
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
849
|
20
|
452
|
237
|
—
|
—
|
1,558
|
|||||||||||||||||||||
Cost-type contracts
|
170
|
5
|
23
|
69
|
—
|
—
|
267
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
1,137
|
15
|
785
|
95
|
33
|
—
|
2,065
|
|||||||||||||||||||||
Cost-type contracts
|
—
|
—
|
96
|
—
|
—
|
—
|
96
|
|||||||||||||||||||||
All other (principally Europe)
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
151
|
2
|
124
|
56
|
—
|
—
|
333
|
|||||||||||||||||||||
Cost-type contracts
|
27
|
—
|
70
|
6
|
—
|
—
|
103
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
145
|
230
|
231
|
144
|
154
|
—
|
904
|
|||||||||||||||||||||
Cost-type contracts
|
10
|
44
|
2
|
—
|
—
|
—
|
56
|
|||||||||||||||||||||
Total net sales
|
6,115
|
6,056
|
8,137
|
6,152
|
598
|
—
|
27,058
|
|||||||||||||||||||||
Intersegment sales
|
65
|
666
|
161
|
596
|
26
|
(1,514
|
)
|
—
|
||||||||||||||||||||
Acquisition Accounting Adjustments
|
—
|
—
|
—
|
—
|
10
|
(10
|
)
|
—
|
||||||||||||||||||||
Reconciliation to business segment sales
|
$
|
6,180
|
$
|
6,722
|
$
|
8,298
|
$
|
6,748
|
$
|
634
|
$
|
(1,524
|
)
|
$
|
27,058
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2018
|
||||||||||||||||||||||||
Total Net Sales by Geographic Area (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems |
Forcepoint
|
Total
|
||||||||||||||||||
United States
|
$
|
2,530
|
$
|
5,254
|
$
|
5,669
|
$
|
5,159
|
$
|
341
|
$
|
18,953
|
||||||||||||
Asia/Pacific
|
1,096
|
486
|
685
|
386
|
70
|
2,723
|
||||||||||||||||||
Middle East and North Africa
|
2,156
|
40
|
1,356
|
401
|
33
|
3,986
|
||||||||||||||||||
All other (principally Europe)
|
333
|
276
|
427
|
206
|
154
|
1,396
|
||||||||||||||||||
Total net sales
|
$
|
6,115
|
$
|
6,056
|
$
|
8,137
|
$
|
6,152
|
$
|
598
|
$
|
27,058
|
2018
|
||||||||||||||||||||||||
Total Net Sales by Major Customer (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Sales to the U.S. government(1)
|
$
|
2,524
|
$
|
5,118
|
$
|
5,628
|
$
|
5,045
|
$
|
132
|
$
|
18,447
|
||||||||||||
U.S. direct commercial sales and other U.S. sales
|
6
|
136
|
41
|
114
|
209
|
506
|
||||||||||||||||||
Foreign military sales through the U.S. government
|
1,465
|
315
|
1,180
|
542
|
—
|
3,502
|
||||||||||||||||||
Foreign direct commercial sales and other foreign sales(1)
|
2,120
|
487
|
1,288
|
451
|
257
|
4,603
|
||||||||||||||||||
Total net sales
|
$
|
6,115
|
$
|
6,056
|
$
|
8,137
|
$
|
6,152
|
$
|
598
|
$
|
27,058
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2018
|
||||||||||||||||||||||||
Total Net Sales by Contract-Type (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Fixed-price contracts
|
$
|
4,005
|
$
|
1,834
|
$
|
5,209
|
$
|
3,486
|
$
|
584
|
$
|
15,118
|
||||||||||||
Cost-type contracts
|
2,110
|
4,222
|
2,928
|
2,666
|
14
|
11,940
|
||||||||||||||||||
Total net sales
|
$
|
6,115
|
$
|
6,056
|
$
|
8,137
|
$
|
6,152
|
$
|
598
|
$
|
27,058
|
2017
|
||||||||||||||||||||||||||||
Disaggregation of Total Net Sales
(in millions)
|
Integrated
Defense Systems |
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Other
|
Total
|
|||||||||||||||||||||
United States
|
||||||||||||||||||||||||||||
Sales to the U.S. government(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
$
|
812
|
$
|
1,090
|
$
|
2,914
|
$
|
2,233
|
$
|
111
|
$
|
—
|
$
|
7,160
|
||||||||||||||
Cost-type contracts
|
1,507
|
3,576
|
1,991
|
2,614
|
12
|
—
|
9,700
|
|||||||||||||||||||||
Direct commercial sales and other U.S. sales
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
6
|
130
|
1
|
51
|
202
|
—
|
390
|
|||||||||||||||||||||
Cost-type contracts
|
1
|
9
|
—
|
2
|
1
|
—
|
13
|
|||||||||||||||||||||
Asia/Pacific
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
167
|
181
|
410
|
113
|
—
|
—
|
871
|
|||||||||||||||||||||
Cost-type contracts
|
138
|
51
|
64
|
9
|
—
|
—
|
262
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
596
|
193
|
309
|
284
|
59
|
—
|
1,441
|
|||||||||||||||||||||
Cost-type contracts
|
145
|
—
|
1
|
1
|
—
|
—
|
147
|
|||||||||||||||||||||
Middle East and North Africa
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
1,066
|
18
|
371
|
191
|
—
|
—
|
1,646
|
|||||||||||||||||||||
Cost-type contracts
|
154
|
1
|
22
|
30
|
—
|
—
|
207
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
979
|
18
|
1,013
|
175
|
25
|
—
|
2,210
|
|||||||||||||||||||||
Cost-type contracts
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
All other (principally Europe)
|
||||||||||||||||||||||||||||
Foreign military sales through the U.S. government
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
7
|
3
|
157
|
51
|
—
|
—
|
218
|
|||||||||||||||||||||
Cost-type contracts
|
22
|
2
|
78
|
5
|
—
|
—
|
107
|
|||||||||||||||||||||
Direct commercial sales and other foreign sales(1)
|
||||||||||||||||||||||||||||
Fixed-price contracts
|
128
|
209
|
320
|
131
|
142
|
—
|
930
|
|||||||||||||||||||||
Cost-type contracts
|
12
|
30
|
4
|
—
|
—
|
—
|
46
|
|||||||||||||||||||||
Total net sales
|
5,740
|
5,511
|
7,655
|
5,890
|
552
|
—
|
25,348
|
|||||||||||||||||||||
Intersegment sales
|
64
|
666
|
132
|
540
|
21
|
(1,423
|
)
|
—
|
||||||||||||||||||||
Acquisition Accounting Adjustments
|
—
|
—
|
—
|
—
|
35
|
(35
|
)
|
—
|
||||||||||||||||||||
Reconciliation to business segment sales
|
$
|
5,804
|
$
|
6,177
|
$
|
7,787
|
$
|
6,430
|
$
|
608
|
$
|
(1,458
|
)
|
$
|
25,348
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2017
|
||||||||||||||||||||||||
Total Net Sales by Geographic Area (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
United States
|
$
|
2,326
|
$
|
4,805
|
$
|
4,906
|
$
|
4,900
|
$
|
326
|
$
|
17,263
|
||||||||||||
Asia/Pacific
|
1,046
|
425
|
784
|
407
|
59
|
2,721
|
||||||||||||||||||
Middle East and North Africa
|
2,199
|
37
|
1,406
|
396
|
25
|
4,063
|
||||||||||||||||||
All other (principally Europe)
|
169
|
244
|
559
|
187
|
142
|
1,301
|
||||||||||||||||||
Total net sales
|
$
|
5,740
|
$
|
5,511
|
$
|
7,655
|
$
|
5,890
|
$
|
552
|
$
|
25,348
|
2017
|
||||||||||||||||||||||||
Total Net Sales by Major Customer (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Sales to the U.S. government(1)
|
$
|
2,319
|
$
|
4,666
|
$
|
4,905
|
$
|
4,847
|
$
|
123
|
$
|
16,860
|
||||||||||||
U.S. direct commercial sales and other U.S. sales
|
7
|
139
|
1
|
53
|
203
|
403
|
||||||||||||||||||
Foreign military sales through the U.S. government
|
1,554
|
256
|
1,102
|
399
|
—
|
3,311
|
||||||||||||||||||
Foreign direct commercial sales and other foreign sales(1)
|
1,860
|
450
|
1,647
|
591
|
226
|
4,774
|
||||||||||||||||||
Total net sales
|
$
|
5,740
|
$
|
5,511
|
$
|
7,655
|
$
|
5,890
|
$
|
552
|
$
|
25,348
|
(1) |
Excludes foreign military sales through the U.S. government.
