On April 3, 2020, United Technologies Corporation (UTC) combined its aerospace businesses with Raytheon Company (Raytheon) in a merger of equals transaction with Raytheon surviving as a wholly owned subsidiary of UTC (the Raytheon Merger). Upon the closing of the Raytheon Merger, the combined company name changed to “Raytheon Technologies Corporation” (Raytheon Technologies, RTC or the Company). Prior to the Raytheon Merger, UTC separated its Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis) businesses from its aerospace businesses (the Separation Transactions) on April 3, 2020, pursuant to the Separation and Distribution Agreement entered into between UTC, Carrier and Otis on April 2, 2020.

The financial statements of the Company contained herein are as of and for the period ended September 30, 2020, and reflect the results of the Company after giving effect to the Separation Transactions and the Raytheon Merger. Historical operations of Otis and Carrier prior to April 3, 2020 are presented as discontinued operations, while the Raytheon Company results are included in the Company’s results effective April 3, 2020.

The Condensed Consolidated Financial Statements at September 30, ~~2019~~2020 and for the quarters and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are unaudited, ~~but~~and in the opinion of management include ~~all~~ adjustments ~~(consisting only~~ of a normal recurring ~~adjustments)~~nature necessary for a fair statement of the results for the interim periods. Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) follow a 4-4-5 fiscal calendar with results recorded from the April 3, 2020 merger close date through September 27, 2020 while Collins Aerospace Systems (Collins Aerospace) and Pratt & Whitney continue to use a quarter calendar end of September 30, 2020. 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.~~year, particularly in light of the completion of the Separation Transactions, Distributions and Raytheon Merger (each defined below). The financial information included herein should be read in conjunction with the financial statements and notes in our Annual Report to Shareowners (~~2018~~(2019 Annual Report) incorporated by reference in our Annual Report on Form 10-K for calendar year ~~2018~~ (~~2018~~2019 (2019 Form 10-K).

Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” “Raytheon Technologies,” and “RTC” mean United Technologies Corporation and its subsidiaries when referring to periods prior to the Raytheon Merger and to the combined company, Raytheon Technologies Corporation, when referring to periods after the Raytheon Merger. Unless the context otherwise requires, the terms “Raytheon Company,” or “Raytheon” mean Raytheon Company and its subsidiaries prior to the Raytheon Merger. UTC was determined to be the accounting acquirer in the merger and, as a result, the financial statements of Raytheon Technologies for the period ended and as of September 30, 2020 include Raytheon Company’s financial position and results of operations for the period subsequent to the completion of the Raytheon Merger on April 3, 2020.

Given the significant reduction in business and leisure passenger air travel, the number of planes temporarily grounded, and continued travel restrictions that have resulted from the pandemic, we expect our future operating results, particularly those of our Collins Aerospace and Pratt & Whitney businesses to continue to be significantly negatively impacted. Our expectations regarding the COVID-19 pandemic and its 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. While we believe that the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, there is significant uncertainty with respect to when and if commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. Our latest estimates are that this recovery may occur in 2023 or 2024. New information may emerge concerning the scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic and whether there will be additional outbreaks of the pandemic, actions to contain its spread or treat its impact, and governmental, business and individuals’ actions taken in response to the pandemic (including restrictions and limitations on travel and transportation) among others.

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 us to reassess our commercial aerospace business goodwill and intangibles valuations, as well as our significant assumptions of future cash flows from our underlying assets and potential changes in our liabilities.

Beginning in the second quarter of 2020, our revenue at Collins Aerospace and Pratt & Whitney has been significantly negatively impacted by the decline in flight hours, aircraft fleet utilization, shop visits and commercial OEM deliveries. In order to evaluate the ongoing impact, in the second quarter of 2020 we updated our forecast assumptions of future business activity, which are subject to a wide range of uncertainties, including those noted above. Based upon our analysis, we concluded that the carrying value of two of our Collins Aerospace reporting units was greater than its respective fair value, and accordingly, recorded a goodwill impairment charge of $3.2 billion. In the third quarter of 2020, we updated our forecast assumptions for Collins Aerospace and determined that the resulting third quarter forecasts were in line with our second quarter forecasts. As such, we determined we did not have an additional goodwill impairment triggering event. Refer to “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” for additional information.

Additionally, in the nine months ended September 30, 2020 we recorded write-downs of non-goodwill assets and significant unfavorable Estimate at Completion (EAC) adjustments in our Collins Aerospace and Pratt & Whitney businesses primarily related to:

As described further in “Note 5: Commercial Aerospace Industry Assets and Commitments” within the Notes to the Consolidated Financial Statements in our 2019 Annual Report, we have significant exposure related to our airline and airframer customers, including significant accounts receivable and contract assets balances. Given the uncertainty related to the severity and length of the pandemic, as well as any worsening of the pandemic and whether there will be additional outbreaks of the pandemic and its impact across the aerospace industry, we may be required to record additional charges or impairments in future periods.

Although the impact of COVID-19 on our commercial markets is significant, we currently believe we have sufficient liquidity to withstand the potential impacts of COVID-19. With the completion of the Separation Transactions, the Distributions and the Raytheon Merger, we have a balanced and diversified portfolio of both aerospace and defense businesses which we believe will help mitigate the impacts of the COVID-19 pandemic and future business cycles.

As a result of the Separation Transactions, the Distributions and the Raytheon Merger, certain reclassifications have been made to the prior year amounts to conform to the current year presentation. These reclassifications include the presentation of current assets and liabilities based upon the duration of our operating cycle, the reclassification of certain unbilled accounts receivable from accounts receivable, net to contract assets, reclassifications of lease amortization within our presentation of cash flows, reclassifications within our segment presentation, and the reclassification of the historical Otis and Carrier results to discontinued operations.

On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions or divestitures or other legal obligations. This restricted cash is excluded from cash and cash equivalents and is included in other assets, current and other assets on our Condensed Consolidated Balance Sheet.

Unbilled receivables represent revenues that are not currently billable to the customer under the terms of the contract and include unbilled amounts under commercial contracts where payment is subject to the passage of time. These items are expected to be billed and collected in the normal course of business. Other unbilled receivables not just subject to the passage of time are included in Contract assets in the Condensed Consolidated Balance Sheet, and are generally classified as current.

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. Contract assets and contract liabilities are generally classified as current. See “Note 6: Contract Assets and Liabilities” for further discussion of contract assets and liabilities.

Valuation reserves for excess, obsolete, and slow-moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than inventoriable cost. Other factors that management considers in determining the adequacy of these reserves include whether individual inventory parts meet current specifications and can be substituted for a part currently being sold or used as a service part, overall market conditions, and other inventory management initiatives. Manufacturing costs are allocated to current production contracts.

Intangible assets consist of patents, trademarks/tradenames, customer relationships, exclusivity assets, developed technology and other intangible assets including collaboration assets. Acquired intangible assets are recognized at fair value in purchase accounting and then finite lived-intangible assets are amortized to cost of sales and selling, general & administrative expenses over the applicable useful lives. Exclusivity assets are commercial aerospace payments made to secure certain contractual rights to provide product on new aircraft platforms. We classify amortization of such payments as a reduction of sales. Such payments are capitalized when there are distinct rights obtained and there are sufficient incremental cash flows to support the recoverability of the assets established. Otherwise, the applicable portion of the payments are expensed. Consideration paid on these contractual commitments is capitalized when it is no longer conditional.

Useful lives of finite-lived intangible assets are estimated based upon the nature of the intangible asset and the industry in which the intangible asset is used. These intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are consumed, as represented by the underlying cash flows, which may result in an amortization method other than straight-line. For both our commercial aerospace collaboration assets and exclusivity arrangements, the pattern of economic benefit generally results in no amortization during the development period with amortization beginning as programs enter full rate production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used. The range of estimated useful lives is as follows:

We enter into lease agreements for the use of real estate space, vehicles, information technology equipment, and certain other equipment under both operating and finance leases. We determine if an arrangement contains a lease at inception. Operating leases are included in Operating lease right-of-use assets, Accrued liabilities for the current portion of our operating lease liabilities, and Operating lease liabilities in our Condensed Consolidated Balance Sheet. Finance leases are not considered significant to our Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, and use the implicit rate when readily determinable. We determine our incremental borrowing rate through market sources including relevant industry rates. Our lease right-of-use assets also include any initial

In limited instances we act as a lessor, primarily for commercial aerospace engines, the majority of which are classified as operating leases. These leases are not significant to our Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations.

On December 22, 2017 the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted. The TCJA includes a provision that imposes a tax on Global Intangible Low-Taxed Income (GILTI) beginning in 2018. GILTI is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The FASB has provided that companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI. We have elected to account for GILTI as a period cost, as incurred.

We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily contracts that are directly with a foreign government, we are required to obtain certain regulatory approvals. In these cases, we recognize revenue based on the likelihood of obtaining regulatory approvals based upon all known facts and circumstances. A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while others contain multiple performance obligations most commonly when a contract contains multiple distinct units (such as engines or certain aerospace components) or spans multiple phases of the product life-cycle such as production, maintenance and support. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as the performance obligation is satisfied. When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on its standalone selling price when available. If standalone selling price is not available, we estimate the standalone selling price of each performance obligation, which is generally based on an expected cost plus a margin approach.

We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including contractual discounts, contract incentive payments, estimates of award fees and other sources of variable consideration, when determining the transaction price of each contract. When reasonably able to estimate, we include variable consideration in the transaction price at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We also consider whether our contracts contain a significant financing component, which they generally do not.

Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.

Performance obligations are satisfied as of a point in time for certain aerospace components, engines, and spare parts. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment. Since billing also typically occurs upon product shipment, we generally do not have contract assets or contract liabilities balances related to point in time sales.

Performance obligations are satisfied over-time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced (continuous transfer of control), or if the product being produced for the customer has no alternative use and we have a contractual right to payment for performance to date. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace OEM and aftermarket contracts.

Substantially all of our defense business revenue, which primarily relates to our RIS and RMD segments, is recognized over time because of the continuous transfer of control to our customers. For performance obligations satisfied over time, revenue is recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs can include labor, materials, subcontractors’ costs, or other direct costs and indirect costs. Our contracts with the U.S. government are typically subject to the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts. The pricing for non-U.S. government contracts is based on the specific negotiations with each customer. Under the typical payment terms of our U.S. government fixed-price contracts, the customer pays us either performance-based payments (PBPs) or progress payments. PBPs are interim payments equal to a negotiated percentage of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments up to 80-90% of costs incurred as the work progresses. Because the customer retains a portion of the contract price until completion of the contract, our U.S. government fixed-price contracts generally result in revenue recognized in excess of billings which we present as Contract assets on the Condensed Consolidated Balance Sheet. For our U.S. government cost-type contracts, the customer generally pays us for our costs incurred within a short period of time. For non-U.S. government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. We recognize a liability for advance payments in excess of revenue recognized and present it as Contract liabilities on the Condensed Consolidated Balance Sheet.

For certain of our long-term aftermarket contracts, revenue is recognized over the contract period. We generally account for such contracts as a series of daily performance obligations to stand ready to provide spare parts, product maintenance and aftermarket services. These arrangements include the sale of spare parts with integral services to our customers, and are generally classified as Service sales, with the corresponding costs classified in Cost of services sold, within the Condensed Consolidated Statement of Operations. Revenue is primarily recognized on a percentage of completion basis using costs incurred to date relative to total estimated costs at completion to measure progress, as sufficient historical evidence indicates that the cost of performing services under the contract is incurred on an other-than-straight-line basis. For some of our long-term aftermarket contracts, we receive payment prior to our work being completed, resulting in a contract liability balance, while for others, we perform work in advance of payment, resulting in a contract asset balance.

Contract modifications are routine as contracts are often modified to account for changes in contract specifications or requirements. We consider contract modifications to exist when the modification either creates new or changes existing enforceable rights and obligations. Contract modifications for goods or services that are not distinct are accounted for as part of the existing contract either on a cumulative catch-up basis or prospective basis depending on the nature of the modification.

Loss provisions on contracts are recognized to the extent that estimated contract costs exceed the estimated consideration from the products or services contemplated under the contractual arrangement. For new commitments, we generally record loss provisions at contract signing except for certain contracts under which losses are recorded upon receipt of the purchase order that obligates us to perform. For existing commitments, anticipated losses on contractual arrangements are recognized in the

We review our Estimate at Completion (EACs) on significant contracts on a periodic basis and for others, no less than annually or when a change in circumstances warrant a modification to a previous estimate. 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 include management’s judgment about the ability and cost to achieve the schedule including consideration of customer-directed delays or reductions in scheduled deliveries, and technical and other specific contract requirements including customer activity levels and variable consideration based upon that activity. Management’s judgment related to these considerations has become increasingly more significant given the current economic environment primarily caused by the COVID-19 pandemic. 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, 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 service cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. 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 are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior 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 loss provisions on our contracts accounted for on a percentage of completion basis.

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

For additional discussion on significant unfavorable EAC adjustments see the COVID-19 Pandemic discussion above. In the quarters ended September 30, 2020 and 2019, revenue was reduced by $231 million and increased by $1 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods. In the nine months ended September 30, 2020 and 2019, revenue was reduced by $432 million and $114 million, respectively, for performance obligations satisfied (or partially satisfied) in previous periods. This primarily relates to EAC adjustments that impacted revenue.

