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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 ____________________________________ 
FORM 10-Q
____________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission file number 1-812001-00812
____________________________________ 
UNITEDRAYTHEON TECHNOLOGIES CORPORATION
____________________________________ 
Delaware06-0570975
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)

10 Farm Springs Road,870 Winter Street,Farmington,Waltham,ConnecticutMassachusetts0603202451
(Address of principal executive offices, including zip code)
(860)(781)728-7000522-3000
(Registrant'sRegistrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock ($1 par value)UTXRTXNew York Stock Exchange
(CUSIP 913017 10 9)75513E 101)
1.125%2.150% Notes due 20212030UTX 21DRTX 30New York Stock Exchange
(CUSIP 913017 CD9)75513E AB7)
1.250% Notes due 2023UTX 23New York Stock Exchange
(CUSIP U91301 AD0)
1.150% Notes due 2024UTX 24ANew York Stock Exchange
(CUSIP 913017 CU1)
1.875% Notes due 2026UTX 26New York Stock Exchange
(CUSIP 913017 CE7)
2.150% Notes due 2030UTX 30New York Stock Exchange
(CUSIP 913017 CV9)
Floating Rate Notes due 2019UTX 19CNew York Stock Exchange
(CUSIP 913017 CS6)
Floating Rate Notes due 2020UTX 20BNew York Stock Exchange
(CUSIP 913017 CT4)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  .    No  .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  .    No  .
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company," and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  .    No  .
At September 30, 2019October 20, 2020 there were 863,268,9401,518,716,426 shares of Common Stock outstanding.




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Explanatory Note
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.
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RAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONTENTS OF QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 20192020
 
Page
Page

United
Raytheon Technologies Corporation and its subsidiaries'subsidiaries’ names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or tradenames of UnitedRaytheon Technologies Corporation and its subsidiaries. Names, abbreviations of names, logos, and products and service designators of other companies are either the registered or unregistered trademarks or tradenames of their respective owners. As used herein, the terms "we," "us," "our," "the Company," or "UTC," unless the context otherwise requires, mean United Technologies Corporation and its subsidiaries. References to internet web sites in this Form 10-Q are provided for convenience only. Information available through these web sites is not incorporated by reference into this Form 10-Q.

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PART I – FINANCIAL INFORMATION

Item 1.
Item 1.    Financial Statements

UNITEDRAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) 
 Quarter Ended September 30,
(dollars in millions, except per share amounts)2019 2018
Net Sales:   
Product sales$13,651
 $11,254
Service sales5,845
 5,256
 19,496
 16,510
Costs and Expenses:   
Cost of products sold10,461
 9,342
Cost of services sold3,750
 3,194
Research and development732
 586
Selling, general and administrative2,104
 1,681
 17,047
 14,803
Other income, net37
 131
Operating profit2,486
 1,838
Non-service pension (benefit)(303) (188)
Interest expense, net401
 258
Income from operations before income taxes2,388
 1,768
Income tax expense1,131
 419
Net income from operations1,257
 1,349
Less: Noncontrolling interest in subsidiaries' earnings from operations109
 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)2020201920202019
Net Sales:
Product sales$11,469 $8,211 $30,402 $24,635 
Service sales3,278 3,162 9,766 9,020 
Total Net Sales14,747 11,373 40,168 33,655 
Costs and Expenses:
Cost of products sold10,322 6,498 26,571 19,897 
Cost of services sold2,682 2,011 7,219 5,585 
Research and development642 592 1,872 1,784 
Selling, general and administrative1,401 902 4,189 2,672 
Total Costs and Expenses15,047 10,003 39,851 29,938 
Goodwill impairment0 (3,183)
Other income, net734 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, net350 402 1,017 1,174 
Total non-operating expense (income), net97 113 359 493 
Income (loss) from continuing operations before income taxes337 1,317 (2,390)3,465 
Income tax expense152 306 753 465 
Net income (loss) from continuing operations185 1,011 (3,143)3,000 
Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations34 53 112 147 
Income (loss) from continuing operations attributable to common shareowners151 958 (3,255)2,853 
Discontinued operations (Note 3):
Income (loss) from discontinued operations13 1,071 (219)3,185 
Income tax (benefit) expense from discontinued operations(100)825 137 1,504 
Income (loss) from discontinued operations, net of tax113 246 (356)1,681 
Less: Noncontrolling interest in subsidiaries’ earnings from discontinued operations0 56 43 140 
Income (loss) from discontinued operations attributable to common shareowners113 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 operations0.08 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 operations0.08 0.22 (0.30)1.78 
Net income (loss) attributable to common shareowners$0.17 $1.33 $(2.79)$5.09 
See accompanying Notes to Condensed Consolidated Financial Statements


UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
5
 Nine Months Ended September 30,
(dollars in millions, except per share amounts)2019 2018
Net Sales:   
Product sales$40,559
 $33,032
Service sales16,936
 15,425
 57,495
 48,457
Costs and Expenses:   
Cost of products sold31,610
 26,512
Cost of services sold10,721
 9,726
Research and development2,203
 1,729
Selling, general and administrative6,207
 5,151
 50,741
 43,118
Other income, net361
 1,303
Operating profit7,115
 6,642
Non-service pension (benefit)(727) (571)
Interest expense, net1,192
 721
Income from operations before income taxes6,650
 6,492
Income tax expense1,969
 1,636
Net income from operations4,681
 4,856
Less: Noncontrolling interest in subsidiaries' earnings from operations287
 273
Net income attributable to common shareowners$4,394
 $4,583
Earnings Per Share of Common Stock - Basic:   
Net income attributable to common shareowners$5.14
 $5.80
Earnings Per Share of Common Stock - Diluted:   
Net income attributable to common shareowners$5.09
 $5.72

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See accompanying Notes to Condensed Consolidated Financial Statements

UNITEDRAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 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 income314
 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
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Net income (loss) from continuing and discontinued operations$298 $1,257 $(3,499)$4,681 
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments605 (433)(175)(336)
Pension and postretirement benefit plans adjustments83 (461)(2,093)(388)
Change in unrealized cash flow hedging154 (133)(5)(85)
Other comprehensive income (loss), before tax842 (1,027)(2,273)(809)
Income tax benefit (expense) related to items of other comprehensive income (loss)(54)84 535 54 
Other comprehensive income (loss), net of tax788 (943)(1,738)(755)
Comprehensive income (loss)1,086 314 (5,237)3,926 
Less: Comprehensive income attributable to noncontrolling interest(34)(91)(155)(273)
Comprehensive income (loss) attributable to common shareowners$1,052 $223 $(5,392)$3,653 
See accompanying Notes to Condensed Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in millions)September 30, 2019 December 31, 2018
Assets   
Cash and cash equivalents$7,341
 $6,152
Accounts receivable, net13,607
 14,271
Contract assets, current4,316
 3,486
Inventory, net11,242
 10,083
Other assets, current1,310
 1,511
Total Current Assets37,816
 35,503
Customer financing assets3,372
 3,023
Future income tax benefits1,699
 1,646
Fixed assets24,649
 24,084
Less: Accumulated depreciation(12,449) (11,787)
Fixed assets, net12,200
 12,297
Operating lease right-of-use assets

2,556
 
Goodwill48,041
 48,112
Intangible assets, net25,686
 26,424
Other assets7,639
 7,206
Total Assets$139,009
 $134,211
Liabilities and Equity   
Short-term borrowings$1,327
 $1,469
Accounts payable10,840
 11,080
Accrued liabilities11,672
 10,223
Contract liabilities, current6,233
 5,720
Long-term debt currently due5,495
 2,876
Total Current Liabilities35,567
 31,368
Long-term debt37,782
 41,192
Future pension and postretirement benefit obligations3,855
 4,018
Operating lease liabilities

2,105
 
Other long-term liabilities16,774
 16,914
Total Liabilities96,083
 93,492
Commitments and contingent liabilities (Note 15)

 

Redeemable noncontrolling interest107
 109
Shareowners' Equity:   
Common Stock22,873
 22,514
Treasury Stock(32,588) (32,482)
Retained earnings61,069
 57,823
Unearned ESOP shares(67) (76)
Accumulated other comprehensive loss(10,819) (9,333)
Total Shareowners' Equity40,468
 38,446
Noncontrolling interest2,351
 2,164
Total Equity42,819
 40,610
Total Liabilities and Equity$139,009
 $134,211
See accompanying Notes to Condensed Consolidated Financial Statements

UNITED TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,
(dollars in millions)2019 2018
Operating Activities:   
Net income from operations$4,681
 $4,856
Adjustments to reconcile net income from operations to net cash flows provided by operating activities:   
Depreciation and amortization2,831
 1,766
Deferred income tax provision(19) 70
Stock compensation cost261
 181
Portfolio separation tax cost618
 
Gain on sale of Taylor Company
 (799)
Change in:   
Accounts receivable59
 (2,379)
Contract assets, current(499) (892)
Inventory(1,503) (991)
Other current assets(111) 262
Accounts payable and accrued liabilities1,089
 3,044
Contract liabilities, current394
 313
Global pension contributions(89) (72)
Canadian government settlement(38) (221)
Other operating activities, net(1,573) (821)
Net cash flows provided by operating activities6,101
 4,317
Investing Activities:   
Capital expenditures(1,359) (1,122)
Investments in businesses (Note 1)(39) (177)
Dispositions of businesses (Note 1)134
 1,099
Increase in customer financing assets, net(444) (453)
Increase in collaboration intangible assets(259) (302)
Receipts from settlements of derivative contracts158
 71
Other investing activities, net(164) (135)
Net cash flows used in investing activities(1,973) (1,019)
Financing Activities:   
Issuance of long-term debt73
 13,409
Repayment of long-term debt(711) (2,093)
(Decrease) increase in short-term borrowings, net(104) 1,228
Proceeds from Common Stock issued under employee stock plans14
 33
Dividends paid on Common Stock(1,830) (1,606)
Repurchase of Common Stock(111) (72)
Other financing activities, net(225) (60)
Net cash flows (used in) provided by financing activities(2,894) 10,839
Effect of foreign exchange rate changes on cash and cash equivalents(65) (111)
Net increase in cash, cash equivalents and restricted cash1,169
 14,026
Cash, cash equivalents and restricted cash, beginning of year6,212
 9,018
Cash, cash equivalents and restricted cash, end of period7,381
 23,044
Less: Restricted cash40
 9,245
Cash and cash equivalents, end of period$7,341
 $13,799

(dollars in millions)September 30, 2020December 31, 2019
Assets
Current Assets
Cash and cash equivalents$10,001 $4,937 
Accounts receivable, net10,115 8,743 
Contract assets9,617 4,462 
Inventory, net9,843 9,047 
Assets related to discontinued operations56 31,823 
Other assets, current3,879 2,565 
Total Current Assets43,511 61,577 
Customer financing assets3,314 3,463 
Future income tax benefits699 884 
Fixed assets25,600 20,077 
Accumulated depreciation(10,870)(9,755)
Fixed assets, net14,730 10,322 
Operating lease right-of-use assets2,027 1,252 
Goodwill53,524 36,609 
Intangible assets, net41,564 24,473 
Other assets3,030 1,035 
Total Assets$162,399 $139,615 
Liabilities, Redeemable Noncontrolling Interests and Equity
Current Liabilities
Short-term borrowings$228 $2,293 
Accounts payable8,143 7,816 
Accrued liabilities13,558 9,770 
Contract liabilities12,208 9,014 
Liabilities related to discontinued operations118 14,443 
Long-term debt currently due1,307 3,258 
Total Current Liabilities35,562 46,594 
Long-term debt31,246 37,701 
Operating lease liabilities, non-current1,651 1,093 
Future pension and postretirement benefit obligations14,688 2,487 
Other long-term liabilities9,142 7,414 
Total Liabilities92,289 95,289 
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests30 95 
Shareowners’ Equity:
Common Stock36,833 23,019 
Treasury Stock(10,407)(32,626)
Retained earnings50,017 61,594 
Unearned ESOP shares(52)(64)
Accumulated other comprehensive loss(8,012)(10,149)
Total Shareowners’ Equity68,379 41,774 
Noncontrolling interest1,701 2,457 
Total Equity70,080 44,231 
Total Liabilities, Redeemable Noncontrolling Interests and Equity$162,399 $139,615 
See accompanying Notes to Condensed Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CASH FLOWS (Unaudited)
  Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in thousands) 2019 2018 2019 2018
Equity beginning balance $42,977
 $33,346
 $40,610
 $31,421
Common Stock        
Beginning balance 22,718
 17,747
 22,514
 17,574
Common Stock issued under employee plans 161
 122
 372
 296
Purchase of subsidiary shares from noncontrolling interest, net (1) 
 (1) (1)
Redeemable noncontrolling interest fair value adjustment (5) 
 (12) 
Ending balance 22,873
 17,869
 22,873
 17,869
Treasury Stock        
Beginning balance (32,549) (35,645) (32,482) (35,596)
Common Stock issued under employee plans 1
 1
 5
 4
Common Stock repurchased (40) (23) (111) (75)
Ending balance (32,588) (35,667) (32,588) (35,667)
Retained Earnings        
Beginning balance 60,548
 57,027
 57,823
 55,242
Net Income 1,148
 1,238
 4,394
 4,583
Dividends on Common Stock (611) (536) (1,830) (1,606)
Dividends on ESOP Common Stock (17) (18) (53) (53)
Redeemable noncontrolling interest fair value adjustment 14
 (6) 7
 (8)
New Revenue Standard adoption impact 
 
 
 (480)
ASU 2018-02 adoption impact (Note 12) 
 
 745
 
Other (13) 1
 (17) 28
Ending balance 61,069
 57,706
 61,069
 57,706
Unearned ESOP Shares        
Beginning balance (71) (81) (76) (85)
Common Stock issued under employee plans 4
 2
 9
 6
Ending balance (67) (79) (67) (79)
Accumulated Other Comprehensive (Loss) Income        
Beginning balance (9,892) (7,684) (9,333) (7,525)
Other comprehensive loss, net of tax (927) (39) (741) (198)
ASU 2018-02 adoption impact (Note 12) 
 
 (745) 
Ending balance (10,819) (7,723) (10,819) (7,723)
Noncontrolling Interest        
Beginning balance 2,223
 1,982
 2,164
 1,811
Net Income 109
 111
 287
 273
Redeemable noncontrolling interest in subsidiaries' earnings 2
 
 7
 (5)
Other comprehensive loss, net of tax (18) (19) (14) (24)
Dividends attributable to noncontrolling interest (39) (73) (184) (212)
Purchase of subsidiary shares from noncontrolling interest, net (2) 
 (3) (1)
Acquisition of noncontrolling interest, net 3
 
 3
 (8)
Capital contributions 73
 138
 91
 300
Other 
 5
 
 10
Ending balance 2,351
 2,144
 2,351
 2,144
Equity at September 30 $42,819
 $34,250
 $42,819
 $34,250
     
Supplemental share information
Shares of Common Stock issued under employee plans 727
 1,051
 2,554
 2,361
Shares of Common Stock repurchased 304
 172
 857
 574
Dividends per share of Common Stock $0.74
 $0.70
 $2.21
 $2.10
 Nine Months Ended September 30,
(dollars in millions)20202019
Operating Activities:
Net income (loss) from continuing operations$(3,143)$3,000 
Adjustments to reconcile net income (loss) from continuing operations to net cash flows provided by operating activities:
Depreciation and amortization3,003 2,022 
Deferred income tax provision(34)19 
Stock compensation cost253 192 
Net periodic pension and other postretirement income(325)(471)
Goodwill impairment loss3,183 
Change in:
Accounts receivable567 (38)
Contract assets699 (702)
Inventory(111)(1,256)
Other current assets(381)(640)
Accounts payable and accrued liabilities(866)1,170 
Contract liabilities354 853 
Global pension contributions(64)(41)
Canadian government settlement0 (38)
Other operating activities, net(171)426 
Net cash flows provided by operating activities from continuing operations2,964 4,496 
Investing Activities:
Capital expenditures(1,172)(1,122)
Dispositions of businesses (Note 2)2,575 134 
Cash acquired in Raytheon Merger3,208 
Increase in customer financing assets, net(138)(445)
Increase in collaboration intangible assets(136)(259)
(Payments) receipts from settlements of derivative contracts, net(115)160 
Other investing activities, net(70)(200)
Net cash flows provided by (used in) investing activities from continuing operations4,152 (1,732)
Financing Activities:
Issuance of long-term debt1,999 
Distribution from discontinued operations17,207 
Repayment of long-term debt(15,052)(612)
Decrease in short-term borrowings, net(2,060)(165)
Proceeds from Common Stock issued under employee stock plans6 14 
Dividends paid on Common Stock(2,026)(1,830)
Repurchase of Common Stock(47)(111)
Net transfers (to) from discontinued operations(1,998)1,256 
Other financing activities, net(85)(38)
Net cash flows used in financing activities from continuing operations(2,056)(1,484)
Discontinued Operations:
Net cash (used in) provided by operating activities(693)1,605 
Net cash used in investing activities(241)(241)
Net cash used in financing activities(1,449)(1,410)
Net cash flows used in discontinued operations(2,383)(46)
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations11 (11)
Effect of foreign exchange rate changes on cash and cash equivalents from discontinued operations(76)(54)
Net increase in cash, cash equivalents and restricted cash2,612 1,169 
Cash, cash equivalents and restricted cash, beginning of period4,961 3,731 
Cash, cash equivalents and restricted cash within assets related to discontinued operations, beginning of period2,459 2,481 
Cash, cash equivalents and restricted cash, end of period10,032 7,381 
Less: Restricted cash31 20 
Less: Cash, cash equivalents and restricted cash for discontinued operations0 2,378 
Cash and cash equivalents, end of period$10,001 $4,983 
See accompanying Notes to Condensed Consolidated Financial Statements