|
2017
|
||||||||||||||||||||||||
Total Net Sales by Contract-Type (in millions)
|
Integrated
Defense
Systems
|
Intelligence,
Information
and Services
|
Missile
Systems
|
Space and
Airborne
Systems
|
Forcepoint
|
Total
|
||||||||||||||||||
Fixed-price contracts
|
$
|
3,761
|
$
|
1,842
|
$
|
5,495
|
$
|
3,229
|
$
|
539
|
$
|
14,866
|
||||||||||||
Cost-type contracts
|
1,979
|
3,669
|
2,160
|
2,661
|
13
|
10,482
|
||||||||||||||||||
Total net sales
|
$
|
5,740
|
$
|
5,511
|
$
|
7,655
|
$
|
5,890
|
$
|
552
|
$
|
25,348
|
2019 (in millions, except per share amounts and workdays)
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
Total net sales
|
$
|
6,729
|
$
|
7,159
|
$
|
7,446
|
$
|
7,842
|
||||||||
Gross margin
|
1,852
|
1,954
|
1,947
|
2,010
|
||||||||||||
Income from continuing operations
|
775
|
813
|
861
|
879
|
||||||||||||
Net income attributable to Raytheon Company
|
781
|
817
|
860
|
885
|
||||||||||||
EPS from continuing operations attributable to Raytheon Company common stockholders(1)
|
||||||||||||||||
Basic
|
$
|
2.77
|
$
|
2.92
|
$
|
3.08
|
$
|
3.17
|
||||||||
Diluted
|
2.77
|
2.92
|
3.08
|
3.16
|
||||||||||||
EPS attributable to Raytheon Company common stockholders(1)
|
||||||||||||||||
Basic
|
2.77
|
2.92
|
3.08
|
3.16
|
||||||||||||
Diluted
|
2.77
|
2.92
|
3.08
|
3.16
|
||||||||||||
Workdays(2)
|
63
|
64
|
63
|
59
|
2018 (in millions, except per share amounts and workdays)
|
First
|
Second
|
Third(3)
|
Fourth
|
||||||||||||
Total net sales
|
$
|
6,267
|
$
|
6,625
|
$
|
6,806
|
$
|
7,360
|
||||||||
Gross margin
|
1,735
|
1,848
|
1,935
|
1,967
|
||||||||||||
Income from continuing operations
|
624
|
790
|
641
|
828
|
||||||||||||
Net income attributable to Raytheon Company
|
633
|
800
|
644
|
832
|
||||||||||||
EPS from continuing operations attributable to Raytheon Company common stockholders(1)
|
||||||||||||||||
Basic
|
$
|
2.20
|
$
|
2.78
|
$
|
2.25
|
$
|
2.93
|
||||||||
Diluted
|
2.20
|
2.78
|
2.25
|
2.93
|
||||||||||||
EPS attributable to Raytheon Company common stockholders(1)
|
||||||||||||||||
Basic
|
2.20
|
2.78
|
2.25
|
2.93
|
||||||||||||
Diluted
|
2.19
|
2.78
|
2.25
|
2.93
|
||||||||||||
Workdays(2)
|
64
|
64
|
63
|
58
|
(1) |
EPS is computed independently for each of the quarters presented; therefore, the sum of the quarterly EPS may not equal the total computed for each year.
|
(2) |
Number of workdays per our fiscal calendar, which excludes holidays and weekends.
|
(3) |
In the third quarter of 2018, we recognized a non-cash pension settlement charge of $288 million for certain Raytheon-sponsored pension plans that purchased a group annuity contract from an insurance company to transfer some of our
outstanding pension benefit obligations.
|
• |
The Separation, Distributions and Related Transactions; and
|
• |
UTC’s merger with Raytheon with acquisition accounting applied to Raytheon as the accounting acquiree.
|
• |
The unaudited pro forma combined balance sheet as of December 31, 2019 was prepared based on:
|
(1) |
the historical audited consolidated balance sheet of UTC as of December 31, 2019; and
|
(2) |
the historical audited consolidated balance sheet of Raytheon as of December 31, 2019.
|
• |
The unaudited pro forma combined statement of operations for the year ended December 31, 2019 was prepared based on:
|
(1) |
the historical audited consolidated statement of operations of UTC for the year ended December 31, 2019; and
|
(2) |
the historical audited consolidated statement of operations of Raytheon for the year ended December 31, 2019.
|
• |
The unaudited pro forma combined statement of operations for the year ended December 31, 2018 was prepared based on the historical audited consolidated statement of operations of UTC for the year ended
December 31, 2018.
|
• |
The unaudited pro forma combined statement of operations for the year ended December 31, 2017 was prepared based on the historical audited consolidated statement of operations of UTC for the year ended December 31, 2017.
|
• |
UTC’s consolidated financial statements and the notes thereto contained in its Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 6, 2020;
|
• |
Raytheon’s consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the year ended December 31, 2019; and
|
• |
UTC’s Form S-4 Registration Statement (as amended) filed with the SEC on September 4, 2019 and declared effective on September 9, 2019.
|
Historical United
Technologies
Corporation
|
Separation,
Distributions and
Related
Transactions
(Note 3)
|
Pro Forma
United
Technologies
Corporation Post
Separation |
Historical
Raytheon
Company After
Reclassifications
(Note 4)
|
Pro Forma
Merger
Adjustments
(Notes 5
and 6)
|
Pro Forma
Combined
Company
|
||||||||||||||||||||
Assets:
|
|||||||||||||||||||||||||
Cash and cash equivalents
|
$
|
7,378
|
$
|
(2,241
|
)
|
$
|
5,137
|
$
|
4,292
|
$
|
-
|
$
|
9,429
|
||||||||||||
Accounts receivable, net
|
13,524
|
(4,210
|
)
|
9,314
|
1,364
|
(43
|
)
|
(a)
|
10,635
|
||||||||||||||||
Contract assets, current
|
4,184
|
160
|
4,344
|
6,122
|
-
|
10,466
|
|||||||||||||||||||
Inventory, net
|
10,950
|
(1,877
|
)
|
9,073
|
671
|
-
|
9,744
|
||||||||||||||||||
Other assets, current
|
1,461
|
1,098
|
2,559
|
633
|
243
|
(b)
|
3,435
|
||||||||||||||||||
Total Current Assets
|
37,497
|
(7,070
|
)
|
30,427
|
13,082
|
200
|
43,709
|
||||||||||||||||||
Customer financing assets
|
3,477
|
-
|
3,477
|
-
|
-
|
3,477
|
|||||||||||||||||||
Future income tax benefits
|
1,611
|
(1,128
|
)
|
483
|
534
|
(238
|
)
|
(c)
|
779
|
||||||||||||||||
Fixed assets, net
|
12,755
|
(2,433
|
)
|
10,322
|
3,605
|
1,045
|
(d)
|
14,972
|
|||||||||||||||||
Operating lease right-of-use assets
|
2,599
|
(1,347
|
)
|
1,252
|
875
|
43
|
(d)
|
2,170
|
|||||||||||||||||
Goodwill
|
48,063
|
(11,454
|
)
|
36,609
|
14,882
|
4,803
|
(e)
|
56,294
|
|||||||||||||||||
Intangible assets, net
|
26,046
|
(1,573
|
)
|
24,473
|
283
|
18,957
|
(f)
|
43,713
|
|||||||||||||||||
Other assets
|
7,668
|