As a result of the Raytheon Merger, Raytheon Company’s contracts accounted for on a percentage of completion basis were reset to zero percent complete as of the date of completion of the Raytheon Merger, since only the unperformed portion of the contract at such date represents the obligation of the Company. This will have the impact of reducing gross favorable and unfavorable EAC adjustments for these segments in the short-term, with the exception of EAC adjustments related to loss contracts. For additional information related to the Raytheon Merger, see “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets.”

In our Collins Aerospace and Pratt & Whitney businesses, we incur contract fulfillment costs for engineering and development of aerospace OEM products directly related to existing or anticipated contracts with customers. Such costs generate or enhance our ability to satisfy our performance obligations under these contracts. We capitalize these costs as contract fulfillment costs to the extent the costs are recoverable from the associated contract margin and subsequently amortize the costs as the related performance obligations are satisfied. In instances where intellectual property does not transfer to the customer, we generally defer the customer funding of product engineering and development and recognize revenue when the related performance obligations are satisfied. Capitalized contract fulfillment costs were $1,912 million and $1,519 million as of September 30, 2020 and December 31, 2019, respectively and are recognized in Other assets in our Condensed Consolidated Balance Sheet and are included in Other operating activities, net in our Condensed Consolidated Statement of Cash Flows. We regularly assess capitalized contract fulfillment costs for impairment. Costs to obtain contracts are not material.

In view of the risks and costs associated with developing new engines, Pratt & Whitney has entered into certain collaboration arrangements in which sales, costs and risks are shared. Sales generated from engine programs, spare parts sales, and aftermarket business under collaboration arrangements, primarily at our Pratt & Whitney business, are recorded consistent with our revenue recognition policies in our Condensed Consolidated Financial Statements. Amounts attributable to our collaborators for their share of sales are recorded as cost of sales in our Consolidated Financial Statements based upon the terms and nature of the arrangement. Costs associated with engine programs under collaborative arrangements are expensed as incurred. Under these arrangements, collaborators contribute their program share of engine parts, incur their own production costs and make certain payments for shared or joint program costs. The reimbursement from collaborators of their share of program costs is recorded as a reduction of the related expense item at that time. As of September 30, 2020, the collaborators’ interests in all commercial engine programs ranged from 13% to 49%, inclusive of a portion of Pratt & Whitney’s interests held by other participants. Pratt & Whitney is the principal participant in all existing collaborative arrangements, with the exception of the Engine Alliance (EA), a joint venture with GE Aviation, which markets and manufactures the GP7000 engine for the Airbus A380 aircraft. There are no individually significant collaborative arrangements, and none of the collaborators individually exceed a 31% share in an individual program.

In our Collins Aerospace and Pratt & Whitney businesses, we may offer customers incentives to purchase our products, which may result in payments made to those customers. In addition, we make participation payments to certain aerospace customers to secure certain contractual rights. To the extent these rights are incremental and are supported by the incremental cash flows obtained, they are capitalized as intangible assets. Otherwise, such payments are recorded as a reduction in sales. We classify the subsequent amortization of the capitalized acquired intangible assets from our customers as a reduction in sales.

Derivatives used for hedging purposes may be designated and effective as a hedge of the identified risk exposure at the inception of the contract. All derivative instruments are recorded on the balance sheet at fair value. Derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings along with offsetting transaction gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases may be accounted for as cash flow hedges, as deemed appropriate. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings as a component of product sales or expenses, as applicable, when the hedged transaction occurs. Gains and losses on derivatives designated as cash flow hedges are recorded in Other operating activities, net within the Condensed Consolidated Statement of Cash Flows. To the extent that a previously designated hedging transaction is no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs.

To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur. Cash receipts or payments related to the settlement of derivatives not designated as hedging instruments are recorded as investing cash flows within the Condensed Consolidated Statement of Cash Flows. Additional information pertaining to foreign currency forward contracts and net investment hedging is included in “Note 12: Financial Instruments.”

Changes to our pension and PRB plans’ funded status can result from company actions, such as contributions or changes in plan provisions, or by gains and losses. Gains and losses are primarily a result of changes in discount rates, differences between actual and expected asset returns, and differences between actual and assumed demographic experience. These gains or losses are recorded in other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit (income) cost.

A calculated “market-related value” of our plan assets is used to develop the amount of deferred asset gains or losses to be amortized. The market-related value of assets is equal to the fair value of assets adjusted to reflect the recognition, and subsequent amortization, of the difference between actual and expected asset return over a five-year period. The market-related value of assets is used to calculate the expected return on assets included in the net periodic benefit (income) cost.

The company has elected to use the “corridor” approach in the amortization of gains and losses, which limits the expense recognition to the net outstanding gains and losses in excess of the greater of 10% of the PBO or 10% of the market-related value of assets. Gains and losses exceeding the corridor are amortized in net periodic benefit (income) cost over either the projected average remaining employee service period or the projected average remaining lifetime of inactive participants depending on the plan.

Net periodic benefit (income) cost is split between operating profit and non-operating income, whereby only the service cost component is included in operating profit and the remaining components are included in Non-service pension (income) expense.

We adopted this standard effective January 1, 2020 utilizing a modified retrospective approach. A cumulative-effect non-cash adjustment to retained earnings as of January 1, 2020 was recorded in the amount of $59 million. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

We are exposed to credit losses primarily through our sales of products and services to commercial customers which are recorded as trade receivables, contract assets, long-term receivables, and notes and lease receivables on the Condensed Consolidated Balance Sheet. We do not have exposure for credit losses related to sales of products and services to our government customers. Our method for developing our allowance for credit losses involves making informed judgments regarding whether an adjustment is necessary to our historical loss experiences to reflect our expectations around current economic conditions and reasonable and supportable forecast periods, where applicable. We utilize current economic market data as well as other internal and external information available to us to inform our decision making. In certain circumstances we may be able to develop reasonable and supportable forecasts over the contractual term of the financial asset or off-balance sheet exposure. For periods beyond which we are able to make or obtain reasonable and supportable forecasts, we revert to historical loss experience and information.

We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. We conduct a review of customer credit ratings, published historical credit default rates for different rating categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness of the allowance for credit losses on these balances quarterly or when events and circumstances warrant. In addition to credit quality indicators, factors considered in our evaluation of assessing collectability and risk include: underlying value of any collateral or security interests, significant past due balances, historical losses, and existing economic conditions, including geographic and political risk. A credit limit is established for each customer based on the outcome of this review. Customer credit ratings range from customers with an extremely strong capacity to meet financial obligations, to customers whose uncollateralized receivable is in default. We may require collateral or prepayment to mitigate credit risk.

To estimate expected credit losses of financial assets with similar risk characteristics, we determine an asset is impaired when, based on historical experience, current information and a reasonable forecast period, there is risk that we will be unable to collect amounts due according to the contractual terms of the agreement. We monitor our ongoing credit exposure through reviews of customer balances against contract terms and due dates, current economic conditions, and dispute resolution. Estimated credit losses are written off in the period in which the financial asset is no longer collectible.

We can also be exposed to credit losses from off-balance sheet exposures, such as certain financial guarantees and financing commitments. We have assessed these potential exposures and concluded that there are no associated credit losses as of September 30, 2020.

Total consideration is calculated as follows:

The fair value ~~$0.01 per share,~~ of ~~Rockwell Collins~~RTC common stock issued for Raytheon Company outstanding common stock and ~~outstanding immediately prior to the effective time~~vested equity awards is calculated as follows:

(dollars in millions)
Cash and cash equivalents $ 640
Accounts receivable, net 1,665
Inventory, net 1,512
Contract assets, current 291
Other assets, current 252
Future income tax benefits 38
Fixed assets, net 1,558
Intangible assets:
Customer relationships 8,220
Tradenames/trademarks 1,870
Developed technology 600
Other assets 217
Total identifiable assets acquired 16,863

Short-term borrowings 2,254
Accounts payable 520
Accrued liabilities 1,657
Contract liabilities, current 299
Long-term debt 5,530
Future pension and postretirement benefit obligation 502
Other long-term liabilities 3,464
Noncontrolling interest 6
Total liabilities acquired 14,232
Total identifiable net assets 2,631
Goodwill 20,862
Total consideration transferred $ 23,493

The fair values of the customer relationship ~~and related program~~ intangible assets ~~which include the related aerospace program original equipment ("OEM") and aftermarket cash flows,~~ were determined by using an ~~“income~~income approach." Under this approach, the ~~net earnings~~estimated future cash flows attributable to the asset ~~or liability being measured~~ are ~~isolated using~~adjusted to exclude the ~~discounted projected net cash flows. These projected~~future cash flows ~~are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible asset~~that can be attributed to supporting assets, such as trade names or ~~liability being measured.~~fixed assets. Both the amount and the duration of the cash flows are considered from a market participant perspective. Our estimates of market participant ~~net~~future cash flows ~~considered historical and projected pricing,~~included forecasted revenue growth rates, remaining developmental effort, operational performance including company specific synergies, ~~aftermarket retention, product~~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, using an appropriate discount ~~rate.~~rate that requires judgment by management. The customer relationship ~~and related program~~ intangible assets are being amortized based on ~~a straight-line basis (which approximates~~ the ~~economic~~ pattern of ~~benefits)~~economic benefits we expect to realize over the estimated economic life of the underlying ~~programs of 10 to 20 years. The developed technology intangible asset is being amortized over the economic pattern of benefit.~~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 ~~valuation of the~~ tradename and discounted to present value, using an appropriate discount ~~rate.~~rate that requires judgment by management. 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 also identified customer contractual obligations on ~~certain contracts with economic returns that are lower than could be realized in market transactions as~~loss making programs and recorded liabilities of ~~the acquisition date. We measured~~$218 million related to these ~~liabilities under the measurement provisions of FASB ASC Topic 820,~~ ~~“Fair Value Measurements and Disclosures,”~~ ~~which is~~programs based on the ~~price to transfer~~difference between the ~~obligation to~~actual expected operating loss and a market participant at the measurement date, assuming that the liability will remain outstanding in the marketplace. Based on the estimated net cash outflows of the programs plus a reasonable contracting profit margin required to transfer the contracts to market participants, we recorded assumed liabilities of approximately $1,020 million.normalized operating profit. These liabilities will be liquidated ~~in accordance with~~based on the ~~underlying~~expected pattern of ~~obligations, as reflected by the~~ expenses incurred on ~~the~~these contracts. ~~Total consumption~~

We recorded $20.8 billion of goodwill as a result of the ~~contractual obligation~~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 research and development 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 ~~the next five years is expected to be as follows: $36 million remaining in 2019, $114 million in 2020, $101 million in 2021, $106 million in 2022, and $91 million in 2023.~~tax purposes.

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, ~~2017,~~2019, as adjusted for the

In the ~~pro-forma data should not be considered indicative~~third quarter of ~~the results that would have occurred if the acquisition and related financing had been consummated on January 1, 2017, nor are they indicative of future results.~~

The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.

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 ~~several insignificant purchase accounting adjustments made during~~transactions by comparable companies, volatility in the ~~nine months ended September 30, 2019,~~Company’s market capitalization, and general industry, market and macro-economic conditions. In the third quarter of 2020, we updated our forecast assumptions for Collins Aerospace and determined that the resulting third quarter forecasts were in line with our second quarter forecasts. As such, we determined we did not have an additional goodwill impairment triggering event. It is possible that future changes in such circumstances, including a ~~reduction~~more prolonged and/or severe COVID-19 pandemic than originally anticipated, or future changes in ~~acquired customer relationship intangible assets~~the variables associated with the judgments, assumptions and estimates used in assessing the fair value of ~~$100 million and~~our reporting units, would require the Company to record a ~~reduction in fixed assets~~non-cash impairment charge.

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 ~~based~~and recorded $40 million and $17 million in the first and second quarters of 2020, respectively, related to the impairment of an indefinite-lived tradename intangible assets at Collins Aerospace, with no additional impairment of intangible assets identified in the quarter ended September 30, 2020. 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 ~~the underlying pattern of economic benefit,~~our customers and our business in future periods which may result in an amortization method other than straight-line. In the aerospace industry, amortization based on the pattern of economic benefit generally results in lower amortization expense during the development period with amortization expense increasing as programs enter full production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined, a straight-line amortization method is used. We classify amortization of such payments as a reduction of sales. The collaboration intangible assets are amortized based upon the pattern of economic benefits as represented by the underlying cash flows.different conclusion.

~~We account for revenue in accordance~~As discussed above, on April 2, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with ~~ASC Topic 606:~~ ~~Revenue from Contracts with Customers.~~

Carrier and Otis are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Income (loss) from discontinued operations is as follows:

The following summarized financial information related to discontinued operations has been reclassified from Income from continuing operations and included in Income (loss) from discontinued operations:

Selected financial information related to cash flows from discontinued operations is as follows:

Net cash (used in) provided by operating activities includes the net operating cash flows of Otis and Carrier prior to the separation, as well as costs incurred by the Company primarily related to professional services costs pertaining to the separation and the establishment of Otis and Carrier as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges related to separation activities. Net cash used in financing activities for the nine months ended September 30, 2020 primarily consists of cash distributed by the Company to Otis and Carrier upon separation and debt extinguishment costs related to the early repayment of debt, partially offset by net transfer activity. Net cash used in financing activities for the nine months ended September 30, 2019 primarily ~~due~~consists of net transfer activity consisting of cash transfers and distributions.