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RAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in thousands)2020201920202019
Equity beginning balance$68,892 $42,977 $44,231 $40,610 
Common Stock
Beginning balance36,735 22,718 23,019 22,514 
Common Stock issued under employee plans99 161 320 372 
Common Stock issued for Raytheon Company outstanding common stock and equity awards0 10,897 
Adjustment to Common Stock for the Otis Distribution0 2,598 
Sale (purchase) of subsidiary shares from noncontrolling interest, net(1)(1)(1)(1)
Redeemable noncontrolling interest fair value adjustment0 (5)0 (12)
Ending balance36,833 22,873 36,833 22,873 
Treasury Stock
Beginning balance(10,398)(32,549)(32,626)(32,482)
Common Stock issued under employee plans0 2 
Common Stock repurchased0 (40)(43)(111)
Common Stock issued for Raytheon Company outstanding common stock and equity awards0 22,269 
Other(9)(9)
Ending balance(10,407)(32,588)(10,407)(32,588)
Retained Earnings
Beginning balance49,744 60,548 61,594 57,823 
Net income (loss)264 1,148 (3,654)4,394 
Adjustment to retained earnings for the Carrier Distribution0 (5,805)
Dividends on Common Stock15 (611)(2,026)(1,830)
Dividends on ESOP Common Stock(11)(17)(38)(53)
Redeemable noncontrolling interest fair value adjustment0 14 0 
ASU 2018-02 adoption impact (Note 14)0 0 745 
Other, including the adoption impact of ASU 2016-13 (Note 1)5 (13)(54)(17)
Ending balance50,017 61,069 50,017 61,069 
Unearned ESOP Shares
Beginning balance(56)(71)(64)(76)
Common Stock issued under employee plans4 12 
Ending balance(52)(67)(52)(67)
Accumulated Other Comprehensive Income (Loss)
Beginning balance(8,800)(9,892)(10,149)(9,333)
Other comprehensive income (loss), net of tax788 (927)(1,738)(741)
Separation of Otis and Carrier0 3,875 
ASU 2018-02 adoption impact (Note 14)0 0 (745)
Ending balance(8,012)(10,819)(8,012)(10,819)
Noncontrolling Interest
Beginning balance1,667 2,223 2,457 2,164 
Net Income34 109 155 287 
Less: Redeemable noncontrolling interest net income(1)(2)
Other comprehensive income (loss), net of tax0 (18)0 (14)
Dividends attributable to noncontrolling interest0 (39)(80)(184)
Sale (purchase) of subsidiary shares from noncontrolling interest, net0 (2)66 (3)
Acquisition of noncontrolling interest, net1 1 
Capital contributions (distributions)0 73 (31)91 
Separation of Otis and Carrier0 (865)
Ending balance1,701 2,351 1,701 2,351 
Equity at September 30$70,080 $42,819 $70,080 $42,819 
Supplemental share information
Shares of Common Stock issued under employee plans, net174 727 2,081 2,554 
Shares of Common Stock repurchased0 304 330 857 
Shares of Common Stock issued for Raytheon Company outstanding common stock & equity awards0 652,638 
Dividends per share of Common Stock$0.475 $0.740 $1.685 $2.210 
See accompanying Notes to Condensed Consolidated Financial Statements
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RAYTHEON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation and Summary of Accounting Principles
The Condensed Consolidated Financial Statements at September 30, 20192020 and for the quarters and nine months ended September 30, 20192020 and 20182019 are unaudited, butand 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 (20182019 (2019 Form 10-K).
Separation Transactions and Distributions. On April 3, 2020, United Technologies Corporation (UTC) (since renamed Raytheon Technologies Corporation) completed the previously announced separation of its business into three independent, publicly traded companies – UTC, Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis) (such separations, the “Separation Transactions”). UTC distributed all of the outstanding shares of Carrier common stock and all of the outstanding shares of Otis common stock to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date for the distributions (the Distributions). UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions, each of which was effective at 12:01 a.m., Eastern Time, on April 3, 2020. The historical results of Otis and Carrier are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Raytheon Merger. On April 3, 2020, following the completion of the Separation Transactions and the Distributions, pursuant to an Agreement and Plan of Merger dated June 9, 2019, as amended, UTC and Raytheon Company (Raytheon) completed their previously announced all-stock merger of equals transaction (the Raytheon Merger). Upon closing of the Raytheon Merger, Raytheon Company became a wholly-owned subsidiary of UTC, which changed its name to “Raytheon Technologies Corporation.”
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.
COVID-19 Pandemic. In March 2020, the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government. The pandemic has negatively affected the U.S. and global economy, disrupted global supply chains and financial markets, and resulted in significant travel restrictions, mandated facility closures and shelter-in-place and social distancing orders in numerous jurisdictions around the world. Raytheon Technologies is taking all prudent measures to protect the health and safety of our employees, such as practicing social distancing, performing deep cleaning in all of our facilities, and enabling our employees to work from home where possible. We have also taken appropriate actions to help support our communities in addressing the challenges posed by the pandemic, including the production and donation of personal protective equipment.
Our business and operations and the industries in which we operate have been significantly impacted by public and private sector policies and initiatives in the U.S. and worldwide to address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote working. Additionally, public sentiments regarding air travel have also had a significant impact. We began to experience issues related to COVID-19 in the first quarter, primarily related to a limited number of facility closures, less than full staffing, and disruptions in supplier deliveries, most significantly in our Collins Aerospace and Pratt & Whitney businesses. However, our customers continued to receive our products and services
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during the first quarter and the outbreak did not have a significant impact on our operating results for the quarter ended March 31, 2020.
The continued disruption to air travel and commercial activities and the significant restrictions and limitations on businesses, particularly within the aerospace and commercial airline industries, have negatively impacted global supply, demand and distribution capabilities. These conditions, which began in the second quarter of 2020, have continued in the third quarter of 2020. In particular, the unprecedented decrease in air travel resulting from the COVID-19 pandemic is adversely affecting our airline and airframer customers, and their demand for the products and services of our Collins Aerospace and Pratt & Whitney businesses. Based on recent public data and estimates, revenue passenger miles (RPMs) for the year ending December 31, 2020 could decline by more than 60% in comparison to the prior year due to the pandemic. As a result, our airline customers have reported significant reductions in fleet utilization, aircraft grounding and unplanned retirements, and have deferred and, in some cases, cancelled new aircraft deliveries. Airlines have shifted to cash conservation behaviors such as deferring engine maintenance due to lower flight hours and aircraft utilization, requesting extended payment terms, deferring delivery of new aircraft and spare engines and requesting discounts on engine maintenance. Some airline customers have filed for bankruptcy due to their inability to meet their financial obligations. Additionally, we are seeing purchase order declines in line with publicly communicated aircraft production volumes as original equipment manufacturer (OEM) customers delay and cancel orders. We continue to monitor these trends and are working closely with our customers. We are actively mitigating costs and adjusting production schedules to accommodate these declines in demand.We have also been taking actions to preserve capital and protect the long-term needs of our businesses, including cutting discretionary spending, significantly reducing capital expenditures and research and development spend, suspending our share buybacks, deferring merit increases and implementing temporary pay reductions, freezing non-essential hiring, repositioning employees to defense work, furloughing employees when needed, and personnel reductions. In the quarter and nine months ended September 30, 2020, we recorded total restructuring charges of $250 million and $685 million, respectively, primarily related to personnel reductions at our Collins Aerospace and Pratt & Whitney businesses to preserve capital and at our Corporate Headquarters due to consolidation from the Raytheon Merger. The former Raytheon Company businesses have not experienced significant facility closures or other significant business disruptions as a result of the COVID-19 pandemic.
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:
increased estimated credit losses on both our receivables and contract assets of $48 million and $357 million in the quarter and nine months ended September 30, 2020, respectively,
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an unfavorable EAC adjustment on a Pratt & Whitney commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period of $334 million in both the quarter and nine months ended September 30, 2020,
contract asset and inventory impairments at Collins Aerospace due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a commercial aircraft of $13 million and $146 million in the quarter and nine months ended September 30, 2020, respectively,
an unfavorable EAC adjustment of $129 million in both the quarter and nine months ended September 30, 2020 related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney,
an $89 million impairment of commercial aircraft program assets at Pratt & Whitney in both the quarter and nine months ended September 30, 2020,
the impairment of a Collins Aerospace trade name of $57 million in total, in the first and second quarters of 2020,
unfavorable EAC adjustments on commercial aftermarket contracts at Pratt & Whitney based on a change in estimated future customer activity of $48 million in total, in the second and third quarters of 2020, and
an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead costs to military contracts of $44 million in the second quarter of 2020.
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.
Summary of Accounting Principles. As a result of the Raytheon Merger and the Separation Transactions, several of our accounting policies have been modified and certain additional polices have been added. The following represents the significant accounting principles of Raytheon Technologies Corporation.
Consolidation and Classification. The Condensed Consolidated Financial Statements include the accounts of Raytheon Technologies Corporation, and all wholly-owned, majority-owned and otherwise controlled domestic and foreign subsidiaries. All intercompany transactions have been eliminated. For classification of certain current assets and liabilities, the duration of our contracts or programs is utilized for our operating cycle, which is generally longer than one year. Included within our current assets and liabilities are contract assets and liabilities related to our aftermarket and development arrangements, which can generally span up to fifteen years.
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.
Use of Estimates. Our consolidated financial statements are based on the application of U.S. Generally Accepted Accounting Principles (GAAP), which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes. As discussed above, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition, and cash flows, including sales, expenses, reserves and allowances, asset recoverability and EAC adjustments, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and related containment and treatment actions, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Other future events, including regarding COVID-19, and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our consolidated financial statements.
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Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand, demand deposits and short-term cash investments that are highly liquid innature and have original maturities of three months or less.
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.
Accounts Receivable. Accounts receivable are stated at the net amount expected to be collected. The allowance for credit losses is established to provide for the expected lifetime credit losses by evaluating factors such as customer creditworthiness, historical payment and loss experiences, current economic conditions and the age and status of outstanding receivables. See the Accounting Pronouncements section below for additional information as to how we develop our allowance for credit losses under Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
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 Assets and Liabilities. Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from ourcustomers. Contract assets reflect revenue recognized and performance obligations satisfied or partially satisfied in advance of customer billing.
Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. 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.
Inventory. Inventory is stated at the lower of cost or estimated realizable value and are primarily based on first-in, first-out (FIFO) or average cost methods.
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.
Equity Method Investments. Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under theequity method of accounting and are included in Other assets on the Condensed Consolidated Balance Sheet. Under this method of accounting, our share of the net earnings or losses of the investee is included in Operating profit on the Condensed Consolidated Statement of Operations since the activities of the investee are closely aligned with the operations of the business segment holding the investment. We evaluate our equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
Customer Financing Assets. Customer financing assets (CFA) relate to our commercial aerospace businesses in which we provide financing to airlinecustomers. Our financing predominately relates to products under lease, and to a lesser extent, notes and lease receivables. We record revenue from lease assets by applying Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842: Leases, and from interest income on the notes and lease receivables. Interest income from notes and financing leases and rental income from operating lease assets is included in Other income (expense), net in the Condensed Consolidated Statement of Operations, while gains or losses on sales of operating lease assets are included in product sales and cost of sales. The current portion of these financing arrangements are aggregated in Other assets, current and the non-current portion of these financing arrangements are aggregated in CFA in the Condensed Consolidated Balance Sheet. The increases and decreases in CFA from funding, receipts and certain other activity, are reflected as Investing Activities in the Condensed Consolidated Statement of Cash Flows. The products under lease assets are valued at cost and reviewed for impairment when circumstances indicate that the related carrying amounts may not be recoverable. Notes and lease receivables are valued at the net amount expected to be collected. Reserves for credit losses on notes and lease receivables relate to specifically identified receivables that are evaluated individually for impairment. For notes and lease receivables, we determine a specific reserve for exposure based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral in connection with the evaluation of credit risk and collectability. As of September 30, 2020 and December 31, 2019 the reserves related to CFA are not material. At September 30, 2020 and
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December 31, 2019, we did not have any significant balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be impaired.
Business Combinations. Once a business is acquired, the fair value of the identifiable assets acquired and liabilities assumed is determined with the excess costrecorded to goodwill. As required, a preliminary fair value is determined once a business is acquired, with the final determination of the fair value being completed within the one year measurement period from the date of acquisition.
Goodwill and Intangible Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwilland intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The impairment test compares carrying values of the reporting units to its estimated fair values. If the carrying value exceeds the fair value then the carrying value is reduced to fair value. In developing our estimates for the fair value of our reporting units, significant judgment is required in the determination of the appropriateness of using a qualitative assessment or quantitative assessment. For these quantitative assessments that are performed, fair value is primarily based on income approaches using a discounted cash flow method and relief from royalty method, which have significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates and royalty rates. Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions.
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:
Years
Collaboration assets30
Customer relationships and related programs1 to 32
Developed technology5 to 25
Patents & trademarks4 to 40
Exclusivity assets5 to 25
Leases. We account for leases in accordance with ASC Topic 842: Leases. Under Topic 842, the right-of-use model requires a lessee to record a right-of-useasset and a lease liability on the Condensed Consolidated Balance Sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Condensed Consolidated Statement of Operations.
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
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direct costs and lease pre-payments made at or before the commencement date and are reduced for any lease incentives received at or before the commencement date. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease right-of-use assets and lease liabilities, to the extent not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts are not a material component of lease expense. Some of our leases include the option to extend or terminate the lease. We include these options in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Lease expense is generally recognized on a straight-line basis over the lease term.
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.
Other Long-Lived Assets. We evaluate the potential impairment of other long-lived assets whenever events or changes in circumstances indicate that therelated carrying amounts may not be recoverable. If the carrying value of other long-lived assets held and used exceeds the sum of the undiscounted expected future cash flows, the carrying value is written down to fair value. In order for long-lived assets to be considered held for disposal, we must have committed to a plan to dispose of the assets. Once deemed held for disposal, the assets are stated at the lower of the carrying amount or fair value.
Income Taxes. In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positionsand 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. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest expense has also been recognized. We recognize accrued interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. State income tax amounts are generally included in income tax expense; however state income tax payments related to our RIS and RMD segments are generally recoverable through the pricing of products and services to the U.S. government. Accordingly, these state income taxes are allocated to contracts and reclassified to administrative and selling expenses when paid (recovered) or otherwise agreed as allocable with the U.S. government.
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.
Revenue Recognition. The vast majority of our revenues are from long-term contracts associated with the design, development, manufacture or modification of complex aerospace or defense equipment or related services. Collins Aerospace and Pratt & Whitney primarily serve commercial and government customers in both the OEM and aftermarket parts and services markets of the aerospace industry, while RIS and RMD primarily provide products and services to government customers in the defense market.
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.
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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
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period in which losses become evident. In estimating losses, products contemplated under contractual arrangements include firm quantities of product sold under contract and, in the commercial engine and wheels and brakes businesses, future highly probable sales of replacement parts required by regulation that are expected to be sold subsequently for incorporation into the original equipment. In our commercial engine and wheels and brakes businesses, when the OEM product is sold for a loss, but the combined OEM and aftermarket arrangement for each individual sales campaign is profitable, we record OEM product losses at the time of product delivery.
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:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Operating profit (loss)$(462)$$(592)$(77)
Income (loss) from continuing operations attributable to common shareowners(1)
(365)(468)(61)
Diluted earnings (loss) per share from continuing operations attributable to common shareholders (1)
$(0.24)$$(0.36)$(0.07)
(1)     Amounts reflect a U.S. statutory tax rate of 21%, which approximates our effective tax rate on our EAC adjustments.
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.”
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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.
Remaining Performance Obligations (RPO). RPO represent the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $152.3 billion as of September 30, 2020. Of the total RPO as of September 30, 2020, we expect approximately 30% will be recognized as sales over the next 12 months. This percentage of RPO to be recognized as sales over the next 12 months depends on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the scope, severity and duration of the COVID-19 pandemic, actions to contain its spread or treat its impact, and governmental, business and individuals’ actions taken in response to the pandemic, which may result in customer delays or order cancellations.
Research and Development. Company-sponsored research and development costs, including those costs related to the Company’s portion in connection with cost-sharing arrangements, are charged to expense as incurred and recovery on these cost-sharing arrangements is recorded as a reduction to research and development expense as earned. Customer-sponsored research and development projects performed under contracts with customers are accounted for as contract costs and reported as cost of sales on the related revenue generating contracts.
Foreign Exchange. We conduct business in many different currencies and, accordingly, are subject to the inherent risks associated with foreign exchange ratemovements. The financial position and results of operations of many of our foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. Dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating the balance sheets of these subsidiaries are deferred as a separate component of accumulated other comprehensive loss (AOCL) in shareowners’ equity.
Derivatives and Hedging Activity. From time to time, we use derivative instruments, including swaps, forward contracts and options, to help manage certain foreigncurrency, interest rate and commodity price exposures. Derivative instruments are viewed as risk management tools by us and are not used for trading or speculative purposes. By their nature, all financial instruments involve market and credit risks. We enter into derivative and other financial instruments with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. We limit counterparty exposure and concentration of risk by diversifying counterparties. While there can be no assurance, we do not anticipate any material
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non-performance by any of these counterparties. We enter into transactions that are subject to enforceable master netting arrangements or similar agreements with various counterparties. However, we have not elected to offset multiple contracts with a single counterparty and, as a result, the fair value of the derivative instruments in a loss position is not offset against the fair value of derivative instruments in a gain position.
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.”
Environmental. Environmental investigatory, remediation, operating and maintenance costs are accrued when it is probable that a liability has been incurredand the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts with respect to each individual site, including existing technology, current laws and regulations and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple responsible parties, we consider our likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. A portion of these costs is eligible for future recovery through the pricing of our products and services to the U.S. government. We regularly assess the probability of recovery of these costs, which requires us to make assumptions about the extent of cost recovery under our contracts and the amount of future contract activity with the U.S. government. We consider such recovery probable based on government contracting regulations and our history of receiving reimbursement for such costs, and accordingly have recorded the future recovery of these costs from the U.S. government within Other assets in the Condensed Consolidated Balance Sheet. Accrued environmental liabilities are not reduced by potential insurance reimbursements or potential recoveries from pursuing other parties. See “Note 17: Commitments and Contingencies” for additional details on the environmental remediation activities.
Pension and Postretirement Obligations. U.S. GAAP requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit (PRB) plans. Funded status is measured at least annually in the fourth quarter and represents the difference between the plans’ projected benefit obligation (PBO) and the fair market value of the plans’ assets.
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.
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Product Performance Obligations. We extend performance and operating cost guarantees beyond our normal service and warranty policies for extendedperiods on some of our products, particularly commercial aircraft engines. Liability under such guarantees is based upon future product performance and durability. We accrue for such costs that are probable and can be reasonably estimated. In addition, we incur discretionary costs to service our products in connection with product performance issues. The costs associated with these product performance and operating cost guarantees require estimates over the full terms of the agreements, and require management to consider factors such as the extent of future maintenance requirements and the future cost of material and labor to perform the services. These cost estimates are largely based upon historical experience. See “Note 16: Guarantees” for further discussion.
Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU and its related amendments (collectively, the Credit Loss Standard) modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, contract assets and off-balance sheet credit exposures. The Credit Loss Standard requires consideration of a broader range of information to estimate expected credit losses, including historical information, current economic conditions and a reasonable forecast period. This ASU requires that the statement of operations reflect estimates of expected credit losses for newly recognized financial assets as well as changes in the estimate of expected credit losses that have taken place during the period, which may result in earlier recognition of certain losses.
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.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions of Topic 740 including: exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance in regards to: franchise and other taxes partially based on income and the interim recognition of enactment of tax laws
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and rate changes. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.
Other new pronouncements adopted and issued but not effective until after September 30, 2020 did not and are not expected to have a material impact on our financial position, results of operations or liquidity.
Note 1:2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets
Business Acquisitions. DuringAs noted above, on April 3, 2020, pursuant to the nine months ended September 30, 2019, our investment in business acquisitions was $39 million, which consistedAgreement and Plan of small acquisitions at Otis.
On Merger dated June 9, 2019,, as amended (the Raytheon Merger Agreement) UTC entered into a merger agreement withand Raytheon Company (“Raytheon”) providing for ancompleted their previously announced all-stock merger of equals, transaction.  Thefollowing the completion by UTC of the Separation Transactions and Distributions. Raytheon merger agreement provides, among other things, thatCompany (previously NYSE:RTN) shares ceased trading prior to the market open on April 3, 2020, and each share of Raytheon common stock issued and outstanding immediately prior towas converted in the closing of the Raytheon merger (except for shares held by Raytheon as treasury stock) will be converted into the right to receive 2.3348 shares of UTC common stock.stock previously traded on the NYSE under the ticker symbol “UTX.” Upon the closing of the Raytheon merger, Raytheon will become a wholly-owned subsidiary of UTC,Merger, UTC’s name was changed to “Raytheon Technologies Corporation,” and UTC will change its name to Raytheon Technologies Corporation. On October 11, 2019, the shareowners of UTC and Raytheon approved the proposals necessary to complete the Raytheon merger. The Raytheon merger is expected to close in the first half of 2020 and is subject to customary closing conditions, including receipt of required regulatory approvals, as well as the completion of UTC's previously announced separation of its Otis and Carrier businesses.
On November 26, 2018, we completed the acquisition of Rockwell Collins (the "Rockwell Acquisition"), a leader in aviation and high-integrity solutions for commercial and military customers as well as leading-edge avionics, flight controls, aircraft interior and data connectivity solutions. Under the terms of the Rockwell acquisition agreement, each shareshares of common stock parbegan trading as of April 3, 2020 on the NYSE under the ticker symbol “RTX.”
Total consideration is calculated as follows:
(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 awards99 
Total merger consideration$33,166 
The fair value $0.01 per share, of Rockwell CollinsRTC common stock issued for Raytheon Company outstanding common stock and outstanding immediately prior to the effective timevested equity awards is calculated as follows:
(dollars and shares, in millions, except per share amounts and exchange ratio)Amount
Number of Raytheon Company common shares outstanding as of April 3, 2020277.3
Number of Raytheon Company stock awards vested as a result of the Raytheon Merger (1)
0.4
Total outstanding shares of Raytheon Company common stock and equity awards entitled to merger consideration277.7
Exchange ratio (2)
2.3348
Shares of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards648.4
Price per share of RTC common stock (3)
$51.00 
Fair value of RTC common stock issued for Raytheon Company outstanding common stock and vested equity awards$33,067 
(1)    Represents Raytheon Company stock awards that vested as a result of the Rockwell Acquisition (other than shares held by Rockwell Collins,Raytheon Merger, which is considered a “change in control” for purposes of the Raytheon 2010 Stock Plan. Certain Raytheon Company Riveter Merger Sub Corp or anyrestricted stock awards and Raytheon Company restricted stock unit (RSU) awards, issued under the Raytheon 2010 Stock Plan vested on an accelerated basis as a result of their respective wholly owned subsidiaries) wasthe Raytheon Merger. Such vested awards were converted into the right to receive RTC common stock determined as the product of (1) $93.33 in cash, without interest,the number of vested awards, and (2) 0.37525the exchange ratio.
(2)    The exchange ratio is equal to 2.3348 shares of UTC common stock for each share of Raytheon Company common stock (together,in accordance with the “Acquisition Consideration”), less any applicable withholding taxes, with cash paid in lieuRaytheon Merger Agreement.
(3)    The price per share of fractional shares. The total aggregate consideration payable inRTC common stock is based on the Rockwell Acquisition was $15.5 billion in cash ($14.9 billion netRTC opening stock price as of cash acquired) and 62.2 million shares of Company common stock. In addition, $7.8 billion of Rockwell Collins debt was outstanding at the time of the Rockwell Acquisition. This equated to a total enterprise value of $30.6 billion, including the $7.8 billion of Rockwell Collins' outstanding debt.     
(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
April 3, 2020.
The cash consideration utilized for the Rockwell Acquisition was partially financed through the previously disclosed issuance of $11.0 billion aggregate principal notes on August 16, 2018 for net proceeds of $10.9 billion. For the remainder of the cash consideration, we utilized repatriated cash and cash equivalents and cash flow generated from operating activities.
Preliminary Allocation of Consideration Transferred to Net Assets Acquired:
Acquired. We are accounting for the Raytheon Merger under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree (Raytheon Company) at the fair values on the closing date. The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Rockwell Collins acquisition. The final determination of the fair value of certain assets and liabilities will be completed up to a one year measurement period from the date of acquisition as required by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, “Business Combinations”.Raytheon Merger. As of September 30, 2019,2020, the majority of the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed have not yet been finalized,reviewed and finalized; however, our assessment of certain contingencies including the validationloss contracts and environmental liabilities, pension and postretirement benefit obligations and taxes remain open for completion of the underlying cash flows usedrelated valuation
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analyses. We expect to determinefinalize the fair valuepurchase price allocation process in the first quarter of the identified intangible assets. The size2021 when we finalize our valuations and breadth of the Rockwell Collins acquisition necessitates use of the one year measurement period to adequately analyze all the factors used in establishing the asset and liability fair values as of the

acquisition date, including, but not limited to, intangible assets, inventory, real property, leases, deferred tax liabilities related to the unremitted earnings of foreign subsidiaries, certain reserves and the related tax impacts of any adjustments. The table below reflectsreviews. Any potential adjustments recorded as of September 30, 2019. Any additional potential adjustmentsmade could be material in relation to the preliminary values presented below:below.
(dollars, in millions)
Cash and cash equivalents$3,208 
Accounts receivable1,997 
Inventory705 
Contract assets6,023 
Other assets, current930 
Future income tax benefits14 
Fixed assets4,732 
Intangible assets:19,130 
Customer relationships12,900 
Tradenames/trademarks5,430 
Developed technology800 
Other assets2,139 
Total identifiable assets acquired38,878 
Accounts payable1,455 
Accrued liabilities3,237 
Contract liabilities2,991 
Long-term debt, including current portion4,700 
Future pension and postretirement benefit obligation10,641 
Other long-term liabilities3,455 
Total liabilities acquired26,479 
Total identifiable net assets12,399 
Goodwill20,801 
Redeemable noncontrolling interest(34)
Total consideration transferred$33,166 
(dollars in millions) 
Cash and cash equivalents$640
Accounts receivable, net1,665
Inventory, net1,512
Contract assets, current291
Other assets, current252
Future income tax benefits38
Fixed assets, net1,558
Intangible assets: 
Customer relationships8,220
Tradenames/trademarks1,870
        Developed technology600
Other assets217
Total identifiable assets acquired16,863
  
Short-term borrowings2,254
Accounts payable520
Accrued liabilities1,657
Contract liabilities, current299
Long-term debt5,530
Future pension and postretirement benefit obligation502
Other long-term liabilities3,464
Noncontrolling interest6
Total liabilities acquired14,232
Total identifiable net assets2,631
Goodwill20,862
Total consideration transferred$23,493
In order to allocate the consideration transferred for Rockwell Collins, the fair values of all identifiable assets and liabilities were established. For accounting and financial reporting purposes, fair value is defined under FASB ASC Topic 820, “Fair Value Measurements and Disclosures” as the price that would be received upon sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. Use of different estimates and judgments could yield different results. Fair value adjustments to Rockwell Collins'Raytheon Company’s identified assets and liabilities resulted inincluded an increase in inventory and fixed assets of $282 million$1.1 billion and $256 million, respectively.a preliminarily estimated increase to future pension and postretirement benefit obligations of $2.6 billion. The preliminarily estimated increase in future pension and postretirement benefit obligations primarily relates to remeasurement of the liability based on market conditions on the Raytheon Merger closing date. For further information, see “Note 10: Employee Benefit Plans.” In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing as of the acquisitionsuch closing date. The preliminary assessment did not note any significant contingencies related to existing legal or government action.

The fair values of the customer relationship and related program intangible assets which include the related aerospace program original equipment ("OEM") and aftermarket cash flows, were determined by using an “incomeincome approach." Under this approach, the net earningsestimated future cash flows attributable to the asset or liability being measured are isolated usingadjusted to exclude the discounted projected net cash flows. These projectedfuture cash flows are isolated from the projected cash flows of the combined asset group over the remaining economic life of the intangible assetthat 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 netfuture cash flows considered historical and projected pricing,included forecasted revenue growth rates, remaining developmental effort, operational performance including company specific synergies, aftermarket retention, productprogram 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:
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(dollars in millions)
Estimated
Fair Value
 
Estimated
Life
Acquired customer relationships$8,220
 10-20 years
Acquired tradenames/trademarks1,870
 Indefinite
Acquired developed technology600
 15 years
 $10,690
  
(dollars, in millions)Estimated
Fair Value
Estimated
Life
Acquired customer relationships$12,900 25 years
Acquired tradenames5,430 Indefinite
Acquired developed technology800 5 to 7 years
Total identifiable intangible assets$19,130 
We also identified customer contractual obligations on certain contracts with economic returns that are lower than could be realized in market transactions asloss 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 isprograms based on the price to transferdifference between the obligation toactual 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 withbased on the underlyingexpected pattern of obligations, as reflected by the expenses incurred on thethese contracts. Total consumption
We recorded $20.8 billion of goodwill as a result of the contractual obligationRaytheon 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.
Acquisition-Related Costs:
Acquisition-relatedMerger-Related Costs. Merger-related costs have been expensed as incurred. In the quarter and nine months ended September 30, 2019 and 2018,2020, approximately $30$26 million and $71$125 million, respectively, of transaction and integration costs have been incurred.incurred which excludes $20 million of transactions costs related to the divestitures required for regulatory approval discussed further in the “Dispositions” section below. These costs were recorded in Selling, general and administrative expenses within the Condensed Consolidated Statement of Operations.
Supplemental Pro-Forma Data:
Rockwell Collins'Data. Raytheon Company’s results of operations have been included in UTC’sRTC’s financial statements for the period subsequent to the completion of the acquisitionRaytheon Merger on November 26, 2018. Rockwell Collins contributed sales of approximately $6.9 billion and operating profit of approximately $1.1 billion for the nine months ended September 30, 2019.April 3, 2020. The following unaudited supplemental pro-forma data presents consolidated information as if the acquisitionRaytheon Merger had been completed on January 1, 2017.2019. The pro-forma results were calculated by combining the results of UTCRaytheon Technologies with the stand-alone results of Rockwell CollinsRaytheon Company for the pre-acquisition periods, which were adjusted to account for certain costs that would have been incurred during this pre-acquisition period:period. The results below reflect Raytheon Technologies on a continuing basis, in order to more accurately represent the structure of Raytheon Technologies after completion of the Separation Transactions and the Raytheon Merger.

 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions, except per share amounts)2019 2018 2019 2018
Net sales$19,496
 $18,664
 $57,490
 $54,795
Net income attributable to common shareowners$1,149
 $1,455
 $4,534
 $5,196
Basic earnings per share of common stock$1.34
 $1.70
 $5.31
 $6.09
Diluted earnings per share of common stock$1.33
 $1.68
 $5.25
 $6.02
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Net sales$14,747 $18,752 $47,668 $54,790 
Income (loss) from continuing operations attributable to common shareowners174 1,817 (2,328)5,065 
Basic earnings (loss) per share of common stock from continuing operations$0.12 $1.20 $(1.54)$3.36 
Diluted earnings (loss) per share of common stock from continuing operations0.11 1.20 (1.54)3.34 
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
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applicable tax impact. As the merger was completed on April 3, 2020, the pro-forma adjustments in the table below only include the required adjustments through April 3, 2020.
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Amortization of acquired Raytheon Company intangible assets, net (1)
$0 $(261)$(270)$(787)
Amortization of fixed asset fair value adjustment (2)
0 (9)(9)(28)
Utilization of contractual customer obligation (3)
0 15 8 44 
Deferred revenue fair value adjustment (4)
0 (8)(4)(25)
Adjustment to non-service pension (income) expense (5)
0 208 239 623 
RTC/Raytheon fees for advisory, legal, accounting services (6)
23 38 119 (119)
Adjustment to interest expense related to the Raytheon Merger, net (7)
0 9 27 
Elimination of deferred commission amortization (8)
0 5 15 
$23 $(3)$97 $(250)
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Amortization of inventory and fixed asset fair value adjustment 1
$
 $(5) $141
 $(15)
Amortization of acquired Rockwell Collins intangible assets, net 2

 (51) 
 (156)
Utilization of contractual customer obligation 3

 1
 
 11
UTC/Rockwell Collins fees for advisory, legal, accounting services 4
1
 17
 4
 60
Interest expense incurred on acquisition financing, net 5

 (40) 
 (192)
Elimination of capitalized pre-production engineering amortization 6

 20
 
 51
Adjustment to net periodic pension cost 7

 11
 
 33
Adjustment to reflect the adoption of ASC 606 8

 29
 
 87
Elimination of entities held for sale 9

 (5) (5) (18)
 $1
 $(23) $140
 $(139)
(1)    Reflects the additional amortization of the acquired Raytheon Company’s intangible assets recognized at fair value in purchase accounting and eliminates the historical Raytheon Company intangible asset amortization expense.
1Reflects 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.
2Reflects 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.
3Reflects the additional amortization of liabilities recognized for acquired contracts with terms less favorable than could be realized in market transactions as of the acquisition date and eliminates Rockwell Collins historical amortization of these liabilities.
4Reflects 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.
5Reflects 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.
6Reflects the elimination of Rockwell Collins capitalized pre-production engineering amortization to conform to UTC policy.
7Reflects 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.
8Reflects 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.
9Reflects the elimination of entities required to be sold for regulatory approvals.
(2)    Reflects the amortization of the fixed asset fair value adjustment as of the acquisition date.
(3)    Reflects the additional amortization of liabilities recognized for certain acquired loss making contracts as of the acquisition date.
(4)    Reflects the difference between prepayments related to extended arrangements and the preliminary fair value of the assumed performance obligations as they are satisfied.
(5)    Represents the elimination of unamortized prior service costs and actuarial losses, as a result of fair value purchase accounting.
(6)    Reflects the elimination of transaction-related fees incurred by RTC and Raytheon Company in connection with the Raytheon Merger and assumes all of the fees were incurred during the first quarter of 2019.
(7)    Reflects the amortization of the fair market value adjustment related to Raytheon Company.
(8)    Reflects the elimination of amortization recognized on deferred commissions that are eliminated in purchase accounting.
Dispositions. As discussed further in “Note 3: Discontinued Operations,” on April 2, 2020, Carrier and Otis entered into a Separation and Distribution Agreement with UTC (since renamed Raytheon Technologies Corporation), pursuant to which, among other things, UTC agreed to separate into three independent, publicly traded companies – UTC, Otis and Carrier and distribute all of the outstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020. UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions. As a result of the Distributions, Carrier and Otis are now independent publicly traded companies.
In May 2020, in order to meet the requirements for regulatory approval of the Raytheon Merger, we completed the sale of our airborne tactical radios business for $231 million in cash, net of transaction-related costs. The unaudited supplemental pro-forma financial information doesbusiness was part of our RIS segment. As the transaction occurred subsequent to the Raytheon Merger, the gain of $199 million was not reflectrecorded in the potential realizationCondensed Consolidated Statement of cost savingsOperations, but rather was recorded as an adjustment to the fair value of net assets acquired in the preliminary allocation of consideration transferred to net assets acquired in the Raytheon Merger, as discussed further above. Income before taxes related to the integrationdisposed business for the period from the closing of the two companies. Further,Raytheon Merger to disposal date was not material.
In the pro-forma data should not be considered indicativethird 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.

Dispositions. Cash inflows related to dispositions during the nine months ended September 30, 2019 were $134 million and primarily consisted of the dispositions of businesses held for sale associated with the Rockwell Collins acquisition. In2020, in accordance with conditions imposed for regulatory approval of the acquisition, Rockwell Collins was required to dispose of certain businesses. These businesses were held separate from UTC’s and Rockwell Collins' ongoing businesses pursuant to regulatory requirements. Definitive agreements to sell each of the businesses were entered into prior to the completion of UTC's acquisition of Rockwell Collins. The related assets and liabilities of these businesses had been accounted for as held for sale at fair value less cost to sell. As of December 31, 2018, assets held for sale of $175 million were included within Other assets, current and liabilities held for sale of $40 million were included within Accrued liabilities on the Consolidated Balance Sheet. The major classes of assets and liabilities primarily include net Inventory of $51 million and net Fixed assets of $37 million. In the first quarter of 2019, Rockwell CollinsRaytheon Merger, we completed the sale of all businesses which were held for sale as of December 31, 2018.
On November 26, 2018, the Company announced its intention to separate into three independent companies. Following the separations, the Company will operate as an aerospace company comprised ofour Collins Aerospace Systemsmilitary Global Positioning System (GPS) and the Pratt & Whitneyspace-based precision optics businesses and Otis and Carrier will become independent companies. The proposed separations are expected to be effected through spin-offsfor $2.3 billion in cash, resulting in an aggregate pre-tax gain, net of Otis and Carrier that are intended to be tax-free for the Company’s shareowners for U.S. federaltransaction costs, of $580 million ($253 million after tax), of which $608 million was included in Other income tax purposes, and are expected to be completed in the first half of 2020. Separation of Otis and Carrier from UTC via spin-off transactions will be subject to the satisfaction of customary conditions, including, among others, final approval(expense), net partially offset by the Company’s Board of Directors, receipt of tax rulings in certain jurisdictions and/or a tax opinion from external counsel (as applicable), the filing with the Securities and Exchange Commission (SEC) and effectiveness of Form 10 registration statements, and satisfactory completion of financing (subject to UTC’s agreement to consummate the distributions pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement). In the nine months ended September 30, 2019, $342$20 million of aggregate transaction costs included in Selling, general and administrative costs and $618an $8 million expense included in Non-service pension (income) expense within our Condensed Consolidated Statement of tax charges have been incurred related toOperations. Income before taxes for 2020, through the portfolio separation activities.date of sale, and for full year 2019 for these businesses were $94 million and $153 million, respectively.
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Goodwill. Changes in our goodwill balances for the nine months ended September 30, 20192020 were as follows:
(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
Carrier9,835
 1
 (136) 9,700
Pratt & Whitney1,567
 1
 (4) 1,564
Collins Aerospace Systems35,001
 394
 (261) 35,134
Total Segments48,091
 410
 (481) 48,020
Eliminations and other21
 
 
 21
Total$48,112
 $410
 $(481) $48,041

(dollars in millions)Balance as of
January 1, 2020
Acquisitions and DivestituresImpairment LossesForeign Currency Translation and OtherBalance as of September 30, 2020
Collins Aerospace Systems(1)
$35,025 $(890)$(3,183)$190 $31,142 
Pratt & Whitney1,563 1,563 
Raytheon Intelligence & Space8,781 8,783 
Raytheon Missiles & Defense11,540 11,542 
Total Segments36,588 19,431 (3,183)194 53,030 
Eliminations and other21 472 494 
Total$36,609 $19,903 $(3,183)$195 $53,524 
Goodwill increased $394 million(1)    The change in Acquisitions and Divestitures is primarily driven by the sales of the Collins Aerospace businesses described above.
The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.
The Company has been monitoring the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic. Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules. These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our expectations regarding future sales and cash flows. We considered these factors to be a triggering event in the second quarter of 2020, requiring impairment evaluation of goodwill, intangible assets and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney.
Impairment evaluations at Collins Aerospace Systemsand Pratt & Whitney resulted in several other charges as further discussed in “Note 1: Basis of Presentation and Summary of Accounting Principles.” These charges were primarily due to declines in expected future commercial air traffic, airline bankruptcies, or other impacts such as accelerated fleet retirements, announced program delays and expected changes to contract terms. We also evaluated amortizable intangible assets and identified no impairments.
In the second quarter of 2020, we evaluated the Collins Aerospace and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins Aerospace reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $3.2 billion. Collins Aerospace discounted future cash flow estimates were developed for three scenarios: a base case, a downside case, and an upside case. These scenarios included assumptions regarding future airline flight activity, out of warranty hours on original equipment, expected repairs, upgrades and replacements, future OEM manufacturing schedules and related environmental assumptions, including individuals’ desire to return to normal travel, business needs to travel, and potential cures or vaccines to prevent or reduce the effects of COVID-19. These estimates require a significant amount of judgment and are subject to change based upon factors outside our control. We weighted the three scenarios as follows: 50% for the base case, 40% for the downside case, and 10% for the upside case, and used these weightings, as we believe they reflect the risks and opportunities relative to our current estimates. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios. For these other reporting units, the reporting unit that was closest to impairment was a reporting unit at Collins Aerospace, with a fair value in excess of book value, including goodwill, of $1.4 billion or 19%. Material changes in these estimates could occur and result in additional impairments in future periods. If the discount rate used for the impairment analysis increased or decreased by 25 basis points, the impairments of the two Collins Aerospace reporting units would have increased by $1.2 billion or decreased by $1.3 billion, respectively. If the cash flows were decreased or increased by 10% the impairments would have increased by $2.5 billion or decreased by $2.1 billion, respectively.
The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from several insignificant purchase accounting adjustments made duringtransactions 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 reductionmore prolonged and/or severe COVID-19 pandemic than originally anticipated, or future changes in acquired customer relationship intangible assetsthe variables associated with the judgments, assumptions and estimates used in assessing the fair value of $100 million andour reporting units, would require the Company to record a reduction in fixed assetsnon-cash impairment charge.
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Table of approximately $130 million.Contents
Intangible Assets. Identifiable intangible assets are comprised of the following:

 September 30, 2020December 31, 2019
(dollars in millions)Gross AmountAccumulated
Amortization
Gross AmountAccumulated
Amortization
Amortized:
Patents and trademarks$47 $(34)$47 $(34)
Collaboration assets4,982 (1,001)4,862 (920)
Exclusivity assets2,476 (281)2,386 (275)
Developed technology and other1,691 (339)890 (217)
Customer relationships30,007 (4,694)17,750 (3,392)
$39,203 $(6,349)$25,935 $(4,838)
Unamortized:
Trademarks and other8,710  3,376 — 
Total$47,913 $(6,349)$29,311 $(4,838)

 September 30, 2019 December 31, 2018
(dollars in millions)Gross Amount 
Accumulated
Amortization
 Gross Amount 
Accumulated
Amortization
Amortized:       
Service portfolios$2,105
 $(1,607) $2,164
 $(1,608)
Patents and trademarks353
 (244) 361
 (236)
Collaboration intangible assets4,770
 (857) 4,509
 (649)
Customer relationships and other22,594
 (5,318) 22,525
 (4,560)
 29,822
 (8,026) 29,559
 (7,053)
Unamortized:       
Trademarks and other3,890
 
 3,918
 
Total$33,712
 $(8,026) $33,477
 $(7,053)

