RTX Corp [RTX] Filings

10-Q 1 rtx-20230930.htm 10-Q rtx-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

____________________________________

FORM 10-Q

____________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-00812

____________________________________

RTX CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________


Delaware						06-0570975
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


1000 Wilson Boulevard,	Arlington,	Virginia	22209
(Address of principal executive offices)			(Zip Code)


(781)			522-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($1 par value)	RTX	New York Stock Exchange
(CUSIP 75513E 101)
2.150% Notes due 2030	RTX 30	New York Stock Exchange
(CUSIP 75513E AB7)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒. No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒. No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”

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“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐. No ☒.

At September 30, 2023 there were 1,437,901,284 shares of Common Stock outstanding.

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RTX CORPORATION

AND SUBSIDIARIES

CONTENTS OF QUARTERLY REPORT ON FORM 10-Q

Quarter Ended September 30, 2023


			Page

PART I – FINANCIAL INFORMATION			4

Item 1. Unaudited Financial Statements:			4

Condensed Consolidated Statement of Operations for the quarters and nine months ended September 30, 2023 and 2022			4

Condensed Consolidated Statement of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2023 and 2022			5

Condensed Consolidated Balance Sheet at September 30, 2023 and December 31, 2022			6

Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2023 and 2022			7

Condensed Consolidated Statement of Changes in Equity for the quarters and nine months ended September 30, 2023 and 2022			8

Notes to Condensed Consolidated Financial Statements			9

Report of Independent Registered Public Accounting Firm			31

Item 2. Management ’s Discussion and Analysis of Financial Condition and Results of Operations			32

Item 3. Quantitative and Qualitative Disclosures About Market Risk			53

Item 4. Controls and Procedures			53

PART II – OTHER INFORMATION			55

Item 1. Legal Proceedings			55

Item 1A. Risk Factors			55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57

Item 5. Other Information			58

Item 6. Exhibits			58

SIGNATURES			59

RTX Corporation and its subsidiaries’ names, abbreviations thereof, logos, and products and services designators are all either the registered or unregistered trademarks or tradenames of RTX Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and services designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. References to internet web sites in this Form 10-Q are provided for convenience only. Information available through these web sites is not incorporated by reference into this Form 10-Q.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

RTX CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions, except per share amounts)	2023		2022		2023		2022
Net Sales:
Products sales	$	8,615	$	12,756	$	34,813	$	36,876
Services sales	4,849		4,195		14,180		12,105
Total net sales	13,464		16,951		48,993		48,981
Costs and Expenses:
Cost of sales - products	9,289		10,493		31,078		30,353
Cost of sales - services	3,461		2,971		9,835		8,527
Research and development	712		662		2,048		1,995
Selling, general and administrative	1,401		1,351		4,364		4,184
Total costs and expenses	14,863		15,477		47,325		45,059

Other income, net	3		46		116		91
Operating profit (loss)	(1,396)		1,520		1,784		4,013
Non-operating expense (income), net:
Non-service pension income	(443)		(468)		(1,334)		(1,422)
Interest expense, net	369		311		1,017		958
Total non-operating expense (income), net	(74)		(157)		(317)		(464)
Income (loss) from continuing operations before income taxes	(1,322)		1,677		2,101		4,477
Income tax expense (benefit)	(389)		282		194		618
Net income (loss) from continuing operations	(933)		1,395		1,907		3,859
Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations	51		8		138		65
Net income (loss) from continuing operations attributable to common shareowners	(984)		1,387		1,769		3,794






Loss from discontinued operations attributable to common shareowners	—		—		—		(19)
Net income (loss) attributable to common shareowners	$	(984)	$	1,387	$	1,769	$	3,775

Earnings (loss) Per Share attributable to common shareowners - Basic:
Income (loss) from continuing operations	$	(0.68)	$	0.94	$	1.22	$	2.57
Loss from discontinued operations	—		—		—		(0.02)
Net income (loss) attributable to common shareowners	$	(0.68)	$	0.94	$	1.22	$	2.55
Earnings (loss) Per Share attributable to common shareowners - Diluted:
Income (loss) from continuing operations	$	(0.68)	$	0.94	$	1.21	$	2.55
Loss from discontinued operations	—		—		—		(0.01)
Net income (loss) attributable to common shareowners	$	(0.68)	$	0.94	$	1.21	$	2.54