The major components of assets and liabilities related to ~~customer billings~~discontinued operations at December 31, 2019 are provided below:

The Separation of Carrier was treated as a return on capital and recorded as a reduction to retained earnings, as it was in ~~excess~~a net asset position, while the Separation of ~~revenue recognized on Pratt & Whitney commercial aftermarket service agreements,~~Otis was treated as a return of capital and recorded as an adjustment to Common stock, as it was in a net liability position. The remaining assets and liabilities related to discontinued operations at ~~Collins Aerospace Systems across various programs, and on Otis maintenance contracts. We recognized revenue of $4.1 billion during the nine months ended~~ September 30, ~~2019~~2020 primarily relate to trailing tax assets and liabilities of the Company related to ~~contract liabilities as~~the Separation Transactions, including indemnification obligations.

On June 10, 2020, we completed an exchange offer with eligible holders of the outstanding notes of Goodrich Corporation maturing through 2046, Raytheon Company maturing through 2044 and Rockwell Collins Inc. maturing through 2047 (collectively, the “Subsidiary Notes”). An aggregate principal amount of approximately $8.2 billion of the Subsidiary Notes was exchanged for approximately $8.2 billion of Raytheon Technologies notes with identical interest rates, maturity dates, and redemption provisions, if any, as the Subsidiary Notes exchanged. Because the exchange was for substantially identical notes, the change was treated as a debt modification for accounting purposes with no gain or loss recognized.

Long-term debt consisted of the following:

Our effective tax rate was 45.1% and 23.2% in the quarters ended September 30, 2020 and 2019, respectively. The increase in the effective tax rate for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 is primarily ~~the result of tax charges connected~~due to the ~~Company’s portfolio separation transactions~~sales of the Collins Aerospace businesses, described in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets,” which increased the ~~non-deductible~~rate by 61.1%, partially offset by a 15.9% decrease in the rate associated with an update to the forecasted annualized effective tax rate (AETR) impact on prior quarter earnings and a 17.4% decrease in the rate associated with the state and non-U.S. tax rates related to the ~~impairment~~charges in the quarter driven by the current economic environment primarily due to the COVID-19 pandemic and our restructuring activities. For further discussion of ~~an investment at Carrier.~~these charges refer to “Note 1: Basis of Presentation and Summary of Accounting Principles” and “Note 11: Restructuring Costs.” The remaining 5.9% decrease is composed of various unrelated items, which individually and collectively are not significant.

We conduct business globally and, as a result, ~~UTC~~Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as ~~Australia, Belgium, Brazil,~~ Canada, China, France, Germany, ~~Hong Kong,~~ India, ~~Italy, Japan, Mexico, Netherlands,~~Philippines, Poland, Singapore, ~~South Korea, Spain, Switzerland,~~ the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before ~~2008.~~2009.

In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. ~~Subject~~

As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of approximately $440 million in the second quarter of 2020. Pursuant to the ~~impact~~terms of the ~~Company’s portfolio~~ separation ~~transactions,~~agreements, certain other unrecognized tax benefits retained by Raytheon Technologies will be subject to indemnification. As a result of the Raytheon Merger, unrecognized tax benefits increased during the second quarter of 2020 by approximately $240 million due to inclusion of items related to pre-merger Raytheon Company tax periods. Additionally, it is reasonably possible that a net reduction within the range of ~~$100~~$200 million to ~~$600~~$300 million of unrecognized tax benefits may occur within the next 12 months as a result of ~~additional worldwide uncertain tax positions, the closure of tax statutes, or~~ the revaluation of ~~current~~ uncertain tax positions arising from the issuance of legislation, regulatory or other guidance or developments in examinations, in appeals, or in the ~~courts. See Note 15, Contingent Liabilities, for discussion regarding uncertain~~courts, or the closure of tax ~~positions, included~~statutes. Interest on unrecognized tax benefits during the quarter ended September 30, 2020 and 2019 were $12 million and $11 million, respectively. The amount of interest accrued at September 30, 2020 was $138 million.

Management has determined that the distributions of Carrier and Otis on April 3, 2020, and certain related internal business separation transactions, qualified as tax-free under applicable law. In making these determinations, we applied the tax law in the ~~above range,~~relevant jurisdictions to our facts and circumstances and obtained tax rulings from the relevant taxing authorities, tax opinions, and/or other external tax advice related to ~~pending litigation with respect~~the concluded tax treatment. If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to ~~certain deductions claimed in Germany.~~

The Examination Division of the Internal Revenue Service (IRS) is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax periods 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon Merger.

On April 3, 2020, UTC completed the Separation Transactions, which included the transfer of certain defined benefit plans from UTC to Otis and Carrier. The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies. Upon separation, the employees within Otis and Carrier were effectively terminated from Raytheon Technologies. The terminations of approximately 3,400 domestic pension plan participants triggered a mid-year remeasurement of the UTC domestic plans. The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020, resulted in a $2.4 billion increase to our pension liability, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019. Historical amounts have been restated for discontinued operations. All service cost previously associated with Otis and Carrier is included in discontinued operations. For non-service pension (income) expense and the pension liability, only the portion related to the defined benefit plans transferred to Otis and Carrier as part of the Separation Transactions was reclassified to discontinued operations.

Raytheon Company has both funded and unfunded domestic and foreign defined benefit pension and PRB plans. As of the merger date, the Raytheon Company plans were remeasured at fair value using accounting policies consistent with the UTC plans. The deferred pension and PRB plan losses included in Raytheon Company’s accumulated other comprehensive income (loss) as of the merger date were eliminated and are no longer subject to amortization in net periodic benefit (income) cost and postretirement benefit costs. Amounts prior to the merger date of April 3, 2020, do not include the Raytheon Company pension plan results.

Contributions to our plans were as follows:

Included in the contributions to employer sponsored defined contribution plans for the quarter and nine months ended September 30, 2020 is $24 million and $101 million, respectively, of additional contributions resulting from the 2019 amendment to the UTC domestic pension plans whereby plan participants ceased accrual of additional benefits for future service effective December 31, 2019 and began receiving additional employer contributions effective January 1, 2020 under the UTC domestic defined contribution plan.

Future pension and postretirement benefit obligations on the Condensed Consolidated Balance Sheet consisted of the following:

The following table illustrates the components of net periodic benefit (income) expense for our defined pension and PRB plans:

In the quarter ended September 30, 2019, we amended ~~our~~the UTC domestic ~~pension~~defined benefit plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019. Beginning January 1, 2020, these participants ~~will earn~~began receiving additional employer contributions under ~~our~~the UTC domestic ~~savings~~defined contribution plan. We utilized the practical expedient and remeasured plan assets and pension benefit obligations for the affected pension plans as of the nearest month-end, August 31, 2019, resulting in a net actuarial loss of $425 million. This reflects a benefit obligation gain of $180 million resulting from the benefit plan change that was offset by remeasurement losses of $605 million. ~~The remeasurement losses are driven by~~Additionally, as a ~~reduction of 124 basis points in the PBO discount rate as~~result of the remeasurement, ~~date compared to December 31, 2018, partially offset~~net periodic benefit income (excluding curtailment) decreased by ~~actual asset returns of~~ approximately ~~17% as of~~$10 million in the ~~remeasurement date.~~quarter ended September 30, 2019.

In the quarter ended September 30, 2019, we recorded a curtailment gain of $98 million in the Condensed Consolidated Statement of Operations due to the recognition of previously unrecognized prior service credits for the affected pension plans. ~~Additionally, as a result of the remeasurement, pension income (excluding curtailment) decreased by approximately $10 million in the quarter ended September 30, 2019.~~

We ~~sponsor both funded and unfunded domestic and foreign~~have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined ~~pension and other postretirement~~ benefit ~~plans,~~ and defined contribution ~~plans. Contributions to~~plan obligations in excess of qualified plan limits. These assets are included in Other assets, current in our ~~plans were as follows:~~Condensed Consolidated Balance Sheet. The fair value of marketable securities held in trusts consisted of the following:

We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments under the Derivatives and Hedging ~~Topic~~(Topic 815) of the FASB ASC and those utilized as economic hedges. We

The following table summarizes the fair value and presentation in the Condensed Consolidated Balance ~~Sheets~~Sheet for derivative instruments as of September 30, ~~2019~~2020 and December 31, ~~2018~~:2019:

The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations for the quarters and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are presented in the table below. The ~~amounts of gain or (loss)~~losses are attributable to foreign exchange contract activity and are generally recorded as a component of Product sales when reclassified from ~~accumulated~~Accumulated other comprehensive ~~income.~~income (loss).

The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective.

The effect of derivatives not designated as hedging instruments within Other income (expense), net, on the Condensed Consolidated Statement of Operations was as follows:

As of September 30, ~~2019,~~2020, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our ~~counterparties'~~counterparties’ credit risks.

The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Condensed Consolidated Balance Sheet at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

The following table provides the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Condensed Consolidated Balance Sheet at September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

(dollars in millions)
Foreign
Currency
Translation

Defined
Benefit
Pension and
Post-
retirement
Plans

Unrealized Gains
(Losses) on
Available-for-Sale
Securities

Unrealized
Hedging
(Losses)
Gains

Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended September 30, 2018
Balance at June 30, 2018 $ (3,085 ) $ (4,499 ) $ —
$ (100 ) $ (7,684 )
Other comprehensive (loss) income before
reclassifications, net (166 ) (17 ) —
95
(88 )
Amounts reclassified, pre-tax —
86
—
2
88
Tax expense (benefit) 4
(15 ) —
(28 ) (39 )
Balance at September 30, 2018 $ (3,247 ) $ (4,445 ) $ —
$ (31 ) $ (7,723 )

Nine Months Ended September 30, 2018
Balance at December 31, 2017 $ (2,950 ) $ (4,652 ) $ 5
$ 72
$ (7,525 )
Other comprehensive (loss) income before
reclassifications, net (354 ) 9
—
(105 ) (450 )
Amounts reclassified, pre-tax (3 ) 262
—
(26 ) 233
Tax expense (benefit) 60
(64 ) —
28
24
ASU 2016-01 adoption impact —
—
(5 ) —
(5 )
Balance at September 30, 2018 $ (3,247 ) $ (4,445 ) $ —
$ (31 ) $ (7,723 )

Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net losses recognized during each period presented. These costs are recorded as components of net periodic pension ~~cost~~benefit for each period presented. Additionally, in the quarter ended September 30, 2019, we recorded a

Pratt & Whitney holds a 61% net interest in the International Aero Engines AG (IAE) collaboration with MTU Aero Engines AG (MTU) and Japanese Aero Engines Corporation (JAEC) and a 49.5% ownership interest in IAE. ~~IAE's~~IAE’s business purpose is to coordinate the design, development, manufacturing and product support of the V2500 program through involvement with the collaborators. Additionally, Pratt & Whitney, JAEC and MTU are participants in International Aero Engines, LLC (IAE LLC), whose business purpose is to coordinate the design, development, manufacturing and product support for the PW1100G-JM engine for the Airbus A320neo aircraft and the PW1400G-JM engine for the Irkut MC21 aircraft. Pratt & Whitney holds a 59% net interest and a 59% ownership interest in IAE LLC. IAE and IAE LLC retain limited equity with the primary economics of the programs passed to the participants. As such, we have determined that IAE and IAE LLC are variable interest entities with Pratt & Whitney the primary beneficiary. IAE and IAE LLC have, therefore, been consolidated. The carrying amounts and classification of assets and liabilities for variable interest entities in our Condensed Consolidated Balance Sheet are as follows:

We extend a variety of financial, market value and ~~product~~ performance guarantees to third parties. ~~There have been~~These instruments expire on various dates through 2024. Additional guarantees of project performance for which there is no ~~material changes to financial guarantees outstanding since~~ stated value also remain outstanding. As of September 30, 2020 and December 31, ~~2018~~2019, the following guarantees related to continuing operations were outstanding:

We also have obligations arising from sales of certain businesses and assets, including those from representations and warranties and related indemnities for environmental, health and safety, tax and employment matters. The maximum potential payment related to these obligations is not a specified amount as a number of the obligations do not contain financial caps. The carrying amount of liabilities related to these obligations was $121 million and $166 million at September 30, 2020 and December 31, 2019, respectively. For additional information regarding the environmental indemnifications, see “Note 17: Commitments and Contingencies.”

We accrue for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued.

We also provide service and warranty policies on our products and extend performance and operating cost guarantees beyond our normal service and warranty policies on some of our products, particularly commercial aircraft engines. In addition, we incur discretionary costs to service our products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are made to accruals as claims data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Summarized below are the matters previously described in ~~Note 18 of~~“Note 16: Contingent Liabilities” within the Notes to the Consolidated Financial Statements in our ~~2018~~2019 Annual Report, incorporated by reference in our ~~2018~~2019 Form 10-K,, updated as applicable.

Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.