In addition to customer relationship intangibleExclusivity assets obtained through business combinations, customer relationship intangible assets includerepresent payments made to our customers to secure certain contractual rights. Such paymentsrights that are capitalized when distinct rights are obtained and sufficient incremental cash flows to support the recoverability of the assets have been established. Otherwise, the applicable portion of the payments is expensed. We amortize theserecorded as a reduction in revenue.
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 basedand 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.
Amortization of intangible assets for the quarterquarters and nine months ended September 30, 2020 and 2019 was $369were $599 million and $1,091 million, respectively, compared with $225$1,506 million and $680$318 million for the same periods of 2018.and $933 million, respectively. The following is the expected amortization of intangible assets for the years 20192020 through 2024, which reflects the pattern of expected economic benefit on certain aerospace intangible assets.2025. 
(dollars in millions)Remaining 202020212022202320242025
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

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Note 2: Revenue Recognition3: Discontinued Operations
We account for revenue in accordanceAs 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.
Performance Obligations. A performance obligation is a promise in a contract with a customerUTC (since renamed Raytheon Technologies Corporation), pursuant to transfer a distinct good or servicewhich, among other things, UTC agreed 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 spans multiple phasesseparate into three independent, publicly traded companies – UTC, Otis and Carrier and distribute all of the product life-cycle suchoutstanding common stock of Carrier and Otis to UTC shareowners who held shares of UTC common stock as development, 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.
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, unfunded contract value under U.S. Government contracts, and other sources of variable consideration, when determining the transaction price of each contract. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We also consider whether our contracts provide customers with significant financing. Generally, our contracts do not contain significant financing.
Timing of the satisfactionclose of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.
Remaining Performance Obligations (RPO). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of September 30, 2019 our total RPO was approximately $127.7 billion compared to

$115.5 billion as of December 31, 2018. Of the total RPO as of September 30, 2019, we expect approximately 43% will be recognized as sales over the following 24 months.
Capitalized Contract Costs. We incur costs for engineering and development of aerospace 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 OEM products performance obligations are satisfied.business on March 19, 2020. The Separation Transactions were completed on April 3, 2020. In instances where intellectual property does not transfer to the customer, we defer the customer funding of OEM product engineering and development and recognize revenue when the performance obligations related to the OEM products are satisfied. Capitalized net contract fulfillment costs were $1,383 million and $914 million as of September 30, 2019 and December 31, 2018, respectively and are recognized in Other assets in our Condensed Consolidated Balance Sheet. The increase in capitalized net contract fulfillment costs is primarily driven by current year activity in the recently acquired Rockwell Collins businesses.
Contract Assets and Liabilities. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of September 30, 2019 and December 31, 2018 are as follows:
(dollars in millions)September 30, 2019 December 31, 2018
Contract assets, current$4,316
 $3,486
Contract assets, noncurrent (included within Other assets)1,364
 1,142
Total contract assets5,680
 4,628
Contract liabilities, current(6,233) (5,720)
Contract liabilities, noncurrent (included within Other long-term liabilities)(5,417) (5,069)
Total contract liabilities(11,650) (10,789)
Net contract liabilities$(5,970) $(6,161)
Contract assets increased $1,052 million during the nine months ended September 30, 2019 due2020, a total of $1,335 million of costs have been incurred related to revenue recognitionthe Separation Transactions and recorded in excessthe following financial statement line items: $958 million in Income from discontinued operations, $81 million of customer billings,benefit in Income tax expense from discontinued operations, $39 million in Income from continuing operations and $419 million in Income tax expense.
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:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars, in millions)2020201920202019
Otis$0 $277 $187 $799 
Carrier0 418 1961,334 
Separation related transactions (1)
113 (505)(782)(592)
Income (loss) from discontinued operations$113 $190 $(399)$1,541 
(1)    Reflects debt extinguishment costs related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon Merger Agreement, and unallocable transaction costs incurred by the Company primarily on Pratt & Whitney militaryrelated to professional services costs pertaining to the Separation Transactions and commercial aftermarket service agreementsthe establishment of Otis and various programs at Collins Aerospace Systems. Contract liabilities increased $861 million duringCarrier as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.
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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:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars, in millions)2020201920202019
Otis
Product sales$0 $1,449 $1,123 $4,240 
Service sales0 1,858 1,843 5,511 
Cost of products sold0 1,185 913 3,471 
Cost of services sold0 1,146 1,157 3,430 
Research and development0 39 38 118 
Selling, general and administrative expense0 468 450 1,381 
Other income (expense), net0 (11)(65)(36)
Non-operating (income) expense, net0 (3)3 
Income from discontinued operations, before income taxes0 461 340 1,310 
Income tax expense0 140 116 396 
Income from discontinued operations0 321 224 914 
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations0 44 37 115 
Income from discontinued operations attributable to common shareowners$0 $277 $187 $799 
Carrier
Product sales$0 $3,991 $3,143 $11,684 
Service sales0 825 741 2,405 
Cost of products sold0 2,778 2,239 8,242 
Cost of services sold0 593 527 1,706 
Research and development0 101 98 301 
Selling, general and administrative expense0 731 669 2,151 
Other income (expense), net0 (12)(30)156 
Non-operating (income) expense, net0 (12)17 (33)
Income from discontinued operations, before income taxes0 613 304 1,878 
Income tax expense0 183 102 519 
Income from discontinued operations0 430 202 1,359 
Less: Noncontrolling interest in subsidiaries earnings from discontinued operations0 12 6 25 
Income from discontinued operations attributable to common shareowners$0 $418 $196 $1,334 
Separation related transactions (1)
Selling, general and administrative expense$(13)$154 $
Non-operating expense, net0 709 
Income (loss) from discontinued operations, before income taxes13 (3)(863)(3)
Income tax (benefit) expense(100)502 (81)589 
Income (loss) from discontinued operations, net of tax113 (505)(782)(592)
Total Income (loss) from discontinued operations attributable to common shareowners$113 $190 $(399)$1,541 
(1)    Reflects debt extinguishment costs related to the Company’s paydown of debt to not exceed the maximum applicable net indebtedness under the Raytheon Merger Agreement, and unallocable transaction costs incurred by the Company primarily related to professional services costs pertaining to the Separation Transactions and the establishment of Otis and Carrier as stand-alone public companies, facility relocation costs, costs to separate information systems, costs of retention bonuses and tax charges and benefits related to separation activities.
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Selected financial information related to cash flows from discontinued operations is as follows:
Nine Months Ended September 30,
(dollars, in millions)20202019
Net cash (used in) provided by operating activities$(693)$1,605 
Net cash used in investing activities(241)(241)
Net cash used in financing activities(1,449)(1,410)
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 dueconsists of net transfer activity consisting of cash transfers and distributions.
The major components of assets and liabilities related to customer billingsdiscontinued operations at December 31, 2019 are provided below:
(dollars, in millions)OtisCarrierTotal
Assets
Cash and cash equivalents$1,446 $995 $2,441 
Accounts receivable, net2,899 2,728 5,627 
Contract assets530 679 1,209 
Inventory, net571 1,332 1,903 
Other assets, current213 221 434 
Future income tax benefits355 370 725 
Fixed assets, net747 1,686 2,433 
Operating lease right-of-use assets529 818 1,347 
Goodwill1,647 9,807 11,454 
Intangible assets, net490 1,083 1,573 
Other assets220 2,457 2,677 
Total assets related to discontinued operations$9,647 $22,176 $31,823 
Liabilities and Redeemable Noncontrolling Interest
Short-term borrowings$33 $38 $71 
Accounts payable1,321 1,682 3,003 
Accrued liabilities1,651 2,889 4,540 
Contract liabilities2,288 611 2,899 
Long-term debt currently due237 238 
Long-term debt82 87 
Future pension and postretirement benefit obligations560 455 1,015 
Operating lease liabilities383 668 1,051 
Other long-term liabilities(1)
514 1,025 1,539 
Total liabilities related to discontinued operations$6,756 $7,687 $14,443 
(1)    Amounts include a deferred tax jurisdictional netting adjustment of $145 million.
The Separation of Carrier was treated as a return on capital and recorded as a reduction to retained earnings, as it was in excessa 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, 20192020 primarily relate to trailing tax assets and liabilities of the Company related to contract liabilities asthe Separation Transactions, including indemnification obligations.
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Table of December 31, 2018.Contents
Note 3:4: Earnings Per Share
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in millions)2019 2018 2019 2018
Net income attributable to common shareowners$1,148
 $1,238
 $4,394
 $4,583
Basic weighted average number of shares outstanding855.1
 791.3
 854.2
 790.6
Stock awards and equity units (share equivalent)9.0
 10.5
 8.7
 10.1
Diluted weighted average number of shares outstanding864.1
 801.8
 862.9
 800.7
Earnings Per Share of Common Stock:       
Basic$1.34
 $1.56
 $5.14
 $5.80
Diluted$1.33
 $1.54
 $5.09
 $5.72

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts; shares in millions)2020201920202019
Net income (loss) attributable to common shareowners:
Income (loss) from continuing operations$151 $958 $(3,255)$2,853 
Income (loss) from discontinued operations113 190 (399)1,541 
Net income (loss) attributable to common shareowners$264 $1,148 $(3,654)$4,394 
Basic weighted average number of shares outstanding1,511.5 855.1 1,311.3 854.2 
Stock awards and equity units (share equivalent)2.7 9.0 0 8.7 
Diluted weighted average number of shares outstanding1,514.2 864.1 1,311.3 862.9 
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 operations0.08 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 operations0.08 0.22 (0.30)1.78 
Net income (loss) attributable to common shareowners$0.17 $1.33 $(2.79)$5.09 

It may not be possible to recalculate earning per share (EPS) attributable to common shareholders by adjusting EPS from continuing operations by EPS from discontinued operations as each amount is calculated independently.
The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted earnings per share excludes the effect of the potential exercise of stock awards when the awards’ assumed proceeds exceed the average market price of the common shares during the period. For the quarter and nine months ended September 30, 2020, the number of stock awards excluded from the computation was 38.1 million and 31.5 million, respectively. For the quarter and nine months ended September 30, 2019, the number of stock awards excluded from the computation was approximately 8.0 million and 11.0 million, respectively. ForAll outstanding stock awards are excluded in the computation of diluted earnings per share in the nine months ended September 30, 2020 because their effect was antidilutive due to the loss from continuing operations.
Note 5: Accounts Receivable, Net
Accounts receivable, net consisted of the following:
(dollars in millions)September 30, 2020December 31, 2019
Accounts receivable$10,645 $8,997 
Allowance for expected credit losses(530)(254)
Total accounts receivable, net$10,115 $8,743 
The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables. Under these factoring arrangements, the Company factored receivables of $5.4 billion during both the nine months ended September 30, 2020 and 2019. The cash received from these arrangements is reflected as cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. At September 30, 2020 and December 31, 2019, the Company had $8 million and $7 million, respectively, that was collected on behalf of the financial institutions and recorded as restricted cash and accrued liabilities. The net cash flows relating to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows.
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The changes in the allowance for expected credit losses related to Accounts receivable for the nine months ended September 30, 2020 were as follows:
(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
(1)    The current provision for expected credit losses for the nine months ended September 30, 2020 includes $223 million of reserves driven by customer bankruptcies and additional reserves for credit losses primarily due to the current economic environment primarily caused by the COVID-19 pandemic.
(2)    Other includes $34 million of impact related to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Note 6: Contract Assets and Liabilities
Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of September 30, 2020 and December 31, 2019 are as follows:
(dollars in millions)September 30, 2020December 31, 2019
Contract assets$9,617 $4,462 
Contract liabilities, current(12,208)(9,014)
Contract liabilities, non-current (included within Other long-term liabilities)(120)
Net contract liabilities$(2,711)$(4,552)
Contract assets increased $5.2 billion during the nine months ended September 30, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $5.3 billion. Contract liabilities increased $3.3 billion during the nine months ended September 30, 2020 primarily due to the Raytheon Merger, which accounted for an increase of $3.5 billion. We recognized revenue of $480 million and $2,288 million during the quarter and nine months ended September 30, 2018,2020, respectively, related to contract liabilities as of January 1, 2020 and $770 million and $2,308 million during the quarter and nine months ended September 30, 2019, respectively, related to contract liabilities as of January 1, 2019.
Our contract assets and liabilities also include amounts related to foreign government direct commercial sales contracts for precision guided munitions to certain Middle Eastern customers for which we have not yet obtained regulatory approval and licenses. We had approximately $1.2 billion of total contract value, recognized approximately $400 million of sales for work performed through the date of the Raytheon Merger and approximately $150 million of sales subsequent to the date of the Raytheon Merger through September 30, 2020, and received approximately $450 million in advances as of September 30, 2020 on these contracts. On a contract-by-contract basis, we had $200 million of net contract assets and $100 million of net contract liabilities related to these contracts pending the U.S. government approvals.
Total contract assets include an allowance for credit losses of $169 million as of September 30, 2020. For additional information on the adoption of the Credit Loss Standard on January 1, 2020 see “Note 1: Basis of Presentation and Accounting Principles.” The increase in the allowance for the nine months ended September 30, 2020 includes incremental credit loss reserves of $127 million related to a number of stock awards excluded fromairline customers that have filed for bankruptcy and additional reserves due to the computation was approximately 5.0current economic environment primarily caused by the COVID-19 pandemic. In addition, in the nine months ended September 30, 2020, we impaired $111 million of contract assets at Collins Aerospace due to the impact of lower estimated future customer activity principally driven by the expected acceleration of fleet retirements of a commercial aircraft, and 5.2in both the quarter and nine months ended September 30, 2020, we impaired $129 million respectively.of contract assets as a result of an unfavorable EAC adjustment related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney.

Note 4:7: Inventory, net
(dollars in millions)September 30, 2020December 31, 2019
Raw materials$3,163 $2,984 
Work-in-process2,915 2,586 
Finished goods3,765 3,477 
$9,843 $9,047 
(dollars in millions)September 30, 2019 December 31, 2018
Raw materials$3,149
 $3,052
Work-in-process2,921
 2,673
Finished goods5,172
 4,358
 $11,242
 $10,083
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Raw materials, work-in-process and finished goods are net of valuation reserves of $1,370$1,468 million and $1,270$1,122 million as of September 30, 20192020 and December 31, 2018,2019, respectively.
Note 5:8: Borrowings and Lines of Credit
(dollars in millions)September 30, 2019 December 31, 2018
Commercial paper$984
 $1,257
Other borrowings343
 212
Total short-term borrowings$1,327
 $1,469

(dollars in millions)September 30, 2020December 31, 2019
Commercial paper$160 $
Other borrowings68 2,293 
Total short-term borrowings$228 $2,293 
At September 30, 2019, we had credit agreements with various banks permitting aggregate borrowings of up to $10.35 billion, including: a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement, both of which expire in August 2021; and a $2.0 billion revolving credit agreement and a $4.0 billion term credit agreement, both of which we entered into on March 15, 2019 and which will expire on March 15, 2021 or, if earlier, the date that is 180 days after the date on which each of the separations of Otis and Carrier have been consummated. As of September 30, 2019, there were no borrowings under any of these agreements. The undrawn portions of these revolving credit agreements are also available to serve as backup facilities for the issuance of commercial paper. As of September 30, 2019,2020, our maximum commercial paper borrowing limit was $6.35 billion. Commercial$5.0 billion as the commercial paper borrowings at September 30, 2019 include approximately €750 million ($824 million) of euro-denominated commercial paper.is backed by our $5.0 billion revolving credit agreement. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments and repurchases of our common stock. The need for commercial paper borrowings arises whennotes outstanding have original maturities of not more than 90 days from the usedate of domestic cashissuance.
In preparation for general corporate purposes exceeds the sum of domestic cash generation and foreign cash repatriated to the U.S.
Long-term debt consistedin anticipation of the following:Separation Transactions, the Distributions and the Raytheon Merger, the Company entered into and terminated a number of credit agreements.
(dollars in millions)September 30, 2019 December 31, 2018
LIBOR plus 0.350% floating rate notes due 2019 3
$350
 $350
1.500% notes due 2019 1
650
 650
1.950% notes due 2019 4

 300
EURIBOR plus 0.15% floating rate notes due 2019 (€750 million principal value) 2
824
 858
5.250% notes due 2019 4

 300
8.875% notes due 2019271
 271
4.875% notes due 2020 1
171
 171
4.500% notes due 2020 1
1,250
 1,250
1.900% notes due 2020 1
1,000
 1,000
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value) 2
824
 858
8.750% notes due 2021250
 250
3.100% notes due 2021 4
250
 250
3.350% notes due 2021 1
1,000
 1,000
LIBOR plus 0.650% floating rate notes due 2021 1,3
750
 750
1.950% notes due 2021 1
750
 750
1.125% notes due 2021 (€950 million principal value) 1
1,044
 1,088

On February 11, 2020 and March 3, 2020, we terminated a $2.0 billion revolving credit agreement and a $4.0 billion term loan credit agreement, respectively. Upon termination, we repaid the $2.1 billion of borrowings outstanding on the $4.0 billion term loan credit agreement. On April 3, 2020, upon the completion of the Raytheon Merger, we terminated a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement.

On March 20, 2020 and March 23, 2020, we entered into two $500 million term loan credit agreements and borrowed $1.0 billion under these agreements in the first quarter of 2020. We terminated these agreements on May 5, 2020 and April 28, 2020, respectively, upon repayment.
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 2027141
 141
6.700% notes due 2028400
 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 2038159
 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 debt43,600
 44,416
Other (fair market value adjustments, discounts and debt issuance costs)(323) (348)
Total long-term debt43,277
 44,068
Less: current portion5,495
 2,876
Long-term debt, net of current portion$37,782
 $41,192

1We may redeem these notes at our option pursuant to their terms.
2The 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.
3The three-month LIBOR rate as of September 30, 2019 was approximately 2.0851%.
4Rockwell Collins debt which remained outstanding following the Rockwell Acquisition.
5Project financing obligations are associated with the sale of rights to unbilled revenues related to the ongoing activity of an entity owned by Carrier.

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.
We had noIn preparation for and in anticipation of the Separation Transactions and Distributions, the Company, Otis and Carrier issued and the Company repaid long-term debt issuances duringin the nine months ended September 30, 20192020, which are included in the tables below. On February 10, 2020, Otis entered into a term loan credit agreement providing for 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 full amounts of the term loans and 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.
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We had the following issuances of debt in 2018:
(dollars and Euro in millions)

 



Issuance DateDescription of NotesAggregate Principal Balance
August 16, 2018:
3.350% notes due 20211
$1,000
 
3.650% notes due 20231
2,250
 
3.950% notes due 20251
1,500
 
4.125% notes due 20281
3,000
 
4.450% notes due 20381
750
 
4.625% notes due 20482
1,750
 
LIBOR plus 0.65% floating rate notes due 20211
750
   
May 18, 2018:
1.150% notes due 20243
750
 
2.150% notes due 20303
500
 
EURIBOR plus 0.20% floating rate notes due 20203
750
1The net proceeds received from these debt issuances were used to partially finance the cash consideration portion of the purchase price for Rockwell Collins and fees, expenses and other amounts related to the acquisition of Rockwell Collins.
2The net proceeds from these debt issuances were used to fund the repayment of commercial paper and for other general corporate purposes.
3The net proceeds received from these debt issuances were used for general corporate purposes.

We had the following repayments oflong-term debt during the nine months ended September 30, 20192020, which is inclusive of issuances made by Otis and Carrier which were primarily used by the year-ended December 31, 2018: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:
(dollars and Euro in millions)

  
Repayment DateDescription of NotesAggregate Principal Balance
July 15, 2019
1.950% notes1

 
$300
July 15, 2019
5.250% notes1
$300
December 14, 2018
Variable-rate term loan due 2020 (1 month LIBOR plus 1.25%)1
$482
May 4, 2018
1.778% junior subordinated notes$1,100
February 22, 2018
EURIBOR plus 0.80% floating rate notes
750
February 1, 2018
6.80% notes
$99
1(dollars in millions)The
Issuance DateDescription of NotesAggregate Principal Balance
May 18, 20202.250% notes and term loan were acquired in connection with the Rockwell Collins acquisition and have been subsequently repaid.due 2030$1,000 
3.125% notes due 20501,000 
March 27, 2020
Term Loan due 2023 (Otis) (1)
1,000 
Term Loan due 2023 (Carrier) (1)
1,750 
February 27, 2020
1.923% notes due 2023 (1)
500 
LIBOR plus 0.450% floating rate notes due 2023 (1)
500 
2.056% notes due 2025 (1)
1,300 
2.242% notes due 2025 (1)
2,000 
2.293% notes due 2027 (1)
500 
2.493% notes due 2027 (1)
1,250 
2.565% notes due 2030 (1)
1,500 
2.722% notes due 2030 (1)
2,000 
3.112% notes due 2040 (1)
750 
3.377% notes due 2040 (1)
1,500 
3.362% notes due 2050 (1)
750 
3.577% notes due 2050 (1)
2,000 
$19,300 
(1)    The debt issuances and term loan draws reflect debt incurred by Otis and Carrier. The net proceeds of these issuances were primarily utilized 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 had 0 issuances of long-term debt during the nine months ended September 30, 2019.
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We had the following repayments of long-term debt during the nine months ended September 30, 2020 and 2019:
(dollars in millions)
Repayment DateDescription of NotesAggregate Principal Balance
May 19, 2020
3.650% notes due 2023 (1)(2)
$410 
May 15, 2020
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)(2)
817 
March 29, 2020
4.500% notes due 2020 (1)(2)
1,250 
1.125% notes due 2021 (€950 million principal value) (1)(2)
1,082 
1.250% notes due 2023 (€750 million principal value) (1)(2)
836 
1.150% notes due 2024 (€750 million principal value) (1)(2)
841 
1.875% notes due 2026 (€500 million principal value) (1)(2)
567 
March 3, 2020
1.900% notes due 2020 (1)(2)
1,000 
3.350% notes due 2021 (1)(2)
1,000 
LIBOR plus 0.650% floating rate notes due 2021 (1)(2)
750 
1.950% notes due 2021 (1)(2)
750 
2.300% notes due 2022 (1)(2)
500 
3.100% notes due 2022 (1)(2)
2,300 
2.800% notes due 2024 (1)(2)
800 
March 2, 2020
4.875% notes due 2020 (1)(2)
171 
February 28, 2020
3.650% notes due 2023 (1)(2)
1,669 
2.650% notes due 2026 (1)(2)
431 
Total debt repayments during the nine months ended September 30, 2020$15,174 
July 15, 20191.950% notes due 2019300 
5.250% notes due 2019300 
Total debt repayments during the nine months ended September 30, 2019$600 
(1)    In connection with the early repayment of outstanding principal, Raytheon Technologies recorded debt extinguishment costs of $703 million for the nine months ended September 30, 2020, which are classified as discontinued operations in our Condensed Consolidated Statement of Operations as we would not have had to redeem the debt, except for the Separation Transactions. No proceeds of the notes issued May 18, 2020 were used to fund the May 19, 2020 redemption.
(2)    Extinguishment of Raytheon Technologies short-term and long-term debt in order to not exceed the maximum net indebtedness required by the Raytheon Merger Agreement.
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:
(dollars in millions)September 30, 2020December 31, 2019
4.875% notes due 2020$0 $171 
4.500% notes due 20200 1,250 
1.900% notes due 2020
0 1,000 
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)0 831 
3.125% notes due 2020 (2)
1,000 
8.750% notes due 2021250 250 
3.100% notes due 2021250 250 
3.350% notes due 20210 1,000 
LIBOR plus 0.650% floating rate notes due 20210 750 
1.950% notes due 20210 750 
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1.125% notes due 2021 (€950 million principal value)0 1,053 
2.300% notes due 20220 500 
2.800% notes due 20221,100 1,100 
3.100% notes due 20220 2,300 
2.500% notes due 2022 (2)
1,100 
1.250% notes due 2023 (€750 million principal value)0 831 
3.650% notes due 2023 (1)
171 2,250 
3.700% notes due 2023400 400 
2.800% notes due 20240 800 
3.200% notes due 2024950 950 
1.150% notes due 2024 (€750 million principal value)0 831 
3.150% notes due 2024 (2)
300 
3.950% notes due 2025 (1)
1,500 1,500 
1.875% notes due 2026 (€500 million principal value)0 554 
2.650% notes due 2026 (1)
719 1,150 
3.125% notes due 2027 (1)
1,100 1,100 
3.500% notes due 20271,300 1,300 
7.200% notes due 2027 (2)
382 
7.100% notes due 2027141 141 
6.700% notes due 2028400 400 
7.000% notes due 2028 (2)
185 
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)
583 554 
2.250% notes due 2030 (1)
1,000 
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 2038159 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 
4.875% notes due 2040 (2)
600 
4.700% notes due 2041 (2)
425 
4.500% notes due 2042 (1)
3,500 3,500 
4.800% notes due 2043400 400 
4.200% notes due 2044 (2)
300 
4.150% notes due 2045 (1)
850 850 
3.750% notes due 2046 (1)
1,100 1,100 
4.050% notes due 2047 (1)
600 600 
4.350% notes due 20471,000 1,000 
4.625% notes due 2048 (1)
1,750 1,750 
3.125% notes due 2050 (1)
1,000 
Other (including finance leases)
299 315 
Total principal long-term debt32,448 41,274 
Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs)105 (315)
Total long-term debt32,553 40,959 
Less: current portion1,307 3,258 
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Long-term debt, net of current portion$31,246 $37,701 
(1)We may redeem these notes at our option pursuant to their terms.
(2)    Debt assumed in the Raytheon Merger.

The average maturity of our long-term debt at September 30, 20192020 is approximately 1014 years. The average interest expense rate on our total borrowings for the quarters and nine months ended September 30, 2020 and 2019 and 2018 werewas as follows:
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Average interest expense rate3.7% 3.6% 3.7% 3.5%

 Quarter Ended September 30,Nine Months Ended September 30,
2020201920202019
Average interest expense rate4.2 %3.6 %4.0 %3.7 %

On September 27, 2019In the fourth quarter of 2020, we filed a universal shelf registration statement withrepaid the SEC for an indeterminate amount$1.0 billion of debt and equity securities for future issuance, subject to our internal limitationsthat matured on the amount of debt to be issued under the shelf registration statement.  October 15, 2020, using cash on hand.
Note 6:9: Income Taxes
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 connecteddue to the Company’s portfolio separation transactionssales of the Collins Aerospace businesses, described in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets,” which increased the non-deductiblerate 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 impairmentcharges 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.

