Business Acquisitions. As noted above, on April 3, 2020, pursuant to the Agreement and Plan of Merger dated June 9, 2019, as amended (the Raytheon Merger Agreement) UTC and Raytheon Company completed their previously announced all-stock merger of equals, following the completion by UTC of the Separation Transactions and Distributions. Raytheon Company (previously NYSE:RTN) shares ceased trading prior to the market open on April 3, 2020, and each share of Raytheon common stock was converted in the merger into the right to receive 2.3348 shares of UTC common stock previously traded on the NYSE under the ticker symbol “UTX.” Upon closing of the Raytheon Merger, UTC’s name was changed to “Raytheon Technologies Corporation,” and its shares of common stock began trading as of April 3, 2020 on the NYSE under the ticker symbol “RTX.”


(dollars and shares, in millions, except per share amounts and exchange ratio)	Amount
Number of Raytheon Company common shares outstanding as of April 3, 2020	277.3
Number of Raytheon Company stock awards vested as a result of the Raytheon Merger ⁽¹⁾	0.4
Total outstanding shares of Raytheon Company common stock and equity awards entitled to merger consideration	277.7
Exchange ratio ⁽²⁾	2.3348
Shares of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards	648.4
Price per share of RTC common stock ⁽³⁾	$	51.00
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards	$	33,067

(1) Represents Raytheon Company stock awards that vested as a result of the Raytheon Merger, which is considered a “change in control” for purposes of the Raytheon 2010 Stock Plan. Certain Raytheon Company restricted stock awards and Raytheon Company restricted stock unit (RSU) awards, issued under the Raytheon 2010 Stock Plan vested on an accelerated basis as a result of the Raytheon Merger. Such vested awards were converted into the right to receive RTC common stock determined as the product of (1) the number of vested awards, and (2) the exchange ratio.

Preliminary Allocation of Consideration Transferred to Net Assets Acquired. We are accounting for the Raytheon Merger under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree (Raytheon Company) at the fair values on the closing date. The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Raytheon Merger. As of June 30, 2020, the majority of the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed have been reviewed and finalized; however, our assessment of certain contingencies including loss contracts and environmental liabilities, pension and postretirement benefit obligations and taxes remain open for completion of the related valuation


(dollars, in millions)
Cash and cash equivalents	$	3,208
Accounts receivable	1,997
Inventory	705
Contract assets	6,023
Other assets, current	897
Future income tax benefits	14
Fixed assets	4,732
Intangible assets:	19,130
Customer relationships	12,900
Tradenames/trademarks	5,430
Developed technology	800
Other assets	2,139
Total identifiable assets acquired	38,845

Accounts payable	1,455
Accrued liabilities	3,235
Contract liabilities	2,991
Long-term debt, including current portion	4,700
Future pension and postretirement benefit obligation	10,651
Other long-term liabilities	3,482
Total liabilities acquired	26,514
Total identifiable net assets	12,331
Goodwill	20,869
Redeemable noncontrolling interest	(34)
Total consideration transferred	$	33,166

Fair value adjustments to Raytheon Company’s identified assets and liabilities included an increase in fixed assets of $1.1 billion and a preliminarily estimated increase to future pension and postretirement benefit obligations of $2.6 billion. The preliminarily estimated increase in future pension and postretirement benefit obligations primarily relates to remeasurement of the liability based on market conditions on the Raytheon Merger closing date. For further information, see “Note 10: Employee Benefit Plans.” In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of such closing date. The preliminary assessment did not note any significant contingencies related to existing legal or government action.

The fair values of the customer relationship intangible assets were determined by using an income approach. Under this approach, the estimated future cash flows attributable to the asset are adjusted to exclude the future cash flows that can be attributed to supporting assets, such as trade names or fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant future cash flows considered historical and projected revenues, remaining developmental effort, operational performance including company specific synergies, program life cycles, material and labor pricing, and other relevant customer, contractual and market factors. Where appropriate, the net cash flows are probability-adjusted to reflect the uncertainties associated with the underlying assumptions, including cancellation rates related to backlog, government demand for sole-source and recompete contracts and win rates for recompete contracts, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future cash flows are then discounted to present value. The customer relationship intangible assets are being amortized based on the pattern of economic benefits we expect to realize over the estimated economic life of the underlying programs. The fair value of the tradename intangible assets were determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the tradename and discounted to present value. The tradename intangible assets have been determined to have an indefinite life. The developed technology intangible assets are being amortized based on the pattern of economic benefits. The intangible assets included above consist of the following:

We recorded $20.9 billion of goodwill as a result of the Raytheon Merger which primarily relates to expected synergies from combining operations and the value of the existing workforce. The Raytheon Merger creates a premier systems provider with advanced technologies to address rapidly growing segments within aerospace and defense. The Raytheon Merger offers complementary technologies and creates additional growth opportunities while delivering benefits to our shareowners, customers and employees. With our technological and R&D capabilities, Raytheon Technologies will deliver innovative and cost-effective solutions aligned with the highest customer priorities. The goodwill generated as a result of the Raytheon Merger is nondeductible for tax purposes.

Supplemental Pro-Forma Data. Raytheon Company’s results of operations have been included in RTC’s financial statements for the period subsequent to the completion of the Raytheon Merger on April 3, 2020. The following unaudited supplemental pro-forma data presents consolidated information as if the Raytheon Merger had been completed on January 1, 2019. The pro-forma results were calculated by combining the results of Raytheon Technologies with the stand-alone results of Raytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period. The results below reflect Raytheon Technologies on a continuing basis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions and the Raytheon Merger.


	Quarter Ended June 30,						Six Months Ended June 30,
(dollars in millions, except per share amounts)	2020		2019		2020		2019
Net sales	$	14,470	$	18,416	$	32,921	$	36,038
Income (loss) from continuing operations attributable to common shareowners	(3,732)		2,006		(3,014)		3,308


Basic (loss) earnings per share of common stock from continuing operations	$	(2.49)	$	1.33	$	(2.08)	$	2.20


Diluted (loss) earnings per share of common stock from continuing operations	(2.49)		1.32		(2.07)		2.19


	Quarter Ended June 30,						Six Months Ended June 30,
(dollars in millions)	2020		2019		2020		2019
Amortization of acquired Raytheon Company intangible assets, net ⁽¹⁾	$	—	$	(262)	$	(270)	$	(525)
Amortization of fixed asset fair value adjustment ⁽²⁾	—		(9)		(9)		(18)
Utilization of contractual customer obligation ⁽³⁾	—		15		8		29
Deferred revenue fair value adjustment ⁽⁴⁾	—		(8)		(4)		(17)
Adjustment to non-service pension (benefit) cost⁽⁵⁾	—		208		239		416
RTC/Raytheon fees for advisory, legal, accounting services⁽⁶⁾	61		45		96		(96)
Adjustment to interest expense related to debt distributions and Raytheon Merger, net⁽⁷⁾	—		9		9		18
Elimination of deferred commission amortization ⁽⁸⁾	—		7		5		10
	$	61	$	5	$	74	$	(183)

Dispositions. As discussed further in “Note 3: Discontinued Operations,” on April 3, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with UTC (since renamed Raytheon Technologies Corporation), pursuant to which, among other things, UTC agreed to separate into three independent, publicly traded companies – UTC, Otis and Carrier and distribute all of the outstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020. UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions. As a result of the Distributions, Carrier and Otis are now independent publicly traded companies.

In May 2020, in order to meet the requirements for regulatory approval of the Raytheon Merger, we completed the sale of our airborne tactical radios business for $234 million in cash, net of transaction-related costs. The business was part of our RIS segment. As the transaction occurred subsequent to the Raytheon Merger, the gain of $210 million was not recorded in the Condensed Consolidated Statement of Operations, but rather was recorded as an adjustment to the fair value of net assets acquired in the preliminary allocation of consideration transferred to net assets acquired in the Raytheon Merger, as discussed further above. Income before taxes related to the disposed business for the period from the closing of the Raytheon Merger to disposal date was not material.

In accordance with conditions imposed for regulatory approval of the Raytheon Merger, Collins Aerospace is required to dispose of certain businesses. We expect the disposals to be completed in the third quarter of 2020. The criteria for held for sale accounting treatment was met upon the completion of the Raytheon Merger on April 3, 2020. At June 30, 2020, we had $1,814 million and $90 million of assets and liabilities, respectively, classified as held for sale related to these disposals, which do not qualify for presentation as discontinued operations. These held for sale assets and liabilities are presented in Other assets, current and Accrued liabilities, respectively, on our Condensed Consolidated Balance Sheet. Assets held for sale included $1.6 billion of goodwill and intangible assets. A further breakout of major classes of assets and liabilities has not been provided as the assets and liabilities held for sale are not material.