InAs previously disclosed, in April 2019, a Divisional Administrative Contracting Officer (DACO) of the United States ~~Defense Contract Management Agency (DCMA)~~DCMA asserted a claim against Pratt & Whitney to recover overpayments of approximately $1.73 billion plus interest ~~(approximately $540~~($651 million ~~through~~at September 30, ~~2019)~~2020). The claim is based on Pratt & ~~Whitney's~~Whitney’s alleged noncompliance with ~~cost accounting standards~~Cost Accounting Standards (CAS) from January 1, 2007 to March 31, 2019, due to its method of allocating independent research and development costs to government contracts. Pratt & Whitney believes that the claim is without merit and filed an appeal to the ~~Armed Services Board of Contract Appeals (ASBCA)~~ASBCA on June 7, 2019.

As previously disclosed, in December 2013, a DCMA DACO asserted a claim against Pratt & Whitney to recover overpayments of approximately $177 million plus interest ~~(approximately $~~96($109 million ~~through~~at September 30, ~~2019)~~2020). The claim is based on Pratt & ~~Whitney's~~Whitney’s alleged noncompliance with ~~cost accounting standards~~CAS from January 1, 2005 to December 31, 2012, due to its method of determining the

We also have other commitments and contingent liabilities related to legal proceedings, self-insurance programs and matters arising out of the normal course of business. We accrue contingencies based upon a range of possible outcomes. If no amount within this range is a better estimate than any other, then we accrue the minimum amount.

In the ordinary course of business, the Company and its subsidiaries are also routinely defendants in, parties to or otherwise subject to many pending and threatened legal actions, claims, disputes and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax and other laws. In some instances, claims for substantial monetary damages are asserted against the Company and its subsidiaries and could result in fines, penalties, compensatory or treble damages or non-monetary relief. We do not believe that these matters will have a material adverse effect upon our competitive position, results of operations, cash flows or financial condition.

Our operations, effective as of the date of the Raytheon Merger, are classified into four principal segments: ~~Otis, Carrier,~~Collins Aerospace, Pratt & Whitney, RIS and ~~Collins Aerospace Systems.~~RMD. The segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over

In conjunction with the Raytheon Merger, we revised our measurement of segment performance to reflect how management now reviews and evaluates operating performance. Under the new segment performance measurement, certain acquisition accounting adjustments are now excluded from segments’ results in order to better represent the ongoing operational performance of those segments. In addition, the majority of Corporate expenses are now allocated to the segments, excluding certain items that remain at Corporate because they are not included in management’s review of the segments’ results. Historical results, discussion and presentation of our business segments reflect the impact of these adjustments for all periods presented.

Also as a result of the Raytheon Merger, we now present a FAS/CAS operating adjustment outside of segment results, which represents the difference between our service cost component of our pension and PRB expense under the Financial Accounting Standards (FAS) requirements of U.S. GAAP and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our RIS and RMD segments. Because the Collins Aerospace and Pratt & Whitney segments generally record pension and PRB expense on a FAS basis, historical results were not impacted by this change in segment reporting.

Total sales and operating profit by segment include inter-segment sales which are generally ~~made~~recorded at prices approximating those that the selling entity is able to obtain on external ~~sales.~~sales for our Collins Aerospace and Pratt & Whitney segments, and at cost-plus a specified fee, which may differ from what the selling entity would be able to obtain on sales to external customers, for our RIS and RMD segments. Results for the quarters ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Segment sales disaggregated by ~~product type~~customer for the quarters ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Segment sales disaggregated by ~~product type~~customer for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Segment sales disaggregated by sales type for the quarters ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

Segment sales disaggregated by sales type for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are as follows:

2019 2018
(dollars in millions) Otis Carrier Pratt & Whitney Collins Aerospace Systems Total Otis Carrier Pratt & Whitney Collins Aerospace Systems Total
Product $ 4,240
$ 11,703
$ 9,508
$ 16,191
$ 41,642
$ 4,192
$ 11,917
$ 8,016
$ 9,825
$ 33,950
Service 5,511
2,404
5,742
3,393
17,050
5,412
2,374
5,838
1,909
15,533
Total segment $ 9,751
$ 14,107
$ 15,250
$ 19,584
$ 58,692
$ 9,604
$ 14,291
$ 13,854
$ 11,734
$ 49,483
RIS and RMD segment sales disaggregated by contract type for the quarter and nine months ended September 30, 2020 are as follows:

The ~~increase~~organic decrease in ~~gross margin as a percentage~~total cost of ~~sales~~products and services sold for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, of $3,456 million was primarily driven by ~~a 210 basis point~~the organic sales decreases noted above. The increase ~~at Pratt & Whitney driven by~~in Acquisitions and divestitures, net of $11,019 million for the ~~absence~~nine months ended September 30, 2020

Net products cost of sales grew $3,824 million in the ~~resulting synergies achieved, and~~quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily due to an increase in ~~commercial aftermarket~~external product cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external product cost of sales at Collins Aerospace and Pratt & Whitney.

Net services cost ~~reduction initiatives. Otis gross margin increased 10 basis points primarily driven by favorable pricing and mix~~of sales grew $671 million in the ~~Americas~~quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily due to an increase in external services cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by a decrease in external services cost of sales at Collins Aerospace.

Net products cost of sales grew $6,674 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to an increase in external product cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external product cost of sales at Collins Aerospace and ~~China. Gross margin~~Pratt & Whitney.

Net services cost of sales grew $1,634 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to an increase in external services cost of sales due to the Raytheon Merger on April 3, 2020, partially offset by a decrease in external services cost of sales at ~~Carrier was down 20 basis points primarily driven by unfavorable mix and higher commodities, tariffs, and logistics costs.~~

Research and development spending is subject to the variable nature of program development schedules and, therefore, year-over-year fluctuations in spending levels are expected. The ~~majority of the company-funded spending is incurred by the aerospace businesses. The year-over-year~~ increase ~~(25%)~~ in company-funded research and development of $50 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, was primarily driven by $0.2 billion related to the ~~impact~~Raytheon Merger on April 3, 2020, partially offset by lower expenses of ~~the Rockwell Acquisition (22%). The remaining increase primarily reflects higher expenses~~$0.1 billion across various commercial programs at Pratt & Whitney ~~(3%)~~principally driven by cost reduction measures due to the current economic environment primarily due to COVID-19. The increase in company-funded research and ~~Collins Aerospace Systems (2%), partially offset by lower expenses at Otis (2%). For~~development of $88 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, ~~company-funded research and development increased 27%,~~was primarily driven by $0.4 billion related to the ~~impact~~Raytheon Merger on April 3, 2020, partially offset by lower expenses of ~~the Rockwell Collins acquisition (22%). The remaining increase primarily reflects higher expenses~~$0.2 billion across various commercial programs at Pratt & Whitney ~~(5%)~~ and $0.1 billion across various commercial programs at Collins Aerospace, ~~Systems (2%) partially offset~~both principally driven by ~~lower expenses at Otis (2%).~~cost reduction measures due to the current economic environment primarily due to COVID-19.

The increase ~~(63%)~~ in customer-funded research and development of $624 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, was primarily driven by $0.6 billion related to the impact of the Rockwell Acquisition (62%). The remaining increase was driven by higher military development program expenses at Collins Aerospace Systems (3%), partially offset by lower research and development expensesRaytheon Merger on ~~military development programs at Pratt & Whitney (2%).~~April 3, 2020. The increase ~~(63%)~~ in customer-funded research and development of $1,324 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was ~~also~~primarily driven by $1.2 billion related to the ~~impact of the Rockwell Collins acquisition (63%). Lower research and development expenses~~Raytheon Merger on April 3, 2020. The remaining increase was primarily driven by higher military development ~~programs~~program expenses of $0.1 billion at Pratt & ~~Whitney (3%), were offset by higher expenses at Collins Aerospace Systems (3%).~~Whitney.

Selling, general and administrative expenses increased ~~25%~~$499 million in the quarter ended September 30, ~~2019.~~2020 compared to the quarter ended September 30, 2019, primarily driven by $0.5 billion related to the Raytheon Merger on April 3, 2020, excluding the impact of restructuring costs. The increase in Selling, general and administrative expenses also includes higher general and administrative restructuring costs of $0.1 billion.

Selling, general and administrative expenses increased $1,517 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily driven by $1.0 billion related to the Raytheon Merger on April 3, 2020, excluding the impact of ~~the Rockwell Collins acquisition (11%),~~restructuring costs, ~~associated with the Company's intention to separate its commercial businesses (6%), costs associated with the Raytheon merger (1%),~~ and higher general and administrative restructuring costs ~~(1%).~~of $0.3 billion. The ~~growth~~increase in Selling, general and administrative expenses also includes higher expenses of $0.2 billion at ~~Carrier (2%) primarily driven by the unfavorable impact of a contract termination,~~Pratt & Whitney and ~~increases~~$0.1 billion at Collins Aerospace ~~Systems (2%), Otis (2%) and Pratt & Whitney (1%)~~principally driven ~~primarily~~ by increased ~~employee compensation related expenses~~estimates of expected credit losses primarily due to customer bankruptcies and ~~headcount.~~

We are continuously evaluating our cost structure and have implemented restructuring actions as a method of keeping our cost structure competitive. As appropriate, the amounts reflected above include the beneficial impact of previous restructuring actions on Selling, general and administrative expenses. See ~~Note 8:~~“Note 11: Restructuring Costs” within Item 1 of this Form 10-Q and Restructuring Costs, ~~and the Restructuring Costs section of this Management's Discussion and Analysis of Financial Condition and Results of Operations~~below, for further discussion.

Other income (expense), net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, as well as other ongoing and nonrecurring items. The ~~year-over-year decrease~~increase in Other income ~~(72%)~~(expense), net of $674 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily ~~reflects~~due to $608 million of gains on the ~~impairment~~sales of ~~an investment at Carrier (82%), partially offset by~~ the ~~net favorable year-over-year impact~~Collins Aerospace businesses, as further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of ~~foreign exchange gains and losses (11%).~~this Form 10-Q.

The ~~year-over-year decrease~~increase in Other income (expense), net ~~(72%)~~of $594 million for the nine months ended September 30, ~~2019 primarily reflects~~2020 compared to the absence of the prior year gain on the sale of Taylor Company (61%), the impairment of an investment at Carrier (8%) and the net unfavorable year-over-year impact of foreign exchange gains and losses (3%).

The decrease in ~~interest income~~Operating profits of $996 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily ~~reflects prior year interest earned on higher cash balances accumulated~~driven by the operating performance at our segments as described below in ~~anticipation of~~ the ~~Rockwell Collins acquisition. The~~individual segment results. Included in the decrease in Operating profits was an increase in ~~interest income~~acquisition accounting adjustments of $359 million related to the Raytheon Merger and an increase in restructuring costs of $222 million primarily related to restructuring actions taken at our Collins Aerospace and Pratt & Whitney segments and the Raytheon Merger on April 3, 2020.

The change in Operating profits (loss) of $5,989 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven by the $3,183 million goodwill impairment loss in the second

The change in Non-service pension (income) expense of $36 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily driven by a one-time curtailment gain of $98 million in the quarter ended September 30, 2019 and an increase in the recognition of net actuarial loss in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 for the UTC plans, partially offset by the inclusion of the Raytheon Company plans as a result of the Raytheon Merger. The one-time curtailment gain was due to the recognition of previously unrecognized prior service credits as a result of an amendment to the UTC domestic defined benefit plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019.

The change in Non-service pension (income) expense of $23 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven by a one-time curtailment gain of $98 million in the quarter ended September 30, 2019 and an increase in the recognition of net actuarial loss in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 for the UTC plans, partially offset by the inclusion of the Raytheon Company plans as a result of the Raytheon Merger.

Interest expense, net decreased $52 million for the quarter ended September 30, 2020, compared to the quarter ended September 30, 2019, primarily due to a decrease in interest expense principally driven by the repayment of long-term debt. Interest expense, net decreased $157 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, primarily due to a decrease in interest expense principally driven by the repayment of long-term debt, partially offset by a decrease in interest income principally driven by interest income of $63 million related to tax ~~settlements.~~settlements in the prior year. Included in the decrease in interest expense for the quarter and nine months ended September 30, 2020 was a $8 million change and $52 million change, respectively, in the mark-to-market fair value of marketable securities held in trusts associated with certain of our nonqualified deferred compensation and employee benefit plans, primarily related to the trusts acquired as part of the Raytheon Merger. The average maturity of our long-term debt at September 30, 2020 is approximately 14 years.

The ~~increase in the~~ effective tax rate for the quarter ended September 30, ~~2019 is primarily~~2020 included the ~~result~~21% tax expense on pretax income and a 61.1% increase in the rate associated with the sales of the Collins Aerospace businesses, partially offset by a 16.8% decrease in the rate associated with the state and non-U.S. tax ~~charges connected to the Company’s portfolio separation transactions and the non-deductible impact~~rates related to the ~~impairment~~charges in the quarter driven by the current economic environment primarily due to the COVID-19 pandemic and restructuring costs, and a 13.6% decrease in the rate associated with an update to the forecasted annualized effective tax rate (AETR) impact on prior quarter earnings. For further discussion of ~~an investment at Carrier.~~these charges refer to “Note 1: Basis of Presentation and Summary of Accounting Principles” and “Note 11: Restructuring Costs” within Item 1 of this Form 10-Q. The remaining 6.6% decrease to the rate is composed of various unrelated items, which individually and collectively are not significant.