Our effective tax rate was (31.5)% and 13.4% in the nine months ended September 30, 2020 and 2019, respectively. The increasechange in the effective tax rate for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is principallyprimarily due to the goodwill impairment in second quarter of 2020, which was primarily non-deductible and which decreased the rate by 27.6%, a 16.3% decrease in the rate for the impairment of deferred tax assets as a result of the Separation Transactions or the Raytheon Merger and a 9.5% decrease in the rate primarily related to the items described above offset in part by gains associated with the conclusionsales of the auditCollins Aerospace businesses noted above, partially offset by the Examination Divisionabsence of the Internal Revenue Service fortax benefit related to the UTC 2014, 2015,2019 audit settlements, which decreased the prior year rate by 8.3%. The remaining increase of 0.2%is composed of various unrelated items, which individually and 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 the second quarter of 2019.collectively are not significant.
We conduct business globally and, as a result, UTCRaytheon 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 impactterms 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 uncertaincourts, or the closure of tax positions, includedstatutes. 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 respectthe 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.
During the quarter,fail to qualify for tax-free treatment, the Company recognized net non-cash gainscould be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of approximately $18 million, including pre-tax interestoperations and cash flows in future reporting periods.
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Table of approximately $5 million, as a result of various federal, state and non-US statute of limitations expirations and settlements with tax authorities. Contents
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.
The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016 and 2017, which is projected to close within the next 6 months. As a result of the projected closure of the audit of Rockwell Collins fiscal tax years 2016 and 2017 as well as other potential settlements and statute of limitations expirations, it is reasonably possible that the Company may recognize non-cash gains in the range of $75 million to $125 million, primarily tax,within the next 6 months, including approximately $25 million prior to its acquisition by UTC, which will continue intothe end of 2020.
Note 7:10: Employee Benefit Plans
Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension and postretirement benefit (PRB) plans, and defined contribution plans.
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:
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
US qualified and international defined benefit and PRB plans$22 $$64 $41 
Defined contribution plans(1)
228 117 668 369 
(1)     Increase in contributions to our defined contribution plans is primarily due to contributions related to the Raytheon Company plans.
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:
(dollars in millions)September 30, 2020December 31, 2019
Long-term pension liabilities$13,499 $1,770 
Long-term PRB liabilities1,059 696 
Other pension and PRB related items130 21 
Total long-term pension and PRB liabilities(1)
$14,688 $2,487 
(1)    Increase in long-term pension and PRB liabilities is primarily due to liabilities acquired as part of the Raytheon Merger and the remeasurement of the UTC domestic defined benefit plans as a result of the Separation Transactions.
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The following table illustrates the components of net periodic benefit (income) expense for our defined pension and PRB plans:
 
Pension Benefits
Quarter Ended September 30,
PRB
Quarter Ended September 30,
(dollars in millions)2020201920202019
Operating expense
Service cost$149 $62 $2 $
Non-operating expense
Interest cost465 300 10 
Expected return on plan assets(827)(551)(4)
Amortization of prior service cost (credit)13 (1)(10)
Recognized actuarial net loss (gain)86 60 (3)(3)
Net settlement and curtailment loss (gain)8 (96)0 
Non-service pension (income) expense(255)(283)2 (6)
Total net periodic benefit (income) expense$(106)$(221)$4 $(6)

 
Pension Benefits
Nine Months Ended September 30,
PRB
Nine Months Ended September 30,
(dollars in millions)2020201920202019
Operating expense
Service cost$328 $208 $5 $
Non-operating expense
Interest cost1,170 942 26 23 
Expected return on plan assets(2,162)(1,687)(9)(1)
Amortization of prior service cost (credit)39 13 (3)(32)
Recognized actuarial net loss (gain)255 158 (9)(9)
Net settlement and curtailment loss (gain)35 (88)0 
Non-service pension (income) expense(663)(662)5 (19)
Total net periodic benefit (income) expense$(335)$(454)$10 $(17)
In the quarter ended September 30, 2019, we amended ourthe UTC domestic pensiondefined 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 earnbegan receiving additional employer contributions under ourthe UTC domestic savingsdefined 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 byAdditionally, as a reduction of 124 basis points in the PBO discount rate asresult of the remeasurement, date compared to December 31, 2018, partially offsetnet 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 foreignhave 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 toplan 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:
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Defined benefit plans$10
 $13
 $89
 $72
Defined contribution plans134
 97
 421
 296

(dollars in millions)September 30, 2020December 31, 2019
Marketable securities held in trusts$847 $
We made no contributions to our domestic defined benefit pension plans for quarter ended September 30, 2019 and $25 million of contributions in the nine months ended September 30, 2019. There were no contributions to our domestic defined benefit pension plans in the quarter and nine months ended September 30, 2018. Included in the current year contributions to employer sponsored defined contribution plans for the nine months ended September 30, 2019 is $98 million of contributions to the Rockwell Collins participants. The following table illustrates the components of net periodic benefit (income) cost for our defined pension and other postretirement benefit plans:

 Pension Benefits
Quarter Ended September 30,
 Other Postretirement Benefits
Quarter Ended September 30,
(dollars in millions)2019 2018 2019 2018
Service cost$88
 $94
 $
 $
Interest cost334
 274
 7
 7
Expected return on plan assets(605) (558) 
 
Amortization of prior service cost (credit)4
 (11) (10) 
Recognized actuarial net loss (gain)66
 100
 (3) (3)
Net settlement and curtailment (gain) loss(96) 3
 
 
Total net periodic benefit (income) cost$(209) $(98) $(6) $4

 
Pension Benefits
Nine Months Ended September 30,
 
Other Postretirement Benefits
Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Service cost$264
 $280
 $2
 $1
Interest cost1,014
 831
 23
 19
Expected return on plan assets(1,820) (1,683) (1) 
Amortization of prior service cost (credit)13
 (31) (32) (2)
Recognized actuarial net loss (gain)172
 302
 (9) (7)
Net settlement and curtailment (gain)(87) 
 
 
Total net periodic benefit (income) cost$(444) $(301) $(17) $11
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Note 8:11: Restructuring Costs
Restructuring costs are generally expensed as incurred. All U.S. government unallowable restructuring costs related to the Raytheon Merger are recorded within Corporate expenses and other unallocated items, as these costs are not included in management’s evaluation of the segments’ performance, and as a result, there are no unallowable restructuring costs at the RIS and RMD segments. During the quarter and nine months ended September 30, 2019,2020, we recorded net pre-tax restructuring costs totaling $244$250 million and $685 million, respectively, for new and ongoing restructuring actions. We recorded charges in the segments as follows:
(dollars in millions) 
Otis$44
Carrier97
Pratt & Whitney17
Collins Aerospace Systems83
Eliminations and other3
Total$244

(dollars in millions)Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
Pratt & Whitney$68 $175 
Collins Aerospace Systems138 295 
Corporate expenses and other unallocated items44 215 
Total$250 $685 
Restructuring charges incurred during the quarter and nine months ended September 30, 20192020 primarily relate to actions initiated during 20192020 and 2018,2019, and were recorded as follows:
(dollars in millions) 
Cost of sales$119
Selling, general and administrative125
Total$244

(dollars in millions)Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
Cost of sales$142 $330 
Selling, general and administrative103 350 
Restructuring costs recorded within operating expenses245 680 
Non-service pension (income) expense5 5 
Total$250 $685 
2019 Actions2020 Actions.. During the quarter ended September 30, 2020, we recorded net pre-tax restructuring costs of $240 million, comprised of $139 million in Cost of sales, $96 million in Selling, general and administrative expenses and $5 million in Non-service pension expenses. During the nine months ended September 30, 2019,2020, we recorded net pre-tax restructuring costs of $158$686 million, comprised of $62$339 million in costCost of sales, and $96$342 million in selling,Selling, general and administrative expenses and $5 million in Non-service pension expenses. The 20192020 actions primarily relate severance and restructuring actions at Pratt & Whitney and Collins Aerospace in response to the anticipated impact on our operating results related to the current economic environment primarily caused by the COVID-19 pandemic, the Raytheon Merger, and ongoing cost reduction efforts including workforce reductions and the consolidation of field and manufacturing operations.


The following table summarizes the accrual balance and utilization for the 20192020 restructuring actions for the quarter and nine months ended September 30, 2019:2020:
(dollars in millions)SeveranceFacility Exit and Other CostsTotal
Quarter Ended September 30, 2020
Restructuring accruals at June 30, 2020$395 $$395 
Net pre-tax restructuring costs232 8 240 
Utilization, foreign exchange and other costs(166)(8)(174)
Balance at September 30, 2020$461 $0 $461 
Nine Months Ended September 30, 2020
Restructuring accruals at December 31, 2019$$$
Net pre-tax restructuring costs677 9 686 
Utilization, foreign exchange and other costs(216)(9)(225)
Balance at September 30, 2020$461 $0 $461 
(dollars in millions)Severance Facility Exit and Other Costs Total
Quarter Ended September 30, 2019     
Restructuring accruals at June 30, 2019$57
 $11
 $68
Net pre-tax restructuring costs35
 8
 43
Utilization, foreign exchange and other costs(33) (7) (40)
Balance at September 30, 2019$59
 $12
 $71
      
Nine Months Ended September 30, 2019     
Net pre-tax restructuring costs$145
 $13
 $158
Utilization, foreign exchange and other costs(86) (1) (87)
Balance at September 30, 2019$59
 $12
 $71
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The following table summarizes expected, incurred and remaining costs for the 20192020 restructuring actions by segment:
(dollars in millions)
Expected
Costs
 
Costs Incurred Quarter Ended
March 31, 2019
 
Costs Incurred Quarter Ended
June 30, 2019
 
Costs Incurred Quarter Ended
September 30, 2019
 
Remaining Costs at
September 30, 2019
Otis$43
 $(19) $(14) $(3) $7
Carrier113
 (25) (24) (32) 32
Pratt & Whitney158
 (14) (3) 
 141
Collins Aerospace Systems107
 (14) 
 (7) 86
Eliminations and other3
 (1) (1) (1) 
Total$424
 $(73) $(42) $(43) $266

(dollars in millions)Expected
Costs
Costs Incurred Quarter Ended
March 31, 2020
Costs Incurred Quarter Ended
June 30, 2020
Costs Incurred Quarter Ended
September 30, 2020
Remaining Costs at September 30, 2020
Pratt & Whitney$198 $$(130)$(68)$0 
Collins Aerospace Systems309 (1)(146)(128)34 
Corporate expenses and other unallocated items213 (1)(168)(44)0 
Total$720 $(2)$(444)$(240)$34 
We are targeting to complete the majority of the remaining workforce and facility related cost reduction actions during 20192020 and 2020. No specific plans for other significant actions have been finalized at this time.2021.
20182019 Actions. During the quarter ended September 30, 2020, we recorded $9 million of net pre-tax restructuring costs for restructuring actions initiated in 2019 comprised of $7 million in Selling, general and administrative expenses and $2 million in Cost of sales. During the nine months ended September 30, 2019,2020, we recorded net pre-tax restructuring costs totaling $44$5 million for restructuring actions initiated in 2018,2019, including $21expense of $10 million in cost of sales and $23 million in selling,Selling, general and administrative expenses.expenses, partially offset by a reversal of $5 million in Cost of sales. The 20182019 actions relate to ongoing cost reduction efforts, including workforce reductions, consolidation of field and manufacturing operations, and costs to exit legacy programs. The following table summarizes the accrual balances and utilization for the 20182019 restructuring actions for the quarter and nine months ended September 30, 2019:2020:
(dollars in millions)SeveranceFacility Exit, and Other CostsTotal
Quarter Ended September 30, 2020
Restructuring accruals at June 30, 2020$17 $10 $27 
Net pre-tax restructuring costs9 0 9 
Utilization, foreign exchange and other costs(10)0 (10)
Balance at September 30, 2020$16 $10 $26 
Nine Months Ended September 30, 2020
Restructuring accruals at December 31, 2019$47 $11 $58 
Net pre-tax restructuring costs3 2 5 
Utilization, foreign exchange and other costs(34)(3)(37)
Balance at September 30, 2020$16 $10 $26 
(dollars in millions)Severance 
Facility Exit,
and
Other Costs
 Total
Quarter Ended September 30, 2019     
Restructuring accruals at June 30, 2019$48
 $9
 $57
Net pre-tax restructuring costs1
 4
 5
Utilization, foreign exchange and other costs(19) (5) (24)
Balance at September 30, 2019$30
 $8
 $38
      
Nine Months Ended September 30, 2019     
Restructuring accruals at December 31, 2018$115
 $23
 $138
Net pre-tax restructuring costs36
 8
 44
Utilization, foreign exchange and other costs(121) (23) (144)
Balance at September 30, 2019$30
 $8
 $38


The following table summarizes expected, incurred and remaining costs for the 20182019 restructuring actions by segment:
(dollars in millions)
Expected
Costs
 Costs Incurred in 2018 
Costs Incurred Quarter Ended
March 31, 2019
 
Costs Incurred Quarter Ended
June 30, 2019
 
Costs Incurred Quarter Ended
September 30, 2019
 
Remaining Costs at
September 30, 2019
Otis$55
 $(48) $(5) $(1) $
 $1
Carrier82
 (64) (7) (6) (2) 3
Pratt & Whitney3
 (3) 
 
 
 
Collins Aerospace Systems113
 (87) (11) (9) (3) 3
Eliminations and other6
 (5) 
 
 
 1
Total$259
 $(207) $(23) $(16) $(5) $8

(dollars in millions)Expected
Costs
Costs Incurred in 2019Costs Incurred Quarter Ended March 31, 2020Costs Incurred Quarter Ended June 30, 2020Costs Incurred Quarter Ended
September 30, 2020
Remaining Costs at September 30, 2020
Pratt & Whitney$121 $(133)$$12 $0 $0 
Collins Aerospace Systems106 (27)(5)(3)(9)62 
Corporate expenses and other unallocated items(2)0 0 
Total$229 $(162)$(5)$$(9)$62 
20172018 and Prior Actions. During the quarter and nine months ended September 30, 2019,2020, we recordedhad net pre-tax restructuring costs totaling $42of $1 million and a reversal of $6 million, respectively, for restructuring actions initiated in 20172018 and prior. As of September 30, 2019,2020, we have approximately $73$51 million of accrual balances remaining related to 20172018 and prior actions.
Note 9:12: Financial Instruments
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
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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 and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures.
The four quarter rolling average of theaggregate notional amount of foreign exchange contracts hedgingour outstanding foreign currency transactionshedges was $18.5$12.8 billion and $20.1 billionand $13.0 billion atSeptember 30, 20192020 and December 31, 2018,2019, respectively.
The following table summarizes the fair value and presentation in the Condensed Consolidated Balance SheetsSheet for derivative instruments as of September 30, 20192020 and December 31, 2018:2019:
(dollars in millions)Balance Sheet LocationSeptember 30, 2019 December 31, 2018
Derivatives designated as hedging instruments:    
Foreign exchange contractsAsset Derivatives:   
 Other assets, current$5
 $10
 Other assets5
 12
 Total asset derivatives$10
 $22
 Liability Derivatives:   
 Accrued liabilities(63) (83)
 Other long-term liabilities(78) (111)
 Total liability derivatives$(141) $(194)
Derivatives not designated as hedging instruments:    
Foreign exchange contractsAsset Derivatives:   
 Other assets, current$54
 $44
 Other assets5
 19
 Total asset derivatives$59
 $63
 Liability Derivatives:   
 Accrued liabilities(97) (89)
 Other long-term liabilities(83) (3)
 Total liability derivatives$(180) $(92)


(dollars in millions)Balance Sheet LocationSeptember 30, 2020December 31, 2019
Derivatives designated as hedging instruments:
Foreign exchange contractsOther assets, current$29 $23 
Accrued liabilities(198)(166)
Derivatives not designated as hedging instruments:
Foreign exchange contractsOther assets, current$25 $23 
Accrued liabilities(57)(116)
The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations for the quarters and nine months ended September 30, 20192020 and 20182019 are presented in the table below. The amounts of gain or (loss)losses are attributable to foreign exchange contract activity and are generally recorded as a component of Product sales when reclassified from accumulatedAccumulated other comprehensive income.income (loss).
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Gain (loss) recorded in Accumulated other comprehensive loss$(153) $95
 $(125) $(105)
Loss (gain) reclassified from Accumulated other comprehensive loss into Product sales20
 2
 40
 (26)

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
(Loss) gain recorded in Accumulated other comprehensive loss$117 $(153)$(98)$(125)
Loss reclassified from Accumulated other comprehensive loss into Product sales37 20 93 40 
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.
We have €4.95 billionAs of September 30, 2020, we have €500 million of euro-denominated long-term debt and €750 million of euro-denominated commercial paper borrowings outstanding, which qualifyqualifies as a net investment hedge against our investments in European businessesbusinesses.. As of September 30, 2019,2020, the net investment hedge is deemed to be effective.
Assuming current market conditions continue, a $57$45 million pre-tax lossof pre-tax losses is expectedexpected to be reclassified from Accumulated other comprehensive loss into Product sales to reflect the fixed prices obtained from foreign exchange hedging within the next 12 months. At September 30, 2019,2020, all derivative contracts accounted for as cash flow hedges will maturemature by October 2023.January 2028.
The effect of derivatives not designated as hedging instruments within Other income (expense), net, on the Condensed Consolidated Statement of Operations was as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Foreign exchange contracts$(4)$11 $(33)$71 
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Foreign exchange contracts$4
 $16
 $40
 $86

Note 10:13: Fair Value Measurements
In accordance with the provisions of ASC 820, the following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring and non-recurring basis in our Condensed Consolidated Balance Sheet as of September 30, 20192020 and December 31, 2018:2019: 
September 30, 2020
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Marketable securities held in trusts$847 $840 $7 $0 
Derivative assets54 0 54 0 
Derivative liabilities(255)0 (255)0 
 September 30, 2019
(dollars in millions)Total Level 1 Level 2 Level 3
Recurring fair value measurements:       
Available-for-sale securities$54
 $54
 $
 $
Derivative assets69
 
 69
 
Derivative liabilities(321) 
 (321) 
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 December 31, 2018
(dollars in millions)Total Level 1 Level 2 Level 3
Recurring fair value measurements:       
Available-for-sale securities$51
 $51
 $
 $
Derivative assets85
 
 85
 
Derivative liabilities(286) 
 (286) 

December 31, 2019
(dollars in millions)TotalLevel 1Level 2Level 3
Recurring fair value measurements:
Available-for-sale securities$53 $53 $$
Derivative assets46 46 
Derivative liabilities(282)(282)
Valuation Techniques. Our available-for-sale securities include equity investments that are traded in active markets, either domestically or internationally, and are measured at fair value using closing stock prices from active markets. Our derivative assets and liabilities include foreign exchange contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk and our counterparties'counterparties’ credit risks.
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, 20192020 and December 31, 2018:2019:
 September 30, 2019 December 31, 2018
(dollars in millions)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Long-term receivables$375
 $367
 $334
 $314
Customer financing notes receivable283
 283
 272
 265
Short-term borrowings(1,327) (1,327) (1,469) (1,469)
Long-term debt (excluding finance leases)(44,863) (47,794) (43,996) (44,003)
Long-term liabilities(406) (389) (508) (467)

 September 30, 2020December 31, 2019
(dollars in millions)Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Customer financing notes receivable$267 $259 $220 $220 
Short-term borrowings(228)(228)(2,293)(2,293)
Long-term debt (excluding finance leases)(32,489)(37,503)(40,883)(45,887)
Long-term liabilities(28)(26)(334)(320)
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, 20192020 and December 31, 2018:2019:
September 30, 2020
(dollars in millions)TotalLevel 1Level 2Level 3
Customer financing notes receivable$259 $0 $259 $0 
Short-term borrowings(228)0 (160)(68)
Long-term debt (excluding finance leases)(37,503)0 (29,236)(8,267)
Long-term liabilities(26)0 (26)0 
 September 30, 2019
(dollars in millions)Total Level 1 Level 2 Level 3
Long-term receivables$367
 $
 $367
 $
Customer financing notes receivable283
 
 283
 
Short-term borrowings(1,327) 
 (984) (343)
Long-term debt (excluding finance leases)(47,794) 
 (47,396) (398)
Long-term liabilities(389) 
 (389) 

December 31, 2019
(dollars in millions)TotalLevel 1Level 2Level 3
Customer financing notes receivable$220 $$220 $
Short-term borrowings(2,293)(2,293)
Long-term debt (excluding finance leases)(45,887)(45,802)(85)
Long-term liabilities(320)(320)

 December 31, 2018
(dollars in millions)Total Level 1 Level 2 Level 3
Long-term receivables$314
 $
 $314
 $
Customer financing notes receivable265
 
 265
 
Short-term borrowings(1,469) 
 (1,258) (211)
Long-term debt (excluding finance leases)(44,003) 
 (43,620) (383)
Long-term liabilities(467) 
 (467) 
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We had commercial aerospace financing and other contractual commitments totaling approximately $15.7 billion and $15.5 billion as of September 30, 2019 and December 31, 2018, respectively, related to commercial aircraft and certain contractual rights to provide product on new aircraft platforms. Associated risks on these commitments from changes in interest rates are mitigated because interest rates are variable during the commitment term and are set at the date of funding based on current market conditions, the fair value of the underlying collateral and the credit worthiness of the customers. As a result, the fair value of these financings is expected to equal the amounts funded.
Note 11: Long-Term Financing Receivables
Our long-term financing receivables primarily represent balances related to the aerospace businesses such as long-term trade accounts receivable, leases, and notes receivable. We also have other long-term receivables in our commercial businesses; however, both the individual and aggregate amounts of those other receivables are not significant. The following table summarizes the balance by class of aerospace business related long-term receivables as of September 30, 2019 and December 31, 2018:
(dollars in millions)September 30, 2019 December 31, 2018
Long-term trade accounts receivable$289
 $269
Notes and leases receivable267
 258
Total long-term receivables$556
 $527

Customer credit ratings range from customers with an extremely strong capacity to meet financial obligations to customers whose uncollateralized receivable is in default. There can be no assurance that actual results will not differ from

estimates or that consideration of these factors in the future will not result in an increase or decrease to the allowance for credit losses on long-term receivables. Based upon the customer credit ratings, approximately $150 million of our total long-term receivables were considered to bear high credit risk as of September 30, 2019 and December 31, 2018.
For long-term trade accounts receivable, we evaluate credit risk and collectability individually to determine if an allowance is necessary. Our long-term receivables reflected in the table above, which include reserves of $22 million and $16 million as of September 30, 2019 and December 31, 2018, respectively, are individually evaluated for impairment. At September 30, 2019 and December 31, 2018, we did not have any significant balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be impaired.
Note 12:14: Accumulated Other Comprehensive Loss
A summary of the changes in each component of Accumulated other comprehensive loss, net of tax for the quarters and nine months ended September 30, 20192020 and 20182019 is provided below:
(dollars in millions)Foreign Currency TranslationPension and Post-retirement PlansUnrealized Hedging (Losses) GainsAccumulated Other Comprehensive Income (Loss)
Quarter Ended September 30, 2020
Balance at June 30, 2020$(692)$(7,827)$(281)$(8,800)
Other comprehensive income (loss) before
reclassifications, net
605 (12)117 710 
Amounts reclassified, pre-tax0 95 37 132 
Tax benefit (expense)7 (22)(39)(54)
Balance at September 30, 2020$(80)$(7,766)$(166)$(8,012)
Nine Months Ended September 30, 2020
Balance at December 31, 2019$(3,211)$(6,772)$(166)$(10,149)
Other comprehensive income (loss) before
reclassifications, net
(175)(2,375)(98)(2,648)
Amounts reclassified, pre-tax0 282 93 375 
Tax benefit (expense)19 515 1 535 
Separation of Otis and Carrier, net of tax3,287 584 4 3,875 
Balance at September 30, 2020$(80)$(7,766)$(166)$(8,012)
(dollars in millions)
Foreign
Currency
Translation
 
Defined
Benefit
Pension and
Post-
retirement
Plans
 
Unrealized
Hedging
(Losses)
Gains
 
Accumulated
Other
Comprehensive
(Loss) Income
Quarter Ended September 30, 2019       
Balance at June 30, 2019$(3,354) $(6,398) $(140) $(9,892)
Other comprehensive loss before
reclassifications, net
(417) (420) (153) (990)
Amounts reclassified, pre-tax
 (41) 20
 (21)
Tax (benefit) expense
(56) 114
 26
 84
Balance at September 30, 2019$(3,827) $(6,745) $(247) $(10,819)
        
Nine Months Ended September 30, 2019       
Balance at December 31, 2018$(3,442) $(5,718) $(173) $(9,333)
Other comprehensive loss before
reclassifications, net
(322) (434) (125) (881)
Amounts reclassified, pre-tax
 46
 40
 86
Tax (benefit) expense(55) 98
 11
 54
ASU 2018-02 adoption impact(8) (737) 
 (745)
Balance at September 30, 2019$(3,827) $(6,745) $(247) $(10,819)


(dollars in millions)Foreign Currency TranslationPension and Post-retirement PlansUnrealized Hedging (Losses) GainsAccumulated Other Comprehensive Income (Loss)
Quarter Ended September 30, 2019
Balance at June 30, 2019$(3,354)$(6,398)$(140)$(9,892)
Other comprehensive income (loss) before
reclassifications, net
(417)(420)(153)(990)
Amounts reclassified, pre-tax(41)20 (21)
Tax expense (benefit)(56)114 26 84 
Balance at September 30, 2019$(3,827)$(6,745)$(247)$(10,819)
Nine Months Ended September 30, 2019
Balance at December 31, 2018$(3,442)$(5,718)$(173)$(9,333)
Other comprehensive income (loss) before
reclassifications, net
(322)(434)(125)(881)
Amounts reclassified, pre-tax46 40 86 
Tax expense (benefit)(55)98 11 54 
ASU 2018-02 adoption impact(8)(737)(745)
Balance at September 30, 2019$(3,827)$(6,745)$(247)$(10,819)
(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)

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220). The new standard allowsallowed companies to reclassify to retained earnings the stranded tax effects in Accumulated other comprehensive income (AOCI)(loss) from the TCJA. We elected to reclassify the income tax effects of the TCJA from AOCIAccumulated other comprehensive income (loss) of $745 million to retained earnings, effective January 1, 2019.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Upon adoption, investments that do not result in consolidation and are not accounted for under the equity method generally must be carried at fair value, with changes in fair value recognized in net income. We had approximately $5 million of unrealized gains on these securities recorded in Accumulated other comprehensive loss in our Consolidated Balance Sheet as of December 31, 2017. We adopted this standard effective January 1, 2018, with these amounts recorded directly to retained earnings as of that date.
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 costbenefit for each period presented. Additionally, in the quarter ended September 30, 2019, we recorded a
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curtailment gain of $98 million in the Condensed Consolidated Statement of Operations which is included within amounts reclassified related to our defined pension and postretirement plans. (See Note 7plans (see “Note 10: Employee Benefit Plans” for additional details).
All noncontrolling interests with redemption features, such as put options, that are not solely within our control (redeemable noncontrolling interests) are reported in the mezzanine section of the Condensed Consolidated Balance Sheet, between liabilities and equity, at the greater of redemption value or initial carrying value.
Note 13:15: Variable Interest Entities

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'sIAE’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:
(dollars in millions)September 30, 2020December 31, 2019
Current assets$6,519 $5,448 
Noncurrent assets894 894 
Total assets$7,413 $6,342 
Current liabilities$7,518 $6,971 
Noncurrent liabilities100 94 
Total liabilities$7,618 $7,065 
(dollars in millions)September 30, 2019 December 31, 2018
Current assets$4,770
 $4,732
Noncurrent assets1,785
 1,600
Total assets$6,555
 $6,332
    
Current liabilities$5,251
 $4,946
Noncurrent liabilities1,925
 1,898
Total liabilities$7,176
 $6,844

Note 14:16: Guarantees
We extend a variety of financial, market value and product performance guarantees to third parties. There have beenThese 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, 20182019, the following guarantees related to continuing operations were outstanding:
(dollars in millions)September 30, 2020December 31, 2019
Maximum Potential PaymentCarrying Amount of LiabilityMaximum Potential PaymentCarrying Amount of Liability
Commercial aerospace financing arrangements$333 $8 $333 $
Third party guarantees(1)
374 4 48 
(1)     Increase in guarantees is primarily due to the Raytheon Merger.
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.
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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, 20192020 and 20182019 are as follows:
(dollars in millions)20202019
Balance as of January 1$1,033 $929 
Warranties and performance guarantees issued206 325 
Settlements(229)(233)
Other(10)(3)
Balance as of September 30$1,000 $1,018 
(dollars in millions) 2019 2018
Balance as of January 1 $1,449
 $1,146
Warranties and performance guarantees issued 464
 472
Settlements made (375) (380)
Other (15) (8)
Balance as of September 30 $1,523
 $1,230

Note 15: Contingent Liabilities17: Commitments and Contingencies
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 20182019 Annual Report, incorporated by reference in our 20182019 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.
Environmental. Our operations are subject to environmental regulation by federal, state and local authorities in the United States and authorities with jurisdiction over our foreign operations. As described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report,“Note 1: Basis of Presentation and Summary of Accounting Principles,” we have accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs and performance guarantees, and periodically reassess these amounts. We believe that the likelihood of incurring losses materially in excess of amounts accrued is remote. At September 30, 2020 and December 31, 2019, we had $801 million and $725 million, respectively, reserved for environmental remediation. Additional information pertaining to environmental matters is included in Note 1“Note 1: Basis of Presentation and Summary of Accounting Principles.”
Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing and other contractual commitments of approximately $13.7 billion and $15.0 billion as of September 30, 2020 and December 31, 2019, respectively, on a gross basis before reduction for our collaboration partners’ share. These commitments primarily relate to financing commitments to our commercial aerospace industry customers and commitments to secure certain contractual rights to provide product on new aircraft platforms. In connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in IAE, additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments, which are considered in other contractual commitments above, are being capitalized as collaboration intangible assets. Associated risks on these commitments are mitigated due to the Consolidated Financial Statements in our 2018 Annual Report.fact that interest rates are variable during the commitment term and are set at the date of funding based on current market conditions, the fair value of the underlying collateral and the credit worthiness of the customers. As a result, the fair value of these financing commitments is expected to equal the amounts funded.
Government.Other Financing Arrangements. We have entered into standby letters of credit and surety bonds with financial institutions to meet various bid, performance, warranty, retention and advance payment obligations for us or our affiliates. We enter into these agreements to assist certain affiliates in obtaining financing on more favorable terms, making bids on contracts and performing their contractual obligations. The stated values of these letters of credit agreements and surety bonds totaled $4.7 billion as of September 30, 2020.
Offset Obligations. We have entered into industrial cooperation agreements, sometimes in the form of either offset agreements or ICIP agreements, as a condition to obtaining orders for our products and services from certain customers in foreign countries. At September 30, 2020, the aggregate amount of our offset agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $12.7 billion. These agreements are designed to return economic value to the foreign country by requiring us to engage in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology capabilities or addressing other local development priorities. Offset agreements may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing
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manufacturing, training and other consulting support to in-country projects, and the purchase by third parties (e.g., our vendors) of supplies from in-country vendors. These agreements may also be satisfied through our use of cash for activities such as subcontracting with local partners, purchasing supplies from in-country vendors, providing financial support for in-country projects and making investments in local ventures. Such activities may also vary by country depending upon requirements as dictated by their governments. We typically do not commit to offset agreements until orders for our products or services are definitive. The amounts ultimately applied against our offset agreements are based on negotiations with the customers and typically require cash outlays that represent only a fraction of the notional value in the offset agreements. Offset programs usually extend over several or more years and may provide for penalties in the event we fail to perform in accordance with offset requirements. Historically, we have not been required to pay any penalties of significance.
Government Oversight. In the ordinary course of business, the Company and its subsidiaries and our properties are subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations and threatened legal actions and proceedings. For example, we are now, and believe that, in light of the current U.S. Governmentgovernment contracting environment, we will continue to be the subject of one or more U.S. government investigations. Our contracts with the U.S. government are also subject to audits. Agencies that oversee contract performance include: the Defense Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), the Inspectors General of the U.S. Department of Defense (DoD) and other departments and agencies, the Government investigations.Accountability Office (GAO), the Department of Justice (DOJ), and Congressional Committees. Other areas of our business operations may also be subject to audit and investigation by these and other agencies. From time to time, agencies investigate or conduct audits to determine whether our operations are being conducted in accordance with applicable requirements. Such U.S. Government investigations often take yearsand audits may be initiated due to completea number of reasons, including as a result of a whistleblower complaint. Such investigations and audits could result in administrative, civil or criminal liabilities, including repayments, fines, treble andor other damages, forfeitures, restitution, or penalties being imposed upon us, the suspension of government export licenses or could lead tothe suspension or debarment offrom future U.S. Government contracting privileges. For instance, if we or one of our business units were charged with wrongdoing as a result of any of these investigations or othergovernment contracting. U.S. government investigations (including violations of certain environmental or export laws) the U.S. Government could suspend us from bidding on or receiving awards of new U.S. Government contracts pending the completion of legal proceedings. If convicted or found liable, the U.S. Government could fineoften take years to complete and debar us from new U.S. Government contracting for a period generally not to exceed three years. many may result in no adverse action against us. The U.S. Governmentgovernment also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal or other seriously improper conduct. The U.S. Governmentgovernment could void any contracts found to be tainted by fraud.
Our contracts with the U.S. Government are also subject to audits. Like many defense contractors, we have received audit reports recommending the reduction of certain contract prices because, for example, cost or pricing data or cost accounting practices used to price and negotiate those contracts may not have conformed to government regulations. Some of these audit