See accompanying Notes to Condensed Consolidated Financial Statements

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RTX CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2023		2022		2023		2022
Net income (loss) from continuing and discontinued operations	$	(933)	$	1,395	$	1,907	$	3,840
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	(441)		(1,050)		85		(1,998)
Pension and postretirement benefit plans adjustments	(104)		48		(433)		116
Change in unrealized cash flow hedging	(123)		(251)		174		(396)
Other comprehensive income (loss), before tax	(668)		(1,253)		(174)		(2,278)
Income tax benefit related to items of other comprehensive income (loss)	54		62		76		71
Other comprehensive income (loss), net of tax	(614)		(1,191)		(98)		(2,207)
Comprehensive income (loss)	(1,547)		204		1,809		1,633
Less: Comprehensive income attributable to noncontrolling interest	51		8		138		65
Comprehensive income (loss) attributable to common shareowners	$	(1,598)	$	196	$	1,671	$	1,568

See accompanying Notes to Condensed Consolidated Financial Statements

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RTX CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)


(dollars in millions)	September 30, 2023		December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	5,456	$	6,220
Accounts receivable, net	10,058		9,108
Contract assets	12,696		11,534
Inventory, net	12,050		10,617

Other assets, current	6,258		4,964
Total current assets	46,518		42,443
Customer financing assets	2,452		2,603
Fixed assets	30,554		29,116
Accumulated depreciation	(15,207)		(13,946)
Fixed assets, net	15,347		15,170
Operating lease right-of-use assets	1,755		1,829
Goodwill	53,883		53,840
Intangible assets, net	35,865		36,823
Other assets	6,623		6,156
Total assets	$	162,443	$	158,864
Liabilities, Redeemable Noncontrolling Interest, and Equity
Current Liabilities
Short-term borrowings	$	1,170	$	625
Accounts payable	10,315		9,896
Accrued employee compensation	2,597		2,401
Other accrued liabilities	14,283		10,999
Contract liabilities	15,248		14,598

Long-term debt currently due	1,389		595
Total current liabilities	45,002		39,114
Long-term debt	32,701		30,694
Operating lease liabilities, non-current	1,523		1,586
Future pension and postretirement benefit obligations	4,457		4,807
Other long-term liabilities	7,514		8,449
Total liabilities	91,197		84,650
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest	33		36
Shareowners’ Equity:
Common stock	38,388		37,939
Treasury stock	(18,170)		(15,530)
Retained earnings	51,513		52,269
Unearned ESOP shares	(19)		(28)
Accumulated other comprehensive loss	(2,116)		(2,018)
Total shareowners’ equity	69,596		72,632
Noncontrolling interest	1,617		1,546
Total equity	71,213		74,178
Total liabilities, redeemable noncontrolling interest, and equity	$	162,443	$	158,864

See accompanying Notes to Condensed Consolidated Financial Statements

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RTX CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(dollars in millions)	2023		2022
Operating Activities:
Net income from continuing operations	$	1,907	$	3,859
Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities:
Depreciation and amortization	3,152		3,060
Deferred income tax benefit	(728)		(1,681)
Stock compensation cost	319		318
Net periodic pension and other postretirement income	(1,164)		(1,062)

Change in:
Accounts receivable	(913)		321
Contract assets	(1,163)		(999)
Inventory	(1,430)		(1,434)
Other current assets	(878)		(584)
Accounts payable and accrued liabilities	3,422		1,298
Contract liabilities	429		(284)

Other operating activities, net	219		(272)
Net cash flows provided by operating activities from continuing operations	3,172		2,540
Investing Activities:
Capital expenditures	(1,610)		(1,433)
Investments in businesses	—		(66)
Dispositions of businesses, net of cash transferred	6		94
Customer financing assets receipts, net	41		25
Increase in other intangible assets	(536)		(318)
Payments from settlements of derivative contracts, net	(18)		(259)
Other investing activities, net	56		66
Net cash flows used in investing activities from continuing operations	(2,061)		(1,891)
Financing Activities:
Issuance of long-term debt	2,974		—
Repayment of long-term debt	(175)		(2)

Change in commercial paper, net (Note 8)	473		2,067
Change in other short-term borrowings, net	68		(14)

Dividends paid on common stock	(2,472)		(2,337)
Repurchase of common stock	(2,587)		(2,395)

Other financing activities, net	(190)		(329)
Net cash flows used in financing activities from continuing operations	(1,909)		(3,010)








Effect of foreign exchange rate changes on cash and cash equivalents	4		(57)