(6,278
|
)
|
1,390
|
1,305
|
(57
|
)
|
(g)
|
2,638
|
||||||||||||||||
Total Assets
|
$
|
139,716
|
$
|
(31,283
|
)
|
$
|
108,433
|
$
|
34,566
|
$
|
24,753
|
$
|
167,752
|
||||||||||||
Liabilities and Equity:
|
|||||||||||||||||||||||||
Short-term borrowings
|
$
|
2,364
|
$
|
(2,364
|
)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
Accounts payable
|
10,809
|
(3,032
|
)
|
7,777
|
1,796
|
(43
|
)
|
(h)
|
9,530
|
||||||||||||||||
Accrued liabilities
|
11,737
|
(452
|
)
|
11,285
|
3,357
|
439
|
(i)
|
15,081
|
|||||||||||||||||
Contract liabilities, current
|
6,180
|
2,993
|
9,173
|
2,998
|
(44
|
)
|
(j)
|
12,127
|
|||||||||||||||||
Long-term debt currently due
|
3,496
|
(3,126
|
)
|
370
|
1,499
|
-
|
1,869
|
||||||||||||||||||
Total Current Liabilities
|
34,586
|
(5,981
|
)
|
28,605
|
9,650
|
352
|
38,607
|
||||||||||||||||||
Long-term debt
|
37,788
|
(11,927
|
)
|
25,861
|
3,261
|
149
|
(k)
|
29,271
|
|||||||||||||||||
Future pension and postretirement benefit obligations
|
3,502
|
(1,016
|
)
|
2,486
|
8,056
|
(249
|
)
|
(l)
|
10,293
|
||||||||||||||||
Operating lease liabilities
|
2,144
|
(1,051
|
)
|
1,093
|
706
|
-
|
1,799
|
||||||||||||||||||
Contract liabilities, long-term
|
5,732
|
(5,732
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Other long-term liabilities
|
11,638
|
(4,149
|
)
|
7,489
|
638
|
4,178
|
(c)(m)
|
12,305
|
|||||||||||||||||
Total Liabilities
|
$
|
95,390
|
$
|
(29,856
|
)
|
$
|
65,534
|
$
|
22,311
|
$
|
4,430
|
$
|
92,275
|
||||||||||||
Commitments and contingent liabilities
|
|||||||||||||||||||||||||
Redeemable noncontrolling interest
|
$
|
95
|
$
|
(95
|
)
|
$
|
-
|
$
|
32
|
$
|
-
|
$
|
32
|
||||||||||||
Shareowners’ Equity:
|
|||||||||||||||||||||||||
Capital Stock:
|
|||||||||||||||||||||||||
Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Common stock
|
23,019
|
2,532
|
25,551
|
3
|
10,425
|
(n)
|
35,979
|
||||||||||||||||||
Treasury Stock
|
(32,626
|
)
|
-
|
(32,626
|
)
|
-
|
22,268
|
(n)
|
(10,358
|
)
|
|||||||||||||||
Retained earnings
|
61,594
|
(5,713
|
) |
55,881
|
21,480
|
(21,630
|
)
|
(n)
|
55,731
|
||||||||||||||||
Unearned ESOP shares
|
(64
|
)
|
(64
|
)
|
-
|
-
|
(64
|
)
|
|||||||||||||||||
Total Accumulated other comprehensive loss
|
(10,149
|
)
|
2,713
|
(7,436
|
)
|
(9,260
|
)
|
9,260
|
(n)
|
(7,436
|
)
|
||||||||||||||
Total Shareowners’ Equity
|
41,774
|
(468
|
)
|
41,306
|
12,223
|
20,323
|
73,852
|
||||||||||||||||||
Noncontrolling interest
|
2,457
|
(864
|
)
|
1,593
|
-
|
-
|
1,593
|
||||||||||||||||||
Total Equity
|
$
|
44,231
|
$
|
(1,332
|
)
|
$
|
42,899
|
$
|
12,223
|
$
|
20,323
|
$
|
75,445
|
||||||||||||
Total Liabilities and Equity
|
$
|
139,716
|
$
|
(31,283
|
)
|
$
|
108,433
|
$
|
34,566
|
$
|
24,753
|
$
|
167,752
|
Historical United
Technologies
Corporation
|
Separation,
Distributions and
Related
Transactions
(Note 3)
|
Pro Forma
United
Technologies
Corporation Post
Separation
|
Historical
Raytheon
Company After
Reclassifications
(Note 4)
|
Pro Forma
Merger
Adjustments
(Notes 5
and 7)
|
Pro Forma
Combined Company |
||||||||||||||||||||
Net Sales:
|
|||||||||||||||||||||||||
Product sales
|
$
|
54,004
|
$
|
(21,005
|
)
|
$
|
32,999
|
$
|
24,435
|
$
|
(288
|
)
|
(o)
|
$
|
57,146
|
||||||||||
Service sales
|
23,042
|
(10,692
|
)
|
12,350
|
4,741
|
-
|
17,091
|
||||||||||||||||||
77,046
|
(31,697
|
)
|
45,349
|
29,176
|
(288
|
)
|
74,237
|
||||||||||||||||||
Costs and Expenses:
|
|||||||||||||||||||||||||
Cost of products sold
|
42,444
|
(15,531
|
)
|
26,913
|
17,747
|
1,092
|
(p)
|
45,752
|
|||||||||||||||||
Cost of services sold
|
14,621
|
(6,934
|
)
|
7,687
|
3,666
|
1
|
(p)
|
11,354
|
|||||||||||||||||
Research and development
|
3,015
|
(564
|
)
|
2,451
|
732
|
3
|
(q)
|
3,186
|
|||||||||||||||||
Selling, general, and administrative
|
8,521
|
(4,814
|
)
|
3,707
|
2,225
|
(179
|
)
|
(r)
|
5,753
|
||||||||||||||||
68,601
|
(27,843
|
)
|
40,758
|
24,370
|
917
|
66,045
|
|||||||||||||||||||
Other income (expense), net
|
521
|
(206
|
)
|
315
|
38
|
-
|
353
|
||||||||||||||||||
Operating profit
|
8,966
|
(4,060
|
)
|
4,906
|
4,844
|
(1,205
|
)
|
8,545
|
|||||||||||||||||
Non-service pension (benefit) cost
|
(888
|
)
|
47
|
(841
|
)
|
688
|
(1,059
|
)
|
(s)
|
(1,212
|
)
|
||||||||||||||
Interest expense (income), net
|
1,611
|
(664
|
)
|
947
|
138
|
(6
|
)
|
(t)
|
1,079
|
||||||||||||||||
Income (loss) from operations before income taxes
|
$
|
8,243
|
$
|
(3,443
|
)
|
$
|
4,800
|
$
|
4,018
|
$
|
(140
|
)
|
$
|
8,678
|
|||||||||||
Income tax expense (income)
|
2,295
|
(1,722
|
)
|
573
|
690
|
(45
|
)
|
(u)
|
1,218
|
||||||||||||||||
Net income (loss)
|
$
|
5,948
|
$
|
(1,721
|
)
|
$
|
4,227
|
$
|
3,328
|
$
|
(95
|
)
|
$
|
7,460
|
|||||||||||
Less: Noncontrolling interest in subsidiaries’ earnings from operations
|
411
|
(190
|
)
|
221
|
(14
|
)
|
-
|
207
|
|||||||||||||||||
Net income (loss) attributable to UTC common shareowners
|
$
|
5,537
|
$
|
(1,531
|
)
|
$
|
4,006
|
$
|
3,342
|
$
|
(95
|
)
|
$
|
7,253
|
|||||||||||
Pro forma earnings per share of common stock:
|
|||||||||||||||||||||||||
Basic
|
$
|
6.48
|
$
|
4.82
|
|||||||||||||||||||||
Diluted
|
$
|
6.41
|
$
|
4.78
|
|||||||||||||||||||||
Pro forma weighted average common shares outstanding
|
|||||||||||||||||||||||||
Basic
|
854.8
|
(v)
|
1,503.6
|
||||||||||||||||||||||
Diluted
|
863.9
|
(w)
|
1,515.8
|
Historical United
Technologies
Corporation
|
Otis
Distribution
|
Carrier
Distribution
|
Pro Forma United
Technologies
Corporation Post
Separation
|
|||||||||||||
Net Sales:
|
||||||||||||||||
Product sales
|
$
|
45,434
|
$
|
(5,636
|
)
|
$
|
(15,657
|
)
|
$
|
24,141
|
||||||
Service sales
|
21,067
|
(7,268
|
)
|
(3,240
|
)
|
10,559
|
||||||||||
66,501
|
(12,904
|
)
|
(18,897
|
)
|
34,700
|
|||||||||||
Costs and Expenses:
|
||||||||||||||||
Cost of products sold
|
36,754
|
(4,624
|
)
|
(11,047
|
)
|
21,083
|
||||||||||
Cost of services sold
|
13,231
|
(4,568
|
)
|
(2,282
|
)
|
6,381
|
||||||||||
Research and development
|
2,462
|