reports recommend that certain payments be repaid, delayed, or withheld, and may involve substantial amounts. We have made voluntary refunds in those cases we believe appropriate, have settled some allegations and, in some cases, continue to negotiate and/or litigate. The Company may be, and has been, required to make payments into escrow of disputed liabilities while the related litigation is pending. If the litigation is resolved in the Company’s favor, any such payments will be returned to the Company with interest. Our final allowable incurred costs for each year are also subject to audit and have, from time to time, resulted in disputes between us and the U.S. government, with litigation resulting at the Court of Federal Claims (COFC) or the Armed Services Board of Contract Appeals (ASBCA) or their related courts of appeals. In addition, the DOJ has, from time to time, convened grand juries to investigate possible irregularities by us. We also provide products and services to customers outside of the U.S., and those sales are subject to local government laws, regulations and procurement policies and practices. Our compliance with such local government regulations or any applicable U.S. government regulations (e.g., the Foreign Corrupt Practices Act (FCPA) and International Traffic in Arms Regulations (ITAR)) may also be investigated or audited. In addition, we accrue for liabilities associated with those matters that are probable and can be reasonably estimated. The most likely settlement amount to be incurred is accrued based upon a range of estimates. Where no amount within a range of estimates is more likely, then we accrue the minimum amount. Other than as specifically disclosed in this Form 10-Q, we do not expect these audits, investigations or disputes to have a material effect on our financial position, results of operations or liquidity, either individually or in the aggregate.
Legal Proceedings.The Company and its subsidiaries are subject to various litigation matters across jurisdictions, updates to certain of which are set forth below.
Cost Accounting Standards Claims
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 throughat September 30, 2019)2020). The claim is based on Pratt & Whitney'sWhitney’s alleged noncompliance with cost accounting standardsCost 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 throughat September 30, 2019)2020). The claim is based on Pratt & Whitney'sWhitney’s alleged noncompliance with cost accounting standardsCAS from January 1, 2005 to December 31, 2012, due to its method of determining the
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cost of collaborator parts used in the calculation of material overhead costs for government contracts. In 2014, Pratt & Whitney filed an appeal to the ASBCA. An evidentiary hearing was held and completed in June 2019. The parties are now engaged inconcluded post-hearing briefing in January 2020, and now await a decision from the ASBCA will follow.ASBCA. We continue to believe that the claim is without merit. In December 2018, a DCMA DACO issued a second claim against Pratt & Whitney that similarly alleges that its method of determining the cost of collaborator parts does not comply with the cost accounting standardsCAS for calendar years 2013 through 2017. This second claim demands payment of $269 million plus interest (approximately $53($69 million throughat September 30, 2019)2020), which we also believe is without merit and which Pratt & Whitney appealed to the ASBCA in January 2019.
German Tax LitigationThales-Raytheon Systems Matter
As previously disclosed, UTCin 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS) or anyone acting on their behalf in connection with TRS or Raytheon Company contracts in certain Middle East countries since 2014. In the first quarter of 2020, the DOJ advised Raytheon Company it had opened a parallel investigation. In the third quarter of 2020, Raytheon Company received an additional subpoena from the SEC, seeking information and documents as part of its ongoing investigation. Raytheon Company maintains a rigorous anti-corruption compliance program, is cooperating fully with the SEC’s inquiry, and is examining whether there has been involvedany conduct that is in administrative review proceedingsviolation of Raytheon Company policy. At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiry. Based on the information available to date, however, we do not believe the results of this inquiry will have a material adverse effect on our financial condition, results of operations or liquidity.
DOJ Investigation
On October 8, 2020, the Company received a criminal subpoena from the DOJ seeking information and documents in connection with an investigation relating to financial accounting, internal controls over financial reporting, and cost reporting regarding Raytheon Company’s Missiles & Defense business since 2009. We are cooperating fully with the German Tax Office, which concern approximately €215 million (approximately $237 million) of tax benefits that we have claimed relatedDOJ’s investigation. At this time, the Company is unable to a 1998 reorganizationpredict the outcome of the corporate structureinvestigation. Based on the information available to date, however, we do not believe the results of Otisthis inquiry will have a material adverse effect on our financial condition, results of operations in Germany. Upon audit, these tax benefits were disallowed by the German Tax Office. UTC estimates interest associated with the aforementioned tax benefits is an additional approximately €118 million (approximately $130 million). or liquidity.
Darnis, et al.
On August 3, 2012, we12, 2020, several former employees of UTC or its subsidiaries filed suita putative class action complaint in the local German Tax Court (Berlin-Brandenburg). In March 2016, the local German Tax Court dismissed our suit, and we appealed this decision to the German Federal Tax Court (FTC). Following a hearing in July 2018, the FTC remanded the matter to the local German TaxUnited States District Court for further proceedings. In 2015, UTC made tax and interest payments to German tax authoritiesthe District of €275 million (approximately $300 million) in order to avoid additional interest accruals pending final resolution of this matter.
Asbestos Matters
As previously disclosed, like many other industrial companies, we and our subsidiaries have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos integrated into certain of our products or business premises. While we have never manufactured asbestos and no longer incorporate it in any currently-manufactured products, certain of our historical products, like those of many other manufacturers, have contained components incorporating asbestos. A substantial majority of these asbestos-related claims have been dismissed without payment or were covered in full or in part by insurance or other forms of indemnity. Additional cases were litigated and settled without any insurance reimbursement. The amounts involved in asbestos related claims were not material individually or in the aggregate in any year.
The amounts recorded by UTC for asbestos-related liabilities are based on currently available information and assumptions that we believe are reasonable and are made with input from outside actuarial experts.  The estimated range of total liabilities to resolve all pending and unasserted potential future asbestos claims through 2059 is approximately $330 million to $395 million.  Where no amount within a range of estimates is more likely, the minimum is accrued. We have recorded the minimum amount of $330 million, which is principally recorded in Other long-term liabilities on our Consolidated Balance Sheet as of September 30, 2019. This amount is on a pre-tax basis, not discounted, and excludes the Company’s legal fees to defend the asbestos claims, which will continue to be expensed byConnecticut against the Company, as theyOtis, Carrier, the former members of the UTC Board of Directors, and the members of the Carrier and Otis Boards of Directors (Geraud Darnis, et al. v. Raytheon Technologies Corporation, et al.). The complaint challenges the method by which UTC equity awards were converted to Company, Otis, and Carrier equity awards following the separation of UTC into three independent, publicly-traded companies on April 3, 2020. The complaint claims that the defendants are incurred. In addition,liable for breach of certain equity compensation plans and for breach of fiduciary duty, and also asserts claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). We believe that the Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $142 million, which is included primarily in Other assets on our Condensed Consolidated Balance Sheet as of September 30, 2019.

The amounts recorded by UTC for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that we believe are reasonable. Our actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions. Key variables inmeritorious defenses to these assumptions include the number and type of new claims to be filed each year, the outcomes or resolution of such claims, the average cost of resolution of each new claim, the amount of insurance available, the allocation methodologies, the contractual terms with each insurer with whom we have reached settlements, the resolution of coverage issues with other excess insurance carriers with whom we have not yet achieved settlements, and the solvency risk with respect to our insurance carriers. Other factors that may affect our future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts, and the passage of state or federal legislation.claims. At the end of each year,this time, the Company will evaluate allis unable to predict the outcome, or the possible range of these factors and, with inputloss, if any, which could result from an outside actuarial expert, make any necessary adjustments to both our estimated asbestos liabilities and insurance recoveries.this action.
Other.
As described in Note 14 of this Form 10-Q and Note 17 to the Consolidated Financial Statements in our 2018 Annual Report,“Note 16: Guarantees,” we extend performance and operating cost guarantees beyond our normal warranty and service policies for extended periods on some of our products. We have accrued our estimate of the liability that may result under these guarantees and for service costs that are probable and can be reasonably estimated.
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.
Note 16: Leases
ASU 2016-02, Leases (Topic 842) and its related amendments (collectively, the New Lease Accounting Standard) are effective for reporting periods beginning after December 15, 2018. We adopted the New Lease Accounting Standard effective January 1, 2019 and elected the modified retrospective approach in which results for periods before 2019 were not adjusted for the new standard and the cumulative effect of the change in accounting was recognized through retained earnings at the date of adoption.
The New Lease Accounting Standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the Condensed Consolidated Balance Sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Condensed Consolidated Statement of Operations. In addition, this standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor doesn’t convey risks and rewards or control, the lease is treated as operating.
We have elected certain of the practical expedients available under the New Lease Accounting Standard upon adoption. We have applied the practical expedient which allows prospective transition to the New Lease Accounting Standard on January 1, 2019. Under the transition practical expedient, we did not reassess lease classification, embedded leases or initial direct costs. We have applied the practical expedient for short-term leases. We have lease agreements with lease and non-lease components. We have elected the practical expedients to combine these components for certain equipment leases. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use assets and liabilities. The adoption of the New Lease Accounting Standard did not have a material effect on our Condensed Consolidated Statement of Operations or Condensed Consolidated Statement of Cash Flows. Upon adoption, we recorded a $2.6 billion right-of-use asset and a $2.7 billion lease liability. The adoption of the New Lease Accounting Standard had an immaterial impact on retained earnings.

We enter into lease agreements for the use of real estate space, vehicles, information technology equipment, and certain otherequipment under 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, 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. Finance lease right-of-use assets at September 30, 2019 of $54 million are included in Other assets in our Condensed Consolidated Balance Sheet. Finance lease liabilities at September 30, 2019 of $68 million are included in Long term debt currently due, and Long term debt in our Condensed Consolidated Balance Sheet.
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 lease pre-payments and exclude lease incentives. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease right-of-use assets and lease liabilities, to the extent not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts is not a material component of lease expense. Our leases generally have remaining lease terms of 1 to 20 years, some of which include options to extend leases. The majority of our leases with options to extend are up to 5 years with the ability to terminate the lease within 1 year. The exercise of lease renewal options is at our sole discretion and our lease right-of-use assets and liabilities reflect only the options we are reasonably certain that we will exercise. Lease expense is recognized on a straight-line basis over the lease term.
In limited instances we act as a lessor, primarily for commercial aerospace engines and certain heating, ventilation and air conditioning (HVAC) systems and commercial equipment, all of which are classified as operating leases. These leases are not significant to our Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations.
Operating lease expense for the quarter and nine months ended September 30, 2019 was $194 million and $573 million, respectively.
Supplemental cash flow information related to operating leases was as follows:
(dollars in millions)Quarter Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating cash flows for the measurement of operating lease liabilities$(223) $(560)
Operating lease right-of-use assets obtained in exchange for operating lease obligations38
 238

Operating lease right-of-use assets and liabilities are reflected on our Condensed Consolidated Balance Sheet as follows:
(dollars in millions, except lease term and discount rate)September 30, 2019
Operating lease right-of-use assets$2,556
  
Accrued liabilities$(546)
Operating lease liabilities(2,105)
Total operating lease liabilities$(2,651)

Supplemental balance sheet information related to operating leases was as follows:
September 30, 2019
Weighted Average Remaining Lease Term (in years)6.9
Weighted Average Discount Rate3.6%


Undiscounted maturities of operating lease liabilities as of September 30, 2019 are as follows:
(dollars in millions)
Operating 1

2019$186
2020695
2021600
2022473
2023320
Thereafter1,005
Total undiscounted lease payments3,279
Less imputed interest(628)
Total discounted lease payments$2,651

1 Operating lease payments include $302 million related to options to extend lease terms that are reasonably certain of being exercised.

Prior to the adoption of the New Lease Accounting Standard, rental commitments on an undiscounted basis were approximately $2.9 billion at December 31, 2018 under long-term non-cancelable operating leases and were payable as follows: $683 million in 2019, $544 million in 2020, $407 million in 2021, $301 million in 2022, $235 million in 2023 and $746 million thereafter.

Note 17:18: Segment Financial Data
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
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diversified products and services. The results of RIS and RMD reflect the period subsequent to the completion of the Raytheon Merger on April 3, 2020. See “Note 21: Segment Financial Data” within the Notes to the Consolidated Financial Statements in our 2019 Annual Report for a description of the Collins Aerospace and Pratt & Whitney segments.
Raytheon Intelligence & Space is a leading developer and provider of integrated sensor and communication systems for advanced missions, including space-enabled information and multi-domain intelligence solutions, as well as electronic warfare solutions, advanced training and logistic services, and cyber and software solutions to intelligence, defense, federal and commercial customers worldwide.
Raytheon Missiles & Defense is a leading designer, developer, integrator and producer of missile and combat systems for the armed forces of the U.S. and allied nations and a leader in integrated air and missile defense, large land- and sea-based radar solutions, command, control, communications, computers, cyber and intelligence solutions, naval combat and ship electronic and sensing systems, and undersea sensing and effects solutions.
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 maderecorded 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, 20192020 and 20182019 are as follows:
Net SalesOperating ProfitsOperating Profit Margins
(dollars in millions)202020192020201920202019
Collins Aerospace Systems$4,274 $6,495 $526 $1,259 12.3 %19.4 %
Pratt & Whitney3,494 5,285 (615)520 (17.6)%9.8 %
Raytheon Intelligence & Space3,674 348 9.5 %%
Raytheon Missiles & Defense3,794 453 11.9 %%
Total segment15,236 11,780 712 1,779 4.7 %15.1 %
Eliminations and other(1)
(489)(407)(51)(46)
Corporate expenses and other unallocated items (2)
0 (84)(83)
FAS/CAS operating adjustment0 380 
Acquisition accounting adjustments0 (523)(220)
Consolidated$14,747 $11,373 $434 $1,430 2.9 %12.6 %
 Net Sales Operating Profits Operating Profit Margins
(dollars in millions)2019 2018 2019 2018 2019 2018
Otis$3,307
 $3,223
 $508
 $486
 15.4% 15.1%
Carrier4,822
 4,880
 685
 844
 14.2% 17.3%
Pratt & Whitney5,283
 4,789
 471
 109
 8.9% 2.3%
Collins Aerospace Systems6,495
 3,955
 1,167
 610
 18.0% 15.4%
Total segments19,907
 16,847
 2,831
 2,049
 14.2% 12.2%
Eliminations and other(411) (337) (232) (102)    
General corporate expenses
 
 (113) (109)    
Consolidated$19,496
 $16,510
 $2,486
 $1,838
 12.8% 11.1%
(1)    Includes the operating results of certain smaller non-reportable business segments, including Forcepoint, LLC, which was acquired as part of the Raytheon Merger.
(2)    The net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) project of $45 million in the quarter ended September 30, 2020 are included in Corporate operating profit as they are not included in management’s evaluation of business segment results. No amounts were recorded in the quarter ended September 30, 2019.
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Results for the nine months ended September 30, 20192020 and 20182019 are as follows:
 Net Sales Operating Profits Operating Profit Margins
(dollars in millions)2019 2018 2019 2018 2019 2018
Otis$9,751
 $9,604
 $1,449
 $1,424
 14.9% 14.8%
Carrier14,107
 14,291
 2,050
 3,081
 14.5% 21.6%
Pratt & Whitney15,250
 13,854
 1,328
 919
 8.7% 6.6%
Collins Aerospace Systems19,584
 11,734
 3,195
 1,767
 16.3% 15.1%
Total segments58,692
 49,483
 8,022
 7,191
 13.7% 14.5%
Eliminations and other(1,197) (1,026) (572) (210)    
General corporate expenses
 
 (335) (339)    
Consolidated$57,495
 $48,457
 $7,115
 $6,642
 12.4% 13.7%

Net SalesOperating ProfitsOperating Profit Margins
(dollars in millions)202020192020201920202019
Collins Aerospace Systems$14,914 $19,584 $1,455 $3,499 9.8 %17.9 %
Pratt & Whitney12,334 15,257 (597)1,447 (4.8)%9.5 %
Raytheon Intelligence & Space6,988 659 9.4 %%
Raytheon Missiles & Defense7,384 850 11.5 %%
Total segment41,620 34,841 2,367 4,946 5.7 %14.2 %
Eliminations and other (1)
(1,452)(1,186)(104)(115)
Corporate expenses and other unallocated items (2)
0 (491)(216)
FAS/CAS operating adjustment0 736 
Acquisition accounting adjustments0 (4,539)(657)
Consolidated$40,168 $33,655 $(2,031)$3,958 (5.1)%11.8 %
Geographic sales are attributed(1)    Includes the operating results of certain smaller non-reportable business segments, including Forcepoint, LLC, which was acquired as part of the Raytheon Merger.
(2)    The net expenses related to the U.S. Army’s LTAMDS project of $80 million in the nine months ended September 30, 2020 are included in Corporate operating profit as they are not included in management’s evaluation of business segment results. No amounts were recorded in the nine months ended September 30, 2019.
Total assets by segment are as follows:
Total Assets
(dollars in millions)September 30, 2020December 31, 2019
Collins Aerospace Systems(1)
$68,870 $74,049 
Pratt & Whitney(1)
32,240 31,170 
Raytheon Intelligence & Space(1)
20,509 
Raytheon Missiles & Defense(1)
29,720 
Total segment151,339 105,219 
Corporate and other11,004 2,573 
Assets related to discontinued operations56 31,823 
Consolidated$162,399 $139,615 
(1)    Total assets include acquired intangible assets and property, plant and equipment fair value adjustment. Related amortization expense is included in Acquisition accounting adjustments.
We disaggregate our contracts from customers by geographic regionslocation, by customer and by sales type. Our geographic location is based on theircustomer location, utilizing end user customer location where known or practical. In instances in which determining the end user customer is not known or practical, we utilize ship to location as the customer location. In addition, for our RIS and RMD segments, we disaggregate our contracts from customers by contract type. We believe these categories best depict how the nature, amount, timing and uncertainty of origin. our revenue and cash flows are affected by economic factors. Historical results have been recast to reflect the presentation of this disaggregation.
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Segment informationsales disaggregated by geographic region for the quarters ended September 30, 2020 and 2019 and 2018 isare as follows:
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
United States$893
$2,536
$4,184
$4,764
$12,377
 $864
$2,537
$3,696
$2,805
$9,902
Europe943
1,313
91
924
3,271
 968
1,377
141
560
3,046
Asia Pacific1,217
728
258
229
2,432
 1,129
726
316
86
2,257
Other254
245
750
578
1,827
 262
240
636
504
1,642
Total segment$3,307
$4,822
$5,283
$6,495
$19,907
 $3,223
$4,880
$4,789
$3,955
$16,847

20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
United States$2,378 $1,856 $2,933 $2,290 $109 $9,566 $3,269 $2,260 $$$$5,532 
Asia Pacific358 772 195 365 13 1,703 644 1,452 2,096 
Middle East and North Africa97 112 122 714 10 1,055 168 212 380 
Europe965 572 100 337 38 2,012 1,661 953 2,614 
Canada and All Other165 179 29 29 9 411 342 409 751 
Consolidated net sales3,963 3,491 3,379 3,735 179 14,747 6,084 5,286 11,373 
Inter-segment sales311 3 295 59 (668)0 411 (1)(410)
Business segment sales$4,274 $3,494 $3,674 $3,794 $(489)$14,747 $6,495 $5,285 $$$(407)$11,373 
Segment sales disaggregated by geographic informationregion for the nine months ended September 30, 2020 and 2019 and 2018 isare as follows:
20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
United States$8,027 $6,103 $5,498 $4,440 $156 $24,224 $9,590 $6,353 $$$$15,952 
Asia Pacific1,350 2,980 390 716 26 5,462 1,822 3,930 5,752 
Middle East and North Africa339 406 244 1,434 18 2,441 536 608 1,144 
Europe3,497 2,101 202 628 104 6,532 5,341 3,126 8,467 
Canada and All Other651 738 53 43 24 1,509 1,097 1,243 2,340 
Consolidated net sales13,864 12,328 6,387 7,261 328 40,168 18,386 15,260 33,655 
Inter-segment sales1,050 6 601 123 (1,780)0 1,198 (3)(1,195)
Business segment sales$14,914 $12,334 $6,988 $7,384 $(1,452)$40,168 $19,584 $15,257 $$$(1,186)$33,655 
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
United States$2,709
$7,457
$11,883
$14,291
$36,340
 $2,568
$7,250
$10,469
$8,235
$28,522
Europe2,891
3,906
311
2,935
10,043
 3,028
4,216
440
1,752
9,436
Asia Pacific3,393
2,077
807
628
6,905
 3,220
2,131
996
255
6,602
Other758
667
2,249
1,730
5,404
 788
694
1,949
1,492
4,923
Total segment$9,751
$14,107
$15,250
$19,584
$58,692
 $9,604
$14,291
$13,854
$11,734
$49,483

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Segment sales disaggregated by product typecustomer for the quarters ended September 30, 20192020 and 20182019 are as follows:
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
Commercial and industrial, non aerospace$3,307
$4,822
$44
$12
$8,185
 $3,223
$4,880
$5
$14
$8,122
Commercial aerospace

3,671
4,723
8,394
 

3,421
3,031
6,452
Military aerospace

1,568
1,760
3,328
 

1,363
910
2,273
Total segment$3,307
$4,822
$5,283
$6,495
$19,907
 $3,223
$4,880
$4,789
$3,955
$16,847

20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
U.S. government(1)
$1,238 $1,270 $2,879 $2,288 $72 $7,747 $1,222 $1,091 $$$$2,313 
Foreign military sales through the U.S. government34 325 185 828 0 1,372 64 335 399 
Foreign government direct commercial sales230 120 240 594 2 1,186 217 98 315 
Commercial aerospace and other commercial2,461 1,776 75 25 105 4,442 4,581 3,762 8,346 
Consolidated net sales3,963 3,491 3,379 3,735 179 14,747 6,084 5,286 11,373 
Inter-segment sales311 3 295 59 (668)0 411 (1)(410)
Business segment sales$4,274 $3,494 $3,674 $3,794 $(489)$14,747 $6,495 $5,285 $$$(407)$11,373 

(1)    Excludes foreign military sales through the U.S. government.
Segment sales disaggregated by product typecustomer for the nine months ended September 30, 20192020 and 20182019 are as follows:
20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
U.S. government(1)
$3,880 $3,792 $5,376 $4,429 $126 $17,603 $3,534 $3,243 $$$$6,777 
Foreign military sales through the U.S. government166 877 387 1,610 0 3,040 190 901 1,091 
Foreign government direct commercial sales659 380 449 1,163 2 2,653 700 382 1,082 
Commercial aerospace and other commercial9,159 7,279 175 59 200 16,872 13,962 10,734 24,705 
Consolidated net sales13,864 12,328 6,387 7,261 328 40,168 18,386 15,260 33,655 
Inter-segment sales1,050 6 601 123 (1,780)0 1,198 (3)(1,195)
Business segment sales$14,914 $12,334 $6,988 $7,384 $(1,452)$40,168 $19,584 $15,257 $$$(1,186)$33,655 
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
Commercial and industrial, non aerospace$9,751
$14,107
$72
$38
$23,968
 $9,604
$14,291
$31
$44
$23,970
Commercial aerospace

10,584
14,406
24,990
 

9,989
8,966
18,955
Military aerospace

4,594
5,140
9,734
 

3,834
2,724
6,558
Total segment$9,751
$14,107
$15,250
$19,584
$58,692
 $9,604
$14,291
$13,854
$11,734
$49,483
(1)    Excludes foreign military sales through the U.S. government.
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Segment sales disaggregated by sales type for the quarters ended September 30, 20192020 and 20182019 are as follows:
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
Product$1,449
$3,998
$3,230
$5,346
$14,023
 $1,448
$4,106
$2,703
$3,297
$11,554
Service1,858
824
2,053
1,149
5,884
 1,775
774
2,086
658
5,293
Total segment$3,307
$4,822
$5,283
$6,495
$19,907
 $3,223
$4,880
$4,789
$3,955
$16,847

20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
Product$3,231 $2,142 $2,534 $3,405 $157 $11,469 $4,973 $3,235 $$$$8,211 
Service732 1,349 845 330 22 3,278 1,111 2,051 3,162 
Consolidated net sales$3,963 $3,491 $3,379 $3,735 $179 $14,747 $6,084 $5,286 $$$$11,373 
Inter-segment sales311 3 295 59 (668)0 411 (1)(410)
Business segment sales$4,274 $3,494 $3,674 $3,794 $(489)$14,747 $6,495 $5,285 $$$(407)$11,373 
Segment sales disaggregated by sales type for the nine months ended September 30, 20192020 and 20182019 are as follows:
20202019
(dollars in millions)Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotalCollins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & DefenseOtherTotal
Product$11,325 $7,285 $4,867 $6,637 $288 $30,402 $15,105 $9,521 $$$$24,635 
Service2,539 5,043 1,520 624 40 9,766 3,281 5,739 9,020 
Consolidated net sales$13,864 $12,328 $6,387 $7,261 $328 $40,168 $18,386 $15,260 $$$$33,655 
Inter-segment sales1,050 6 601 123 (1,780)0 1,198 (3)(1,195)
Business segment sales$14,914 $12,334 $6,988 $7,384 $(1,452)$40,168 $19,584 $15,257 $0 $$(1,186)$33,655 
 2019 2018
(dollars in millions)OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal OtisCarrierPratt & WhitneyCollins Aerospace SystemsTotal
Product$4,240
$11,703
$9,508
$16,191
$41,642
 $4,192
$11,917
$8,016
$9,825
$33,950
Service5,511
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:
Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
(dollars in millions)Raytheon Intelligence & SpaceRaytheon Missiles & DefenseRaytheon Intelligence & SpaceRaytheon Missiles & Defense
Fixed-price$1,443 $2,404 $2,646 $4,582 
Cost-type1,936 1,331 3,741 2,679 
Consolidated net sales$3,379 $3,735 $6,387 $7,261 

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Note 18: Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): MeasurementTable of Credit Losses on Financial Instruments. This ASU and its related amendments modifies the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, contract assets, long term receivables and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, including historical information, current conditions and a reasonable forecast period, which may result in earlier recognition of certain losses. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this ASU and its related amendments.Contents
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. This standard did not have a material impact on our financial statement disclosures. We early adopted this standard effective January 1, 2019.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this ASU.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new standard provides updated guidance surrounding implementation costs associated with cloud computing

arrangements that are service contracts. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. We do not expect this ASU to have a material impact on the consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The amendments in this update for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in generally accepted accounting principles (GAAP)). These amendments also will create alignment between determining whether a decision making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a VIE. This will significantly reduce the risk that decision makers with insignificant direct and indirect interests could be deemed the primary beneficiary of a VIE. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We do not expect this ASU to have a material impact on the consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The amendments in this update make targeted improvements to GAAP for collaborative arrangements as follows: clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements; add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606; and require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We do not expect this ASU to have a material impact on the consolidated financial statements.

With respect to the unaudited condensed consolidated financial information of UTCRaytheon Technologies for the quarters and nine months ended September 30, 20192020 and 2018,2019, PricewaterhouseCoopers LLP (PricewaterhouseCoopers)(PwC) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated October 25, 2019,27, 2020, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopersPwC has not carried out any significant or additional audit tests beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopersPwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a "report"“report” or a "part"“part” of a registration statement prepared or certified by PricewaterhouseCoopersPwC within the meaning of Sections 7 and 11 of the Act.