(dollars in millions)	Balance as of January 1, 2020		Acquisitions and Divestitures		Impairment Losses		Foreign Currency Translation and Other		Balance as of June 30, 2020
Collins Aerospace Systems⁽¹⁾	$	35,025	$	(886)	$	(3,183)	$	(120)	$	30,836
Pratt & Whitney	1,563		—		—		—		1,563
Raytheon Intelligence & Space	—		8,422		—		2		8,424
Raytheon Missiles & Defense	—		11,067		—		—		11,067
Total Segments	36,588		18,603		(3,183)		(118)		51,890
Eliminations and other	21		1,380		—		(22)		1,379
Total	$	36,609	$	19,983	$	(3,183)	$	(140)	$	53,269

The Company has been monitoring the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic. In the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules. These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our expectations regarding future sales and cash flows. We considered these factors to be a triggering event requiring impairment evaluation of goodwill, intangible assets and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney.

Impairment evaluations at Collins Aerospace and Pratt & Whitney resulted in several other charges as further discussed in “Note 1: Basis of Presentation and Summary of Accounting Principles.” These charges were primarily due to declines in expected future commercial air traffic, airline bankruptcies, or other impacts such as accelerated fleet retirements and the shift in overhead costs to our military production contracts in joint military/commercial production facilities due to the decline in commercial sales volumes. We also evaluated amortizable intangible assets and identified no impairments.

Finally, we evaluated the Collins Aerospace and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins Aerospace reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $3.2 billion. Collins Aerospace discounted future cash flow estimates were developed for three scenarios: a base case, downside case, and an upside case. These scenarios included assumptions regarding future airline flight activity, out of warranty hours on original equipment, expected repairs, upgrades and replacements, future OEM manufacturing schedules and related environmental assumptions, including individuals’ desire to return to normal travel, business needs to travel, and potential cures or vaccines to prevent or reduce the effects of COVID-19. These estimates require a significant amount of judgment and are subject to change based upon factors outside our control.

We recorded total goodwill impairments of $3.2 billion related to the two Collins Aerospace reporting units by weighting the three scenarios as follows: 50% for the base case, 40% for the downside case, and 10% for the upside case. We used these weightings, as we believe they reflect the risks and opportunities relative to our current estimates. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios. For these other reporting units, the reporting unit that was closest to impairment was a reporting unit at Collins Aerospace, with a fair value in excess of book value, including goodwill, of $1.4 billion or 19%. Material changes in these estimates could occur and result in additional impairments in future periods. If the discount rate used for the impairment analysis increased or decreased by 25 basis points, the impairments of the two Collins Aerospace reporting units would have increased by$1.2 billion or decreased by $1.3 billion, respectively. If the cash flows were decreased or increased by 10% the impairments would have increased by $2.5 billion or decreased by $2.1 billion, respectively.

The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market and macro-economic conditions. It is possible that future changes in such circumstances, including a more prolonged and/or severe COVID-19 pandemic than originally anticipated, or future changes in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, would require the Company to record a non-cash impairment charge.


	June 30, 2020						December 31, 2019
(dollars in millions)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Amortized:

Patents and trademarks	$	47	$	(34)	$	47	$	(34)
Collaboration assets	4,948		(997)		4,862		(920)
Exclusivity assets	2,425		(274)		2,386		(275)
Developed technology and other	1,685		(288)		890		(217)
Customer relationships	29,938		(4,134)		17,750		(3,392)
	$	39,043	$	(5,727)	$	25,935	$	(4,838)
Unamortized:
Trademarks and other	8,687		—		3,376		—
Total	$	47,730	$	(5,727)	$	29,311	$	(4,838)

Intangible assets are tested for impairment when events occur that indicate that the net book value will not be recovered over future cash flows. Given the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic, we performed an assessment of our amortizable intangible assets and no impairment was identified as of June 30, 2020; however, we recorded $17 million and $57 million in the quarter and six months ended June 30, 2020, respectively related to the impairment of an indefinite-lived tradename intangible assets at Collins Aerospace. With the exception of this tradename, the intangible asset that was closest to impairment was another tradename at Collins Aerospace with a fair value in excess of book value of approximately $70 million, or 4%. We will continue to evaluate the impact on our customers and our business in future periods which may result in a different conclusion.