The ~~increase in the~~ effective tax rate for the nine months ended September 30, ~~2019 is principally~~2020 included the 21% tax benefit on pretax loss, a 27.6% decrease in the rate associated with the primarily non-deductible goodwill impairment, a 16.3% decrease in the rate for the

The effective tax rate for the quarter and nine months ended September 30, 2019 included the 21% tax expense on pretax income offset ~~in part~~ by ~~gains~~a decrease to the rate of 0.7% and 8.3%, respectively, associated with ~~the conclusion of the~~ audit bysettlements related to the Examination Division of the Internal Revenue Service (IRS) for the UTC ~~2014, 2015, and 2016~~2014-2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax ~~Authority in~~Authority. The remaining 2.9% increase for the ~~second~~ quarter ~~of 2019.~~

The full year rate is ~~still~~ subject to change as guidance and interpretations related to the ~~TCJA~~Tax Cuts and Jobs Act of 2017 (TCJA) continue to be finalized. Additionally, we anticipate variability in the tax rate quarter to quarter from potential discrete items. On July 20, 2020, the U.S. Treasury Department released final Global Intangible Low-Taxed Income (GILTI) and proposed subpart F income regulations. The ~~Company expects~~GILTI regulations provide guidance with respect to provisions enacted in the TCJA and allow for retroactive application. We continue to ~~incur~~review the impact to the effective tax ~~costs associated with~~rate and intend to record the ~~ongoing separation of its commercial businesses which is expected to be complete~~final impact in the ~~first half of 2020.~~fourth quarter. On September 29, 2020, the U.S. Treasury Department released proposed and final foreign tax credit regulations; we are reviewing the impact to the effective tax rate.

On April 3, 2020, we completed the separation of our commercial businesses, Otis and Carrier. Effective as of such date, the historical results of the Otis and Carrier segments have been reclassified to discontinued operations for all periods presented. See “Note 3: Discontinued Operations” within Item 1 of this Form 10-Q for additional information.

The change in net income (loss) from discontinued operations attributable to common shareowners of $77 million and the related change in diluted earnings (loss) per share from discontinued operations of $0.14 in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily due to prior year Otis and Carrier operating activity, as the Separation Transactions occurred on April 3, 2020, partially offset by higher prior year costs associated with the separation of our commercial businesses as discussed below.

The change in net income (loss) from discontinued operations attributable to common shareowners of $1,940 million and the related change in diluted earnings (loss) per share from discontinued operations of $2.08 in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was ~~a charge~~primarily due to prior year Otis and Carrier operating activity, as the Separation Transactions occurred on April 3, 2020 and the increased costs associated with the separation of ~~$1.23 per diluted share while~~our commercial businesses in the ~~effect of foreign currency translation and Pratt &Whitney Canada hedging generated an unfavorable impact of $0.06 on diluted earnings per share.~~nine months ended September 30, 2020 as discussed below.

Net income ~~attributable~~(loss) from discontinued operations for the quarter ended September 30, 2020 included a benefit associated with the separation of our commercial businesses of $113 million, net of tax, primarily related to ~~common shareowners~~tax benefits on prior period costs associated with the separation of our commercial businesses. Net income (loss) from discontinued operations for the nine months ended September 30, ~~2018 includes restructuring charges,~~2020 included costs associated with the separation of our commercial businesses of $877 million, net of tax, ~~benefit,~~primarily related to debt extinguishment costs in connection with the early repayment of ~~$139 million as well as a net gain~~outstanding principal of $611 million.

Net income (loss) from discontinued operations for ~~significant non-operational and/or nonrecurring items, including~~ the ~~impact of taxes, of $179 million. The effect of restructuring charges~~quarter and ~~nonrecurring items on diluted earnings per share for~~ the nine months ended September 30, ~~2018 was a gain~~2019 included costs associated with the separation of ~~$0.05 per diluted share while the effect~~our commercial businesses of ~~foreign currency translation~~$637 million, net of tax and ~~Pratt &Whitney Canada hedging generated a favorable impact~~$931 million, net of ~~$0.05 on~~tax, respectively.

The decrease in net income (loss) attributable to common shareowners and diluted earnings per ~~share.~~share from operations for the quarter and nine months ended September 30, 2020 was driven by the decrease in continuing operations, as discussed above in Net Income (Loss) from Continuing Operations Attributable to Common Shareowners and the decrease from discontinued operations, as discussed above in Net Income (Loss) from Discontinued Operations.

Collins Aerospace and Pratt & Whitney were historically the aerospace businesses under UTC, and these segments remained unchanged as a result of the merger. The RIS and RMD segments were created based on the reorganization of Raytheon’s historical business segments, where Raytheon’s Intelligence, Information and Services and Space and Airborne Systems segments were combined to form the RIS segment, and Raytheon’s Integrated Defense Systems and Missiles Systems segments were combined to form the RMD segment. For a more detailed description of our Collins Aerospace and Pratt & Whitney businesses, see “Business” within Item 1 of our 2019 Annual Report on Form 10-K.

In conjunction with the Raytheon Merger, we revised our measurement of segment performance to reflect how management now reviews and evaluates operating performance. Under the new segment performance measurement, certain acquisition accounting adjustments are now excluded from segments’ results in order to better represent the ongoing operational performance of those segments. In addition, the majority of Corporate expenses are now allocated to the segments, excluding certain items that remain at Corporate because they are not included in management’s review of the segments’ results. Historical results, discussion and presentation of our business segments reflect the impact of these adjustments for all periods presented.

Also as a result of the Raytheon Merger, we now present a FAS/CAS operating adjustment outside of segment results, which represents the difference between our service cost component of our pension and PRB expense under the Financial ~~Statements.~~

Segments are generally based on the management structure of the businesses and the grouping of similar ~~operating companies,~~operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. ~~Adjustments to reconcile segment reporting to the consolidated results for the quarters~~Segment total net sales and ~~nine months ended September 30, 2019~~operating profit include intercompany sales and ~~2018~~profit, which are ~~included in "Eliminations~~ultimately eliminated within Eliminations and ~~other",~~other, which also includes certain smaller ~~subsidiaries.~~ non-reportable segments. For our defense contracts, where the primary customer is the U.S. government, our intercompany sales and profit is generally recorded at cost-plus a specified fee, which may differ from what the selling entity would be able to obtain on sales to external customers. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment and certain corporate expenses, as further discussed below.

We attempt to quantify material factors within our discussion of the results of each segment whenever those factors are determinable. However, in some instances, the factors we cite within our segment discussion are based upon input measures or qualitative information that does not lend itself to quantification when discussed in the context of the financial results measured on an output basis and are not, therefore, quantified in the below discussions.

~~Commercial Businesses~~Given the nature of our business, total net sales and operating profits (and the related operating profit margin percentage), which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our segment performance, as described below.

Included in segment operating profits are EAC adjustments, which relate to changes in operating profits and margin due to revisions to total estimated revenues and costs at completion. These changes reflect improved or deteriorated operating performance or award fee rates. For a full description of our EAC process, refer to “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 1 of this Form 10-Q. Given that we have thousands of individual contracts and the types and complexity of the assumptions and estimates we must make on an on-going basis, we have both favorable and unfavorable EAC adjustments. We had the following aggregate EAC adjustments for the periods presented:

As a result of the Raytheon Merger, RIS’s and RMD’s long-term contracts that are accounted for on a percentage of completion basis, were reset to zero percent complete as of the merger date since only the unperformed portion of the contract at the merger date represents the obligation of the Company. This will have the impact of reducing gross favorable and unfavorable EAC adjustments for these segments in the ~~worldwide commercial and residential property industries, and Carrier also serves customers~~short-term, with the exception of EAC adjustments related to loss reserves. The change in ~~the commercial and transport refrigeration industries. Sales in the commercial businesses are influenced by a number~~net EAC adjustments of external factors, including fluctuations in residential and commercial construction activity, regulatory changes, interest rates, labor costs, foreign currency exchange rates, customer attrition, raw material and energy costs, credit markets and other global and political factors. Carrier's financial performance can also be influenced by production and utilization of transport equipment and, in the case of its residential business, weather conditions. To ensure adequate supply of products in the distribution channel, Carrier customarily offers its customers incentives to purchase products. The principal incentive program provides reimbursements to distributors for offering promotional pricing on Carrier products. We account for incentive payments made as a reduction to sales.

Backlog, which is essentially equivalent to our remaining performance obligations for our defense contracts, represents the dollar value of firm orders for which work has not been performed and ~~2018 was~~excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity (IDIQ) type contracts). Backlog is affected by changes in foreign exchange rates.

Bookings generally represent the dollar value of new external contracts awarded to us during the reporting period and include firm orders for which funding has not been appropriated. We believe bookings are an important measure of future performance for our defense operations and are an indicator of potential future changes in these operations’ total net sales, because we cannot record revenues under a new contract without first having a booking in the current or a preceding period.

Bookings exclude unexercised contract options and potential orders under ordering-type contracts (e.g., IDIQ type contracts), and are reduced for contract cancellations and terminations of bookings recognized in the current period. We reflect contract cancellations and terminations from prior year bookings, as ~~follows:~~well as the impact of changes in foreign exchange rates, directly as an adjustment to backlog in the period in which the cancellation or termination occurs and the impact is determinable. Contract cancellations and terminations also include contract underruns on cost-type programs.

Bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: (1) the desired capability by the customer and urgency of customer needs, (2) customer budgets and other fiscal constraints, (3) political and economic and other environmental factors, (4) the timing of customer negotiations, (5) the timing of governmental approvals and notifications, and (6) the timing of option exercises or increases in scope. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis. As a result, we believe comparing bookings on a quarterly basis or for periods less than one year is less meaningful than for longer periods and that shorter term changes in bookings may not necessarily indicate a material trend.

Included in organic profit in the quarter ended September 30, 2020 was $32 million of foreign government wage subsidies due to COVID-19 and $24 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses.

The decrease in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the sale of our Collins Aerospace military GPS and space-based precision optics businesses in the third quarter of 2020 as further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q.

The increase in Other operating profits of $0.6 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily relates to gains of $608 million on the sales of the Collins Aerospace businesses discussed above, and a gain of $13 million on a real estate transaction in the current quarter, partially offset by a $15 million impairment loss on a building lease in the current quarter.

In the quarter ended September 30, 2020, Collins Aerospace booked $320 million for a multi-year Extravehicular Space Operations Contract (ESOC) to provide services, upgrades and sustainment in support of NASA’s Extra Vehicular Activity (EVA) on the International Space Station.

The organic profit decrease of $2.7 billion in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is primarily due to lower commercial aerospace operating profit of $2.9 billion principally driven by the lower commercial aerospace OEM and aftermarket sales volume discussed above. Included in the lower commercial OEM operating profit were $157 million of significant unfavorable adjustments principally driven by the expected acceleration of fleet retirements of a certain aircraft. The decrease was also due to higher Selling, general and administrative expenses of $0.1 billion primarily driven by $123 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses, partially offset by lower Research and development expenses of $0.1 billion, which includes the impact of cost reduction initiatives.

Included in organic profit in the nine months ended September 30, 2020 was $56 million of foreign government wage subsidies due to COVID-19 and $12 million related to the favorable impact of a contract related matter in the first quarter of 2020.

The decrease in net sales and operating profit due to acquisitions / divestitures, net primarily relates to the sale of our Collins Aerospace military GPS and space-based precision optics businesses in the third quarter of 2020 as ~~follows:~~further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q.

The increase in Other operating profits of $0.8 billion in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily relates to gains of $608 million on the sales of the Collins Aerospace businesses discussed above, the absence of prior year amortization of inventory fair value step-up associated with the Rockwell Collins acquisition of $181 million, the absence of a prior year loss on the sale of a business of $25 million, and a current year gain of $13 million on a real estate transaction, partially offset by a $15 million impairment loss on a building lease in the current year.

The organic sales ~~growth~~decrease of ~~11%~~$1.8 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily reflects lower commercial aftermarket sales of $1.6 billion, primarily due to a significant reduction in shop visits and related spare part sales, and lower commercial OEM sales of $0.3 billion, primarily due to a significant reduction in commercial engine deliveries, all principally driven by the current economic environment primarily due to the COVID-19 pandemic. These declines were partially offset by higher military sales ~~(4%), higher commercial OEM~~of $0.2 billion primarily driven by an increase in F117 overhauls, F135 engine sales ~~(3%),~~ and ~~higher~~aftermarket growth on multiple fighter jet platforms. Included in the lower commercial aftermarket sales ~~(3%).~~

The ~~operational~~organic profit ~~increase~~decrease of ~~60%~~$1.0 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily driven ~~by:~~

Included in organic profit in the quarter ended September 30, 2020 was an increase in net unfavorable EAC adjustments of $451 million, primarily driven by the adjustments discussed above, and $24 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses.

The ~~283% increase~~decrease in ~~"Other"~~Other operating profits of $95 million in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily ~~reflects~~due to an $89 million impairment of commercial aircraft program assets in the ~~absence~~current quarter.

In the quarter ended September 30, 2020, Pratt & Whitney booked $473 million for the F-135 program.