Report of Independent Registered Public Accounting Firm

To the Shareowners and Board of Directors of UnitedRaytheon Technologies Corporation

Results of Review of Interim Financial Information


We have reviewed the accompanying condensed consolidated balance sheet of UnitedRaytheon Technologies Corporation and its subsidiaries (the “Company”) as of September 30, 2019,2020, and the related condensed consolidated statements of operations, of comprehensive income (loss), and of changes in equity for the three-month and nine-month periods ended September 30, 20192020 and 20182019 and the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 20192020 and 2018,2019, including the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2018,2019, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 7, 2019,6, 2020, which included a paragraph describing a change in the manner of accounting for revenue from contracts with customers and net periodic benefit costleases in the 20182019 financial statements, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forthAs discussed in Note 1 to the accompanying condensed consolidated balance sheetinterim financial information, asthe Company has reflected the effects of discontinued operations. The accompanying December 31, 2018 is fairly stated, in all material respects, in relation to the2019 condensed consolidated balance sheet from which it has been derived.reflects this change.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management.We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

Hartford, CTBoston, Massachusetts
October 25, 201927, 2020

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS OVERVIEW
We are a global premier systems provider of high technology products and services to the building systemsaerospace and aerospacedefense industries. Our operations forOn April 3, 2020, United Technologies Corporation (UTC) completed the periods presented herein are classified intoSeparation Transactions as defined below, and on April 3, 2020, completed the Raytheon Merger as defined below, to form the new company, Raytheon Technologies Corporation. As a result of these transactions, we now operate in four principal business segments: Otis, Carrier,Collins Aerospace Systems (Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Collins Aerospace Systems.Raytheon Missiles & Defense (RMD).
Separation Transactions and Distributions. On April 3, 2020, UTC (since renamed Raytheon Technologies Corporation) completed the previously announced separation of its business into three independent, publicly traded companies – UTC, Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis) (such separations, the “Separation Transactions”). UTC distributed all of the outstanding shares of Carrier common stock and all of the outstanding shares of Otis common stock to UTC shareowners who held shares of UTC common stock as of the close of business on March 19, 2020, the record date for the distributions (the Distributions). UTC distributed 866,158,910 and 433,079,455 shares of common stock of Carrier and Otis, respectively in the Distributions, each of which was effective at 12:01 a.m., Eastern Time, on April 3, 2020. The historical results of Otis and Carrier are referredpresented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity are presented on a continuing operations basis.
Raytheon Merger. On April 3, 2020, following the completion of the Separation Transactions and the Distributions, pursuant to an Agreement and Plan of Merger dated June 9, 2019, as amended, UTC and Raytheon Company (Raytheon) completed their previously announced all-stock merger of equals transaction (the Raytheon Merger). Upon closing of the "commercial businesses,"Raytheon Merger, Raytheon Company became a wholly-owned subsidiary of UTC, which changed its name to “Raytheon Technologies Corporation.”
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. 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 historical results of Otis and Collins Aerospace SystemsCarrier are referred topresented as the "aerospace businesses."discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. See “Note 3: Discontinued Operations” within Item 1 of this Form 10-Q for additional information.
The current status of significant factors affecting our business environment in 20192020 is discussed below. For additional discussion, refer to the "Business Overview"“Business Overview” section in Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2018 Annual Report to Shareowners (2019 Annual Report), which is incorporated by reference in our 2018 Annual Report on Form 10-K. for calendar year 2019 (2019 Form 10-K), and the “Risk Factors” in Part II, Item IA of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.
GeneralIndustry Considerations
Our worldwide operations can be affected by industrial, economic and political factors on both a regional and global level. Our operations include original equipment manufacturingmanufacturer (OEM) and extensive related aftermarket parts and services inrelated to our aerospace operations. Our defense business serves both our commercialdomestic and aerospace businesses.international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. Our business mix also reflects the combination of shorter cycles at Carrier and in our commercial aerospace spares businesses,contracts and certain service contracts in our defense business primarily at RIS, and longer cycles at Otis and in our aerospace OEM and aftermarket maintenance businesses.contracts and on our defense contracts to design, develop, manufacture or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization.
Government legislation, policies and regulations can have a negative impact on our worldwide operations. Government and market-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses.
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Collins Aerospace and Pratt & Whitney serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), available seat miles and the general economic health of airline carriers are key barometers for our commercial aerospace operations. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Our military businesses' salescommercial aftermarket operations continue to evolve as a significant portion of our aerospace operations’ customers are covered under long-term aftermarket service agreements at both Collins Aerospace and Pratt & Whitney. These agreements are comprehensive long-term spare part and service agreements with our customers.
RIS, RMD, and the defense operations of Collins Aerospace and Pratt & Whitney are affected by U.S. Department of Defense (DoD) budget and spending levels, changes in market demand and the global political environment. Total sales to the U.S. Governmentgovernment were $2.7$7.7 billion and $1.9$2.3 billion for the quarters ended September 30, 2020 and 2019, or 53% and 2018, 14% and 11%20% of total UTCsales for those periods, respectively. Total sales to the U.S. government were $17.6 billion and $6.8 billion for the nine months ended September 30, 2020 and 2019, or 44% and 20% of total sales for those periods, respectively. Our participation in long-term production, development and sustainment programs for the U.S. Governmentgovernment has and is expected to contribute positively to our results in 2019.2020.
As has been previously disclosed, on November 26, 2018, the Company announced its intention to separate into three independent companies. Following the separations, the Company will operate as an aerospace company comprisedImpact of the COVID-19 pandemic on results and forward looking impacts
In March 2020, the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government. The pandemic has negatively affected the U.S. and global economy, disrupted global supply chains and financial markets, and resulted in significant travel restrictions, mandated facility closures and shelter-in-place and social distancing orders in numerous jurisdictions around the world. Raytheon Technologies is taking all prudent measures to protect the health and safety of our employees, such as practicing social distancing, performing deep cleaning in all of our facilities, and enabling our employees to work from home where possible. We have also taken appropriate actions to help support our communities in addressing the challenges posed by the pandemic, including the production and donation of personal protective equipment.
Our business and operations and the industries in which we operate have been significantly impacted by public and private sector policies and initiatives in the U.S. and worldwide to address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote working. Additionally, public sentiments regarding air travel have also had a significant impact. We began to experience issues related to COVID-19 in the first quarter, primarily related to a limited number of facility closures, less than full staffing, and disruptions in supplier deliveries, most significantly in our Collins Aerospace Systemsand Pratt & Whitney businesses. However, our customers continued to receive our products and services during the first quarter and the outbreak did not have a significant impact on our operating results for the quarter ended March 31, 2020.
The continued disruption to air travel and commercial activities and the significant restrictions and limitations on businesses, particularly within the aerospace and commercial airline industries, have negatively impacted global supply, demand and distribution capabilities. These conditions, which began in the second quarter of 2020, have continued in the third quarter of 2020. In particular, the unprecedented decrease in air travel resulting from the COVID-19 pandemic is adversely affecting our airline and airframer customers, and their demand for the products and services of our Collins Aerospace and Pratt & Whitney businesses. Based on recent public data and estimates, revenue passenger miles (RPMs) for the year ending December 31, 2020 could decline by more than 60% in comparison to the prior year due to the pandemic. As a result, our airline customers have reported significant reductions in fleet utilization, aircraft grounding and unplanned retirements, and have deferred and, in some cases, cancelled new aircraft deliveries. Airlines have shifted to cash conservation behaviors such as deferring engine maintenance due to lower flight hours and aircraft utilization, requesting extended payment terms, deferring delivery of new aircraft and spare engines and requesting discounts on engine maintenance. Some airline customers have filed for bankruptcy due to their inability to meet their financial obligations. Additionally, we are seeing purchase order declines in line with publicly communicated aircraft production volumes as original equipment manufacturer (OEM) customers delay and cancel orders. We continue to monitor these trends and are working closely with our customers. We are actively mitigating costs and adjusting production schedules to accommodate these declines in demand.We have also been taking actions to preserve capital and protect the long-term needs of our businesses, including cutting discretionary spending, significantly reducing capital expenditures and research and development spend, suspending our share buybacks, deferring merit increases and implementing temporary pay reductions, freezing non-essential hiring, repositioning employees to defense work, furloughing employees when needed, and personnel reductions. In the quarter and nine months ended September 30, 2020, we recorded total restructuring charges of $250 million and $685 million, respectively, primarily related to personnel reductions at our Collins Aerospace and Pratt & Whitney businesses to preserve capital and Otisat our Corporate Headquarters due to consolidation from the Raytheon Merger. The former Raytheon Company businesses have not experienced significant facility closures or other significant business disruptions as a result of the COVID-19 pandemic.
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Given the significant reduction in business and Carrier will become independent companies. The proposed separations are expectedleisure 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 effected through spin-offssignificantly 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 Otisfactors and Carrierfuture 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 intendedthat 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 tax-free for the Company’s shareowners for U.S. federal income tax purposes, and are expected to be completeda triggering event in the first half of 2020. Separation of Otis and Carrier from UTC via spin-off transactions will be subject to the satisfaction of customary conditions, including, among others, final approval by the Company’s Board of Directors, receipt of tax rulings in certain jurisdictions and/or a tax opinion from external counsel (as applicable), the filing with the Securities and Exchange Commission (SEC) and effectiveness of Form 10 registration statements, and satisfactory completion of financing (subject to UTC’s agreement to consummate the distributions pursuant to, and subject to the terms and conditions of, the Raytheon merger agreement). See Notes To Condensed Consolidated Financial Statements, Note 1 for additional information regarding the Raytheon transaction.
On June 9, 2019, UTC entered into a merger agreement with Raytheon Company (“Raytheon”) providing for an all-stock merger of equals transaction.  The Raytheon merger agreement provides, among other things, that each share of Raytheon common stock issued and outstanding immediately prior to the closing of the Raytheon merger (except for shares held by Raytheon as treasury stock) will be converted into the right to receive 2.3348 shares of UTC common stock.  Upon the closing of the Raytheon merger, Raytheon will become a wholly-owned subsidiary of UTC, and UTC will change its name to Raytheon Technologies Corporation. On October 11, 2019, the shareowners of UTC and Raytheon approved the proposals necessary to complete the Raytheon merger. The Raytheon merger is expected to close in the first halfsecond quarters of 2020 requiring us to reassess our commercial aerospace business goodwill and is subject to customary closing conditions, including receipt of required regulatory approvals,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 completionsecond quarter of UTC's previously announced separation of its Otis2020, our revenue at Collins Aerospace and Carrier businesses.
Acquisition Activity
Our growth strategy contemplates acquisitions. Our operations and results can be affectedPratt & Whitney has been significantly negatively impacted by the ratedecline in flight hours, aircraft fleet utilization, shop visits and extentcommercial 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 appropriate acquisition opportunities are available, acquired businesses are effectively integrated,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 anticipated synergies or cost savings are achieved. Duringaccordingly, 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” within Item 1 of this Form 10-Q 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:
increased estimated credit losses on both our receivables and contract assets of $48 million and $357 million in the quarter and nine months ended September 30, 2020, respectively,
an unfavorable EAC adjustment on a Pratt & Whitney commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period of $334 million in both the quarter and nine months ended September 30, 2020,
contract asset and inventory impairments at Collins Aerospace due to the impact of lower estimated future customer activity resulting from the expected acceleration of fleet retirements of a commercial aircraft of $13 million and $146 million in the quarter and nine months ended September 30, 2020,
an unfavorable EAC adjustment of $129 million in both the quarter and nine months ended September 30, 2020 related to lower estimated revenues due to the restructuring of a customer contract at Pratt & Whitney,
an $89 million impairment of commercial aircraft program assets at Pratt & Whitney in both the quarter and nine months ended September 30, 2020,
the impairment of a Collins Aerospace trade name of $57 million in total, in the first and second quarters of 2020,
unfavorable EAC adjustments on commercial aftermarket contracts at Pratt & Whitney based on a change in estimated future customer activity of $48 million in total, in the second and third quarters of 2020, and
an unfavorable EAC adjustment at Pratt & Whitney related to a shift in overhead costs to military contracts of $44 million in the second quarter of 2020second quarter of 2020.
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 investmentairline 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 business acquisitions was $39 million, which consistedfuture periods.
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Table of small acquisitions at Otis.Contents
Other
Government legislation, policiesAlthough 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 regulations canthe Raytheon Merger, we have a negative impact on our worldwide operations. Government regulationbalanced and diversified portfolio of refrigerants and energy efficiency standards, elevator safety codes and fire protection regulations are important to

our commercial businesses. Government and market-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, and government procurement practices can impact ourboth aerospace and defense businesses.businesses which we believe will help mitigate the impacts of the COVID-19 pandemic and future business cycles.
Other Matters
Global economic and political conditions, changes in raw material and commodity prices, interest rates, foreign currency exchange rates, energy costs, levels of end market demand in construction, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our earnings outlook for the remainder of 2019.2020. With regard to political conditions, in July 2019, the U.S. Governmentgovernment suspended Turkey’s participation in the F-35 Joint Strike Fighter program because Turkey accepted delivery of the Russian-built S-400 air and missile defense system. The U.S. has imposed, and may impose additional, sanctions on Turkey as a result of this or other political disputes. Turkish companies supply us with components, some of which are sole-sourced, toprimarily in our aerospace businessesoperations for commercial and military engines and aerospace products. Depending upon the scope and timing of U.S. sanctions on Turkey and potential reciprocal actions, if any, such sanctions or actions could impact our aerospace businesses’ sources of supply and could have a material adverse effect on our results of operations, cash flows or financial condition.
A change in the Administration or change in the makeup of Congress following the outcome of the November 2020 elections, could result in changes to U.S. Government policies that may impact regulatory approval of required licenses and approvals for direct commercial sales contracts to certain foreign customers. Likewise, licenses previously granted for prior sales could also be revoked by a new Administration and/or Congress, if the products and services have not yet been delivered to the customer. If we ultimately do not receive all of the regulatory approvals and licenses, or those approvals or licenses are revoked, it could have a material effect on our financial results.
In particular, we have direct commercial sales contracts for precision guided munitions with certain Middle Eastern customers for which U.S. government approvals from the State Department and Congress through the Congressional Notification process have not yet been obtained. We had approximately $1.2 billion of total contract value, recognized approximately $400 million of sales for work performed through the date of the Raytheon Merger and approximately $150 million of sales subsequent to the date of the Raytheon Merger through September 30, 2020, and received approximately $450 million in advances as of September 30, 2020 on these contracts. On a contract-by-contract basis, we had $200 million of net contract assets and $100 million of net contract liabilities related to these contracts pending the U.S. government approvals.
See Part I,II, Item 1A, "Risk Factors"“Risk Factors” in our 2018Quarterly Report on Form 10-K10-Q for the quarterly period ended March 31, 2020 for further discussion.discussion of these items.

CRITICAL ACCOUNTING ESTIMATES
Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, salesrevenues and expenses. We believeManagement believes the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management's DiscussionThe most significant areas involving management judgments and Analysis of Financial Conditionestimates are described below and Results of Operations and Note 1 to the Consolidated Financial Statements inreflect updates from our 2018 Annual Report, incorporated by reference in our 20182019 Form 10-K, describe the significant accounting estimates and policies used in preparation as a result of the Consolidated Financial Statements.Raytheon Merger and Separation Transactions. Actual results in these areas could differ from management'smanagement’s estimates. There have been
Long-Term Contract Accounting. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace aftermarket contracts. We measure progress toward completion of these contracts on a percentage of completion basis, using costs incurred to date relative to total estimated costs at completion. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment. 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
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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 criticalsubcontractors, 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:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Operating profit$(462)$$(592)$(77)
Income (loss) from continuing operations attributable to common shareowners (1)
(365)(468)(61)
Diluted earnings (loss) per share from continuing operations attributable to common shareowners (1)
$(0.24)$— $(0.36)$(0.07)
(1)     Amounts reflect a U.S. statutory tax rate of 21%, which approximates our effective tax rate on our EAC adjustments.
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 merger date, since only the unperformed portion of the contract at the merger date represents the obligation of the Company. For additional information related to the Raytheon Merger, see “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q.
Costs incurred for engineering and development of aerospace products under contracts with customers are capitalized as contract fulfillment costs, to the extent recoverable from the associated contract margin, and subsequently amortized as the OEM products are delivered to the customer. The estimation of contract margin requires management’s judgment. We regularly assess capitalized contract fulfillment costs for impairment.
Goodwill and Intangible Assets. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets consist of patents, trademarks/tradenames, exclusivity assets, developed technology, customer relationships, and other intangible assets including a collaboration asset established in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in International Aero Engines AG (IAE). The fair value for acquired customer relationship intangibles is determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the follow-on revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair value of the trademark and tradename intangible assets are determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the tradename and discounted to present value using an appropriate discount rate. See “Note 1: Basis of Presentation and Accounting Principles Update” within Item 1 of this Form 10-Q for further details.
We applied these approaches to the valuation of intangibles for the Raytheon Merger, for which the most significant intangible assets identified were customer relationships and tradenames. Specific to these intangible assets, our estimates of market participant future cash flows included forecasted revenue growth rates, remaining developmental effort, operational performance including company specific synergies, program life cycles, material and labor pricing, and other relevant customer, contractual and market factors. For the customer relationships, where appropriate, the net cash flows were probability-adjusted to reflect the uncertainties associated with the underlying assumptions, including cancellation rates related to backlog, government demand for sole-source and recompete contracts and win rates for recompete contracts, as well as the risk profile of the net cash flows utilized in the valuation. In addition, the net cash flows were discounted using an appropriate discount rate that requires judgment by management. The estimated fair value of identifiable intangible assets acquired in connection with the Raytheon Merger was approximately $19.1 billion.
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Also included within other intangible assets are exclusivity assets, which are payments made to secure certain contractual rights to provide products on new commercial aerospace platforms. 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. Capitalized payments made on these contractual commitments are amortized as a reduction of sales. We amortize these intangible assets based on the pattern of economic benefit, which typically results 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 nine monthsdevelopment period with increasing amortization expense 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. The gross value of these contractual commitments at September 30, 2020 was approximately $11.9 billion, of which approximately $3.3 billion has been paid to date. We record these payments as intangible assets when such payments are no longer conditional. We regularly assess the recoverability of these intangibles, which is dependent upon the future success and profitability of the underlying aircraft platforms including the associated aftermarket revenue streams.
Goodwilland intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The impairment test compares carrying values of the reporting units to its estimated fair values. If the carrying value exceeds the fair value then the carrying value is reduced to fair value. In developing our estimates for the fair value of our reporting units, significant judgment is required in the determination of the appropriateness of using a qualitative assessment or quantitative assessment. For these quantitative assessments that are performed, fair value is primarily based on income approaches using a discounted cash flow method and relief from royalty method, which have significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates and royalty rates. Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions.
The Company has been monitoring the deterioration in general economic and market conditions primarily due to the COVID-19 pandemic. Beginning in the second quarter of 2020, we observed several airline customer bankruptcies, delays and cancellations of aircraft purchases by airlines, fleet retirements and repositioning of OEM production schedules. These factors contributed to a deterioration of our expectations regarding the timing of a return to pre-COVID-19 commercial flight activity, which further reduced our expectations regarding future sales and cash flows. We considered these factors to be a triggering event in the second quarter of 2020, requiring impairment evaluation of goodwill, intangible assets and other assets in our commercial aerospace businesses, Collins Aerospace and Pratt & Whitney.
Impairment evaluations at Collins Aerospace and Pratt & Whitney resulted in several other charges as further discussed in the “Business Overview” section above, and includes $40 million and $17 million of impairment related to a Collins Aerospace indefinite-lived tradename intangible, in the first and second quarters of 2020, with no additional impairment recorded the quarter ended September 30, 2019.2020. These charges were primarily due to declines in expected future commercial air traffic, airline bankruptcies, or other impacts such as accelerated fleet retirements, announced program delays and expected changes to contract terms. We also evaluated amortizable intangible assets and identified no impairments.
In the second quarter of 2020, we evaluated the Collins Aerospace and Pratt & Whitney reporting units for goodwill impairment and determined that the carrying values of two of the six Collins Aerospace reporting units exceeded the sum of discounted future cash flows, resulting in goodwill impairments of $3.2 billion. Collins Aerospace discounted future cash flow estimates were developed for three scenarios: a base case, a downside case, and an upside case. These scenarios included assumptions regarding future airline flight activity, out of warranty hours on original equipment, expected repairs, upgrades and replacements, future OEM manufacturing schedules and related environmental assumptions, including individuals’ desire to return to normal travel, business needs to travel, and potential cures or vaccines to prevent or reduce the effects of COVID-19. These estimates require a significant amount of judgment and are subject to change based upon factors outside our control. We weighted the three scenarios as follows: 50% for the base case, 40% for the downside case, and 10% for the upside case, and used these weightings, as we believe they reflect the risks and opportunities relative to our current estimates. Goodwill impairment was not indicated for any of the other reporting units evaluated for impairment in any of these scenarios. For these other reporting units, the reporting unit that was closest to impairment was a reporting unit at Collins Aerospace, with a fair value in excess of book value, including goodwill, of $1.4 billion or 19%. Material changes in these estimates could occur and result in additional impairments in future periods. If the discount rate used for the impairment analysis increased or decreased by 25 basis points, the impairments of the two Collins Aerospace reporting units would have increased by $1.2 billion or decreased by $1.3 billion, respectively. If the cash flows were decreased or increased by 10% the impairments would have increased by $2.5 billion or decreased by $2.1 billion, respectively.
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The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth projections, profitability, discount rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market and macro-economic conditions. 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 more prolonged and/or severe COVID-19 pandemic than anticipated, or future changes in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, would require the Company to record a non-cash impairment charge.
Employee Benefit Plans. We sponsor domestic and foreign defined benefit pension and postretirement benefit (PRB) plans. Assumptions used to calculate our funded status are determined based on company data and appropriate market indicators. They are evaluated annually at December 31 and when significant events require a mid-year remeasurement. A change in any of these assumptions or actual experience that differs from these assumptions are subject to recognition in pension and postretirement net periodic benefit (income) cost reported in the Condensed Consolidated Financial Statements.
Assumptions used in the accounting for these employee benefit plans require judgement. Major assumptions include the discount rate and expected return on plan assets (EROA). Other assumptions include mortality rates, demographic assumptions (such as retirement age), rate of increase in employee compensation levels, and health care cost increase projections.
The weighted-average discount rates used to measure pension and PRB liabilities are based on yield curves developed using high-quality corporate bonds as well as plan specific cash flows. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components of net periodic benefit costs by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows.
As a result of the Raytheon Merger we have updated our sensitivity analysis as of the merger date. An increase of 25 basis points in the discount rate would have decreased our projected benefit obligation by $1,925 million as of April 3, 2020. A decrease of 25 basis points in the discount rate would have increased our projected benefit obligation by $2,023 million as of April 3, 2020.
The discount rate sensitivities assume no change in the shape or steepness of the company-specific yield curve used to plot the individual spot rates that will be applied to the projected cash outflows for future benefit payments in order to calculate interest and service cost. A flattening of the yield curve, results in a narrowing of the spread between interest and obligation discount rates and would increase our net periodic benefit cost. Conversely, a steepening of the yield curve would result in an increase in the spread between interest and obligation discount rates and would decrease our net periodic benefit cost.
The EROA is the average rate of earnings expected over the long term on assets invested to fund anticipated future benefit payment obligations. In determining the EROA assumption, we consider the target asset allocation of plan assets, economic and other indicators of future performance, and the historical performance of total plan assets and individual asset classes. In addition, we may consult with and consider the opinions of financial and other professionals in developing the appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. Differences between actual asset returns in a given year and the EROA do not necessarily indicate a change in the assumption is required, as the EROA represents the expected average returns over a long-term horizon.
We must apply both Financial Accounting Standards (FAS) requirements under U.S. Generally Accepted Accounting Principles (GAAP) (as described above) and U.S. government Cost Accounting Standards (CAS) requirements to calculate pension and PRB expense. Both FAS and CAS expense use long term assumptions requiring judgement, but the CAS expense calculation is different from the FAS requirements and calculation methodology. While the ultimate liability for pension costs under FAS and CAS is similar, the pattern of cost recognition is different. Our CAS pension expense is comprised primarily of CAS service cost as well as amortization amounts resulting from demographic or economic experience different than expected, changes in assumptions, or changes in plan provisions. CAS requires contractors to compare the liability using a discount rate based on the EROA to a liability using a discount rate based on high-quality corporate bonds, and use the greater of the two liability calculations in developing CAS expense. Additionally, unlike FAS, CAS expense is only recognized for plans that are
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not fully funded. Consequently, if plans become or cease to be fully funded under CAS due to our asset or liability experience, our CAS expense will change accordingly.
The segment results of RIS and RMD only include pension and PRB expense as determined under 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 is the FAS/CAS operating adjustment and is reported as a separate line in our segment results. 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 other components of FAS expense for all segments are recorded in non-operating income under Non-service pension (income) expense on our Condensed Consolidated Statement of Operations.
We are also subject to the Employee Retirement Income Security Act of 1974 (ERISA) funding rules, which require us to fully fund our pension plans over a rolling seven-year period as determined annually based on the Pension Protection Act of 2006 (PPA) calculated funded status at the beginning of each year. The funding requirements are primarily based on the year’s expected service cost and amortization of other previously unfunded liabilities. Due to the differences in requirements and calculation methodologies, neither our FAS expense nor our CAS expense is indicative of the PPA funding requirements.
Income Taxes. Management believes that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits, which may be realized over an extended period of time. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided.
In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through an increase to tax expense in the period in which that determination is made or when tax law changes are enacted. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to tax expense in the period in which that determination is made.
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. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. In addition, we have entered into certain internal legal entity restructuring transactions necessary to effectuate the Separation Transactions. We have accrued tax on these transactions based on our interpretation of the applicable tax laws and our determination of appropriate entity valuations. See “Note 1: Basis of Presentation and Summary of Accounting Principles” and “Note 9: Income Taxes” within Item 1 of this Form 10-Q for further discussion.
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 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 the concluded tax treatment. If the completed distributions of Carrier or Otis, in each case, or certain internal business separation transactions, were to fail to qualify for tax-free treatment, the Company could be subject to significant liabilities, and there could be material adverse impacts on the Company’s business, financial condition, results of operations and cash flows in future reporting periods.
Contingent Liabilities. Our operating units include businesses which sell products and services and conduct operations throughout the world. As described in “Note 17: Commitments and Contingencies” within Item 1 of this Form 10-Q, contractual, regulatory and other matters in the normal course of business may arise that subject us to claims or litigation. Of note, the design, development, production and support of new aerospace technologies is inherently complex and subject to risk. Since the PW1000G Geared Turbofan engine entered into service in 2016, technical issues have been identified and experienced with the engine, which is typical for new engines and new aerospace technologies. Pratt & Whitney has addressed these issues through various improvements and modifications. These issues have resulted in financial impacts, including increased warranty provisions, customer contract settlements, and reductions in contract performance estimates. Additional technical issues, either related to this program or other programs, may also arise in the normal course, which may result in financial impacts that could be material to the Company’s financial position, results of operations and cash flows.
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Additionally, we have significant contracts with the U.S. government, subject to government oversight and audit, which may require significant adjustment of contract prices. We accrue for liabilities associated with these matters 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 then currently available facts with respect to each matter. When no amount within a range of estimates is more likely, the minimum is accrued. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution.
RESULTS OF OPERATIONS
As described in our “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q, our interim period results of operations and period-to-period comparisons of such results, particularly at a segment level, may not be indicative of our future operating results. The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context. As discussed further above in Business Overview, the results of RIS and RMD reflect the period subsequent to the completion of the Raytheon Merger on April 3, 2020. In addition, as a result of the Separations Transactions and the Distributions, beginning in the second quarter of 2020, the historical results of Otis and Carrier are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.
Net Sales
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Net Sales$14,747 $11,373 $40,168 $33,655 
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Net Sales$19,496
 $16,510
 $57,495
 $48,457
The factors contributing to the total percentage change year-over-year in total net sales for the quarter and nine months ended September 30, 20192020 are as follows:
(dollars in millions)Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
Organic(1)
$(3,855)$(7,357)
Foreign currency translation14 (14)
Acquisitions and divestitures, net7,215 13,884 
Other  
Total change$3,374 $6,513 
 Quarter Ended September 30, 2019 Nine Months Ended September 30, 2019
Organic change5 % 6 %
Foreign currency translation(1)% (1)%
Acquisitions and divestitures, net14 % 14 %
Total % change18 % 19 %
(1)    We provide the organic change in net sales for our consolidated results of operations. We believe that this measure is useful to investors because it provides transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; and other significant non-recurring and non-operational items. A reconciliation of this measure to reported U.S. GAAP amounts are provided in the table above.
Net sales grew 5%decreased $3,855 million organically duringin the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019. This increasedecrease reflects lower organic sales growth of 11%$2.2 billion at Collins Aerospace, primarily driven by lower commercial aerospace aftermarket sales and lower commercial aerospace OEM sales, partially offset by higher military sales. The declines in commercial aerospace OEM sales and commercial aerospace aftermarket sales were primarily due to the current economic environment principally driven by the COVID-19 pandemic which has resulted inlower flight hours, aircraft fleet utilization and commercial OEM deliveries. The decrease in net sales also reflects lower organic sales of $1.8 billion at Pratt & Whitney driven by higher sales across all channels; 7% organic sales growth at Collins Aerospace Systems, primarily driven by higherlower commercial aftermarket sales, primarily due to a significant reduction in shop visits and military sales;related spare part sales, and organiclower commercial OEM sales, growth of 4% at Otis reflecting higher service sales acrossprimarily due to a significant reduction in commercial engine deliveries, all regions and higher new equipment salesprincipally driven by growth in Asia. Carrier organic sales were consistent with the prior year as growth in commercial HVAC and Fire & Security products wascurrent economic environment primarily due to the COVID-19 pandemic, partially offset by declineshigher military sales primarily driven by an increase in both transportF117 overhauls, F135 engine sales and commercial refrigeration.aftermarket growth on multiple fighter jet platforms. The 14%$7,215 million sales increase in Acquisitions and divestitures, net for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, is primarily reflects driven by the impactRaytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net was the sale of the November 26, 2018 acquisitionCollins Aerospace military Global Positioning System (GPS) and space-based precision optics businesses sold in the third quarter of Rockwell Collins.2020, as further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q.
All four segments experienced organicNet sales growthdecreased $7,357 million organically for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This decrease reflects lower organic sales of $4.6 billion at Collins Aerospace, primarily driven by lower commercial aerospace OEM sales and lower commercial aerospace aftermarket sales, partially offset by higher military sales. The declines in commercial aerospace OEM sales and commercial aerospace aftermarket sales were primarily due to the current economic environment principally driven by the COVID-19 pandemic, which has resulted inlower flight hours, aircraft fleet utilization and commercial OEM deliveries. The decrease in net sales also reflects lower organic sales of
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$2.9 billion at Pratt & Whitney sales grew 11% organically, reflecting higher sales across all channels. Collins Aerospace Systems sales grew 9% organically, reflecting higher commercial and military sales. Organic sales growth of 5% at Otis reflects higher service sales across all regions and higher new equipment salesprimarily driven by growthlower commercial aftermarket sales, primarily due to a significant reduction in Asia. Organicshop visits and related spare part sales, growth of 2% at Carrier wasand lower commercial OEM sales, 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, partially offset by higher military sales primarily driven by an increase in F135 engine sales, F117 overhauls and aftermarket growth in global HVAC, Fire & Security, and transport refrigeration.on multiple fighter jet platforms. The 14%$13,884 million sales increase in Acquisitions and divestitures, net for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, is primarily driven by the Raytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net was the sale of the Collins Aerospace military GPS and space-based precision optics businesses sold 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 composition of external net sales by products and services sales for the quarter and nine months ended September 30, 2020 was approximately the following:
Collins Aerospace SystemsPratt & WhitneyRaytheon Intelligence & SpaceRaytheon Missiles & Defense
Products80 %60 %75 %90 %
Services20 %40 %25 %10 %