Net decrease in cash, cash equivalents, and restricted cash	(794)		(2,418)
Cash, cash equivalents, and restricted cash, beginning of period	6,291		7,853

Cash, cash equivalents, and restricted cash, end of period	5,497		5,435
Less: Restricted cash, included in Other assets, current and Other assets	41		54

Cash and cash equivalents, end of period	$	5,456	$	5,381

See accompanying Notes to Condensed Consolidated Financial Statements

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RTX CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in thousands)	2023		2022		2023		2022
Equity beginning balance	$	74,056	$	71,990	$	74,178	$	74,664
Common Stock
Beginning balance	38,228		37,673		37,939		37,483
Common stock plans activity	160		156		450		359
Purchase of subsidiary shares from noncontrolling interest, net	—		—		(1)		(13)
Ending balance	38,388		37,829		38,388		37,829
Treasury Stock
Beginning balance	(16,713)		(14,539)		(15,530)		(12,727)

Common stock repurchased	(1,457)		(602)		(2,640)		(2,414)

Ending balance	(18,170)		(15,141)		(18,170)		(15,141)
Retained Earnings
Beginning balance	52,489		50,271		52,269		50,265
Net income (loss)	(984)		1,387		1,769		3,775
Dividends on common stock	5		5		(2,472)		(2,337)
Dividends on ESOP common stock	—		—		(42)		(40)


Other	3		(11)		(11)		(11)
Ending balance	51,513		51,652		51,513		51,652
Unearned ESOP Shares
Beginning balance	(22)		(33)		(28)		(38)
Common stock plans activity	3		2		9		7
Ending balance	(19)		(31)		(19)		(31)
Accumulated Other Comprehensive Loss
Beginning balance	(1,502)		(2,931)		(2,018)		(1,915)
Other comprehensive income (loss), net of tax	(614)		(1,191)		(98)		(2,207)

Ending balance	(2,116)		(4,122)		(2,116)		(4,122)
Noncontrolling Interest
Beginning balance	1,576		1,549		1,546		1,596
Net income	51		8		138		65
Less: Redeemable noncontrolling interest net income	(3)		(3)		(6)		(6)

Dividends attributable to noncontrolling interest	(7)		(6)		(58)		(81)
Purchase of subsidiary shares from noncontrolling interest, net	—		—		—		(19)
Disposition of noncontrolling interest, net	—		—		(3)		(13)
Capital contributions	—		—		—		6

Ending balance	1,617		1,548		1,617		1,548
Equity at September 30	$	71,213	$	71,735	$	71,213	$	71,735
Supplemental share information
Shares of common stock issued under employee plans, net	202		189		1,432		2,469
Shares of common stock repurchased	17,816		6,642		29,770		25,688
Dividends declared per share of common stock	$	—	$	—	$	1.730	$	1.610

See accompanying Notes to Condensed Consolidated Financial Statements

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RTX CORPORATION

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation

The Condensed Consolidated Financial Statements at September 30, 2023 and for the quarters and nine months ended September 30, 2023 and 2022 are unaudited, and in the opinion of management include adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. The results reported in these Condensed Consolidated Financial Statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our 2022 Annual Report on Form 10-K.

Effective July 17, 2023, we changed our legal name from Raytheon Technologies Corporation to RTX Corporation.

Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries.

Raytheon follows a 4-4-5 fiscal calendar while Collins Aerospace (Collins) and Pratt & Whitney use a quarter calendar end. Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended September 30, 2023 and 2022 with respect to Raytheon, we are referring to their October 1, 2023 and October 2, 2022 fiscal quarter ends, respectively.

We reclassified certain immaterial prior period amounts within the Condensed Consolidated Statement of Cash Flows to conform to our current period presentation.

Organizational Structure. As previously announced, effective July 1, 2023, we streamlined the structure of our core businesses to three principal business segments: Collins Aerospace, Pratt & Whitney, and Raytheon. All segment information included in this Form 10-Q is reflective of this new structure and prior period information has been recast to conform to our current period presentation. In conjunction with the segment realignment, the Company revised its accounting policy with respect to the financial statement presentation of an immaterial amount of state income taxes allocable to U.S. government contracts related to our legacy Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) segments. Prior to July 1, 2023, these state income taxes were classified as Selling, general and administrative expenses. Effective with the segment change, state income tax amounts previously reported within Selling, general and administrative expenses were reclassified to Income tax expense (benefit) within the Condensed Consolidated Statement of Operations, and prior period amounts have been reclassified to conform to our current period presentation.

