RTX Corp. (Raytheon Technologies) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. The company operates Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). Comparisons with 2020 are affected by the April 2020 Raytheon merger, which means RIS and RMD were included for only part of 2020.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $64.388 billion | $56.587 billion |
| Operating profit (loss) | $4.958 billion | $(1.889) billion |
| Operating margin | 7.7% | (3.3)% |
| Net income (loss) attributable to common shareowners | $3.864 billion | $(3.519) billion |
| Diluted EPS from continuing operations | $2.58 | $(2.29) |
| Operating cash flow from continuing operations | $7.142 billion | $4.334 billion |
| Cash and cash equivalents at year-end | $7.832 billion | $8.802 billion |
| Total debt at year-end | $31.485 billion | $31.823 billion |
Reported sales rose 13.8%; organic sales increased approximately $724 million. Growth included the full-year contribution of Raytheon, higher Pratt & Whitney sales, and commercial aerospace recovery, partly offset by lower Collins Aerospace sales. Sales to the U.S. government were $31.177 billion, or 48% of total sales. Total backlog was $156 billion, up from $150 billion; about 30% of remaining performance obligations was expected to convert to sales in the next 12 months.
Continuing-operations cost of sales was $51.897 billion, or 81% of sales, versus $48.056 billion, or 85%, in 2020. Company-funded R&D was $2.732 billion (4.2% of sales). The effective tax rate was 15.9%. Net income and operating profit comparisons were significantly affected by the absence of 2020’s $3.2 billion goodwill impairment and by merger-related purchase-accounting charges.
Cash, debt, and capital allocation
Operating cash flow increased by $2.808 billion year over year. The company reported $1.364 billion of cash used in continuing-operations investing activities and $6.756 billion used in continuing-operations financing activities. Capital expenditures were $2.134 billion. It paid $2.957 billion in common dividends and repurchased $2.327 billion of shares during 2021.
Debt was 30% of total capitalization. The company reported $7.0 billion available under revolving credit facilities and no borrowings under those facilities at year-end; it also had no commercial-paper borrowings. Long-term debt had an average maturity of approximately 15 years. Early debt repayments resulted in $649 million of debt-extinguishment costs.
Material changes, outlook, and notable items
- Commercial aerospace remained below pre-pandemic conditions, but aftermarket activity improved. Collins Aerospace sales declined 4%, while Pratt & Whitney sales rose 8%, largely from commercial aftermarket recovery.
- RIS and RMD reported higher sales and operating profit than in 2020, substantially reflecting the merger’s full-year inclusion. Defense bookings were approximately $40 billion, compared with $31 billion in 2020.
- Management estimated that a full commercial air-travel recovery could occur in 2023 or 2024, while emphasizing uncertainty. The filing does not provide a clear formal 2022 earnings or cash-flow guidance target.
- Management cited pandemic-related supply constraints, labor shortages, delivery delays, and rising material and labor costs. Inflation may pressure margins, particularly on fixed-price contracts where price increases may not offset cost growth.
- The company recorded a $147 million fourth-quarter charge related to the ongoing DOJ investigation of RMD contract-pricing matters; the filing separately states that approximately $290 million had been accrued for the matter. The company said it could not estimate any incremental loss.
- Approximately $430 million of advance payments from a Middle East customer related to contracts the company no longer believed it could execute or obtain required approvals for could become refundable if the contracts are terminated.
- Other significant exposures include government contract audits and litigation, including Pratt & Whitney cost-accounting claims; commercial aerospace financing and other commitments of $15.6 billion gross before collaborator shares; and environmental remediation reserves of $834 million.
- Unless deferred, tax rules taking effect in 2022 for capitalization of research and experimental expenditures were expected to increase 2022 tax payments by an estimated $2 billion, although management expected a favorable effective-tax-rate effect.
- The company reported effective internal control over financial reporting and received an unqualified audit opinion. The auditor identified contract estimates-at-completion and goodwill and indefinite-lived intangible-asset impairment assessments as critical audit matters.
Most important facts for investors to verify
- How much of reported sales and profit growth reflects underlying organic improvement versus merger-related comparisons and accounting effects.
- Whether commercial aviation recovery, supplier capacity, inflation, and labor availability support the company’s recovery expectations and margins.
- The status and potential financial consequences of DOJ investigations, government audits, and the disclosed contract-pricing and cost-accounting disputes.
- Whether the Middle East contracts are terminated and whether the approximately $430 million advance payment becomes refundable.
- Cash conversion, debt repayment needs, and the potential timing and amount of the estimated 2022 tax-payment increase.
- Whether the Collins Aerospace reporting unit’s impairment headroom remains adequate; the filing reported 15% headroom at the closest unit in the 2021 test.