RTX Corp. (Raytheon Technologies) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; filed October 26, 2021. Financial statements are unaudited and received a limited review. The company operates Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). Carrier and Otis are reported as discontinued operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $16.213B | $14.747B | $47.344B | $40.168B |
| Operating profit (loss) | $1.343B | $434M | $3.638B | $(2.031)B |
| Operating margin | 8.3% | 2.9% | 7.7% | (5.1)% |
| Net income (loss) attributable to common shareowners | $1.393B | $264M | $3.178B | $(3.654)B |
| Diluted EPS | $0.93 | $0.17 | $2.10 | $(2.79) |
| Operating cash flow, continuing operations | — | — | $3.981B | $2.964B |
Q3 sales rose about 10% year over year, including $1.664B of organic growth, led by commercial aerospace recovery at Pratt & Whitney and Collins Aerospace. Nine-month reported sales increased about 18%, but organic sales were nearly flat, up $66M; the comparison is materially affected by the April 2020 Raytheon merger and subsequent divestitures. Nine-month earnings improved substantially in part because 2020 included a $3.183B goodwill impairment.
Q3 cost of sales was $13.089B, or 80.7% of sales, versus 88.2% in the prior-year quarter. Q3 net income included a $244M deferred tax benefit from legal-entity and operational reorganizations. Nine-month results included $1.621B of acquisition-accounting adjustments, primarily acquired-intangible amortization.
Segments and material comparisons
| Segment | Q3 sales | Q3 operating profit | Q3 margin | Year-over-year context |
|---|---|---|---|---|
| Collins Aerospace | $4.592B | $478M | 10.4% | Sales +7%; profit down 9%, partly reflecting the absence of prior-year divestiture gains. |
| Pratt & Whitney | $4.725B | $187M | 4.0% | Sales +35%; recovered from prior-year losses, with higher aftermarket activity and the absence of unfavorable prior-year contract adjustments. |
| RIS | $3.740B | $391M | 10.5% | Sales approximately flat; profit +12%. |
| RMD | $3.902B | $490M | 12.6% | Sales +5%; profit +9%. |
Net estimate-at-completion (EAC) adjustments added $25M to Q3 operating profit, compared with a $462M reduction in Q3 2020. Nine-month net EAC adjustments were positive $64M versus negative $592M.
Balance sheet, cash flow and liquidity
- At September 30, cash and cash equivalents were $7.476B, down from $8.802B at December 31, 2020. Nine-month operating cash flow from continuing operations was $3.981B; capital expenditures were $1.180B.
- Total debt was $31.248B, versus $31.823B at year-end 2020; debt to total capitalization remained 30%. Long-term debt had an average maturity of approximately 15 years.
- Current assets were $41.992B and current liabilities $34.131B. The company reported $6.84B available under credit facilities and no revolver borrowings outstanding.
- Nine-month financing cash outflow was $5.182B, including $2.212B of common dividends and $2.000B of share repurchases. Approximately $3.0B remained under the authorized repurchase program at quarter-end.
- Remaining performance obligations were $156.1B; management expected approximately 30% to be recognized as sales over the next 12 months, subject to uncertainty including pandemic-related delays or cancellations. Defense backlog was $65.0B.
Outlook, risks and unusual items
- Commercial aerospace/COVID-19: Management described recovery in air travel as uneven and said Collins Aerospace and Pratt & Whitney results could remain below 2019 levels. It estimated a full recovery may occur in 2023 or 2024, while emphasizing uncertainty. Certain costs reduced during the downturn were expected to return as activity recovered.
- Restructuring: The company recorded $118M of net restructuring charges in the first nine months of 2021. It expected $74M of additional costs for 2021 actions and approximately $130M in annual recurring savings within one to two years. It also expected approximately $1.2B of annual savings from 2020 actions within two years of their initiation.
- Transactions: A definitive agreement to sell RIS’s global training and logistics business was signed in September; approximately $860M of assets and $100M of liabilities were classified as held for sale, pending customary approvals. The company also agreed to acquire FlightAware and SEAKR Engineering, with expected cash outflows of approximately $1.0B, subject to closing conditions.
- Regulatory/customer exposure: Approximately $440M of advances from a Middle East customer relate to contracts the company no longer believes it can execute or obtain approvals for; the advances may be refundable if the contracts are terminated. The company also identified possible supplier and operational disruption from federal contractor vaccination requirements.
- Legal and contingency risks: Pratt & Whitney disputes three government cost-accounting claims, including claimed overpayments of approximately $1.73B, $177M and $269M, plus interest. A DOJ investigation involving RMD accounting, controls and contract pricing presents, in management’s words, a meaningful risk of civil liability, though the company did not expect the matters to materially affect its financial condition, results or liquidity based on information then available. Environmental remediation reserves were $835M.
- Other exposures: Commercial aerospace financing and other contractual commitments totaled approximately $13.6B gross; offset obligations had an outstanding notional value of approximately $11.3B. The filing reports no explicit full-year earnings guidance.
Key facts for investors to verify
- How much of reported sales and earnings growth reflects organic performance versus the merger, divestitures, and other comparison-period effects.
- Whether commercial air travel and aftermarket activity recover in line with management’s 2023–2024 estimate, and the resulting impact on Collins Aerospace and Pratt & Whitney margins and cash generation.
- Whether positive EAC adjustments and segment profitability persist, particularly after excluding prior-year contract charges and unusual items.
- Resolution and potential financial exposure from government investigations, cost-accounting claims, and the Middle East contract advances and regulatory approvals.
- Completion and financial effects of the announced business sale and acquisitions, alongside planned restructuring savings, debt, dividends and share repurchases.