Pratt & Whitney Powder Metal Matter. Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts requires accelerated inspection of the PW1100G-JM (PW1100) Geared Turbofan (GTF) fleet, which powers the A320neo family of aircraft (A320neo) (herein referred to as the “Powder Metal Matter”). See “Note 15: Commitments and Contingencies” for additional information.

Russia Sanctions. In response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities, and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities, and individuals in the U.S. and other jurisdictions in which we operate, including certain members of the Company’s management team and Board of Directors. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software, and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected, and could continue to adversely affect, the Company and/or our supply chain, business partners, or customers. As a result of these sanctions on Russia and export controls, in the first quarter of 2022, we recorded pretax charges of $290 million, $210 million net of tax, and the impact of noncontrolling interest, within our Collins and Pratt & Whitney businesses primarily related to increased estimates for credit losses on both our accounts receivable and contract assets, inventory reserves and purchase order obligations, impairment of customer financing assets for products under lease, impairment of contract fulfillment costs that are no longer recoverable, and a loss on the exit of our investment in a Russia-based joint venture. We continue to monitor developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers.

Coronavirus Disease 2019 (COVID-19) Pandemic. The COVID-19 pandemic caused continuing negative effects on the global economy, our business and operations, the labor market, supply chains, inflation, and the industries in which we operate. We believe the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand.

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Our expectations regarding the negative effects of the COVID-19 pandemic and ongoing recovery and their potential financial impact are based on available information and assumptions that we believe are reasonable at this time; however, the actual financial impact is highly uncertain and subject to a wide range of factors and future developments.

Note 2: Acquisitions, Dispositions, Goodwill, and Intangible Assets

Dispositions. On July 20, 2023, we entered into a definitive agreement to sell our actuation and flight control business within our Collins segment for gross proceeds of approximately $1.8 billion. The closing of the transaction is subject to regulatory approvals and other customary closing conditions.

Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2023 were as follows:


(dollars in millions)	Balance as of December 31, 2022		Acquisitions and Divestitures		Foreign Currency Translation and Other		Balance as of September 30, 2023
Collins Aerospace	$	32,846	$	(3)	$	48	$	32,891
Pratt & Whitney	1,563		—		—		1,563
Raytheon	19,414		—		(2)		19,412
Total Segments	53,823		(3)		46		53,866
Eliminations and other	17		—		—		17
Total	$	53,840	$	(3)	$	46	$	53,883

Effective July 1, 2023, we implemented a new organizational structure resulting in a change from four segments to three segments. As a result, we reassigned goodwill and customer relationship intangibles to our new segment structure. Goodwill was reassigned on a relative fair value basis and we tested goodwill related to the impacted reporting units immediately before and after the reassignment and determined that no impairment existed.

Intangible Assets. Identifiable intangible assets are comprised of the following:


	September 30, 2023				December 31, 2022
(dollars in millions)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Amortized:


Collaboration assets	$	5,742	$	(1,621)	$	5,536	$	(1,408)
Exclusivity assets	3,290		(344)		2,911		(323)
Developed technology and other	1,212		(608)		1,202		(544)
Customer relationships	29,830		(10,282)		29,775		(8,967)
	40,074		(12,855)		39,424		(11,242)
Indefinite-lived:
Trademarks and other	8,646		—		8,641		—
Total	$	48,720	$	(12,855)	$	48,065	$	(11,242)

Amortization of intangible assets for the quarters and nine months ended September 30, 2023 and 2022 was $545 million and $1,564 million and $497 million and $1,451 million, respectively. The following is the expected amortization of intangible assets for the remainder of 2023 through 2028:


(dollars in millions)	Remaining 2023		2024		2025		2026		2027		2028
Amortization expense	$	449	$	2,195	$	2,102	$	2,025	$	1,905	$	1,803