Quarter Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Net Sales
Products$11,469 $8,211 78 %72 %
Services3,278 3,162 22 %28 %
Total net sales$14,747 $11,373 100 %100 %
Net products sales grew $3,258 million in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily due to an increase in external product sales of $6.1 billion due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external product sales of $1.7 billion at Collins Aerospace and $1.1 billion at Pratt & Whitney.
Net services sales grew $116 million in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily due to an increase in external services sales of $1.2 billion due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external services sales of $0.7 billion at Pratt & Whitney and $0.4 billion at Collins Aerospace.
Nine Months Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Net Sales
Products$30,402 $24,635 76 %73 %
Services9,766 9,020 24 %27 %
Total net sales$40,168 $33,655 100 %100 %
Net products sales grew $5,767 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily reflectsdue to an increase in external product sales of $11.8 billion due to the impactRaytheon Merger on April 3, 2020, partially offset by decreases in external product sales of $3.8 billion at Collins Aerospace and $2.2 billion at Pratt & Whitney.
Net services sales grew $746 million in the November 26, 2018 acquisitionnine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to an increase in external services sales of Rockwell Collins.$2.2 billion due to the Raytheon Merger on April 3, 2020, partially offset by decreases in external services sales of $0.7 billion at Collins Aerospace and $0.7 billion at Pratt & Whitney.
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Our sales to major customers were as follows:
Quarter Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Sales to the U.S. government(1)
$7,747 $2,313 53 %20 %
Foreign military sales through the U.S. government1,372 399 9 %%
Foreign government direct commercial sales1,186 315 8 %%
Commercial aerospace and other commercial sales4,442 8,346 30 %73 %
Total net sales$14,747 $11,373 100 %100 %
(1)    Excludes foreign military sales through the U.S. government.
Nine Months Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Sales to the U.S. government(1)
$17,603 $6,777 44 %20 %
Foreign military sales through the U.S. government3,040 1,091 8 %%
Foreign government direct commercial sales2,653 1,082 7 %%
Commercial aerospace and other commercial sales16,872 24,705 42 %73 %
Total net sales$40,168 $33,655 100 %100 %
(1)    Excludes foreign military sales through the U.S. government.
Cost of Products and Services Sold 
Quarter Ended September 30,Nine Months Ended September 30, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018(dollars in millions)2020201920202019
Total cost of products and services sold$14,211
 $12,536
 $42,331
 $36,238
Total cost of products and services sold$13,004 $8,509 $33,790 $25,482 
Percentage of net sales72.9% 75.9% 73.6% 74.8%Percentage of net sales88.2 %74.8 %84.1 %75.7 %
The factors contributing to the percentage change year-over-year for the quarter and nine months ended September 30, 20192020 in total cost of products and services sold are as follows: 
(dollars in millions)Quarter Ended September 30, 2020Nine Months Ended September 30, 2020
Organic(1)
$(1,833)$(3,456)
Foreign currency translation19 (25)
Acquisitions and divestitures, net5,777 11,019 
Restructuring122 211 
Acquisition accounting adjustments301 622 
Other109 (63)
Total change$4,495 $8,308 
 Quarter Ended September 30, 2019 Nine Months Ended September 30, 2019
Organic change5 % 6 %
Foreign currency translation(1)% (1)%
Acquisitions and divestitures, net12 % 13 %
Other(3)% (1)%
Total % change13 % 17 %
(1)    We provide the organic change in cost of sales for our consolidated results of operations. We believe that this measure is useful to investors because it provides transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic increasechange excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs; costs related to certain acquisition accounting adjustments and other significant non-recurring and non-operational items. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above.
The organic decrease in total cost of products and services sold for the quarter and nine monthsended September 30, 2020 compared to the quarter ended September 30, 2019, of $1,833 million was primarily driven by the organic sales increasesdecreases noted above. The increase in Acquisitions and divestitures, net of 12% and 13%$5,777 million for the quarter and nine monthsended September 30, 2020 compared to the quarter ended September 30, 2019 respectively,is primarily reflectsdriven by the impactRaytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net is the sale of the acquisitionCollins Aerospace military GPS and space-based precision optics businesses sold in the third quarter of Rockwell Collins.2020, as further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q. The declineincrease in Other of 3% and 1%$109 million for the quarter and nine months ended September 30, 2019 respectively, reflects the absence of a prior year customer contract settlement at Pratt & Whitney.
Gross Margin
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Gross margin$5,285
 $3,974
 $15,164
 $12,219
Percentage of net sales27.1% 24.1% 26.4% 25.2%
The increase in gross margin as a percentage of sales for2020 compared to the quarter ended September 30, 2019, reflects a 640 basis point improvementan $89 million impairment of commercial aircraft program assets at Pratt & Whitney driven by the absence of a prior year customer contract settlement and favorable mix on large commercial engine shipments. Collins Aerospace Systems gross margin increased 340 basis points primarily driven by higher commercial aftermarket sales, the impact of the Rockwell Acquisition including the resulting synergies achieved, and cost reduction initiatives. Otis gross margin increased 60 basis points primarily driven by favorable pricing and mix in the Americas and China. Gross margin at Carrier was consistent with the prior year.Whitney.
The increaseorganic decrease in gross margin as a percentagetotal cost of salesproducts 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 pointthe organic sales decreases noted above. The increase at Pratt & Whitney driven byin Acquisitions and divestitures, net of $11,019 million for the absencenine months ended September 30, 2020
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Table of a prior year customer contract settlement and favorable mix on large commercial engine shipments. Collins Aerospace Systems gross margin increased 170 basis pointsContents
compared to the nine months ended September 30, 2019 is primarily driven by the impactRaytheon Merger on April 3, 2020. Included in the change in Acquisitions and divestitures, net is the sale of the Collins Aerospace military GPS and space-based precision optics businesses sold 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 decline in Other of $63 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, reflects the absence of prior year amortization of inventory fair value step-up associated with the Rockwell Acquisition includingCollins acquisition of $181 million, at Collins Aerospace, partially offset by an $89 million impairment of commercial aircraft program assets at Pratt & Whitney.
Quarter Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Cost of sales
Products$10,322 $6,498 70.0 %57.1 %
Services2,682 2,011 18.2 %17.7 %
Total cost of sales$13,004 $8,509 88.2 %74.8 %
Net products cost of sales grew $3,824 million in the resulting synergies achieved, andquarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily due to an increase in commercial aftermarketexternal 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 mixof sales grew $671 million in the Americasquarter 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.
Nine Months Ended September 30,% of Total Net Sales
(dollars in millions, except percentages)2020201920202019
Cost of sales
Products$26,571 $19,897 66.1 %59.1 %
Services7,219 5,585 18.0 %16.6 %
Total cost of sales$33,790 $25,482 84.1 %75.7 %
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 marginPratt & 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.

Collins Aerospace.
Research and Development 
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Company-funded$642$592$1,872$1,784
Percentage of net sales4.4 %5.2 %4.7 %5.3 %
Customer-funded (1)
$1,207$583$3,032$1,708
Percentage of net sales8.2 %5.1 %7.5 %5.1 %
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Company-funded$732
 $586
 $2,203
 $1,729
Percentage of net sales3.8% 3.5% 3.8% 3.6%
Customer-funded$582
 $356
 $1,706
 $1,044
Percentage of net sales3.0% 2.2% 3.0% 2.2%
(1)    Customer-funded research and development costs are included in cost of sales in our Condensed Consolidated Statement of Operations.
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 impactRaytheon 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%). Fordevelopment 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 impactRaytheon 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 offsetboth principally driven by lower expenses at Otis (2%).cost reduction measures due to the current economic environment primarily due to COVID-19.
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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 alsoprimarily driven by $1.2 billion related to the impact of the Rockwell Collins acquisition (63%). Lower research and development expensesRaytheon Merger on April 3, 2020. The remaining increase was primarily driven by higher military development programsprogram expenses of $0.1 billion at Pratt & Whitney (3%), were offset by higher expenses at Collins Aerospace Systems (3%).Whitney.
Selling, General and Administrative 
Quarter Ended September 30, Nine Months Ended September 30, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018(dollars in millions)2020201920202019
Selling, general and administrative expenses$2,104
 $1,681
 $6,207
 $5,151
Selling, general and administrative expenses$1,401$902$4,189$2,672
Percentage of net sales10.8% 10.2% 10.8% 10.6%Percentage of net sales9.5 %7.9 %10.4 %7.9 %
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 growthincrease 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 expensesestimates of expected credit losses primarily due to customer bankruptcies and headcount.
Selling, general and administrative expenses increased 21% in the nine months ended September 30, 2019, primarily driven by the impact of the Rockwell Collins acquisition (10%), costs associated with the Company's intention to separate its commercial businesses (6%), costs associated with the Raytheon merger (1%) and higher restructuring costs (1%). The growth in Selling, general and administrative expenses also includes higher expenses at Collins Aerospace Systems (1%), Pratt & Whitney (1%) and Otis (1%) driven primarily by increased employee compensation related expenses and headcount.additional allowances for credit losses.
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 Operationsbelow, for further discussion.
Other Income (Expense), Net 
Quarter Ended September 30, Nine Months Ended September 30, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018(dollars in millions)2020201920202019
Other income, net$37
 $131
 $361
 $1,303
Other income (expense), netOther income (expense), net$734 $60 $835 $241 
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 decreaseincrease 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 reflectsdue to $608 million of gains on the impairmentsales of an investment at Carrier (82%), partially offset by the net favorable year-over-year impactCollins 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 decreaseincrease in Other income (expense), net (72%)of $594 million for the nine months ended September 30, 2019 primarily reflects2020 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%).
Interest Expense, Net
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Interest expense$435
 $323
 $1,323
 $837
Interest income(34) (65) (131) (116)
Interest expense, net$401
 $258
 $1,192
 $721
Average interest expense rate3.7% 3.6% 3.7% 3.5%
Interest expense, net increased 55% and 65% for the quarter and nine months ended September 30, 2019, respectively. The increase in interest expensewas primarily reflects interest on debt acquireddue to $608 million of gains from the Rockwell Collins acquisition and the impactsales of the August 16, 2018 issuance of notes representing $11 billion in aggregate principal. The average maturity of our long-term debt at September 30, 2019 is approximately 10 years. Collins Aerospace businesses.
Operating Profits (loss)
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Operating profits (loss)$434$1,430$(2,031)$3,958
Operating profit (loss) margin2.9 %12.6 %(5.1)%11.8 %
The decrease in interest incomeOperating 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 accumulateddriven by the operating performance at our segments as described below in anticipation of the Rockwell Collins acquisition. Theindividual segment results. Included in the decrease in Operating profits was an increase in interest incomeacquisition 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
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quarter of 2020 related to two Collins Aerospace reporting units, and operating performance at our segments as described below in the individual segment results. Included in the decrease in Operating profits (loss) was an increase in acquisition accounting adjustments of $712 million related to the Raytheon Merger and an increase in restructuring costs of $582 million primarily related to actions taken at our Collins Aerospace and Pratt & Whitney segments and the Raytheon Merger on April 3, 2020.
Non-service Pension (Income) Expense
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Non-service pension (income) expense$(253)$(289)$(658)$(681)
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
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Interest expense$356$424$1,041$1,275
Interest income(6)(22)(24)(101)
Interest expense, net$350$402$1,017$1,174
Average interest expense rate4.2 %3.6 %4.0 %3.7 %
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.
Income Taxes
 Quarter Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Effective tax rate47.3% 23.7% 29.6% 25.2%
 Quarter Ended September 30,Nine Months Ended September 30,
 2020201920202019
Effective tax rate45.1 %23.2 %(31.5)%13.4 %
The increase in the effective tax rate for the quarter ended September 30, 2019 is primarily2020 included the result21% 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 impactrates related to the impairmentcharges 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 principally2020 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
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impairment of deferred tax assets as a result of the Separation Transactions or the Raytheon Merger and a 9.5% decrease to the rate primarily related to the sales of the Collins Aerospace businesses. The remaining 0.9% increase to the rate is composed of various unrelated items, described abovewhich individually and collectively are not significant.
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 gainsa 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 20162014-2016 tax years and the filing by a subsidiary of the Company to participate in an amnesty program offered by the Italian Tax Authority inAuthority. The remaining 2.9% increase for the second quarter of 2019.
The Company will continue to reviewended September 30, 2019 and incorporate as necessary TCJA changes related to forthcoming U.S. Treasury Regulations, other updates, and the finalization of the deemed inclusions to be reported on the Company’s 2018 U.S. federal income tax return.
As shown in the table above, the effective tax rate0.7% increase for the nine months ended September 30, 2019 is 29.6%; the effective income tax rate for the same period, excluding restructuring, non-operational nonrecurringcomposed of various unrelated items, is 23.5%. which individually and collectively are not significant.
The full year rate is still subject to change as guidance and interpretations related to the TCJATax 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 expectsGILTI regulations provide guidance with respect to provisions enacted in the TCJA and allow for retroactive application. We continue to incurreview the impact to the effective tax costs associated withrate and intend to record the ongoing separation of its commercial businesses which is expected to be completefinal 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.
Net Income (Loss) from Continuing Operations Attributable to Common Shareowners 
 Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions, except per share amounts)2019 2018 2019 2018
Net income attributable to common shareowners$1,148
 $1,238
 $4,394
 $4,583
Diluted earnings per share from operations$1.33
 $1.54
 $5.09
 $5.72

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Net income (loss) from continuing operations attributable to common shareowners$151 $958 $(3,255)$2,853 
Diluted earnings (loss) per share from continuing operations$0.10 $1.11 $(2.48)$3.31 
Net income from continuing operations attributable to common shareowners for the quarter ended September 30, 2020 includes the following:
acquisition accounting adjustments primarily related to the Raytheon Merger of $401 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.27;
restructuring charges of $189 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.12;
significant unfavorable contract adjustments primarily at Pratt & Whitney of $430 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.28; and
gains on the sales of the Collins Aerospace businesses of $253 million, net of tax, as further discussed in “Note 2: Acquisitions, Dispositions, Goodwill and Other Intangible Assets” within Item 1 of this Form 10-Q, which had a favorable impact on diluted earnings per share from continuing operations of $0.17.
Net income from continuing operations attributable to common shareowners for the quarter ended September 30, 2019 includes the following:
acquisition accounting adjustments of $176 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.20; and
restructuring charges, net of tax, benefit, of $48$21 million, as well as a net charge for significant non-operational and/or nonrecurring items, including the impact of taxes, of $712 million. The effect of restructuring charges and significant non-operational and/or nonrecurring items was a charge of $0.88 per diluted share for the quarter ended September 30, 2019. The effect of foreign currency translation and Pratt &Whitney Canada hedging generatedwhich had an unfavorable impact of $0.02 on diluted earnings per share.share from continuing operations of $0.02.
Net incomeloss from continuing operations attributable to common shareowners for the quarternine months ended September 30, 20182020 includes restructuring charges,the following:
acquisition accounting adjustments primarily related to the Raytheon Merger of $1,004 million, net of tax, benefit, of $28 million as well as a net charge for significant non-operational and/or nonrecurring items, net of tax, of $281 million. The effect of restructuring charges and significant non-operational and/or nonrecurring itemswhich had an unfavorable impact on diluted earnings per share for the quarter ended September 30, 2018 was a chargefrom continuing operations of $0.39 per diluted share while the effect$0.77;
restructuring charges of foreign currency translation and Pratt &Whitney Canada hedging$517 million, net of tax, which had noan unfavorable impact on diluted earnings per share.share from continuing operations of $0.39;
$3,240 million of non-deductible goodwill and intangibles impairment charges related to our Collins Aerospace segment, which had an unfavorable impact on diluted earnings per share from continuing operations of $2.47;
significant unfavorable contract adjustments at Collins Aerospace and Pratt & Whitney of $630 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.48;
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$415 million of tax charges in connection with the Company’s Separation Transactions, including the impairment of deferred tax assets not expected to be utilized, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.32;
increased estimates of expected credit losses driven by customer bankruptcies and additional allowances for credit losses of $272 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.21; and
gains on the sales of the Collins Aerospace businesses of $253 million, net of tax, which had a favorable impact on diluted earnings per share from continuing operations of $0.19.
Net income from continuing operations attributable to common shareowners for the nine months ended September 30, 2019 includes restructuring charges,the following:
acquisition accounting adjustments of $521 million, net of tax, benefit, of $179 million as well as a net charge for significant non-operational and/or nonrecurring items, including thewhich had an unfavorable impact of taxes, of $880 million. The effect of restructuring charges and nonrecurring items on diluted earnings per share from continuing operations of $0.60;
restructuring charges of $77 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.09;
tax settlements and related interest income on tax settlements of $335 million, which had a favorable impact on diluted earnings per share from continuing operations of $0.39; and
amortization on the inventory fair value step-up associated with the Rockwell Collins acquisition of $141 million, net of tax, which had an unfavorable impact on diluted earnings per share from continuing operations of $0.16.
Net Income (Loss) from Discontinued Operations Attributable to Common Shareowners
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Net income (loss) from discontinued operations attributable to common shareowners$113 $190 $(399)$1,541 
Diluted earnings (loss) per share from discontinued operations$0.08 $0.22 $(0.30)$1.78 
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 chargeprimarily 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 whileour 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 shareownerstax 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 gainoutstanding 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 chargesquarter and nonrecurring items on diluted earnings per share for the nine months ended September 30, 2018 was a gain2019 included costs associated with the separation of $0.05 per diluted share while the effectour 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 ontax, respectively.
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Net Income (Loss) Attributable to Common Shareowners 
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions, except per share amounts)2020201920202019
Net income (loss) attributable to common shareowners$264 $1,148 $(3,654)$4,394 
Diluted earnings (loss) per share from operations$0.17 $1.33 $(2.79)$5.09 
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.

Restructuring Costs
Nine Months Ended September 30, Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2019 2018(dollars in millions)2020201920202019
Restructuring costs$244
 $186
Restructuring costs$250 $28 $685 $103 
Restructuring actions are an essential component of our operating margin improvement efforts and relate to both existing operations and recently acquired operations.recent mergers and acquisitions. Charges generally arise from severance related to workforce reductions, facility exit and lease termination costs associated with the consolidation of field and manufacturing operations and costs to exit legacy programs. We continue to closely monitor the economic environment and may undertake further restructuring actions to keep our cost structure aligned with the demands of the prevailing market conditions.
20192020 Actions. During the quarter and nine months ended September 30, 2019,2020, we recorded net pre-tax restructuring charges of $158$240 million relatingand $686 million, respectively, primarily related severance and restructuring actions at Pratt & Whitney and Collins Aerospace in response to the anticipated impact on our operating results related to the current economic environment primarily caused by the COVID-19 pandemic, the Raytheon Merger, and ongoing cost reduction actionsefforts initiated in 2019.2020. We expect to incur additional restructuring charges of $266$34 million to complete these actions. We are targeting to complete in 2019 and 2020 the majority of the remaining workforce and facility related cost reduction actions initiated in 2019.2020 in 2021. We expect recurring pre-tax savings in continuing operations related to increasethese actions to reach approximately $358 million$1.0 billion annually over the two-year period subsequentwithin one to initiating the actions.two years. Approximately 93%75% of the total expected pre-tax chargesrestructuring costs will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During the nine months ended September 30, 2019,2020, we had cash outflows of approximately $89$222 million related to the 20192020 actions.
20182019 Actions. During the quarters ended September 30, 2020 and 2019, we recorded $9 million and $8 million respectively, of net pre-tax restructuring charges for actions initiated in 2019. During the nine months ended September 30, 20192020 and 2018,2019, we recorded $5 million and $41 million, respectively, of net pre-tax restructuring charges of $44 million and $97 million, respectively, for actions initiated in 2018.2019. We expect to incur additional restructuring charges of $8$62 million to complete these actions. We are targeting to complete in 20192020 the majority of the remaining workforce and facility related cost reduction actions initiated in 2018.2019. We expect annual recurring pre-tax savings in continuing operations related to increase over the two-year period subsequent to initiating thethese actions to reach approximately $260$200 million annually within two years of which,initiating these actions, and we realized approximately $140$115 million was realized during the nine months ended September 30, 2019. Approximately 93%2020. Almost all of the total expected pre-tax chargesrestructuring costs will require cash payments, which we have funded and expect to continue to fund with cash generated from operations. During the nine months ended September 30, 2020 and 2019, we had cash outflows of approximately $126$35 million and $29 million, respectively related to the 20182019 actions.
In addition, during the quarters ended September 30, 2020 and 2019, we recorded $1 million and $20 million, respectively, of net pre-tax restructuring charges for restructuring actions initiated in 2018 and prior. During the nine months ended September 30, 2020 and 2019, we reversed $6 million and recorded $62 million, respectively of net pre-tax restructuring costs totaling $42 millioncharges for restructuring actions initiated in 20172018 and prior. For additional discussion of restructuring, see Note 8“Note 11: Restructuring Costs” within Item 1 of this Form 10-Q.
Segment Review
As discussed further above in Business Overview, on April 3, 2020, United Technologies Corporation (UTC) completed the Separation Transactions as defined below, and on April 3, 2020, completed the Raytheon Merger as defined below, to form the new company, Raytheon Technologies Corporation. As a result of these transactions, we now operate in four principal business segments: Collins Aerospace Systems (Collins Aerospace), Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). The results of RIS and RMD reflect the period subsequent to the Condensed Consolidatedcompletion of the Raytheon Merger on April 3, 2020. The historical results of Otis and Carrier are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.
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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.
Raytheon Intelligence & Space is a leading developer and provider of integrated sensor and communication systems for advanced missions, including space-enabled information and multi-domain intelligence solutions, as well as electronic warfare solutions, advanced training and logistic services, and cyber and software solutions to intelligence, defense, federal and commercial customers worldwide.
Raytheon Missiles & Defense is a leading designer, developer, integrator and producer of missile and combat systems for the armed forces of the U.S. and allied nations and a leader in integrated air and missile defense, large land- and sea-based radar solutions, command, control, communications, computers, cyber and intelligence solutions, naval combat and ship electronic and sensing systems, and undersea sensing and effects solutions.
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.
Segment ReviewAccounting 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.
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 quartersSegment total net sales and nine months ended September 30, 2019operating profit include intercompany sales and 2018profit, which are included in "Eliminationsultimately 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 BusinessesGiven 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.
Our commercial businesses generally serve customers
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Total Net Sales. Total net sales by segment were as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Collins Aerospace Systems$4,274 $6,495 $14,914 $19,584 
Pratt & Whitney3,494 5,285 12,334 15,257 
Raytheon Intelligence & Space3,674 — 6,988 — 
Raytheon Missiles & Defense3,794 — 7,384 — 
Total segment15,236 11,780 41,620 34,841 
Eliminations and other(489)(407)(1,452)(1,186)
Consolidated$14,747 $11,373 $40,168 $33,655 

Operating Profits. Operating profits by segment was as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Collins Aerospace Systems$526 $1,259 $1,455 $3,499 
Pratt & Whitney(615)520 (597)1,447 
Raytheon Intelligence & Space348 — 659 — 
Raytheon Missiles & Defense453 — 850 — 
Total segment712 1,779 2,367 4,946 
Eliminations and other(51)(46)(104)(115)
Corporate expenses and other unallocated items(84)(83)(491)(216)
FAS/CAS operating adjustment380 — 736 — 
Acquisition accounting adjustments(523)(220)(4,539)(657)
Consolidated$434 $1,430 $(2,031)$3,958 
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:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Gross favorable$281 $98 $569 $317 
Gross unfavorable(743)(94)(1,161)(394)
Total net EAC adjustments$(462)$$(592)$(77)
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 customersshort-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 numbernet 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.
At constant currency and excluding the effect of acquisitions and divestitures, Carrier equipment orders$466 million in the quarter ended September 30, 2019 decreased 11% in comparison2020 compared to the same periodquarter ended September 30, 2019 was primarily due to a change in net unfavorable EAC adjustments of the prior year, driven by decreases$451 million at Pratt & Whitney. The change in transport refrigeration (68%), commercial refrigeration (5%), and Fire and Security products (2%), partially offset by increased commercial HVAC (6%) and North America residential HVAC equipment (4%) orders. At constant currency, Otis new equipment ordersnet EAC adjustments of $515 million in the quarter increased 6% in comparisonnine months ended September 30, 2020 compared to the prior year led by increasesnine months ended September 30, 2019 was primarily due to a change in net unfavorable EAC adjustments of $469 million at Pratt & Whitney. Significant EAC adjustments in the Americas (10%), Asia excluding China (6%)quarters and China (5%).nine months ended September 30, 2020 and 2019 are discussed in each business segment’s discussion below. Refer to the individual segment results for further information.
Summary performance for eachDefense Backlog and Defense Bookings. We believe defense backlog and defense bookings are relevant to an understanding of management’s view of our defense operations’ performance. Our defense operations consist primarily of our RIS and RMD businesses and operations in the commercialdefense businesses within our Collins Aerospace and Pratt & Whitney segments. Defense backlog was approximately $70.2 billion and $22.3 billion as of September 30, 2020 and December 31, 2019, respectively. Defense bookings were approximately $8.4 billion and $3.6 billion for the quarters ended September 30,
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2020 and 2019, respectively, and 2018 was as follows:
 Otis Carrier
(dollars in millions)2019 2018 Change 2019 2018 Change
Net Sales$3,307
 $3,223
 3% $4,822
 $4,880
 (1)%
Cost of Sales2,332
 2,291
 2% 3,376
 3,421
 (1)%
 975
 932
 5% 1,446
 1,459
 (1)%
Operating Expenses and Other467
 446
 5% 761
 615
 24 %
Operating Profits$508
 $486
 5% $685
 $844
 (19)%
Operating Profit Margins15.4% 15.1%   14.2% 17.3%  
Summary performance for each of the commercial businessesapproximately $21.8 billion and $12.4 billion for the nine months ended September 30, 2020 and 2019, respectively.
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 wasexcludes 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.
 Otis Carrier
(dollars in millions)2019 2018 Change 2019 2018 Change
Net Sales$9,751
 $9,604
 2% $14,107
 $14,291
 (1)%
Cost of Sales6,901
 6,814
 1% 9,951
 10,046
 (1)%
 2,850
 2,790
 2% 4,156
 4,245
 (2)%
Operating Expenses and Other1,401
 1,366
 3% 2,106
 1,164
 81 %
Operating Profits$1,449
 $1,424
 2% $2,050
 $3,081
 (33)%
Collins Aerospace Systems
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)20202019Change20202019Change
Net Sales$4,274$6,495(34)%$14,914$19,584(24)%
Operating Profits5261,259(58)%1,4553,499(58)%
Operating Profit Margins12.3 %19.4 %9.8 %17.9 %
Operating Profit Margins14.9% 14.8%   14.5% 21.6%  

Otis –
Quarter Ended September 30, 20192020 Compared with Quarter Ended September 30, 20182019
 Factors Contributing to Total Change
 
Organic(1)
FX
Translation
Acquisitions /
Divestitures, net
Restructuring
Costs
OtherTotal Change
Net Sales$(2,161)$14 $(74)$— $— $(2,221)
Operating Profits(1,181)(3)(25)(111)587 (733)
(1)    We provide the organic change in net sales and operating profit for our Collins Aerospace and Pratt & Whitney segments. We believe that these measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs and other significant non-recurring and non-operational items. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales4% (2)% % % 1%
Cost of Sales4% (2)% % % %
Operating Profits6% (2)% % % 1%

The organic sales increasedecrease of 4%$2.2 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 primarily reflects higher servicerelates to lower commercial aerospace aftermarket sales (3%),of $1.3 billion, including declines across all aftermarket sales channels, and lower commercial aerospace OEM sales of $1.0 billion. These reductions were primarily due to the current economic environment principally driven by broad-based growth across geographies;the COVID-19 pandemic which has resulted inlower flight hours, aircraft fleet utilization and higher new equipment sales (1%) driven by growth in Asia (2%),commercial OEM deliveries. This decrease was partially offset by declineshigher military sales of $0.1 billion. Included in other regions (combined, 1%).the organic sales decrease were lower commercial aerospace OEM and aftermarket sales of approximately $0.3 billion related to the Boeing 737 Max program and fewer upgrades due to certain regulatory mandates that were primarily completed in early 2020.
The operationalorganic profit increasedecrease of 6%$1.2 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily due to lower commercial aerospace operating profit of $1.3 billion principally driven by:
favorable priceby the lower commercial aerospace aftermarket and mix (8%)
margin contribution from the higherOEM sales volumes noted above (5%)
These increases werevolume discussed above. This decrease was partially offset by:
higher selling, generalby lower Selling, general and administrative expenses (5%)and Research and development costs of $0.1 billion, which includes the impact of cost reduction initiatives.

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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.
Nine Months Ended September 30, 20192020 Compared with Nine Months Ended September 30, 20182019
Factors Contributing to Total Change
 
Organic(1)
FX
Translation
Acquisitions /
Divestitures, net
Restructuring
Costs
OtherTotal Change
Net Sales$(4,587)$(6)$(77)$— $— $(4,670)
Operating Profits(2,685)25 (212)820 (2,044)
(1)    We provide the organic change in net sales and operating profit for our Collins Aerospace and Pratt & Whitney segments. We believe that these measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs and other significant non-recurring and non-operational items. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales5% (3)% % %  %
Cost of Sales6% (4)% % % (1)%
Operating Profits4% (4)% % 1% 1 %
The organic sales increasedecrease of 5% primarily reflects higher service sales (3%), driven by broad-based growth across geographies, and higher new equipment sales (2%) driven by growth$4.6 billion in Asia.
The operational profit increase of 4% was driven by:
margin contribution from the higher sales volumes noted above (7%)
favorable price and mix (3%)

These increases were partially offset by:
higher selling, general and administrative expenses (4%)
unfavorable transactional foreign exchange gains and losses from mark-to-market adjustments and embedded foreign currency derivatives within certain new equipment contracts (2%)


Carrier –
Quarter Ended September 30, 2019 Compared with Quarter Ended September 30, 2018
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales% (2)% 1%  %  %
Cost of Sales% (1)% %  %  %
Operating Profits1% (2)% 1% (2)% (17)%
Organic sales were consistent with the prior year as growth in commercial HVAC and Fire & Security products (1%, combined) was offset by declines in both transport and commercial refrigeration (1%, combined).
Operational profit increased 1% as the impact of favorable pricing (5%), lower selling, general and administrative expenses and research and development costs (2%, combined), favorable material productivity, net of the impact of tariffs (1%) and higher joint venture income (1%) were largely offset by lower volume and unfavorable mix (6%) and the absence of a favorable prior year contract adjustment related to a large commercial project (3%).
The 17% decrease in "Other" primarily reflects the impairment of an investment (13%) and the unfavorable impact of a contract termination (4%).

Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales2 % (2)% (1)%  %  %
Cost of Sales3 % (3)% (1)%  %  %
Operating Profits(1)% (1)%  % (2)% (29)%

The organic sales increase of 2% was primarily driven by growth in commercial and residential HVAC (1%, combined), and increases in global Fire & Security and transport refrigeration (1%, combined).
Operational profit decreased 1% in comparison to the prior year as favorable pricing (5%) was more than offset by unfavorable commodities, tariffs and labor productivity (3%, combined), unfavorable mix, net of higher volume (2%), and the absence of a favorable prior year contract adjustment related to a large commercial project (1%).
The 29% decrease in "Other" primarily reflects the absence of the prior year gain on the sale of Taylor Company (26%) and a current-year impairment of an investment (4%).