(185
|
)
|
(400
|
)
|
1,877
|
||||||||||
Selling, general, and administrative
|
7,066
|
(1,636
|
)
|
(2,566
|
)
|
2,864
|
||||||||||
59,513
|
(11,013
|
)
|
(16,295
|
)
|
32,205
|
|||||||||||
Other income (expense), net
|
1,565
|
(26
|
)
|
(1,157
|
)
|
382
|
||||||||||
Operating profit
|
8,553
|
(1,917
|
)
|
(3,759
|
)
|
2,877
|
||||||||||
Non-service pension (benefit) cost
|
(765
|
)
|
10
|
96
|
(659
|
)
|
||||||||||
Interest expense (income), net
|
1,038
|
8
|
(14
|
)
|
1,032
|
|||||||||||
Income (loss) from operations before income taxes
|
$
|
8,280
|
$
|
(1,935
|
)
|
$
|
(3,841
|
)
|
$
|
2,504
|
||||||
Income tax expense (income)
|
2,626
|
(528
|
)
|
(951
|
)
|
1,147
|
||||||||||
Net income (loss)
|
$
|
5,654
|
$
|
(1,407
|
)
|
$
|
(2,890
|
)
|
$
|
1,357
|
||||||
Less: Noncontrolling interest in subsidiaries’ earnings from operations
|
385
|
(161
|
)
|
(34
|
)
|
190
|
||||||||||
Net income (loss) attributable to UTC common shareowners
|
$
|
5,269
|
$
|
(1,246
|
)
|
$
|
(2,856
|
)
|
$
|
1,167
|
||||||
Pro forma earnings per share of common stock:
|
||||||||||||||||
Basic
|
$
|
6.58
|
$
|
1.46
|
||||||||||||
Diluted
|
$
|
6.50
|
$
|
1.44
|
||||||||||||
Pro forma weighted average common shares outstanding
|
||||||||||||||||
Basic
|
800.4
|
800.4
|
||||||||||||||
Diluted
|
810.1
|
810.1
|
Historical United
Technologies
Corporation
|
Otis
Distribution
|
Carrier
Distribution
|
Pro Forma United
Technologies
Corporation Post
Separation
|
|||||||||||||
Net Sales:
|
||||||||||||||||
Product sales
|
$
|
41,361
|
$
|
(5,498
|
)
|
$
|
(14,743
|
)
|
$
|
21,120
|
||||||
Service sales
|
18,476
|
(6,842
|
)
|
(3,039
|
)
|
8,595
|
||||||||||
59,837
|
(12,340
|
)
|
(17,782
|
)
|
29,715
|
|||||||||||
Costs and Expenses:
|
||||||||||||||||
Cost of products sold
|
31,224
|
(4,392
|
)
|
(10,448
|
)
|
16,384
|
||||||||||
Cost of services sold
|
12,977
|
(4,220
|
)
|
(2,155
|
)
|
6,602
|
||||||||||
Research and development
|
2,427
|
(187
|
)
|
(364
|
)
|
1,876
|
||||||||||
Selling, general, and administrative
|
6,429
|
(1,584
|
)
|
(2,457
|
)
|
2,388
|
||||||||||
53,057
|
(10,383
|
)
|
(15,424
|
)
|
27,250
|
|||||||||||
Other income (expense), net
|
1,358
|
(37
|
)
|
(793
|
)
|
528
|
||||||||||
Operating profit
|
8,138
|
(1,994
|
)
|
(3,151
|
)
|
2,993
|
||||||||||
Non-service pension (benefit) cost
|
(534
|
)
|
(7
|
)
|
86
|
(455
|
)
|
|||||||||
Interest expense (income), net
|
909
|
11
|
2
|
922
|
||||||||||||
Income (loss) from operations before income taxes
|
$
|
7,763
|
$
|
(1,998
|
)
|
$
|
(3,239
|
)
|
$
|
2,526
|
||||||
Income tax expense (income)
|
2,843
|
(685
|
)
|
(1,134
|
)
|
1,024
|
||||||||||
Net income (loss)
|
$
|
4,920
|
$
|
(1,313
|
)
|
$
|
(2,105
|
)
|
$
|
1,502
|
||||||
Less: Noncontrolling interest in subsidiaries’ earnings from operations
|
368
|
(173
|
)
|
(40
|
)
|
155
|
||||||||||
Net income (loss) attributable to UTC common shareowners
|
$
|
4,552
|
$
|
(1,140
|
)
|
$
|
(2,065
|
)
|
$
|
1,347
|
||||||
Pro forma earnings per share of common stock:
|
||||||||||||||||
Basic
|
$
|
5.76
|
$
|
1.71
|
||||||||||||
Diluted
|
$
|
5.70
|
$
|
1.69
|
||||||||||||
Pro forma weighted average common shares outstanding
|
||||||||||||||||
Basic
|
790.0
|
790.0
|
||||||||||||||
Diluted
|
799.1
|
799.1
|
(Dollars, in millions)
|
Otis
Distribution
|
Carrier
Distribution
|
Related
Transactions
|
Separation,
Distributions
and Related
Transactions
|
|||||||||||||
Assets:
|
|||||||||||||||||
Current Assets
|
|||||||||||||||||
Cash and cash equivalents
|
$
|
1,446
|
$
|
995
|
$
|
(200
|
)
|
(i)
|
$
|
2,241
|
|||||||
Accounts receivable, net
|
2,861
|
2,726
|
(1,377
|
)
|
(v)
|
4,210
|
|||||||||||
Contract assets, current
|
556
|
622
|
(1,338
|
)
|
(v)
|
(160
|
)
|
||||||||||
Inventories and contracts in progress, net
|
545
|
1,332
|
-
|
1,877
|
|||||||||||||
Other assets, current
|
210
|
228
|
(1,536
|
)
|
(v)
|
(1,098
|
)
|
||||||||||
Total Current Assets
|
5,618
|
5,903
|
(4,451
|
)
|
7,070
|
||||||||||||
Customer financing assets
|
-
|
-
|
-
|
-
|
|||||||||||||
Future income tax benefits
|
342
|
356
|
430
|
(vii)
|
1,128
|
||||||||||||
Fixed assets, net
|
747
|
1,686
|
-
|
2,433
|
|||||||||||||
Operating lease right-of-use assets
|
529
|
818
|
-
|
1,347
|
|||||||||||||
Goodwill
|
1,647
|
9,807
|
-
|
11,454
|
|||||||||||||
Intangible assets, net
|
490
|
1,083
|
-
|
1,573
|
|||||||||||||
Other assets
|
263
|
2,521
|
3,494
|
(ii)
(iv)
(v)
|
6,278
|
||||||||||||
Total Assets
|
9,636
|
22,174
|
(527
|
)
|
31,283
|
||||||||||||
Liabilities and Equity (Deficit):
|
|||||||||||||||||
Current Liabilities
|
|||||||||||||||||
Short-term borrowings
|
34
|
274
|
2,056
|
(i)
|
2,364
|
||||||||||||
Accounts payable
|
1,331
|
1,701
|
-
|
3,032
|
|||||||||||||
Accrued liabilities
|
1,807
|
1,961
|
(3,316
|
)
|
(iii)
(v)
(vi)
|
452
|
|||||||||||
Contract liabilities, current
|
2,270
|
469
|
(5,732
|
)
|
(v)
|
(2,993
|
)
|
||||||||||
Long-term debt currently due
|
-
|
-
|
3,126
|
(i)
|
3,126
|
||||||||||||
Total Current Liabilities
|
5,442
|
4,405
|
(3,866
|
)
|
5,981
|
||||||||||||
Long-term debt
|
5
|
89
|
11,833
|
(i)
|
11,927
|
||||||||||||
Future pension and postretirement benefit obligations
|
560
|
456
|
-
|
1,016
|
|||||||||||||
Operating lease liabilities
|
383
|
668
|
-
|
1,051
|
|||||||||||||
Contract liabilities, non-current
|
-
|
-
|
5,732
|
(v)
|
5,732
|
||||||||||||
Other long-term liabilities
|
613
|
1,375
|
2,161
|
(v)
(vii)
|
4,149
|
||||||||||||
Total Liabilities
|
7,003
|
6,993
|
15,860
|
29,856
|
|||||||||||||
Commitments and contingent liabilities
|
|||||||||||||||||
Redeemable noncontrolling interest
|
95
|
-
|
-
|
95
|
|||||||||||||
Shareowners’ Equity:
|
-
|
||||||||||||||||
Capital Stock:
|
-
|
-
|
-
|
-
|
|||||||||||||
Common stock
|
3,871
|
-
|
(6,403
|
)
|
(2,532
|
)
|
|||||||||||
Treasury Stock
|
-
|
-
|
-
|
-
|
|||||||||||||
Retained earnings
|
-
|
15,697
|
(9,984
|
)
|
5,713
|
||||||||||||
Unearned ESOP shares
|
-
|
-
|
-
|
-
|
|||||||||||||