Factors Contributing to Total % Change

Organic /
Operational

FX
Translation*

Acquisitions /
Divestitures, net

Restructuring
Costs
Other
Net Sales 11 % (1 )% — % — % — %
Cost of Sales 10 % — % — % — % (3 )%
Operating Profits 13 % (2 )% — % (2 )% 36 %

The ~~operational~~organic profit ~~increase~~decrease of ~~13%~~$1.7 billion in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven ~~by:~~

Included in organic profit was an increase in net unfavorable EAC adjustments of $469 million, which included the unfavorable EAC adjustments discussed above and significant net unfavorable EAC adjustments of $62 million based on a portfolio review of our commercial aftermarket programs in the second quarter of 2020 in consideration of the estimated lower flight hours, a change in the estimated number of shop visits and the related amount of estimated costs. Also included was an unfavorable EAC adjustment of $44 million in the second quarter of 2020 on a military program primarily driven by a shift in estimated overhead costs due to the lower commercial ~~aftermarket margin contribution (4%) as unfavorable mix and net unfavorable contract adjustments more than offset margin contribution from~~engine activity discussed above.

The decrease in Other operating profits of $132 million in the ~~higher volumes noted above~~

The increase in ~~operational profit~~net sales of ~~13% primarily reflects:~~

The increase in operating profits of $348 million and $659 million and the related increase in operating profit margins in the quarter and nine months ended September 30, ~~2018~~2020 compared to the quarter and nine months ended September 30, 2019, respectively, was due to the Raytheon Merger. Included in operating profit in the quarter and nine months ended September 30, 2020 was a $33 million unfavorable EAC adjustment in the third quarter of 2020 on a domestic classified program.

In addition to the bookings noted above, in the nine months ended September 30, 2020, RIS booked $1,418 million on a number of classified contracts and $166 million on the Global Aircrew Strategic Network Terminal (Global ASNT) program for the U.S. Air Force.

The ~~organic~~increase in net sales ~~increase~~ of ~~9% primarily reflects higher commercial aerospace aftermarket sales (6%), higher military sales (2%),~~$3,794 million and ~~higher commercial OEM sales (1%).~~$7,384 million in the quarter and nine months ended September 30, 2020 compared to the quarter and nine months ended September 30, 2019, respectively, was due to the Raytheon Merger on April 3, 2020.

The ~~operational~~increase in operating profits of $453 million and $850 million and the related increase in operating profit margins in the quarter and nine months ended September 30, 2020 compared to the quarter and nine months ended September 30, 2019, respectively, was due to the Raytheon Merger.

~~higher commercial aerospace margin contribution (16%) driven by~~In addition to the ~~commercial aftermarket sales growth~~bookings noted above, ~~partially offset by lower commercial aerospace OEM margin contribution~~in the nine months ended September 30, 2020, RMD booked $2,253 million on the AN/TPY-2 radar program for the KSA and $321 million for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA) and an international customer.

Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller ~~businesses.~~ non-reportable business segments, including Forcepoint, LLC, which was acquired as part of the Raytheon Merger.

The ~~year-over-year~~ increase in other non-reportable segments sales eliminations for the quarter and nine months ended September 30, 2019, as compared to the same periods of 2018, reflects an increase in the amount of inter-segment eliminations, principally between our aerospace businesses. The decrease in operating profits related to Eliminations and other for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, iswas primarily ~~driven by costs associated with the Company's intention~~related to ~~separate its commercial businesses as well as costs associated with the Raytheon merger.~~ Forcepoint sales.

The decrease in other non-reportable segments operating ~~profits~~profit for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, was primarily due to restructuring costs in the third quarter of 2020 and the impact of foreign currency translation, partially offset by operating profit related to ~~Eliminations and~~Forcepoint.

The increase in other non-reportable segment sales for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily related to Forcepoint sales.

The decrease in other non-reportable segments operating profit for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to the impact of foreign currency translation.

Corporate expenses and other unallocated items consists of costs and certain other unallowable corporate costs not considered part of management’s evaluation of reportable segment operating performance including restructuring and merger costs related to the Raytheon Merger, net costs associated with corporate research and development, including the Lower Tier Air and Missile Defense Sensor (LTAMDS) program which was acquired as part of the Raytheon Merger, and certain reserves. See Restructuring Costs, above, for a more detailed discussion of our restructuring costs.

Corporate expenses and other unallocated items was relatively consistent for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. Included in the change was $45 million of net expenses related to the LTAMDS project acquired as part of the Raytheon Merger, an increase in restructuring costs of $20 million, and an increase in merger-related costs for the Raytheon Merger of $21 million. These increases were partially offset by other unallocated items with no individual or common significant driver.

The change in Corporate expenses and other unallocated items of $275 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven by increased restructuring costs of $189 million, an increase in merger-related costs for the Raytheon Merger of $94 million and $80 million of net expenses related to the LTAMDS project acquired as part of the Raytheon Merger, partially offset by other unallocated items with no individual or common significant driver.

The segment results of RIS and RMD only include pension and PRB expense as determined under U.S. government CAS, which we generally recover through the pricing of our products and services to the U.S. government. The difference between our CAS expense and the FAS service cost attributable to these segments under U.S. GAAP is the FAS/CAS operating adjustment. The FAS/CAS operating adjustment results in consolidated pension expense in operating profit equal to the service cost component of FAS expense under U.S. GAAP. The segment results of Collins Aerospace and Pratt & Whitney include FAS service cost.

The change in our FAS/CAS Operating Adjustment of $380 million in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 and of $736 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was due to the Raytheon Merger on April 3, 2020.

Acquisition accounting adjustments include the amortization of acquired intangible assets related to historical acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through historical acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired. These adjustments are not considered part of management’s evaluation of segment results.

The components of Acquisition accounting adjustments were as follows:

Acquisition accounting adjustments related to acquisitions in each segment were as follows:

The change the Acquisition accounting adjustments of $303 million for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 respectively, is primarily driven by ~~costs associated with the Company's intention~~$359 million related to ~~separate its commercial businesses, costs associated with~~ the Raytheon ~~merger,~~Merger, primarily related to the amortization of intangibles. The change the Acquisition accounting adjustments of $3,882 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 respectively, is primarily driven by the $3.2 billion goodwill impairment loss in the second quarter of 2020 related to two Collins Aerospace reporting units and $712 million related to the ~~absence~~Raytheon Merger, primarily related to the amortization of intangibles. Refer to “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q for additional information on the ~~favorable impact of prior year insurance settlements.~~goodwill impairment loss.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. For 2019, we expect cash flows from operations, net of capital expenditures, to approximate $5.3 billion to $5.7 billion, including $1.0 billion of one-time cash payments related to the portfolio separation. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms. We had $6.84 billion available under our various credit facilities at September 30, 2020.

As discussed above in Business Overview, the COVID-19 pandemic has negatively affected the U.S. and global economy, disrupted global supply chains and financial markets, and resulted in significant travel restrictions, including mandated facility closures and shelter-in-place orders in numerous jurisdictions around the world. In response, we have taken actions to preserve capital and protect the long-term needs of our business, including cutting discretionary spending, significantly reducing capital expenditures and research and development spend, suspending share repurchases, deferring merit increases, freezing non-essential hiring, repositioning employees to defense work, furloughing employees when needed, and personnel reductions. We will monitor the environment closely and are prepared to take further actions if necessary. Although our business will be significantly impacted, we currently believe we have sufficient liquidity to withstand the potential impacts.

On occasion, we are required to maintain cash deposits with certain banks with respect to contractual obligations related to acquisitions, divestitures or other legal ~~obligations.~~obligations, including certain customer payments related to factored receivables that we collect on behalf of the financing institutions. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the amount of such restricted cash was ~~approximately $40~~$31 million and ~~$60~~$24 million, ~~respectively.~~respectively, which is excluded from cash and cash equivalents.

Historically, our strong ~~debt~~credit ratings and financial position have enabled us to issue long-term debt at favorable ~~market~~interest rates. Our ability to obtain debt financing at comparable risk-based interest rates is partly a function of our existing debt-to-total-capitalization level as well as our credit standing. Our debt-to-total capitalization increased in 2018 which reflected additional borrowings used to finance the acquisition of Rockwell Collins as well as the acquisition of Rockwell Collins' outstanding debt. Our debt-to-total-capitalization of 51% at September 30, 2019 is down 200 basis points from December 31, 2018 and down 300 basis points from September 30, 2018.

On March 16, 2020, we entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $5.0 billion which became available upon completion of the Raytheon Merger on April 3, 2020. This credit agreement matures on April 3, 2025. On May 6, 2020, we entered into a revolving credit agreement with various banks permitting aggregate borrowings of up to $2.0 billion. This credit agreement matures on May 5, 2021.

As of September 30, 2020 we had revolving credit agreements with various banks permitting aggregate borrowings of up to $7.0 billion.

On February 10, 2020, Otis entered into a term loan credit agreement providing for ~~general corporate purposes exceeds~~a $1.0 billion unsecured, unsubordinated 3-year term loan credit facility. Also on February 10, 2020, Carrier entered into a term loan credit agreement providing for a $1.75 billion unsecured, unsubordinated 3-year term loan credit facility. On March 27, 2020, Otis and Carrier drew on the ~~sum~~full amounts of ~~domestic cash generation~~the term loans and ~~foreign cash repatriated~~distributed the full proceeds to Raytheon Technologies in connection with the Separation Transactions. UTC utilized those amounts to extinguish Raytheon Technologies’ short-term and long-term debt in order to not exceed the maximum applicable net indebtedness required by the Raytheon Merger Agreement.

We have an existing universal shelf registration statement, which we filed with the SEC on September 27, 2019, for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitation on the amount of debt to be issued under this shelf registration statement.

The Company has offered a voluntary supply chain finance (SCF) program with a global financial institution for more than 10 years, which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the ~~U.S.~~

We believe our future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate.

InFactoring activity resulted in a decrease of approximately $585 million in cash generated from operating activities for the nine months ended September 30, ~~2018, cash outflows from working capital were $643 million, excluding~~2020, as compared to the ~~adoption impact of the New Revenue Standard. Accounts receivable increased $2.4 billion due to an~~prior year. This increase in sales volume. Contract assets, current increased $892 million due to costs in excess of billings primarily at Pratt & Whitney driven by military engines, at Otis due to progress on major projects, and at Carrier. Inventory increased $991 millionwas primarily driven by an increase in ~~production work in process for the Geared Turbo Fan~~factoring levels at Pratt & ~~Whitney, seasonal build in~~Whitney.

We made the Residential & Commercial HVAC businesses at Carrier, and increases at Collins Aerospace Systems. These increases were partially offset by decreases in Other assets of $262 million primarily driven by a reduction in prepaid taxes, increases in Accounts payable and accrued liabilities of approximately $3.0 billion, driven by higher inventory purchasing activity and customer advances at Pratt & Whitney, higher direct material purchases at Collins Aerospace Systems, and an increase in accrued interest, as well as an increase in Contract liabilities, current of $313 million driven by progress payments on major contracts and advanced billings at Otis.

We expect to make total contributions of approximately ~~$125~~$225 million to our ~~global~~U.S. qualified and international defined benefit ~~pension~~ plans in ~~2019, including $25 million to our domestic pension plans.~~2020. Contributions to our ~~global~~U.S. qualified and international defined benefit ~~pension~~ plans in ~~2019~~2020 are expected to meet or exceed the current funding requirements.

We made net tax payments of $489 million and $437 million in the nine months ended September 30, 2020 and 2019, respectively. We expect full-year net federal, foreign and state tax payments to be approximately $750 million in 2020 on a continuing operations basis.

Nine Months Ended September 30,
(dollars in millions) 2019 2018
Net cash flows used in investing activities $ (1,973 ) $ (1,019 )

Capital expenditures for the nine months ended September 30, ~~2019~~2020 of ~~$1,359~~$1,172 million ~~primarily relate to several projects at Collins Aerospace Systems and investments in production and aftermarket capacity at Pratt & Whitney.~~

Dispositions of businesses in the nine months ended September 30, ~~2019~~2020 were $2,575 million and primarily related to the sale of ~~$134 million primarily consisted of the~~our Collins Aerospace military GPS and space-based precision optics businesses ~~held~~ for ~~sale associated with the Rockwell Acquisition.~~$2.3 billion in gross cash proceeds.

Customer financing activities in the nine months ended September 30, ~~2019~~2020 were a net use of cash of ~~$444~~$138 million, ~~primarily~~compared to a net use of cash of $445 million in the nine months ended September 30, 2019 driven by ~~additional~~fewer Geared Turbofan engines leased to support customer fleets. ~~We may also arrange for third parties to assume a portion of our commitments.~~ We had commercial aerospace financing and other contractual commitments of approximately ~~$15.7~~$13.7 billion at September 30, ~~2019~~2020 related to commercial aircraft and certain contractual rights to provide product on new aircraft platforms, of which up to ~~$0.2~~$0.6 billion may be required to be disbursed during the remainder of ~~2019.~~

During the nine months ended September 30, ~~2019,~~2020, our collaboration intangible assets increased by approximately ~~$259~~$136 million, which primarily relates to payments made under our 2012 agreement to acquire ~~Rolls-Royce's~~Rolls-Royce’s collaboration interest in IAE.

