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Business Combinations
 12 Months Ended
Dec. 31, 2021
Business Combinations [Abstract]  
Business Combination Disclosure BUSINESS ACQUISITIONS, DISPOSITIONS, GOODWILL AND INTANGIBLE ASSETS
Business Acquisitions. Our investments in businesses, net of cash acquired, in 2021, 2020 and 2019 totaled $1.1 billion, $35.1 billion and $9 million, respectively. Our investments in business in 2021 primarily consisted of the acquisitions discussed below. Our investments in businesses in 2020 primarily consisted of the acquisition of Raytheon Company.
In November 2021, we completed the acquisitions of FlightAware and SEAKR Engineering Inc., for a total of approximately $1.1 billion, net of cash received. FlightAware is a leading digital aviation company providing global flight tracking solutions, predictive technology, analytics and decision-making tools, and is reported in the Collins Aerospace segment. SEAKR Engineering Inc. is a leading supplier of advanced space electronics and is reported in the RIS segment. In connection with these acquisitions, we have preliminarily recorded $0.8 billion of goodwill and $0.3 billion of intangibles assets. The purchase price allocation processes for these acquisitions are expected to be complete in 2022 after the conclusion of our final reviews.
In December 2020, we completed the acquisition of Blue Canyon Technologies, a leading provider of small satellites and spacecraft systems components for $425 million, net of cash received. Blue Canyon Technologies is reported in the RIS segment. In connection with this acquisition, we recorded $281 million of goodwill, primarily related to expected synergies from combining operations and the value of the existing workforce, which is deductible for tax purposes, and $149 million of intangible assets, primarily related to customer relationships.
Pro forma financial information and revenue from the date of acquisition have not been provided for these acquisitions as they are not material either individually or in the aggregate.
Raytheon Merger. As discussed in “Note 1: Basis of Presentation and Summary of Accounting Principles”, on April 3, 2020, UTC and Raytheon Company completed an all-stock merger of equals, following the completion by UTC of the Separation Transactions and Distributions. Raytheon Company (previously New York Stock Exchange (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.”
Total consideration is calculated as follows:
(dollars in millions)Amount
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards$33,067 
Fair value attributable to pre-merger service for replacement equity awards99 
Total merger consideration$33,166 
The fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards is calculated as follows:
(dollars and shares in millions, except per share amounts and exchange ratio)Amount
Number of Raytheon Company common shares outstanding as of April 3, 2020277.3
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 consideration277.7
Exchange ratio (2)
2.3348
Shares of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards648.4
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.
(2)    The exchange ratio is equal to 2.3348 shares of UTC common stock for each share of Raytheon Company common stock in accordance with the Raytheon Merger Agreement.
(3)    The price per share of RTC common stock is based on the RTC opening stock price as of April 3, 2020.
Allocation of Consideration Transferred to Net Assets Acquired. We accounted 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. During the first quarter of 2021, based on the finalization of our valuation and internal reviews, we completed the purchase price allocation which resulted in a net increase to goodwill of $61 million.
The final purchase price allocation, net of cash acquired, for the acquisition was as follows:
(dollars in millions)
Cash and cash equivalents$3,208 
Accounts receivable1,997 
Contract assets6,023 
Inventory705 
Other assets, current940 
Fixed assets4,745 
Operating lease right-of-use assets950 
Intangible assets19,130 
Other assets1,218 
Total identifiable assets acquired38,916 
Accounts payable1,477 
Accrued employee compensation1,492 
Other accrued liabilities1,921 
Contract liabilities3,002 
Long-term debt, including current portion4,700 
Operating lease liabilities, non-current portion738 
Future pension and postretirement benefit obligation11,607 
Other long-term liabilities2,368 
Total liabilities acquired27,305 
Total identifiable net assets11,611 
Goodwill21,589 
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 an increase to future pension and postretirement benefit obligations of $3.6 billion, primarily related to remeasurement of the liability based on market conditions on the Raytheon Merger closing date. For further information, see “Note 11: 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 the closing date. The assessment did not note any material contingencies related to existing legal or government action.
The fair values of the customer relationship intangible assets were determined by using a discounted cash flow valuation method, which is a form of the 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 tradenames 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, which required significant management judgment, included forecasted revenue growth rates, 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 were 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 were then discounted to present value, using an appropriate discount rate that required significant judgment by management. 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, using forecasted revenue growth rate projections and a discount rate, respectively, that required significant judgment by management. The tradename intangible assets were 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:
(dollars in millions)Fair ValueUseful Life
Acquired customer relationships$12,900 25 years
Acquired tradenames5,430 Indefinite
Acquired developed technology800 
5 to 7 years
Total identifiable intangible assets $19,130 
We also identified customer contractual obligations on loss making programs and recorded liabilities of $222 million related to these programs based on the difference between the actual expected operating loss and a normalized operating profit. These liabilities are being liquidated based on the expected pattern of expenses incurred on these contracts.