Total Accumulated other comprehensive loss
|
(1,864
|
)
|
(849
|
)
|
-
|
(2,713
|
)
|
||||||||||
Total Shareowners’ Equity
|
2,007
|
14,848
|
(16,387
|
)
|
468
|
||||||||||||
Noncontrolling interest
|
531
|
333
|
-
|
864
|
|||||||||||||
Total Equity
|
2,538
|
15,181
|
(16,387
|
)
|
1,332
|
||||||||||||
Total Liabilities and Equity
|
9,636
|
22,174
|
(527
|
)
|
31,283
|
i. |
Reflects the net proceeds of $17.2 billion distributed by Carrier and Otis to UTC from the additional debt incurred by Carrier and Otis, which proceeds UTC used to extinguish approximately $17.0 billion of historical UTC debt in the
first quarter of 2020 in order to achieve the applicable net indebtedness required by the merger agreement between UTC and Raytheon.
|
ii. |
Pursuant to the tax matters agreement entered into among UTC, Carrier and Otis, Carrier and Otis will be required to make payments to UTC representing the respective remaining net tax liabilities retained by UTC attributable to U.S.
income tax on previously undistributed earnings of Carrier’s and Otis’ international subsidiaries resulting from the passage of the Tax Cuts and Jobs Act of 2017. Accordingly, UTC has a future receivable for amounts paid by UTC on behalf
of Otis and Carrier, which is expected to be approximately $699 million that is recorded within Other assets.
|
iii. |
Pursuant to the tax matters agreement, certain tax liabilities which are attributable to separation activities and transferred to Otis at separation will be paid by Otis subsequent to the separation from UTC. Otis will be reimbursed by
UTC for such amounts paid. Accordingly, a payable in the amount of $137 million has been recorded by UTC within Accrued liabilities.
|
iv. |
Pursuant to the tax matters agreement, Otis and Carrier are responsible for unrecognized tax benefits retained by UTC to the extent a reserve relates exclusively to the Otis business or Carrier business, respectively. Accordingly, UTC
has a $58 million receivable recorded in Other assets for amounts due from Otis and Carrier related to these unrecognized tax benefits.
|
v. |
As noted above, in connection with the Separation and the Distributions UTC determined that the duration of its contracts and programs, the average duration of which exceeds one year, represents its operating cycle, and accordingly
accounts receivable of $1.4 billion, contract assets of $1.3 billion, and other current assets of $1.5 billion were reclassified from Other assets to Accounts receivable, Contract assets, current, and Other assets, current, respectively.
Additionally, $2.1 billion of accrued liabilities and $5.7 billion of contract liabilities were reclassified from Other long-term liabilities to Accrued liabilities and Contract liabilities, long-term to Contract liabilities, current,
respectively.
|
vi. |
Reflects an adjustment for directly-attributable costs related to the Separation and the Distributions of $1.1 billion, which were not yet incurred, and therefore accrued by UTC as of December 31, 2019. Such costs primarily represent
tax expenses incurred in connection with separation activities, costs to separate IT systems and professional services related to the separation.
|
vii. |
Reflects an adjustment to deferred tax assets of $430 million and a reduction of future income taxes payable of $90 million for deferred tax assets that are not expected to be utilized by UTC as a result of the
Separation and the Distributions.
|
(Dollars, in millions)
|
Otis
Distribution
|
Carrier
Distribution
|
Related
Transactions
|
Separation,
Distributions
and Related
Transactions
|
|||||||||||||
Net Sales:
|
|||||||||||||||||
Product sales
|
$
|
5,669
|
$
|
15,336
|
-
|
$
|
21,005
|
||||||||||
Service sales
|
7,444
|
3,248
|
-
|
10,692
|
|||||||||||||
13,113
|
18,584
|
-
|
31,697
|
||||||||||||||
Costs and expenses:
|
|||||||||||||||||
Cost of products sold
|
4,656
|
10,875
|
-
|
15,531
|
|||||||||||||
Cost of services sold
|
4,635
|
2,299
|
-
|
6,934
|
|||||||||||||
Research and development
|
163
|
401
|
-
|
564
|
|||||||||||||
Selling, general, and administrative
|
1,674
|
2,573
|
567
|
(ii)
|
4,814
|
||||||||||||
11,128
|
16,148
|
567
|
27,843
|
||||||||||||||
Other income (expense), net
|
(13
|
)
|
246
|
(27
|
)
|
(ii)
|
206
|
||||||||||
Operating profit
|
1,972
|
2,682
|
(594
|
)
|
4,060
|
||||||||||||
Non-service pension (benefit) cost
|
16
|
(63
|
)
|
-
|
(47
|
)
|
|||||||||||
Interest expense (income), net
|
(5
|
)
|
25
|
644
|
(i)
|
664
|
|||||||||||
Income (loss) from operations before income taxes
|
1,961
|
2,720
|
(1,238
|
)
|
3,443
|
||||||||||||
Income tax expense (income)
|
522
|
672
|
528
|
(i)
(ii)
|
1,722
|
||||||||||||
Net income (loss)
|
1,439
|
2,048
|
(1,766
|
)
|
1,721
|
||||||||||||
Less: Noncontrolling interest in subsidiaries’ earnings
|
151
|
39
|
-
|
190
|
|||||||||||||
Net income (loss) attributable to UTC common shareowners
|
1,288
|
2,009
|
(1,766
|
)
|
1,531
|
i. |
Reflects a reduction in interest expense as result of UTC’s paydown of debt to meet its targeted indebtedness, in connection with the merger agreement, calculated using a weighted average interest rate of 3.7%, based on the
indebtedness of UTC during the year ended December 31, 2019 that is assumed to have been extinguished as of January 1, 2019, as well as a related reduction in tax benefit of $126 million. A 1/8% change in the estimated interest rate would
increase or decrease the interest expense of UTC by $21.8 million.
|
ii. |
Reflects the elimination of non-recurring transaction costs incurred by UTC of $594 million, primarily related to accounting, tax and other professional services costs pertaining to the separation and the establishment of Otis and
Carrier as stand-alone public companies, facility relocation costs, costs to separate information systems and costs of retention bonuses. Additionally, net tax charges related to separation activities of $654 million were incurred during
the year ended December 31, 2019.