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Note 3: Earnings Per Share


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars and shares in millions, except per share amounts)	2023		2022		2023		2022
Net income (loss) attributable to common shareowners:
Income (loss) from continuing operations	$	(984)	$	1,387	$	1,769	$	3,794
Loss from discontinued operations	—		—		—		(19)
Net income (loss) attributable to common shareowners	$	(984)	$	1,387	$	1,769	$	3,775
Basic weighted average number of shares outstanding	1,448.1		1,470.1		1,455.7		1,478.7
Stock awards and equity units (share equivalent)	—		9.2		10.2		10.2
Diluted weighted average number of shares outstanding	1,448.1		1,479.3		1,465.9		1,488.9
Earnings (Loss) Per Share attributable to common shareowners - Basic:
Income (loss) from continuing operations	$	(0.68)	$	0.94	$	1.22	$	2.57
Loss from discontinued operations	—		—		—		(0.02)
Net income (loss) attributable to common shareowners	$	(0.68)	$	0.94	$	1.22	$	2.55
Earnings (Loss) Per Share attributable to common shareowners - Diluted:
Income (loss) from continuing operations	$	(0.68)	$	0.94	$	1.21	$	2.55
Loss from discontinued operations	—		—		—		(0.01)
Net income (loss) attributable to common shareowners	$	(0.68)	$	0.94	$	1.21	$	2.54

The computation of diluted earnings per share (EPS) excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted EPS excludes the effect of the potential release or exercise of stock awards when the awards’ assumed proceeds exceed the average market price of the common shares during the period. For the quarter and nine months ended September 30, 2023, the number of stock awards excluded from the computation was 20.5 million and 7.0 million, respectively. For the quarter and nine months ended September 30, 2022, the number of stock awards excluded from the computation was 10.4 million and 7.1 million, respectively. All outstanding stock awards are excluded in the computation of diluted EPS in the quarter ended September 30, 2023 because their effect was antidilutive due to the loss from continuing operations.

Note 4: Changes in Contract Estimates at Completion

We review our Estimates at Completion (EACs) at least annually or when a change in circumstances warrants a modification to a previous estimate. For significant contracts, we review our EACs more frequently. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables, and requires significant judgment by management on a contract by contract basis. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration. Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials including any impact from changing costs or inflation, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost changes. Cost estimates may also include the estimated cost of satisfying our industrial cooperation agreements, sometimes in the form of either offset obligations or in-country industrial participation (ICIP) agreements, required under certain contracts. These obligations may or may not be distinct depending on their nature. If cash is paid to a customer to satisfy our offset obligations it is recorded as a reduction in the transaction price.

Changes in estimates of net sales, cost of sales, and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior

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periods based on a performance obligation’s percentage of completion in the current period. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. Our EAC adjustments also include the establishment of, and changes to, loss provisions for our contracts accounted for on a percentage of completion basis.

Net EAC adjustments had the following impact on our operating results:


	Quarter Ended September 30,				Nine Months Ended September 30,
(dollars in millions, except per share amounts)	2023		2022		2023		2022
Total net sales	$	(235)	$	72	$	(304)	$	150
Operating profit (loss)	(279)		7		(433)		2
Income (loss) from continuing operations attributable to common shareowners(1)	(220)		6		(342)		2
Diluted earnings (loss) per share from continuing operations attributable to common shareowners (1)	$	(0.15)	$	—	$	(0.23)	$	—

(1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments.

Note 5: Accounts Receivable, Net

Accounts receivable, net consisted of the following:


(dollars in millions)	September 30, 2023		December 31, 2022
Accounts receivable	$	10,422	$	9,560
Allowance for expected credit losses	(364)		(452)
Total accounts receivable, net	$	10,058	$	9,108

Note 6: Contract Assets and Liabilities

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities were as follows:


(dollars in millions)	September 30, 2023		December 31, 2022
Contract assets	$	12,696	$	11,534
Contract liabilities	(15,248)		(14,598)
Net contract liabilities	$	(2,552)	$	(3,064)

Contract assets increased $1,162 million during the nine months ended September 30, 2023 primarily due to sales in excess of billings on certain contracts at Raytheon and Pratt & Whitney, partially offset by a decrease in contract assets driven by a customer insolvency charge recorded in the second quarter of 2023 and the EAC impacts related to the Powder Metal Matter, both at Pratt & Whitney. Contract liabilities increased $650 million during the nine months ended September 30, 2023 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and Collins. We recognized revenue of $0.9 billion and $4.4 billion during the quarter and nine months ended September 30, 2023, respectively, related to contract liabilities as of January 1, 2023 and $1.1 billion and $4.1 billion during the quarter and nine months ended September 30, 2022, respectively, related to contract liabilities as of January 1, 2022.

As of September 30, 2023, our Contract liabilities include approximately $390 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated.

Contract assets include an allowance for expected credit losses of $235 million and $318 million as of September 30, 2023 and December 31, 2022, respectively.