We recorded $21.6 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 goodwill generated as a result of the Raytheon Merger is nondeductible for tax purposes.
Merger-Related Costs. Merger-related costs have been expensed as incurred. In 2021 and 2020, we recorded $17 million and $142 million, respectively, of Raytheon Merger transaction and integration costs. These costs were recorded in Selling, general and administrative expenses within the Consolidated Statement of Operations.
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 operations basis, in order to more
accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions, the Distributions and the Raytheon Merger.
(dollars in millions, except per share amounts)20202019
Net sales$64,087 $74,238 
Income (loss) from continuing operations attributable to common shareowners(2,167)6,544 
Basic earnings (loss) per share of common stock from continuing operations$(1.43)$4.34 
Diluted earnings (loss) per share of common stock from continuing operations(1.43)4.31 
The unaudited supplemental pro-forma data above includes the following significant adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on January 1, 2019, as adjusted for the applicable tax impact. As the merger was completed on April 3, 2020, the pro-forma adjustments in the table below only include the required adjustments through April 3, 2020.
(dollars in millions)20202019
Amortization of acquired Raytheon Company intangible assets, net (1)
$(270)$(1,048)
Amortization of fixed asset fair value adjustment (2)
(9)(38)
Utilization of contractual customer obligation (3)
8 57 
Deferred revenue fair value adjustment (4)
(4)(33)
Adjustment to non-service pension (income) expense (5)
239 832 
RTC/Raytheon fees for advisory, legal, accounting services (6)
134 (134)
Adjustment to interest expense related to the Raytheon Merger, net (7)
9 36 
Elimination of deferred commission amortization (8)
5 20 
$112 $(308)
(1)    Reflects the additional amortization of the acquired Raytheon Company’s intangible assets recognized at fair value in purchase accounting and eliminates the historical Raytheon Company intangible asset amortization expense.
(2)    Reflects the amortization of the fixed asset fair value adjustment as of the acquisition date.
(3)    Reflects the additional amortization of liabilities recognized for certain acquired loss making contracts as of the acquisition date.
(4)    Reflects the difference between prepayments related to extended arrangements and the fair value of the assumed performance obligations as they are satisfied.
(5)    Represents the elimination of unamortized prior service costs and actuarial losses, as a result of fair value purchase accounting.
(6)    Reflects the elimination of transaction-related fees incurred by RTC and Raytheon Company in connection with the Raytheon Merger and assumes all of the fees were incurred during the first quarter of 2019.
(7)    Reflects the amortization of the fair market value adjustment related to Raytheon Company.
(8)    Reflects the elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting.
The unaudited supplemental pro-forma financial information does not reflect the potential realization of cost savings related to the integration of the two companies. Further, the pro-forma data should not be considered indicative of the results that would have occurred if the acquisition had been consummated on January 1, 2019, nor are they indicative of future results.
Dispositions. In 2021, 2020 and 2019 cash inflows related to dispositions were $1,879 million, $2,556 million and $134 million, respectively. Our dispositions of businesses in 2021, 2020 and 2019 consisted of the dispositions discussed below and other immaterial dispositions in our aerospace businesses.
In September 2021, we entered into a definitive agreement to divest our global training and services business within our RIS segment, which we completed in December 2021, for approximately $0.9 billion in cash and other consideration, resulting in an aggregate pre-tax gain, net of transaction costs, of $251 million ($135 million after tax), which includes a $12 million pre-tax gain recognized in Non-service pension income.
In October 2020, we entered into a definitive agreement to sell our Forcepoint business, which we completed on January 8, 2021, for proceeds of $1.1 billion, net of cash transferred. At December 31, 2020, the related assets of approximately $1.9 billion and liabilities of approximately $855 million were accounted for as held for sale at fair value less cost to sell; however, Forcepoint did not qualify for presentation as discontinued operations. These held for sale assets and liabilities are presented in Other assets, current and Other accrued liabilities, respectively, on our December 31, 2020 Consolidated Balance Sheet. Assets held for sale included $1.4 billion of goodwill and intangible assets. We did not recognize a pre-tax gain or loss within the Consolidated Statement of Operations related to the sale of Forcepoint. The results of Forcepoint were included in Eliminations and other in our segment results.
In the third quarter of 2020, in accordance with conditions imposed for regulatory approval of the Raytheon Merger, we completed the sale of our Collins Aerospace military Global Positioning System (GPS) and space-based precision optics businesses for $2.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction costs, of $580 million ($253 million after tax), of which $608 million was included in Other income (expense), net partially offset by $20 million of aggregate transaction costs included in Selling, general and administrative costs and an $8 million expense included in Non-service pension income within our Consolidated Statement of Operations.
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 within our RIS segment for $231 million in cash, net of transaction-related costs. As the transaction occurred subsequent to the Raytheon Merger, the gain of $199 million was not recorded in the Consolidated Statement of Operations, but rather was recorded as an adjustment to the fair value of net assets acquired in the allocation of consideration transferred to net assets acquired in the Raytheon Merger.