|
(Dollars, in millions)
|
Before
Reclassifications
|
Reclassifications
|
Notes
|
After
Reclassifications
|
|||||||||||
Assets:
|
|||||||||||||||
Current Assets
|
|||||||||||||||
Cash and cash equivalents
|
$
|
4,292
|
$ |
$
|
4,292
|
||||||||||
Accounts receivable, net
|
1,364
|
1,364
|
|||||||||||||
Contract assets, current
|
6,122
|
6,122
|
|||||||||||||
Inventories and contracts in progress, net
|
671
|
671
|
|||||||||||||
Other assets, current
|
633
|
633
|
|||||||||||||
Total Current Assets
|
|
13,082
|
|
13,082
|
|||||||||||
Customer financing assets
|
-
|
-
|
|||||||||||||
Future income tax benefits
|
-
|
534
|
(i)
|
534
|
|||||||||||
Fixed assets, net
|
3,353
|
252
|
(ii)
|
3,605
|
|||||||||||
Operating lease right-of-use assets
|
875
|
875
|
|||||||||||||
Goodwill
|
14,882
|
14,882
|
|||||||||||||
Intangible assets, net
|
-
|
283
|
(iii)
|
283
|
|||||||||||
Other assets
|
2,374
|
(1,069
|
)
|
(i)
(ii)(iii)
|
1,305
|
||||||||||
Total Assets
|
$ |
34,566
|
$
|
34,566
|
|||||||||||
Liabilities and Equity:
|
|||||||||||||||
Short-term borrowings
|
$ |
-
|
$ |
-
|
|||||||||||
Accounts payable
|
1,796
|
1,796
|
|||||||||||||
Accrued liabilities
|
-
|
3,357
|
(iv)(v)
(vii)(ix)
|
3,357
|
|||||||||||
Accrued employee compensation
|
1,813
|
(1,813
|
)
|
(vii)
|
-
|
||||||||||
Contract liabilities, current
|
3,267
|
(269
|
)
|
(ix)
|
2,998
|
||||||||||
Long-term debt currently due
|
-
|
1,499
|
(viii)
|
1,499
|
|||||||||||
Commercial paper and current portion of long-term debt
|
1,499
|
(1,499
|
)
|
(viii)
|
-
|
||||||||||
Other current liabilities
|
1,416
|
(1,416
|
)
|
(iv)
|
-
|
||||||||||
Total Current Liabilities
|
9,791
|
9,650
|
|||||||||||||
Long-term debt
|
3,261
|
3,261
|
|||||||||||||
Future pension and postretirement benefit obligations
|
-
|
8,056
|
(vi)
|
8,056
|
|||||||||||
Other long-term liabilities
|
-
|
638
|
(v) (vi)
|
638
|
|||||||||||
Accrued retiree benefits and other long-term liabilities
|
8,553
|
(8,553
|
)
|
(vi)
|
-
|
||||||||||
Operating lease liabilities
|
706
|
706
|
|||||||||||||
Total Liabilities
|
$ |
22,311
|
$
|
22,311
|
|||||||||||
Commitments and contingent liabilities
|
|||||||||||||||
Redeemable noncontrolling interest
|
$ |
32
|
$ |
32
|
|||||||||||
Shareowners’ Equity:
|
|||||||||||||||
Common Stock
|
3
|
3
|
|||||||||||||
Treasury Stock
|
-
|
||||||||||||||
Retained earnings
|
21,480
|
21,480
|
|||||||||||||
Unearned ESOP shares
|
-
|
||||||||||||||
Additional Paid in Capital
|
-
|
||||||||||||||
Total Accumulated other comprehensive loss
|
(9,260
|
)
|
(9,260
|
)
|
|||||||||||
Total Shareowners’ Equity
|
12,223
|
|
12,223
|
||||||||||||
Noncontrolling interest
|
-
|
-
|
|||||||||||||
Total Equity
|
$ |
12,223
|
$ |
12,223
|
|||||||||||
Total Liabilities and Equity
|
$ |
34,566
|
$
|
34,566
|
i. |
Represents the reclassification of $534 million of non-current deferred income tax benefits from Other assets to Future income tax benefits.
|
ii. |
Represents the reclassification of $252 million of computer software developed for internal use from Other assets to Fixed assets, net.
|
iii. |
Represents the reclassification of $283 million of intangible assets from Other assets to Intangible assets, net.
|
iv. |
Represents the reclassification of Other current liabilities to Accrued liabilities.
|
v. |
Represents the reclassification of $100 million of long-term environmental remediation costs and $41 million of asset retirement obligations from Accrued liabilities to Other long-term
liabilities.
|
vi. |
Represents the reclassifications of $8.1 billion from Accrued retiree benefits and other long-term liabilities to Future pension and postretirement benefit obligations and $497 million from Accrued retiree benefits and other long-term
liabilities to Other long-term liabilities.
|
vii. |
Represents the reclassification of Accrued employee compensation to Accrued liabilities.
|
viii. |
Represents the reclassification of Commercial paper and current portion of long-term debt to Long-term debt currently due.
|
ix. |
Represents the reclassification of loss reserves from Contract liabilities, current to Accrued liabilities.
|
(Dollars, in millions)
|
Before
Reclassifications
|
Reclassifications
|
Notes
|
After
Reclassifications
|
|||||||||
Net Sales:
|
|||||||||||||
Product sales
|
$
|
24,435
|
$
|
-
|
$
|
24,435
|
|||||||
Service sales
|
4,741
|
4,741
|
|||||||||||
29,176
|
29,176
|
||||||||||||
Costs and expenses:
|
|||||||||||||
Cost of products sold
|
17,747
|
17,747
|
|||||||||||
Cost of services sold
|
3,666
|
3,666
|
|||||||||||
Research and development
|
-
|
732
|
(i)
|
732
|
|||||||||
Selling, general, and administrative
|
2,989
|
(764
|
)
|
(i) (iv)
|
2,225
|
||||||||
24,402
|
24,370
|
||||||||||||
Other income, net
|
-
|
38
|
(ii)
|
38
|
|||||||||
Operating Profit
|
4,774
|
4,844
|
|||||||||||
Non-service pension (benefit) cost
|
688
|
688
|
|||||||||||
Interest expense (income), net
|
-
|
138
|
(iii)
|
138
|
|||||||||
Interest expense
|
180
|
(180
|
)
|
(iii)
|
-
|
||||||||
Interest income
|
(42
|
)
|
42
|
(iii)
|
-
|
||||||||
Other (income) expense, net
|
(38
|
)
|
38
|
(ii)
|
-
|
||||||||
Income (loss) from continuing operations before income taxes
|
3,986
|
4,018
|
|||||||||||
Income tax expense (income)
|
658
|
32
|
(iv)
|
690
|
|||||||||
Net income from continuing operations
|
3,328
|
3,328
|
|||||||||||
Income (loss) from discontinued operations, net of tax
|
1
|
1
|
|||||||||||
Net Income
|
3,329
|
3,329
|
|||||||||||
Less: Noncontrolling interest in subsidiaries’ earnings (loss)
|
(14
|
)
|
(14
|
)
|
|||||||||
Net income (loss) attributable to Raytheon common stockholders
|
$
|
3,343
|
$
|
3,343
|
i. |
Represents the reclassification of $732 million of research and development costs from Selling, general, and administrative expenses to Research and development expenses.
|
ii. |
Represents the reclassification of Other (income) expense, net within Income (loss) from operations to Other income, net within Operating profit.
|
iii. |
Represents the reclassification of Interest expense and Interest income to Interest expense (income), net.
|
iv.
|
Represents the reclassification of $32 million of state income taxes from Selling, general, and administrative expenses to Income tax expense (income).