As discussed in ~~Note 9 to the Condensed Consolidated~~“Note 12: Financial ~~Statements,~~Instruments” within Item 1 of this Form 10-Q, we enter into derivative instruments primarily for risk management purposes, ~~only,~~ including derivatives designated as hedging instruments under the Derivatives and Hedging ~~Topic~~(Topic 815) of the ~~FASB ASC~~Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) and those utilized as economic hedges. We operate internationally and, in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates and commodity prices. These fluctuations can increase the costs of financing, investing

On October 19, 2020, we entered into a definitive agreement to sell our Forcepoint business for approximately $1.1 billion, subject to customary closing adjustments. We expect the transaction to close by the end of the first quarter of 2021, subject to satisfaction of customary closing conditions, including regulatory approvals.

Our financing activities primarily include the issuance and repayment of short-term and long-term debt, payment of dividends and stock repurchases.

In preparation for and in anticipation of the Separation Transactions and Distributions, the Company, Otis and Carrier issued and the Company repaid long-term debt in the nine months ended September 30, ~~2018. This change is driven by~~2020, which are included in the ~~absence~~tables below.

We had the following issuances of long-term debt during the nine months ended September 30, 2020, which is inclusive of issuances inmade by Otis and Carrier which were primarily used by the ~~prior year which was~~Company to extinguish Raytheon Technologies short-term and long-term debt, and therefore were treated as a distribution from discontinued operations within financing activities from continuing operation on our Condensed Consolidated Statement of Cash Flows:

In the fourth quarter of 2020, we repaid the $1.0 billion of debt that matured on October 15, 2020, using cash on hand.

At September 30, ~~2019,~~2020, management had remaining authority to repurchase approximately ~~$1.9~~$1.8 billion of our common stock under the October 14, 2015 share repurchase program. Under this program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the ~~Securities~~ Exchange ~~Act of 1934, as amended.~~Act. We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan. Our ability to repurchase shares is subject to applicable ~~law, including restrictions arising from~~law. We currently do not anticipate any additional share repurchases in 2020.

Our share repurchases were as follows:

Our Board of Directors authorized the ~~pending merger transaction with Raytheon. We made~~following cash ~~payments of approximately $111 million to repurchase approximately 857 thousand shares of our common stock during the nine months ended September 30, 2019.~~dividends:

On ~~October 10, 2019,~~June 8, 2020 the Board of Directors declared a dividend of ~~$0.735~~$0.475 per share payable September 10, 2020 to shareowners of record at the close of business on August 14, 2020. Also on October 14, 2020, the Board of Directors declared a dividend of $0.475 per share payable December ~~10, 2019~~17, 2020 to shareowners of record at the close of business on November ~~15,~~13, 2020.

In our ~~2018~~2019 Annual Report, incorporated by reference in our ~~2018~~ 2019 Form 10-K,, we disclosed our off-balance sheet arrangements and contractual obligations. As of September 30, ~~2019,~~2020, there have been no material changes to these off-balance sheet arrangements and contractual obligations outside the ordinary course of ~~business.~~business except for those disclosed in “Note 8: Borrowings and Lines of Credit,” “Note 16: Guarantees,” and “Note 17: Commitments and Contingencies” within Item 1 of this Form 10-Q and described below as a result of the Raytheon Merger and Separation Transactions. As a result of the Raytheon Merger, we added approximately $11 billion of purchase obligations, the majority of which we expect to fulfill over the next 12 months. These purchase obligations represent enforceable and legally binding agreements with suppliers to purchase goods or services. We enter into contracts with customers, primarily the U.S. government, which entitle us to full recourse for costs incurred, including purchase obligations, in the event the contract is terminated by the customer for convenience. These purchase obligations are included notwithstanding the amount for which we are entitled to full recourse from our customers. As a result of the Separation Transactions, we no longer have approximately $2 billion of purchase obligations which were previously outstanding as of December 31, 2019.

We have financial instruments that are subject to interest rate risk, principally fixed-rate debt obligations. A 100 basis points unfavorable interest rate movement would have had an approximate $4 billion impact on the fair value of our fixed-rate debt at both September 30, 2020 and December 31, 2019. The investors in our fixed-rate debt obligations do not generally have the right to demand we pay off these obligations prior to maturity. Therefore, exposure to interest rate risk is not believed to be material for our fixed-rate debt.

As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including the ~~Chairman,~~ President and Chief Executive Officer (CEO), the Executive Vice President &and Chief Financial Officer (CFO) and the Corporate Vice President and Controller (Controller), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, ~~2019~~.2020. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our CEO, our CFO and our Controller have concluded that, as of September 30, ~~2019~~,2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO, our CFO and our Controller, as appropriate, to allow timely decisions regarding required disclosure.

There ~~has been~~were no ~~change~~changes in our internal control over financial reporting during the ~~nine months~~quarter ended September 30, ~~2019,~~2020 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

This Form 10-Q contains statements which, to the extent they are not statements of historical or present fact, constitute “forward-looking statements” under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “outlook,” “confident,” “on track” and other words of similar meaning. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, tax rates, ~~R&D~~research and development spend, other measures of financial performance, potential future plans, strategies or transactions, credit ratings and net indebtedness, other anticipated benefits to Raytheon Technologies Corporation (RTC) of United Technologies Corporation’s (UTC) Rockwell Collins acquisition, the ~~Rockwell Acquisition,~~merger between UTC and Raytheon Company (Raytheon, and such merger, the ~~proposed merger with~~ Raytheon Merger) or the spin-offs by UTC of Otis and Carrier into separate independent companies (the ~~“separation transactions”)~~Separation Transactions), including estimated synergies and customer cost savings resulting from the ~~proposed merger, the expected timing of completion of the proposed merger~~Raytheon Merger and the ~~separation transactions, estimated costs associated with such transactions~~Separation Transactions and other statements that are not solely historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation:

In addition, this Form 10-Q includes important information as to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See the ~~"Notes~~“Notes to Condensed Consolidated Financial ~~Statements"~~Statements” under the heading ~~"Note 15: Contingent Liabilities,"~~“Note 17: Commitments and Contingencies,” the section titled ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” under the headings ~~"Business~~“Business Overview,~~" "Critical~~” “Critical Accounting Estimates,~~" "Results~~” “Results of Operations,"” and ~~"Liquidity~~“Liquidity and Financial Condition,"” and the sections titled ~~"Legal Proceedings"~~“Legal Proceedings” and ~~"Risk Factors"~~“Risk Factors” in this Form 10-Q and in our ~~2018~~ Annual Report to Shareowners (2019 Annual Report) and ~~2018~~Annual Report on Form ~~10-K.~~10-K for calendar year 2019 (2019 Form 10-K) and the section titled “Risk Factors” in our Form 10-Q for the period ended March 31, 2020. Additional important information as to these factors is included in our ~~2018~~2019 Annual Report in the section titled ~~"Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” under the headings ~~"Restructuring~~“Restructuring Costs,~~" "Environmental Matters"~~” “Environmental Matters” and ~~"Governmental Matters",~~“Governmental Matters,” in our ~~2018~~2019 Form 10-K in the ~~"Business"~~“Business” section under the headings ~~"General," "Description~~“General,” “Description of Business by ~~Segment"~~Segment” and ~~"Other~~“Other Matters Relating to Our Business as a ~~Whole"~~Whole” and in our Form S-4 Registration Statements (Registration No. 333-220883) and (Registrations No. 333-232696) under the heading ~~"Risk Factors".~~“Risk Factors.” The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the SEC.

~~Federal Securities Laws Litigation~~

Except as otherwise noted above, there have been no material developments in legal proceedings. For previously reported information about legal proceedings refer to Part I, Item 3, ~~"Legal~~“Legal Proceedings,~~" of our 2018 Form 10-K and Part II - Other Information, Item 1. Legal Proceedings~~” of our 2019 Form ~~10-Q for the quarters ended March 31, 2019 and June 30, 2019.~~10-K.

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Item 1A. in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. There have been no material changes infrom the ~~Company's risk~~ factors ~~from those~~ disclosed in ~~Part I, Item 1A, Risk Factors, in~~ our ~~2018 Form 10-K and in Part II, Item 1A, Risk Factors in our 2019~~Quarterly Report on Form 10-Q for the ~~quarter~~quarterly period ended ~~June 30, 2019.~~March 31, 2020, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission (SEC).

The following table provides information about our purchases during the quarter ended September 30, ~~2019~~2020 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

On October 14, 2015, our Board of Directors authorized a share repurchase program for up to $12 billion of our common stock, replacing the program announced on July 19, 2015. At September 30, ~~2019,~~2020, the maximum dollar value of shares that may yet be purchased under this current program was approximately ~~$1,852~~$1,767 million. ~~Under this program, shares may be purchased on~~We did not make any share repurchases during the open market, in privately negotiated transactions, under accelerated share repurchase (ASR) programs and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program from time to time in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan. Our ability to repurchase shares is subject to applicable law, including restrictions arising from the pending merger transaction with Raytheon.quarter ended September 30, 2020. No shares were reacquired in transactions outside the program during the quarter ended September 30, ~~2019.~~2020.



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



~~10 Farm Springs Road,~~870 Winter Street,	~~Farmington,~~Waltham,	~~Connecticut~~Massachusetts	~~06032~~02451



Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($1 par value)		~~UTX~~RTX	New York Stock Exchange
(CUSIP ~~913017 10 9)~~75513E 101)
~~1.125%~~2.150% Notes due ~~2021~~2030		~~UTX 21D~~RTX 30	New York Stock Exchange
(CUSIP ~~913017 CD9)~~75513E AB7)
~~1.250% Notes due 2023~~	~~UTX 23~~	~~New York Stock Exchange~~
~~(CUSIP U91301 AD0)~~
~~1.150% Notes due 2024~~	~~UTX 24A~~	~~New York Stock Exchange~~
~~(CUSIP 913017 CU1)~~
~~1.875% Notes due 2026~~	~~UTX 26~~	~~New York Stock Exchange~~
~~(CUSIP 913017 CE7)~~
~~2.150% Notes due 2030~~	~~UTX 30~~	~~New York Stock Exchange~~
~~(CUSIP 913017 CV9)~~
~~Floating Rate Notes due 2019~~	~~UTX 19C~~	~~New York Stock Exchange~~
~~(CUSIP 913017 CS6)~~
~~Floating Rate Notes due 2020~~	~~UTX 20B~~	~~New York Stock Exchange~~
~~(CUSIP 913017 CT4)~~


Large Accelerated Filer		☒			Accelerated Filer		☐

~~Large Accelerated Filer~~		☒	~~Accelerated Filer~~	☐

Non-accelerated Filer	☐		Smaller Reporting Company			☐

					Emerging Growth Company		☐


		Page

		~~Page~~

PART I – FINANCIAL INFORMATION	45

Item 1. Unaudited Financial Statements:		45

Condensed Consolidated Statement of Operations ~~for the quarters ended September 30, 2019 and 2018~~		4

~~Condensed Consolidated Statement of Operations for the nine months ended September 30, 2019 and 2018~~	5

~~Condensed Consolidated Statement of Comprehensive Income~~ for the quarters and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019	65



Condensed Consolidated Statement of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2020 and 2019		6

Condensed Consolidated Balance Sheet at September 30, ~~2019~~2020 and December 31, ~~2018~~2019		7

Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019		8

Condensed Consolidated Statement of Changes in Equity for the quarters and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019		9

Notes to Condensed Consolidated Financial Statements		10

Report of Independent Registered Public Accounting Firm		3653

Item 2. ~~Management's~~Management ’s Discussion and Analysis of Financial Condition and Results of Operations		3754

Item 3. Quantitative and Qualitative Disclosures About Market Risk		5186

Item 4. Controls and Procedures		5287

PART II – OTHER INFORMATION		5589

Item 1. Legal Proceedings		5589

Item 1A. Risk Factors		5590

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5591

Item 6. Exhibits		5691

SIGNATURES		5792



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



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



	Quarter Ended September 30,
(dollars in millions, except per share amounts)	2019			2018
Net Sales:
Product sales	$	13,651		$	11,254
Service sales	5,845			5,256
	19,496			16,510
Costs and Expenses:
Cost of products sold	10,461			9,342
Cost of services sold	3,750			3,194
Research and development	732			586
Selling, general and administrative	2,104			1,681
	17,047			14,803
Other income, net	37			131
Operating profit	2,486			1,838
Non-service pension (benefit)	(303		)	(188		)
Interest expense, net	401			258
Income from operations before income taxes	2,388			1,768
Income tax expense	1,131			419
Net income from operations	1,257			1,349
Less: Noncontrolling interest in subsidiaries' earnings from operations	109			111
Net income attributable to common shareowners	$	1,148		$	1,238
Earnings Per Share of Common Stock - Basic:
Net income attributable to common shareowners	$	1.34		$	1.56
Earnings Per Share of Common Stock - Diluted:
Net income attributable to common shareowners	$	1.33		$	1.54


	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars in millions, except per share amounts)	2020		2019		2020		2019
Net Sales:
Product sales	$	11,469	$	8,211	$	30,402	$	24,635
Service sales	3,278		3,162		9,766		9,020
Total Net Sales	14,747		11,373		40,168		33,655
Costs and Expenses:
Cost of products sold	10,322		6,498		26,571		19,897
Cost of services sold	2,682		2,011		7,219		5,585
Research and development	642		592		1,872		1,784
Selling, general and administrative	1,401		902		4,189		2,672
Total Costs and Expenses	15,047		10,003		39,851		29,938
Goodwill impairment	0		0		(3,183)		0
Other income, net	734		60		835		241
Operating profit (loss)	434		1,430		(2,031)		3,958
Non-operating expense (income), net
Non-service pension (income) expense	(253)		(289)		(658)		(681)