Goodwill. Changes in our goodwill balances for the year ended in 2021 were as follows:
(dollars in millions)
Balance as of January 1, 2021(1)
Acquisitions and DivestituresForeign currency
translation and other		Balance as of
December 31, 2021
Collins Aerospace Systems$31,571 $228 $(415)$31,384 
Pratt & Whitney1,563 — — 1,563 
Raytheon Intelligence & Space(1)
9,522 286 5 9,813 
Raytheon Missiles & Defense(1)
11,608 52 (1)11,659 
Total Segment54,264 566 (411)54,419 
Eliminations and other21 — (4)17 
Total$54,285 $566 $(415)$54,436 
(1)    In connection with the previously announced January 1, 2021 reorganization of RIS and RMD, goodwill of $282 million was allocated from RMD to RIS on a relative fair value basis and is reflected in the revised balances at January 1, 2021.
The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.
We completed our annual goodwill impairment testing as of October 1, 2021, where we compared the fair value of all of our reporting units to their respective carrying values (step 1) and determined that no adjustments to the carrying value of goodwill were necessary. We estimated the fair value of our reporting units using a discounted cash flow (DCF) model based on our most recent long-range plan in place at the time of our impairment testing. The key assumptions used in the DCF analysis include our business projections, including revenue growth rates and operating profit margins, the long-term growth rate used to calculate the terminal value of the reporting unit, and the discount rate. We consider both internal and external factors and refresh key assumptions annually or as considered necessary. As part of our 2021 analysis, we used a slightly higher long-term growth rate assumption as compared to our 2020 analysis, based on our review of historical growth rates for our business and industry, long-term inflation estimates, and industry reports on projected future long-term growth for the industry. Material changes in these estimates could occur and result in impairments in future periods.
Based on our annual impairment analysis as of October 1, 2021, the reporting unit that was closest to impairment was a Collins Aerospace reporting unit with a fair value in excess of book value, including goodwill, of 15%. All other factors being equal, a 10% decrease in expected future cash flows, either due to a delay in the return to pre-pandemic revenue levels or other factors, would result in an excess of fair value over net book value of approximately 3%. Alternatively, all other factors being equal, a 50 basis points decrease in the assumed long-term growth rate would result in an excess of fair value over net book value of approximately 7%. The discount rate that we used in our 2021 analysis was consistent with the discount rate used in our 2020 analysis. All other factors being equal, a 50 basis points increase in the discount rate would result in an excess of fair value over net book value of approximately 4%.
All other reporting units had a fair value substantially in excess of book value.
We considered the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic to be a triggering event in the first and second quarters of 2020, requiring an impairment evaluation of goodwill, intangible assets, net and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney. Beginning 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 and we experienced significant unfavorable EAC adjustments at our Collins Aerospace and Pratt & Whitney businesses due to a decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries. 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 future sales and cash flows expectations. In the
second quarter of 2020, 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. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios.
The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact the key assumptions in determining the fair value of our reporting units, including long-term revenue growth projections, profitability and expectations for net cash flows, discount rates including changes to U.S. treasury rates and equity risk premiums, tax 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 significant future negative developments in the COVID-19 pandemic, or future changes in the inputs and assumptions used in estimating the fair value of our reporting units, including the expected long-term recovery of airline travel to pre-COVID-19 levels, would require the Company to record a non-cash impairment charge.
Intangible Assets. Identifiable intangible assets are comprised of the following:
 20212020
(dollars in millions)Gross
Amount		Accumulated
Amortization		Gross
Amount		Accumulated
Amortization
Amortized:
Patents and trademarks$96 $(37)$48 $(35)
Collaboration assets5,319 (1,173)5,021 (1,024)
Exclusivity assets2,673 (318)2,541 (295)
Developed technology and other1,118 (429)906 (316)
Customer relationships29,982 (7,411)30,241 (5,262)
 39,188 (9,368)38,757 (6,932)
Indefinite-lived:
Trademarks and other8,696 — 8,714 — 
Total$47,884 $(9,368)$47,471 $(6,932)
We completed our annual indefinite-lived intangible assets impairment testing as of October 1, 2021. Based on this analysis, all of our indefinite-lived intangible assets had a fair value substantially in excess of book value. In 2020, given the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic, we performed an assessment of our indefinite-lived intangible assets and recorded charges of $57 million related to the impairment of an indefinite-lived tradename intangible assets at Collins Aerospace. We will continue to evaluate the impact of the COVID-19 pandemic on our customers and our business in future periods which may result in a different conclusion.
Amortization of intangible assets was $2,439 million, $2,125 million and $1,244 million in 2021, 2020 and 2019, respectively. The following is the expected amortization of total intangible assets for 2022 through 2026, which reflects the pattern of expected economic benefit on certain aerospace intangible assets:
(dollars in millions)20222023202420252026
Amortization expense$1,997$2,096$2,174$2,061$1,977