|
(Dollars, in millions)
|
Amount
|
|||
Fair value of UTC common stock issued for Raytheon outstanding common stock and vested equity awards
|
$
|
32,578
|
||
Fair value attributable to pre-merger service for replacement equity awards
|
118
|
|||
Total estimated merger consideration
|
$
|
32,696
|
(Dollars and shares in millions, except per share amounts)
|
Amount
|
|||
Number of Raytheon ordinary shares outstanding as of April 3, 2020
|
277.3
|
|||
Number of Raytheon stock awards expected to vest as a result of the Merger (i)
|
0.6
|
|||
Total outstanding shares of Raytheon common stock and equity awards entitled to merger consideration
|
277.9
|
|||
Exchange ratio (ii)
|
2.3348
|
|||
Shares of UTC common stock issued for Raytheon outstanding common stock and vested equity awards
|
648.8
|
|||
Price per share of UTC common stock, excluding Otis and Carrier (iii)
|
50.21
|
|||
Fair value of UTC common stock issued for Raytheon outstanding common stock and vested equity awards
|
32,578
|
(i) |
Represents Raytheon stock awards that vested as a result of the Merger, which is considered a “change in control” for purposes of the Raytheon 2010 Stock Plan. Certain Raytheon restricted stock
awards and Raytheon RSU awards, issued under the Raytheon 2010 Stock Plan vested on an accelerated basis as a result of the Merger. Such vested awards were converted into the right to receive UTC common stock determined as the product
of (1) the number of vested awards, and (2) the exchange ratio.
|
(ii) |
The exchange ratio is equal to 2.3348 in accordance with the merger agreement.
|
(iii) |
The price per share of UTC common stock is based on an “ex-distribution” market as of April 2, 2020, in which UTC shares trade without the right to receive shares of Carrier and Otis common stock distributed pursuant to the
Distributions.
|
(Dollars and shares in millions, except per share amounts)
|
Amount
|
|||
Number of Raytheon stock awards outstanding (i)
|
3.0
|
|||
Exchange ratio (ii)
|
2.3348
|
|||
UTC equity awards issued for Raytheon outstanding stock awards
|
7.0
|
|||
Price per share of UTC common stock, excluding Otis and Carrier (iii)
|
50.21
|
|||
Fair value of UTC equity awards issued for Raytheon outstanding stock awards
|
353
|
|||
Less: Estimated fair value allocated to post acquisition compensation expense
|
(235
|
)
|
||
Fair value of awards included in purchase accounting
|
118
|
(i) |
Represents Raytheon stock awards that were replaced with UTC stock awards upon completion of the Merger. Raytheon stock awards include awards issued under the Raytheon 2010 Stock Plan and
Raytheon 2019 Stock Plan, inclusive of Raytheon restricted stock awards, Raytheon RSU awards, and Raytheon PSU awards.
|
(ii) |
The exchange ratio is equal to 2.3348 in accordance with the terms of the merger agreement.
|
(iii) |
The price per share of UTC common stock is based on an “ex-distribution” market as of April 2, 2020, in which UTC shares trade without the right to receive shares of Carrier and Otis common stock distributed pursuant to the
Distributions.
|
(Dollars, in millions)
|
Amount
|
|||
Current assets, including cash acquired
|
$
|
13,282
|
||
Fixed assets
|
4,650
|
|||
Goodwill
|
19,685
|
|||
Intangible assets
|
19,240
|
|||
Other assets
|
2,462
|
|||
Total assets
|
$
|
59,319
|
||
Future pension and postretirement benefit obligations
|
7,807
|
|||
Long-term debt, including current portion
|
4,909
|
|||
Other liabilities assumed
|
13,875
|
|||
Total Liabilities
|
$
|
26,591
|
||
Redeemable noncontrolling interest
|
32
|
|||
Total consideration transferred
|
$
|
32,696
|
a) |
Accounts receivable, net: Represents the elimination of accounts receivable of $43 million owed to UTC from Raytheon.
|
b) |
Other assets, current: Represents elimination of deferred sales commissions of $26 million, an increase of $210 million for Raytheon’s assets held for sale that
will be sold to meet regulatory requirements of the Merger and an increase of $59 million for the elimination of deferred state income taxes which under historical Raytheon policy reduced future recoverable amounts.
|
c) |
Future income tax benefits: Deferred income taxes are included in Future income tax benefits and Other long-term liabilities in the
unaudited pro forma combined balance sheet as of December 31, 2019. Deferred tax adjustments include a $238 million decrease in Future income tax benefits and a $4.2 billion increase in Other long-term liabilities. These are as a result
of the estimated tax impact for the pro forma adjustments. Pro forma adjustments were tax effected at the applicable blended statutory tax rates, generally 23% in 2019. This estimate is preliminary and subject to change based upon final
determination of fair values and tax rates. Additionally, the amounts recorded for deferred taxes relating to undistributed earnings may change subsequent to the Separation and the Distributions.
|
d) |
Fixed assets, net: Represents the adjustment in carrying value of Raytheon’s fixed assets from its recorded net book value to its preliminary estimated fair value. The
estimated fair value is expected to be depreciated over the estimated useful lives of the assets, generally on a straight-line basis. The fixed assets acquired primarily consist of the following:
|
(Dollars, in millions)
|
Estimated
Useful Life
|
Raytheon Historical
Carrying Amount
Before
Reclassification
|
Fair Value
Adjustment
|
Estimated
Fair Value
|
|||||||||
Land
|
$
|
81
|
$
|
518
|
$
|
599
|
|||||||
Buildings and improvements
|
20 years
|
1,112
|
402
|
1,514
|
|||||||||
Machinery, tools and equipment
|
6 years
|
1,101
|
125
|
1,226
|
|||||||||
Other, including assets under construction
|
1,059
|
-
|
1,059
|
||||||||||
Total Fixed Assets
|
$
|
3,353
|
$
|
1,045
|
$
|
4,398
|
|||||||
Right of use assets
|
875
|
43
|
918
|
||||||||||
Total
|
$
|
4,228
|
$
|
1,088
|
$
|
5,316
|
e) |
Goodwill: Represents a net increase in goodwill of $4.8 billion, comprised of the elimination of Raytheon’s historical goodwill balance of $14.9 billion, offset by $19.7
billion of goodwill resulting from the Merger. Goodwill resulting from the Merger represents the excess of estimated merger consideration over the preliminary fair value of the underlying tangible and identifiable intangible assets
acquired and liabilities assumed. The estimated goodwill to be recognized is attributable primarily to expected synergies, expanded market opportunities, and other benefits that UTC believes will result from combining its operations
with the operations of Raytheon. The goodwill created in the Merger is not deductible for tax purposes and is subject to material revision as the purchase price allocation is completed.
|
f) |
Intangible assets, net: Represents adjustments to record the preliminary estimated fair value of intangibles of approximately $19.2 billion, which represents an increase
of $19 billion over Raytheon’s net book value of intangible assets prior to the Merger. The estimated fair values of identifiable intangible assets are preliminary and are determined based on assumptions that market participants would
use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). The final fair value determinations for identifiable intangible assets may differ from this preliminary determination, and
such differences could be material. The intangible assets acquired primarily consist of the following:
|
(Dollars, in millions)
|
Estimated
Useful Life
|
Amortization method
|
Estimated Fair
Value
|
||||
Amortized:
|
|||||||
Customer relationships and other
|
12-15 years
|
Pattern of economic benefit
|
$
|
12,900
|
|||
Developed technology and royalty agreements
|
6-8 years
|
Pattern of economic benefit
|
900
|
||||
Unamortized:
|
|||||||
Trademarks and other
|
5,440
|
||||||
Total
|
$
|
19,240
|
Remaining
|
||||||||||||||||||||||||
(Dollars, in millions)
|
2020
|
2021
|
2022
|
2023
|
2024
|
2025 and
thereafter
|
||||||||||||||||||
Amortization expense
|
$
|
1,465
|
$
|
959
|
$
|
1,015
|
$
|
1,074
|
$
|
935
|
$
|
6,852
|
g) |
Other assets: Represents the elimination of deferred sales commissions of $29 million and a $28 million decrease of the
pension and postretirement benefit assets based upon revaluation using UTC’s methodology.
|
h) |
Accounts payable: Represents the elimination of accounts payable of $43 million owed to UTC by Raytheon.
|
i) |
Accrued liabilities: Represents adjustment for directly attributable transaction costs related to the Merger not yet accrued by UTC and Raytheon of approximately $150
million and $95 million, respectively, a $166 million increase related to the recognition of onerous contracts at fair value, and a $28 million accrual for change in control payments due to certain Raytheon personnel shortly after the
Merger.
|
j) |
Contract liabilities, current: Reflects a decrease in deferred revenue of $44 million as a result of fair value purchase accounting.