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Note 7: Inventory, net

Inventory, net consisted of the following:


(dollars in millions)	September 30, 2023		December 31, 2022
Raw materials	$	3,894	$	3,477
Work-in-process	4,297		3,839
Finished goods	3,859		3,301
Total inventory, net	$	12,050	$	10,617

Note 8: Borrowings and Lines of Credit

As of September 30, 2023, we had a revolving credit agreement with various banks permitting aggregate borrowings of up to $5.0 billion. This agreement was renewed in August 2023 and expires in August 2028. As of September 30, 2023, there were no borrowings outstanding under this agreement. The Company’s $2.0 billion revolving credit agreement scheduled to expire September 2023, was terminated in August 2023, and there were no outstanding borrowings at the time of termination.

From time to time, we use commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments, and repurchases of our common stock. The commercial paper notes have original maturities of not more than 364 days from the date of issuance. As of September 30, 2023, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. We had $1.0 billion and $0.5 billion of commercial paper borrowings outstanding at September 30, 2023 and December 31, 2022, respectively, which is reflected in Short-term borrowings in our Condensed Consolidated Balance Sheet. At September 30, 2023 and December 31, 2022, short-term commercial paper borrowings outstanding had a weighted-average interest rate of 5.6% and 4.4%, respectively.

During the nine months ended September 30, 2023, we had no new borrowings, and $200 million of repayments, of commercial paper with maturities greater than 90 days. During the nine months ended September 30, 2022, we had $1.4 billion of proceeds from issuance, and no repayments, of commercial paper with maturities greater than 90 days.

We had the following issuances of long-term debt during the nine months ended September 30, 2023:


Issuance Date	Description of Notes	Aggregate Principal Balance (in millions)
February 27, 2023	5.000% notes due 2026	$	500
	5.150% notes due 2033	1,250
	5.375% notes due 2053	1,250

We made the following repayment of long-term debt during the nine months ended September 30, 2023:


Repayment Date	Description of Notes	Aggregate Principal Balance (in millions)
August 16, 2023	3.650% notes due 2023	$	171

Long-term debt consisted of the following:


(dollars in millions)	September 30, 2023		December 31, 2022




3.650% notes due 2023 (1)	$	—	$	171
3.700% notes due 2023 (1)	400		400
3.200% notes due 2024 (1)	950		950
3.150% notes due 2024 (1)	300		300
3.950% notes due 2025 (1)	1,500		1,500
2.650% notes due 2026 (1)	719		719
5.000% notes due 2026 (1)	500		—
3.125% notes due 2027 (1)	1,100		1,100
3.500% notes due 2027 (1)	1,300		1,300
7.200% notes due 2027 (1)	382		382
7.100% notes due 2027	135		135
6.700% notes due 2028	285		285

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7.000% notes due 2028 (1)	185	185
4.125% notes due 2028 (1)	3,000	3,000
7.500% notes due 2029 (1)	414	414
2.150% notes due 2030 (€500 million principal value) (1)	533	531
2.250% notes due 2030 (1)	1,000	1,000
1.900% notes due 2031 (1)	1,000	1,000
2.375% notes due 2032 (1)	1,000	1,000
5.150% notes due 2033 (1)	1,250	—
5.400% notes due 2035 (1)	446	446
6.050% notes due 2036 (1)	410	410
6.800% notes due 2036 (1)	117	117
7.000% notes due 2038	148	148
6.125% notes due 2038 (1)	575	575
4.450% notes due 2038 (1)	750	750
5.700% notes due 2040 (1)	553	553
4.875% notes due 2040 (1)	600	600
4.700% notes due 2041 (1)	425	425
4.500% notes due 2042 (1)	3,500	3,500
4.800% notes due 2043 (1)	400	400
4.200% notes due 2044 (1)	300	300
4.150% notes due 2045 (1)	850	850
3.750% notes due 2046 (1)	1,100	1,100
4.050% notes due 2047 (1)	600	600
4.350% notes due 2047 (1)	1,000	1,000
4.625% notes due 2048 (1)	1,750	1,750
3.125% notes due 2050 (1)	1,000	1,000
2.820% notes due 2051 (1)	1,000	1,000
3.030% notes due 2052 (1)	1,100	1,100
5.375% notes due 2053 (1)	1,250	—
Other (including finance leases)	260	253
Total principal long-term debt	34,087	31,249
Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs)	3	40
Total long-term debt	34,090	31,289
Less: current portion	1,389