Interest expense, net	350		402		1,017		1,174
Total non-operating expense (income), net	97		113		359		493
Income (loss) from continuing operations before income taxes	337		1,317		(2,390)		3,465
Income tax expense	152		306		753		465
Net income (loss) from continuing operations	185		1,011		(3,143)		3,000
Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations	34		53		112		147
Income (loss) from continuing operations attributable to common shareowners	151		958		(3,255)		2,853
Discontinued operations (Note 3):
Income (loss) from discontinued operations	13		1,071		(219)		3,185

Income tax (benefit) expense from discontinued operations	(100)		825		137		1,504
Income (loss) from discontinued operations, net of tax	113		246		(356)		1,681
Less: Noncontrolling interest in subsidiaries’ earnings from discontinued operations	0		56		43		140
Income (loss) from discontinued operations attributable to common shareowners	113		190		(399)		1,541
Net income (loss) attributable to common shareowners	$	264	$	1,148	$	(3,654)	$	4,394

Earnings (Loss) Per Share attributable to common shareowners - Basic:
Income (loss) from continuing operations	$	0.10	$	1.12	$	(2.48)	$	3.34
Income (loss) from discontinued operations	0.08		0.22		(0.30)		1.80
Net income (loss) attributable to common shareowners	$	0.17	$	1.34	$	(2.79)	$	5.14

Earnings (Loss) Per Share attributable to common shareowners - Diluted:
Income (loss) from continuing operations	$	0.10	$	1.11	$	(2.48)	$	3.31
Income (loss) from discontinued operations	0.08		0.22		(0.30)		1.78
Net income (loss) attributable to common shareowners	$	0.17	$	1.33	$	(2.79)	$	5.09



	Quarter Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2019			2018			2019			2018
Net income from operations	$	1,257		$	1,349		$	4,681		$	4,856
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(489		)	(181		)	(391		)	(321		)
Pension and postretirement benefit plans adjustments	(347		)	54			(290		)	207
ASU 2016-01 adoption impact (Note 12)	—			—			—			(5		)
Change in unrealized cash flow hedging	(107		)	69			(74		)	(103		)
Other comprehensive (loss) income, net of tax	(943		)	(58		)	(755		)	(222		)
Comprehensive income	314			1,291			3,926			4,634
Less: Comprehensive income attributable to noncontrolling interest	(91		)	(92		)	(273		)	(249		)
Comprehensive income attributable to common shareowners	$	223		$	1,199		$	3,653		$	4,385



(dollars in millions)	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	7,341		$	6,152
Accounts receivable, net	13,607			14,271
Contract assets, current	4,316			3,486
Inventory, net	11,242			10,083
Other assets, current	1,310			1,511
Total Current Assets	37,816			35,503
Customer financing assets	3,372			3,023
Future income tax benefits	1,699			1,646
Fixed assets	24,649			24,084
Less: Accumulated depreciation	(12,449		)	(11,787		)
Fixed assets, net	12,200			12,297
Operating lease right-of-use assets	2,556			—
Goodwill	48,041			48,112
Intangible assets, net	25,686			26,424
Other assets	7,639			7,206
Total Assets	$	139,009		$	134,211
Liabilities and Equity
Short-term borrowings	$	1,327		$	1,469
Accounts payable	10,840			11,080
Accrued liabilities	11,672			10,223
Contract liabilities, current	6,233			5,720
Long-term debt currently due	5,495			2,876
Total Current Liabilities	35,567			31,368
Long-term debt	37,782			41,192
Future pension and postretirement benefit obligations	3,855			4,018
Operating lease liabilities	2,105			—
Other long-term liabilities	16,774			16,914
Total Liabilities	96,083			93,492
Commitments and contingent liabilities (Note 15)
Redeemable noncontrolling interest	107			109
Shareowners' Equity:
Common Stock	22,873			22,514
Treasury Stock	(32,588		)	(32,482		)
Retained earnings	61,069			57,823
Unearned ESOP shares	(67		)	(76		)
Accumulated other comprehensive loss	(10,819		)	(9,333		)
Total Shareowners' Equity	40,468			38,446
Noncontrolling interest	2,351			2,164
Total Equity	42,819			40,610
Total Liabilities and Equity	$	139,009		$	134,211


(dollars in millions)	September 30, 2020		December 31, 2019
Assets
Current Assets
Cash and cash equivalents	$	10,001	$	4,937
Accounts receivable, net	10,115		8,743
Contract assets	9,617		4,462
Inventory, net	9,843		9,047
Assets related to discontinued operations	56		31,823
Other assets, current	3,879		2,565
Total Current Assets	43,511		61,577
Customer financing assets	3,314		3,463
Future income tax benefits	699		884
Fixed assets	25,600		20,077
Accumulated depreciation	(10,870)		(9,755)
Fixed assets, net	14,730		10,322
Operating lease right-of-use assets	2,027		1,252
Goodwill	53,524		36,609
Intangible assets, net	41,564		24,473
Other assets	3,030		1,035
Total Assets	$	162,399	$	139,615
Liabilities, Redeemable Noncontrolling Interests and Equity
Current Liabilities
Short-term borrowings	$	228	$	2,293
Accounts payable	8,143		7,816
Accrued liabilities	13,558		9,770

Contract liabilities	12,208		9,014
Liabilities related to discontinued operations	118		14,443
Long-term debt currently due	1,307		3,258
Total Current Liabilities	35,562		46,594
Long-term debt	31,246		37,701
Operating lease liabilities, non-current	1,651		1,093
Future pension and postretirement benefit obligations	14,688		2,487

Other long-term liabilities	9,142		7,414
Total Liabilities	92,289		95,289
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests	30		95
Shareowners’ Equity:
Common Stock	36,833		23,019
Treasury Stock	(10,407)		(32,626)
Retained earnings	50,017		61,594
Unearned ESOP shares	(52)		(64)
Accumulated other comprehensive loss	(8,012)		(10,149)
Total Shareowners’ Equity	68,379		41,774
Noncontrolling interest	1,701		2,457
Total Equity	70,080		44,231
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	162,399	$	139,615


			Years
Collaboration assets			30
Customer relationships and related programs			1 to 32
Developed technology			5 to 25
Patents & trademarks			4 to 40
Exclusivity assets			5 to 25


(dollars, in millions, except per share amounts and exchange ratio)	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 awards	99
Total merger consideration	$	33,166


(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



~~(860)~~(781)			~~728-7000~~522-3000



(dollars in millions)	Amount
Cash consideration paid for Rockwell Collins outstanding common stock & equity awards	$	15,533
Fair value of UTC common stock issued for Rockwell Collins outstanding common stock & equity awards	7,960
Total consideration transferred	$	23,493


(dollars, in millions)
Cash and cash equivalents	$	3,208
Accounts receivable	1,997
Inventory	705
Contract assets	6,023
Other assets, current	930
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	38,878

Accounts payable	1,455
Accrued liabilities	3,237
Contract liabilities	2,991
Long-term debt, including current portion	4,700
Future pension and postretirement benefit obligation	10,641
Other long-term liabilities	3,455
Total liabilities acquired	26,479
Total identifiable net assets	12,399
Goodwill	20,801
Redeemable noncontrolling interest	(34)
Total consideration transferred	$	33,166



(dollars in millions)	Estimated Fair Value		Estimated Life
Acquired customer relationships	$	8,220	10-20 years
Acquired tradenames/trademarks	1,870		Indefinite
Acquired developed technology	600		15 years
	$	10,690


1	Reflects the elimination of the inventory step-up amortization recorded by UTC in 2019 as this would have been completed within the first two quarters of 2017. Additionally, this adjustment reflects the amortization of the fixed asset fair value adjustment as of the acquisition date.


2	Reflects the additional amortization of the acquired Rockwell Collins' intangible assets recognized at fair value in purchase accounting and eliminates the historical Rockwell Collins intangible asset amortization expense.


4	~~Reflects the elimination of transaction-related fees incurred by UTC and Rockwell Collins in connection with the acquisition and assumes all of the fees were incurred during the first quarter of 2017.~~


5	Reflects the additional interest expense incurred on debt to finance our acquisition of Rockwell Collins and reduces interest expense for the debt fair value adjustment which would have been amortized.


6	~~Reflects the elimination of Rockwell Collins capitalized pre-production engineering amortization to conform to UTC policy.~~


7	Reflects adjustments for the elimination of amortization of prior service cost and actuarial loss amortization, which was recorded by Rockwell Collins, as a result of fair value purchase accounting, net of the impact of the revised pension and post-retirement benefit (expense) as determined under UTC’s plan assumptions.


8	Reflects adjustments to Rockwell Collins revenue recognition as if they adopted the New Revenue Standard as of January 1, 2018 and primarily relates to capitalization of contract costs and changes in timing of sales recognition for contracts requiring an over time method of revenue recognition, partially offset by deferral of revenue recognized on OEM product engineering and development.


9	~~Reflects the elimination of entities required to be sold for regulatory approvals.~~



(dollars in millions)	Balance as of January 1, 2019		Goodwill Resulting from Business Combinations		Foreign Currency Translation and Other			Balance as of September 30, 2019
Otis	$	1,688	$	14	$	(80	)	$	1,622
Carrier	9,835		1		(136		)	9,700
Pratt & Whitney	1,567		1		(4		)	1,564
Collins Aerospace Systems	35,001		394		(261		)	35,134
Total Segments	48,091		410		(481		)	48,020
Eliminations and other	21		—		—			21
Total	$	48,112	$	410	$	(481	)	$	48,041


(dollars in millions)	Balance as of January 1, 2020		Acquisitions and Divestitures		Impairment Losses		Foreign Currency Translation and Other		Balance as of September 30, 2020
Collins Aerospace Systems⁽¹⁾	$	35,025	$	(890)	$	(3,183)	$	190	$	31,142
Pratt & Whitney	1,563		0		0		0		1,563
Raytheon Intelligence & Space	0		8,781		0		2		8,783
Raytheon Missiles & Defense	0		11,540		0		2		11,542
Total Segments	36,588		19,431		(3,183)		194		53,030
Eliminations and other	21		472		0		1		494
Total	$	36,609	$	19,903	$	(3,183)	$	195	$	53,524


(dollars in millions)	Remaining 2020		2021		2022		2023		2024		2025
Amortization expense	$	631	$	2,523	$	1,989	$	2,101	$	2,166	$	2,030



(dollars in millions)	Remaining 2019		2020		2021		2022		2023		2024
Amortization expense	$	363	$	1,422	$	1,410	$	1,410	$	1,404	$	1,370


(dollars in millions)
Balance as of December 31, 2019	$	254
Current period provision for expected credit losses⁽¹⁾	263
Write-offs charged against the allowance for expected credit losses	(5)
Other, net⁽²⁾	18
Balance as of September 30, 2020	$	530



2.300% notes due 2022 ¹	500			500
2.800% notes due 2022 ⁴	1,100			1,100
3.100% notes due 2022 ¹	2,300			2,300
1.250% notes due 2023 (€750 million principal value) ¹	824			858
3.650% notes due 2023 ¹	2,250			2,250
3.700% notes due 2023 ⁴	400			400
2.800% notes due 2024 ¹	800			800
3.200% notes due 2024 ⁴	950			950
1.150% notes due 2024 (€750 million principal value) ¹	824			858
3.950% notes due 2025 ¹	1,500			1,500
1.875% notes due 2026 (€500 million principal value) ¹	549			573
2.650% notes due 2026 ¹	1,150			1,150
3.125% notes due 2027 ¹	1,100			1,100
3.500% notes due 2027 ⁴	1,300			1,300
7.100% notes due 2027	141			141
6.700% notes due 2028	400			400
4.125% notes due 2028 ¹	3,000			3,000
7.500% notes due 2029 ¹	550			550
2.150% notes due 2030 (€500 million principal value) ¹	549			573
5.400% notes due 2035 ¹	600			600
6.050% notes due 2036 ¹	600			600
6.800% notes due 2036 ¹	134			134
7.000% notes due 2038	159			159
6.125% notes due 2038 ¹	1,000			1,000
4.450% notes due 2038 ¹	750			750
5.700% notes due 2040 ¹	1,000			1,000
4.500% notes due 2042 ¹	3,500			3,500
4.800% notes due 2043 ⁴	400			400
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 ⁴	1,000			1,000
4.625% notes due 2048 ¹	1,750			1,750
Project financing obligations ⁵	307			287
Other (including finance leases)	279			287
Total principal long-term debt	43,600			44,416
Other (fair market value adjustments, discounts and debt issuance costs)	(323		)	(348		)
Total long-term debt	43,277			44,068
Less: current portion	5,495			2,876
Long-term debt, net of current portion	$	37,782		$	41,192


1	~~We may redeem these notes at our option pursuant to their terms.~~


2	The three-month EURIBOR rate as of September 30, 2019 was approximately -0.418%. The notes may be redeemed at our option in whole, but not in part, at any time in the event of certain developments affecting U.S. taxation.


3	~~The three-month LIBOR rate as of September 30, 2019 was approximately 2.0851%.~~