|
k) |
Long-term debt: Reflects an increase of $149 million in historical Raytheon indebtedness to fair value in connection with preliminary purchase price allocation.
|
l) |
Future pension and postretirement benefit obligations: Represents a decrease of the pension and postretirement benefit obligation determined under UTC’s
methodology.
|
m) |
Other long-term liabilities: Reflects a $4.2 billion increase as a result of the estimated deferred tax impact of pro forma adjustments and a $9 million decrease in deferred revenue as a result of fair value purchase accounting.
|
n) |
Total Shareowners’ Equity: Represents the elimination of Raytheon common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive loss,
as well as the following adjustments to reflect the capital structure of the combined company.
|
(Dollars, in millions)
|
Common Stock
|
Treasury Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
||||||||||||
Fair value of UTC common stock issued for Raytheon common stock and equity awards (i)
|
$
|
10,428
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Issuance of UTC treasury shares for Raytheon common stock and equity awards (i)
|
|
22,268
|
|
|
||||||||||||
Elimination of Raytheon historical shareholders’ equity (i)
|
(3
|
)
|
(21,480
|
)
|
-
|
|||||||||||
Adjustments related to pensions and postretirement benefits (ii)
|
-
|
-
|
-
|
(9,132
|
)
|
|||||||||||
Recognition of Merger-related transaction costs (iii)
|
-
|
-
|
(150
|
)
|
-
|
|||||||||||
Elimination of cash flow hedge and treasury rate lock losses (iv)
|
-
|
-
|
-
|
(4
|
)
|
|||||||||||
Elimination of foreign currency translation adjustment (v)
|
-
|
-
|
-
|
(124
|
)
|
|||||||||||
Total
|
$
|
10,425
|
$
|
22,268
|
$
|
(21,630
|
)
|
$
|
(9,260
|
)
|
(i) |
Represents an adjustment to increase the common stock of the combined company for 249 million of additional shares issued and the use of 400 million treasury shares for the total of the 649
million shares issued as consideration for the Merger, and to eliminate the par value of the Raytheon common stock acquired, as well as to increase additional paid-in capital for the net difference.
|
(ii) |
Represents adjustment to eliminate unamortized prior service costs and actuarial losses, as a result of fair value purchase accounting.
|
(iii) |
Represents recognition of approximately $150 million of anticipated transaction costs that are directly attributable to the transactions but that were not incurred by UTC as of December 31,
2019.
|
(iv) |
Represents elimination of accumulated other comprehensive losses associated with Raytheon cash flow hedges and treasury rate locks in connection with purchase accounting.
|
(v) |
Represents adjustment to eliminate foreign currency translation associated with the translation of non-USD denominated entities to USD, which was recorded by Raytheon, as a result of fair value
purchase accounting.
|
o) |
Product sales: Represents a decrease to product sales for the elimination of $244 million in revenues earned by UTC on sales to Raytheon that would be considered intercompany transactions and will be eliminated
in the consolidated financial statements of the combined company following completion of the Merger, as well as a $44 million decrease related to the preliminary fair value of Raytheon’s deferred revenue in purchase accounting. The pro
forma adjustment related to the reduction in deferred revenue reflects the difference between prepayments related to extended arrangements and the preliminary fair value of the assumed performance obligations as they are satisfied,
assuming the Merger was completed on January 1, 2019.
|
p) |
Cost of products and services sold: Represents adjustments to cost of products and services sold comprised of the following:
|
1. Cost of products sold:
|
Year Ended
12/31/2019
|
|||
(Dollars, in millions)
|
||||
Amortization of acquired intangible assets (i)
|
$
|
1,391
|
||
Depreciation of fixed assets step-up (ii)
|
32
|
|||
Adjustment to pension service cost (iii)
|
(16
|
)
|
||
Elimination of costs related to intercompany sales from UTC to Raytheon (iv)
|
(244
|
)
|
||
Amortization of onerous contracts (v)
|
(71
|
)
|
||
Total pro forma adjustment to cost of products sold
|
$
|
1,092
|
2. Cost of services sold:
|
Year Ended
12/31/2019
|
|||
(Dollars, in millions)
|
||||
Depreciation of fixed assets step-up (ii)
|
$
|
4
|
||
Adjustment to pension service cost (iii)
|
(3
|
)
|
||
Total pro forma adjustment to cost of services sold
|
$
|
1
|
(i) |
Represents net impact of removal of historical amortization expense and amortization expense recognized due to the identification of definite-lived intangible assets in purchase accounting.
|
(ii) |
Represents adjustment to depreciation expense due to the recognition of Raytheon’s fixed assets at their preliminary fair values in purchase accounting, depreciated over their estimated remaining useful lives, determined in accordance
with UTC policy.
|
(iii) |
Represents the impact of the pension and postretirement service cost expense as determined under UTC’s plan assumptions.
|
(iv) |
Represents elimination of cost of sales relating to transactions between UTC and Raytheon that would be considered intercompany transactions and will be eliminated in the consolidated financial statements of the combined company
following the Merger.
|
(v) |
Represents amortization of onerous contracts recorded at their preliminary fair values in purchase accounting.
|
q) |
Research and development expenses: Reflects an increase of $4 million in depreciation expense due to the recognition of Raytheon’s fixed assets at their preliminary fair values in purchase accounting, as well
as a $1 million decrease reflecting the impact of the pension and post retirement service cost expense determined under UTC’s plan assumptions.
|
r) |
Selling, general and administrative expenses: Represents adjustments to selling, general and administrative expenses comprised of the following:
|
Year Ended
12/31/2019
|
||||
(Dollars, in millions)
|
||||
Depreciation of fixed assets step-up (i)
|
$
|
1
|
||
Adjustment to pension service cost (ii)
|
(2
|
)
|
||
Elimination of deferred commissions amortization (iii)
|
(26
|
)
|
||
Elimination of transaction costs (iv)
|
(152
|
)
|
||
Total pro forma adjustment to selling, general, and administrative expenses
|
(179
|
)
|
(i) |
Represents adjustment to depreciation expense due to the recognition of Raytheon’s fixed assets at their preliminary fair values in purchase accounting, depreciated over their estimated remaining useful lives, determined in accordance
with UTC policy.
|
(ii) |
Represents the impact of the pension and postretirement service cost expense as determined under UTC’s plan assumptions.
|
(iii) |
Represents elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting.
|
(iv)
|
Represents the elimination of non-recurring transaction costs incurred related to the Merger.
|
s) |
Non-service pension (benefit) cost: The $1.1 billion adjustment to Non-service pension (benefit) cost for the twelve months ended December 31, 2019 reflects the elimination of prior service cost and actuarial
loss amortization, which was recorded by Raytheon, as a result of fair value purchase accounting, net of the impact of the pension and postretirement benefit (expense) determined under UTC’s plan assumptions.
|
t) |
Interest expense (income), net: reflects the amortization of the incremental fair value of assumed debt recognized in connection with purchase accounting.
|
u) |
Income tax expense: reflects the tax effect of pro forma adjustments. The pro forma adjustments were tax effected at the applicable blended statutory tax rate,
generally 23%. UTC’s effective tax rate may be materially different after conclusion of final acquisition accounting, removal of one-time items reflected in historical amounts, analysis of the post-closing geographical mix of income,
and other factors. Adjustments to tax assets and liabilities will occur in conjunction with the finalization of the purchase accounting, and these items could be material.
|
v) |
Basic weighted average number of shares outstanding: Reflects the pro forma issuance of 649 million shares of UTC common stock issued in exchange for Raytheon
outstanding common stock and equity awards that vest immediately upon closing of the Merger in accordance with the merger agreement.
|
w) |
Diluted weighted average number of shares outstanding: Reflects the pro forma issuance of 3.1 million shares of UTC common stock issued in exchange for Raytheon
outstanding common stock and equity awards that vested immediately upon closing of the Merger and the issuance of shares of common stock under replacement equity awards issued in accordance with the merger agreement. In connection with
the Merger, unvested awards held by certain Raytheon employees were converted to UTC restricted stock awards, such that the total value of equity awards held by Raytheon employees post-Merger will be substantially economically
equivalent to the value of such awards prior to the Merger.
|