RTX Corp annual report, FY2022

RTX Corp. (Raytheon Technologies) — 2022 Form 10-K Summary

Business context and reporting period

The filing covers the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter report. RTX operated through four segments: Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). The company planned to reorganize into three segments in the second half of 2023.

Financial and operating performance

Metric20222021Change
Net sales$67.074 billion$64.388 billion+4.2%
Operating profit$5.414 billion$4.958 billion+9.2%
Operating margin8.1%7.7%+0.4 percentage points
Net income attributable to common shareowners$5.197 billion$3.864 billion+34.5%
Diluted EPS$3.50$2.56+$0.94
Operating cash flow, continuing operations$7.168 billion$7.142 billionRelatively unchanged
  • Sales were 76% products and 24% services. Cost of sales was 80% of sales, implying an approximate 20% gross margin before R&D, SG&A, and other items.
  • Capital expenditures were $2.288 billion. Operating cash flow less capital expenditures was approximately $4.880 billion; this is a simple calculation, not necessarily the company’s defined free-cash-flow measure.
  • Cash and cash equivalents were $6.220 billion; total debt was $31.914 billion, and debt-to-total-capitalization was 30%. Cash less total debt implies approximately $25.7 billion of net debt.
  • Liquidity included $7.0 billion of revolving credit facilities with no outstanding borrowings at year-end, plus $0.5 billion of commercial paper outstanding.
  • Backlog was $175 billion, up from $156 billion; approximately 25% was expected to be recognized as sales over the next 12 months. Defense bookings were approximately $47 billion, versus $40 billion in 2021.

Material changes versus the prior comparable period

  • Organic sales increased $3.7 billion, led by Pratt & Whitney (+$2.5 billion) and Collins (+$2.4 billion); RMD organic sales declined $0.6 billion. The reported total also reflected divestitures and foreign exchange.
  • Collins sales rose 12% to $20.6 billion and operating profit rose 33% to $2.3 billion, supported by recovering commercial-aircraft aftermarket and OEM demand.
  • Pratt & Whitney sales rose 13% to $20.5 billion and operating profit increased to $1.1 billion from $454 million, mainly on stronger commercial aftermarket activity and engine shipments.
  • RIS sales fell 6% to $14.3 billion and operating profit fell 27% to $1.3 billion. RMD sales fell 4% to $14.9 billion and operating profit fell 24% to $1.5 billion. The company cited program mix, performance, supply constraints, and less favorable estimate-at-completion adjustments; RIS also lacked the prior-year gain on a business sale.
  • Operating cash flow was nearly flat year over year. Management said higher collections and factoring activity supported cash generation; factoring contributed approximately $2.3 billion more cash in 2022 than in 2021. Tax payments increased to $2.4 billion from $1.1 billion, including $1.6 billion of incremental payments related to capitalization of research and experimental expenditures for tax purposes.

Outlook, risks, contingencies, and unusual items

  • Management described commercial aerospace demand as recovering and said the long-term industry outlook remained positive, while noting uncertainty about when air traffic would return to or exceed pre-pandemic levels. The filing provides no specific quantified 2023 earnings or revenue guidance in the supplied text.
  • Supply-chain disruption, inflation, labor shortages, and difficulty hiring specialized engineering and security-cleared staff had negatively affected performance and were expected to continue. These pressures can be particularly significant on fixed-price contracts.
  • Russia-related sanctions and export controls led to $290 million of pretax charges in Collins and Pratt & Whitney and reversal of approximately $1.3 billion of Russian contract backlog. RTX said alternative suppliers and higher demand partly mitigated impacts.
  • Approximately $385 million of advance payments from a Middle East customer were included in contract liabilities for contracts RTX no longer believed it could execute or obtain regulatory approvals for; the payments may become refundable if the contracts are terminated.
  • RTX accrued approximately $290 million for a DOJ investigation involving RMD contract pricing, accounting, and cost reporting. The company said it could not estimate any incremental loss. Separate Pratt & Whitney government cost-accounting claims include asserted amounts of approximately $1.73 billion plus interest and $269 million plus interest; RTX disputed the claims and said it did not expect them to have a material adverse effect.
  • Commercial aerospace financing and other contractual commitments totaled approximately $15.3 billion gross before collaborators’ share. Environmental remediation reserves were $798 million. The company stated that it did not expect these matters, based on information then available, to have a material adverse effect.
  • Recurring estimate and valuation risks are significant: 2022 net estimate-at-completion adjustments reduced operating profit by $37 million, compared with a $110 million benefit in 2021. Two Collins reporting units had goodwill fair values only 15% and 17% above carrying values in the annual test; no impairment was recorded in 2022.
  • Other notable items included $1.5 billion of after-tax acquisition-accounting adjustments, $210 million after tax of Russia-related charges, and $91 million after-tax restructuring charges, all cited as reducing 2022 continuing-operations EPS. The effective tax rate was 11.6%, including identified tax benefits.

Important facts for investors to verify

  • Whether commercial aerospace recovery, engine shop visits, and aircraft production translate into continued Collins and Pratt & Whitney growth—and whether supply constraints and labor costs ease.
  • Whether RIS and RMD recover operating margins, given lower 2022 profits and unfavorable contract estimate adjustments.
  • Cash-flow quality and sustainability, particularly the effects of receivables factoring, working capital, and elevated tax payments.
  • Developments in the DOJ investigation, government cost-accounting disputes, the Middle East contracts and possible refund exposure, and other regulatory approvals.
  • Progress on the planned three-segment reorganization and any related changes to reported segment results.
  • Whether Collins goodwill headroom and long-term commercial aerospace commitments remain supportable under changing market assumptions.