Aerospace Businesses
The aerospace businesses serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), U.S. Government military and space spending, and the general economic health of airline carriers are all barometers for our aerospace businesses. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits.
We continue to see growth in a strong commercial airline industry which is benefiting from traffic growth and lower fuel costs. Airline traffic, as measured by RPMs, grew approximately 5% in the first eight months of 2019.
Our commercial aftermarket businesses continue to evolve as a significant portion of our aerospace businesses' customers are covered under long-term aftermarket service agreements at Pratt & Whitney and Collins Aerospace Systems. These agreements are comprehensive long-term spare part and service agreements with our customers. We expect a continued shift to long-term aftermarket service agreements in lieu of transactional spare part sales as new aerospace products enter our customers' fleets under long-term service agreements and legacy fleets are retired. For the first nine months of 2019, as compared with 2018, total commercial aerospace aftermarket sales increased 72% at Collins Aerospace Systems (up 15% excluding the impact of the Rockwell Collins acquisition) and 3% at Pratt & Whitney.

Operating profit in the quarter and nine months ended September 30, 2019 included net unfavorable changes in aerospace contract estimates totaling $2 million and $82 million, respectively, primarily reflecting net unfavorable contract adjustments at Pratt & Whitney. Operating profit in the quarter ended September 30, 2018 included significant net favorable changes in aerospace contract estimates totaling $55 million, primarily reflecting favorable net contract adjustments at Pratt & Whitney. Operating profit for the nine months ended September 30, 2018 included significant net unfavorable changes in aerospace contract estimates totaling $28 million, reflecting unfavorable net contract adjustments recorded at both Collins Aerospace Systems and Pratt & Whitney.
Summary performance for each of the aerospace businesses for the quarters ended September 30, 2019 and 2018 was as follows:
 Pratt & Whitney Collins Aerospace Systems
(dollars in millions)2019 2018 Change 2019 2018 Change
Net Sales$5,283
 $4,789
 10% $6,495
 $3,955
 64%
Cost of Sales4,311
 4,215
 2% 4,554
 2,909
 57%
 972
 574
 69% 1,941
 1,046
 86%
Operating Expenses and Other501
 465
 8% 774
 436
 78%
Operating Profits$471
 $109
 332% $1,167
 $610
 91%
Operating Profit Margins8.9% 2.3%   18.0% 15.4%  
Summary performance for each of the aerospace businesses for2020 compared to the nine months ended September 30, 2019 primarily relates to lower commercial aerospace OEM sales of $2.8 billion and 2018lower commercial aerospace aftermarket sales of $2.3 billion, including declines across all aftermarket sales channels. These reductions were primarily due to the current economic environment principally driven by the COVID-19 pandemic, which has resulted inlower flight hours, aircraft fleet utilization and commercial OEM deliveries. This decrease was partially offset by higher military sales of $0.5 billion. Included in the organic sales decrease were lower commercial aerospace OEM and aftermarket sales of approximately $0.8 billion related to the Boeing 737 Max program and fewer upgrades due to certain regulatory mandates that were primarily completed in early 2020.
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.
74
 Pratt & Whitney Collins Aerospace Systems
(dollars in millions)2019 2018 Change 2019 2018 Change
Net Sales$15,250
 $13,854
 10% $19,584
 $11,734
 67%
Cost of Sales12,479
 11,629
 7% 14,038
 8,614
 63%
 2,771
 2,225
 25% 5,546
 3,120
 78%
Operating Expenses and Other1,443
 1,306
 10% 2,351
 1,353
 74%
Operating Profits$1,328
 $919
 45% $3,195
 $1,767
 81%

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Operating Profit Margins8.7% 6.6%   16.3% 15.1%  
Pratt & Whitney
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)20202019Change20202019Change
Net Sales$3,494$5,285(34)%$12,334$15,257(19)%
Operating Profits(615)520(218)%(597)1,447(141)%
Operating Profit Margins(17.6)%9.8 %(4.8)%9.5 %
Quarter Ended September 30, 20192020 Compared with Quarter Ended September 30, 20182019
 Factors Contributing to Total Change
 
Organic(1)
FX
Translation(2)
Acquisitions /
Divestitures, net
Restructuring
Costs
OtherTotal Change
Net Sales$(1,791)$— $— $— $— $(1,791)
Operating Profits(977)— — (63)(95)(1,135)
(1)    We provide the organic change in net sales and operating profit for our Collins Aerospace and Pratt & Whitney segments. We believe that these measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs and other significant non-recurring and non-operational items. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation*
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales11% (1)%  % %  %
Cost of Sales10% (1)%  % % (7)%
Operating Profits60% (9)% (2)% % 283 %
* (2)    For Pratt & Whitney only, the transactional impact of foreign exchange hedging at Pratt & Whitney Canada has been netted against the translational foreign exchange impact for presentation purposes in the table above. For all other segments these foreign exchange transactional impacts are included within the organic/operational caption in their respective tables. Due to its significance to Pratt & Whitney'sWhitney��s overall operating results, we believe it is useful to segregate the foreign exchange transactional impact in order to clearly identify the underlying financial performance.

The organic sales growthdecrease 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 OEMof $0.2 billion primarily driven by an increase in F117 overhauls, F135 engine sales (3%), and higheraftermarket growth on multiple fighter jet platforms. Included in the lower commercial aftermarket sales (3%).

was a $0.3 billion impact to sales from the unfavorable contract adjustments discussed further below.
The operationalorganic profit increasedecrease of 60%$1.0 billion in the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019 was primarily driven by:
higherby lower commercial OEM margin contribution (118%) primarily driven by favorable mix on large commercial engine shipments and continued year-over-year cost reduction

higher military margin contribution (17%)aftermarket operating profits of $1.1 billion driven by the sales increase notedvolume decrease discussed above,
These increases were unfavorable mix, a $334 million unfavorable EAC adjustment on a commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period and an unfavorable EAC adjustment of $129 million related to lower estimated revenues due to the restructuring of a customer contract. This decrease was partially offset by:
by lower commercial aftermarket margin contribution (31%) as unfavorable mix and net unfavorable contract adjustments more than offset margin contribution from the higher volumes noted above
higher selling, general and administrative expenses and other ramp-related costs (25%)
higher research and development costs (18%)of $0.1 billion, which includes the impact of cost reduction initiatives, and other income of $58 million related to foreign government wage subsidies due to COVID-19.
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% increasedecrease 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 reflectsdue to an $89 million impairment of commercial aircraft program assets in the absencecurrent quarter.
In the quarter ended September 30, 2020, Pratt & Whitney booked $473 million for the F-135 program.
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Table of a prior year customer contract settlement.Contents

Nine Months Ended September 30, 20192020 Compared with Nine Months Ended September 30, 20182019
Factors Contributing to Total Change
 
Organic(1)
FX
Translation(2)
Acquisitions /
Divestitures, net
Restructuring
Costs
OtherTotal Change
Net Sales$(2,887)$(36)$$$$(2,923)
Operating Profits(1,747)(12)(153)(132)(2,044)
(1)    We provide the organic change in net sales and operating profit for our Collins Aerospace and Pratt & Whitney segments. We believe that these measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change excludes the effect of foreign currency exchange rate fluctuations; acquisitions and divestitures, net; restructuring costs and other significant non-recurring and non-operational items. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above.
(2)    For Pratt & Whitney only, the transactional impact of foreign exchange hedging at Pratt & Whitney Canada has been netted against the translational foreign exchange impact for presentation purposes in the table above. For all other segments these foreign exchange transactional impacts are included within the organic/operational caption in their respective tables. Due to its significance to Pratt & Whitney’s overall operating results, we believe it is useful to segregate the foreign exchange transactional impact in order to clearly identify the underlying financial performance.
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation*
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales11% (1)% %  %  %
Cost of Sales10%  % %  % (3)%
Operating Profits13% (2)% % (2)% 36 %

The organic sales growthdecrease of 11%$2.9 billion in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily reflects higher commercial OEM sales (4%), higher military sales (4%), and higherlower commercial aftermarket sales of (2%).$2.9 billion, primarily due to a significant reduction in shop visits and related spare part sales, and lower commercial OEM sales of $0.5 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 of $0.5 billion primarily driven by an increase in F135 engine sales, F117 overhauls and aftermarket growth on multiple fighter jet platforms. Included in the lower commercial aftermarket sales a $0.3 billion impact to sales from the unfavorable contract adjustments discussed further below.    
The operationalorganic profit increasedecrease 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:
higher OEM margin contribution (20%) primarily driven by continued year-over-year cost reduction, favorable mix on largelower commercial engine shipments, and lower customer support costs
higher military profit contribution (11%),aftermarket operating profits of $1.8 billion driven by the sales increase notedvolume decrease discussed above,
These increases were unfavorable mix, a $334 million unfavorable EAC adjustment on a commercial engine aftermarket contract due to lower estimated revenues driven by a change in the estimated maintenance coverage period and an unfavorable EAC adjustment of $129 million related to lower estimated revenues due to the restructuring of a customer contract. The decrease was also driven by higher Selling, general and administrative expenses of $0.2 billion primarily driven by $229 million of increased estimates of expected credit losses due to customer bankruptcies and additional allowances for credit losses. This decrease was partially offset by:
higherby lower research and development costs (9%)of $0.2 billion, which includes the impact of cost reduction initiatives, and other income of $117 million related to foreign government wage subsidies due to COVID-19.
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 fromengine activity discussed above.
    The decrease in Other operating profits of $132 million in the higher volumes noted above
higher selling, general and administrative expenses and other ramp-related costs (5%)
The 36% increasenine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to an $89 million impairment of commercial aircraft program assets in "Other" primarily reflectsthe current year, the absence of a prior year customer contract settlement (33%)licensing sale of $19 million and favorable year-over-year licensing income (2%).the absence of a prior year gain on divestiture of $18 million.

Raytheon Intelligence & Space
Collins Aerospace Systems –
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)20202019Change20202019Change
Net Sales$3,674— NM$6,988— NM
Operating Profits348— NM659— NM
Operating Profit Margins9.5 %— 9.4 %— 
Bookings$2,859— NM$6,375— NM
Quarter Ended September 30, 2019 Compared with Quarter Ended September 30, 2018
 Factors Contributing to Total % Change
 
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
Net Sales7% (1)% 58%  % %
Cost of Sales5%  % 52%  % %
Operating Profits13% 1 % 78% (2)% 1%

The organic sales growth of 7% primarily reflects higher commercial aerospace aftermarket sales (7%), and higher military sales (3%), partially offset by lower commercial aerospace OEM sales (3%).NM = Not meaningful
The increase in operational profitnet sales of 13% primarily reflects:
higher commercial aerospace margins (8%) driven by$3,674 million and $6,988 million in the commercial aftermarket sales growth noted above, partially offset by lower commercial aerospace OEM margin contribution
lower year-over-year warranty expense (7%)

higher military margin contribution (3%) driven byquarter and nine months ended September 30, 2020 compared to the sales growth noted above
These increases were partially offset by:
higher selling, generalquarter and administrative expenses (4%)


Nine Months Endednine months ended September 30, 2019, Compared with Nine Months Endedrespectively, was due to the Raytheon Merger on April 3, 2020.
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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, 20182020 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.
Backlog and Bookings– Backlog was $18,272 million at September 30, 2020 compared to zero at December 31, 2019. The increase in backlog of $18,272 million was due to the Raytheon Merger. In the quarter ended September 30, 2020, RIS booked $928 million on a number of classified contracts and $176 million to perform operations and sustainment for the U.S. Air Force’s Launch and Test Range System (LTRS).
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.
Raytheon Missiles & Defense
Quarter Ended September 30,Nine Months Ended September 30,
Factors Contributing to Total % Change
Organic /
Operational
 
FX
Translation
 
Acquisitions /
Divestitures, net
 
Restructuring
Costs
 Other
(dollars in millions)(dollars in millions)20202019Change20202019Change
Net Sales9% (1)% 59% % %Net Sales$3,794— NM$7,384— NM
Cost of Sales8% (1)% 56% % %
Operating Profits12% 2 % 67% % %Operating Profits453— NM850— NM
Operating Profit MarginsOperating Profit Margins11.9 %— 11.5 %— 
BookingsBookings$2,585— NM$6,890— NM
NM = Not meaningful
The organicincrease 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 operationalincrease 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.
Backlog and Bookings– Backlog was $31,572 million at September 30, 2020 compared to zero at December 31, 2019. The increase in backlog of 12% primarily reflects:$31,572 million was due to the Raytheon Merger. In the quarter ended September 30, 2020, RMD booked $186 million on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Kingdom of Saudi Arabia (KSA).
higher commercial aerospace margin contribution (16%) driven byIn addition to the commercial aftermarket sales growthbookings noted above, partially offset by lower commercial aerospace OEM margin contributionin 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.
higher military margin contribution (1%) driven by the sales growth noted above
This increase was partially offset by:
higher selling, general and administrative expenses (3%)
higher research and development costs (2%)

Eliminations and other
 Net Sales Operating Profits
 Quarter Ended September 30, Quarter Ended September 30,
(dollars in millions)2019 2018 2019 2018
Eliminations and other$(411) $(337) $(232) $(102)
General corporate expenses
 
 (113) (109)
 Net Sales Operating Profits
 Nine Months Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018 2019 2018
Eliminations and other$(1,197) $(1,026) $(572) $(210)
General corporate expenses
 
 (335) (339)
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.
 Net SalesOperating Profits
Quarter Ended September 30,Quarter Ended September 30,
(dollars in millions)2020201920202019
Inter segment eliminations$(668)$(410)$(39)$(57)
Other non-reportable segments179 (12)11 
Eliminations and other$(489)$(407)$(51)$(46)
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 intentionrelated to separate its commercial businesses as well as costs associated with the Raytheon merger. Forcepoint sales.
The decrease in other non-reportable segments operating profitsprofit 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 andForcepoint.
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 Net SalesOperating Profits
Nine Months Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Inter segment eliminations$(1,780)$(1,195)$(76)$(172)
Other non-reportable segments328 (28)57 
Eliminations and other$(1,452)$(1,186)$(104)$(115)
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
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.
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Corporate expenses and other unallocated items$(84)$(83)$(491)$(216)
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 $80 million of net expenses related to the LTAMDS project acquired as part of the Raytheon Merger, partially offset by other unallocated items with no individual or common significant driver.
FAS/CAS operating adjustment
The segment results of RIS and RMD only include pension and PRB expense as determined under U.S. government CAS, which we generally recover through the pricing of our products and services to the U.S. government. The difference between our CAS expense and the FAS service cost attributable to these segments under U.S. GAAP is the FAS/CAS operating adjustment. The FAS/CAS operating adjustment results in consolidated pension expense in operating profit equal to the service cost component of FAS expense under U.S. GAAP. The segment results of Collins Aerospace and Pratt & Whitney include FAS service cost.
The pension and PRB components of the FAS/CAS Operating Adjustment were as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
FAS service cost (expense)$(118)$— $(227)$— 
CAS expense498 — 963 — 
FAS/CAS operating adjustment$380 $— $736 $— 
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 $736 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was due to the Raytheon Merger on April 3, 2020.
Acquisition accounting adjustments
Acquisition accounting adjustments include the amortization of acquired intangible assets related to historical acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through historical acquisitions and the amortization of customer contractual obligations related to loss making or below market contracts acquired. These adjustments are not considered part of management’s evaluation of segment results.
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The components of Acquisition accounting adjustments were as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Goodwill impairment charge$ $— $(3,183)$— 
Amortization of acquired intangibles(596)(309)(1,547)(906)
Amortization of property, plant and equipment fair value adjustment(19)(46)(19)
Amortization of customer contractual obligations related to acquired loss-making and below-market contracts92 86 237 268 
Acquisition accounting adjustments$(523)$(220)$(4,539)$(657)
Acquisition accounting adjustments related to acquisitions in each segment were as follows:
Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Collins Aerospace Systems$(157)$(138)$(3,736)$(439)
Pratt & Whitney(7)(82)(91)(218)
Raytheon Intelligence & Space(130)— (258)— 
Raytheon Missiles & Defense(204)— (404)— 
Total segment(498)(220)(4,489)(657)
Eliminations and other(25)— (50)— 
Acquisition accounting adjustments$(523)$(220)$(4,539)$(657)
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 absenceRaytheon 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.

LIQUIDITY AND FINANCIAL CONDITION
(dollars in millions)September 30, 2020December 31, 2019
Cash and cash equivalents$10,001 $4,937 
Total debt32,781 43,252 
Total equity70,080 44,231 
Total capitalization (total debt plus total equity)102,861 87,483 
Total debt to total capitalization32 %49 %
(dollars in millions) September 30, 2019 December 31, 2018 September 30, 2018
Cash and cash equivalents $7,341
 $6,152
 $13,799
Total debt 44,604
 45,537
 39,943
Net debt (total debt less cash and cash equivalents) 37,263
 39,385
 26,144
Total equity 42,819
 40,610
 34,250
Total capitalization (total debt plus total equity) 87,423
 86,147
 74,193
Net capitalization (total debt plus total equity less cash and cash equivalents) 80,082
 79,995
 60,394
Total debt to total capitalization 51% 53% 54%
Net debt to net capitalization 47% 49% 43%
Liquidity and Financial Condition as of September 30, 2020
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.
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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.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), along with earlier issued IRS guidance, provides for a net deferral of payroll tax payments. In the quarter ended September 30, 2020, we had cash outflows of $300 million related to previously deferred payroll taxes, and expect to pay any remaining deferred payroll taxes in the fourth quarter of 2020. As a result, we no longer expect a cash flows benefit in 2020, or an impact to future years’ cash flows, from the net deferral of payroll tax payments. In addition, deferrals of required estimated federal, foreign and state income tax payments due to the CARES Act and other similar state and foreign stimulus incentives could impact the timing of these payments within the year. The CARES Act, among other things, also contains numerous other provisions which may impact us. We continue to refine our understanding of the impact of the CARES Act on our business, and ongoing government guidance related to COVID-19 that may be issued.
At September 30, 2019,2020, we had cash and cash equivalents of $7.3$10.0 billion, of which approximately 80% approximately 20% was held by UTC's foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The Company no longer intendsdoes not intend to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, in the fourth quarter of 2018, it has recorded the taxes therewith. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, UTCwe will continue to permanently reinvest these earnings. We have repatriated approximately $1.2$1.8 billion of cash for the nine months ended September 30, 2019.2020.
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, 20192020 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 debtcredit ratings and financial position have enabled us to issue long-term debt at favorable marketinterest 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.
At September 30, 2019, we had credit agreements with various banks permitting aggregate borrowings of up to $10.35 billion, including: a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement, both of which expire in August 2021; and a $2.0 billion revolving credit agreement and a $4.0 billion term credit agreement, both of which we entered into on March 15, 2019 and which will expire on March 15, 2021 or, if earlier, the date that is 180 days after the date on which each of the separations of Otis and Carrier have been consummated. As of September 30, 2019, there were no borrowings under any of these agreements. The undrawn portions of these revolving credit agreements are also available to serve as backup facilities for the issuance of commercial paper.
As of September 30, 2019,2020, our maximum commercial paper borrowing limit was $6.35 billion. Commercial$5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. We had $160 million of commercial paper borrowings atas of September 30, 2019 include approximately €750 million ($824 million)2020. The maximum amount of euro-denominatedshort-term commercial paper.paper borrowings outstanding at any point in time during the nine months ended September 30, 2020 was $1,904 million. We use our commercial paper borrowings for general corporate purposes, including the funding of potential acquisitions, pension contributions, debt refinancing, dividend payments and repurchases of our common stock. The need for commercial paper notes outstanding have original maturities of not more than 90 days from the date of issuance.
In preparation for and in anticipation of the Separation Transactions, the Distributions and the Raytheon Merger, the Company entered into and terminated a number of credit agreements.
On February 11, 2020 and March 3, 2020, we terminated a $2.0 billion revolving credit agreement and a $4.0 billion term loan credit agreement, respectively. Upon termination, we repaid the $2.1 billion of borrowings arises whenoutstanding on the use$4.0 billion term loan credit agreement. On April 3, 2020, upon the completion of domestic cashthe Raytheon Merger, we terminated a $2.20 billion revolving credit agreement and a $2.15 billion multicurrency revolving credit agreement.
On March 20, 2020 and March 23, 2020, we entered into two $500 million term loan credit agreements and borrowed $1.0 billion under these agreements in the first quarter of 2020. We terminated these agreements on May 5, 2020 and April 28, 2020, respectively, upon repayment.
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.
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On February 10, 2020, Otis entered into a term loan credit agreement providing for general corporate purposes exceedsa $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 sumfull amounts of domestic cash generationthe term loans and foreign cash repatriateddistributed 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 hadfinancial institution at a rate that leverages our credit rating, which might be beneficial to them. Our suppliers’ participation in the SCF program does not impact or change our terms and conditions with those suppliers, and therefore, we have no debt issuances duringeconomic interest in a supplier’s decision to participate in the nine months endedprogram. In addition, we provide no guarantees or otherwise pay for any of the costs of the program incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institution, as it relates to the program. As such, amounts due to suppliers that have elected to participate in the SCF program are included in Accounts payable on our Condensed Consolidated Balance Sheet and all payment activity related to amounts due to suppliers that elected to participate in the SCF program are reflected in cash flows from operating activities in our Condensed Consolidated Statement of Cash Flows. As of September 30, 2020, and December 31, 2019, the amount due to suppliers participating in the SCF program and had the following issuances of debtincluded in 2018:
(dollars and Euro in millions)  
Issuance DateDescription of NotesAggregate Principal Balance
August 16, 2018:
3.350% notes due 20211
$1,000
 
3.650% notes due 20231
2,250
 
3.950% notes due 20251
1,500
 
4.125% notes due 20281
3,000
 
4.450% notes due 20381
750
 
4.625% notes due 20482
1,750
 
LIBOR plus 0.65% floating rate notes due 20211
750
   
May 18, 2018:
1.150% notes due 20243
750
 
2.150% notes due 20303
500
 
EURIBOR plus 0.20% floating rate notes due 20203
750
1The net proceeds received from these debt issuances were usedAccounts payable was approximately $348 million and $460 million, respectively. The decrease from December 31, 2019 to partially finance the cash consideration portion of the purchase price for Rockwell Collins and fees, expenses and other amounts related to the acquisition of Rockwell Collins.
2The net proceeds from these debt issuances were used to fund the repayment of commercial paper and for other general corporate purposes.
3The net proceeds received from these debt issuances were used for general corporate purposes.
We had the following repayments of debt during the nine months ended September 30, 2019 and the year-ended December, 31, 2018:2020 is due to decreases in our underlying supply chain purchases. The SCF program does not impact our overall liquidity.
(dollars and Euro in millions)  
Repayment DateDescription of NotesAggregate Principal Balance
July 15, 2019
1.950% notes1

 
$300
July 15, 2019
5.250% notes1
$300
December 14, 2018
Variable-rate term loan due 2020 (1 month LIBOR plus 1.25%)1
$482
May 4, 20181.778% junior subordinated notes$1,100
February 22, 2018EURIBOR plus 0.80% floating rate notes
750
February 1, 20186.80% notes
$99
1The notes and term loan were acquired in connection with the Rockwell Collins acquisition and have been subsequently repaid.
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.
Cash Flow - Operating Activities
 Nine Months Ended September 30,
(dollars in millions)20202019
Net cash flows provided by operating activities from continuing operations$2,964 $4,496 
Net cash (used in) provided by operating activities from discontinued operations(693)1,605 
 Nine Months Ended September 30,
(dollars in millions)2019 2018
Net cash flows provided by operating activities$6,101
 $4,317
Operating Activities - Continuing Operations. Cash generated fromby operating activities from continuing operations in the nine months ended September 30, 20192020 was $1,784$1,532 million higherlower than the same period in 2018. Net income from operations, when adjusted for the non-operating gain on the sale of Taylor Company in the prior year ($799 million) and the current year non-cash tax charges associated with the Company’s portfolio separation transactions ($618 million), drove an increase of $1.4 billion. Cash outflows from working capital improved $72 million in the nine months ended September 30, 2019 over the prior period. Reduced factoring activity resulted in a decrease of approximately $1.2 billion in cash flows from operating activities during the nine months ended September 30, 2019, as comparedprimarily due to the prior year. This declinenet decrease in factoring activity was primarily driven by Pratt & Whitney partially offset by increased factoring a

t Collins Aerospace Systems. Factoring activity does not reflect the factoring of certain receivables performed at customer request for which we are compensated by the customer for the extended collection cycle.
In the nine months ended September 30, 2019,operating cash outflows from working capital were $571 million. Inventory increased $1.5 billion to support higher sales volume at Collins Aerospace Systems, the Geared Turbo Fan at Pratt & Whitney, and build in HVAC at Carrier. Contract assets, current increased $499 million due to work performed in excess of billings at Pratt & Whitney and Collins Aerospace. Other current assets increased $111 million due to increases in prepaid expenses at Pratt & Whitney. These outflows were partially offset by increases in Accounts payable and accrued liabilities of $1.1 billion, Contract liabilities, current of $394 million and decreases in Accounts receivable of $59 million. Accounts payable increasedflows at Pratt & Whitney and Collins Aerospace Systems resulting from the current economic environment primarily driven by COVID-19, partially offset by the operating cash flows generated from the RIS and RMD segments as a result of inventory build. The increasethe Raytheon Merger on April 3, 2020. Included in Accrued liabilitiesthe decrease in operating cash flows was driven by an increasethe benefit of a reduction in accrued interest on debt and various accrualsaccounts payable at Collins Aerospace Systems and Pratt & Whitney. The increaseWhitney due to a decline in Contract liabilities, current wasvolume principally driven by the current economic environment primarily driven by COVID-19, a favorable change in contract assets principally driven by the timing of milestones on certain international direct commercial sales contracts and contractual billings terms on U.S. government contracts at OtisRMD and higher advanced billingsa decrease in inventory at Pratt & Whitney and Collins Aerospace Systems.Systems due to the decline in volume.
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, excluding2020, as compared to the adoption impact of the New Revenue Standard. Accounts receivable increased $2.4 billion due to anprior 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 Fanfactoring levels at Pratt & Whitney, seasonal build inWhitney.
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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.
The funded status of our defined benefit pension plans is dependent upon many factors, including returns on invested assets, the level of market interest rates and actuarial mortality assumptions. We can contribute cash or UTC shares to our plans at our discretion, subject to applicable regulations. Total cashfollowing contributions to our globalU.S. qualified and international defined benefit pension plans during the nine months ended September 30, 2019 and 2018 were approximately $89 million and $72 million, respectively. Although our domestic pension plans are approximately 97% funded on a projected benefit obligation basis as of September 30, 2019, and we are not required to make additional contributions through the end of 2024, we may elect to make discretionary contributions in 2019. PRB plans:
 Nine Months Ended September 30,
(dollars in millions)20202019
U.S. qualified and international defined benefit plans$56 $41 
PRB8 — 
Total$64 $41 
We expect to make total contributions of approximately $125$225 million to our globalU.S. qualified and international defined benefit pension plans in 2019, including $25 million to our domestic pension plans.2020. Contributions to our globalU.S. qualified and international defined benefit pension plans in 20192020 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.
Operating Activities - Discontinued Operations. Cash used in operating activities from discontinued operations in the nine months ended September 30, 2020 was $2,298 million lower than the same period in 2019 primarily driven by the absence of second and third quarter 2020 operating activity as the Separation Transactions occurred on April 3, 2020 and increased costs of separation.
Cash Flow - Investing Activities 
 Nine Months Ended September 30,
(dollars in millions)20202019
Net cash flows provided by (used in) investing activities from continuing operations$4,152 $(1,732)
Net cash used in investing activities from discontinued operations(241)(241)
 Nine Months Ended September 30,
(dollars in millions)2019 2018
Net cash flows used in investing activities$(1,973) $(1,019)
Cash flows used inOur investing activities for the nine months ended September 30, 2019 and 2018 primarily reflectinclude capital expenditures, cash investments in customer financing assets, investments/dispositions of businesses, payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms, and settlements of derivative contracts. contracts not designated as hedging instruments.
Investing Activities - Continuing Operations. The $954$5,884 million increasechange in cash flows used inprovided by investing activities from continuing operations in the nine months ended September 30, 20192020 compared to September 30, 20182019 primarily relates to the absenceRaytheon Merger, in which cash of $1$3.2 billion in proceeds fromwas acquired on April 3, 2020, and the sale of Taylor Companyour Collins Aerospace military GPS and space-based precision optics businesses for $2.3 billion in June 2018 by Carrier.gross cash proceeds.
Additions to property, plant and equipment were as follows:
 Nine Months Ended September 30,
(dollars in millions)20202019
Additions to property, plant and equipment$(1,172)$(1,122)
Capital expenditures for the nine months ended September 30, 20192020 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.
Cash investments in businesses inincreased $50 million from the nine months ended September 30, 2019 of $39 million consisted of small acquisitions2020. The reductions in capital expenditures at Otis. Collins Aerospace and Pratt & Whitney were more than offset by an increase in capital expenditures driven by the Raytheon Merger.
Dispositions of businesses in the nine months ended September 30, 20192020 were $2,575 million and primarily related to the sale of $134 million primarily consisted of theour 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, 20192020 were a net use of cash of $444$138 million, primarilycompared to a net use of cash of $445 million in the nine months ended September 30, 2019 driven by additionalfewer 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, 20192020 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.

We had commercial aerospace financing and other contractual commitments of approximately $15.5 billion at December 31, 2018.2020.
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'sRolls-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 ASCFinancial 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
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and operating the business. We have used derivative instruments, including swaps, forward contracts and options, to manage certain foreign currency, interest rate and commodity price exposures. The settlement of these derivative instruments resulted in a net cash inflowoutflow of approximately $158$115 million during the nine months ended September 30, 20192020 compared to a net cash inflow of $71$160 million during the nine months ended September 30, 2018.2019.
On October 19, 2020, we entered into a definitive agreement to sell our Forcepoint business for approximately $1.1 billion, subject to customary closing adjustments. We expect the transaction to close by the end of the first quarter of 2021, subject to satisfaction of customary closing conditions, including regulatory approvals.
Investing Activities - Discontinued Operations. Cash flows used in investing activities from discontinued operations in the nine months ended September 30, 2020 compared to September 30, 2019 was flat.
Cash Flow - Financing Activities
Nine Months Ended September 30, Nine Months Ended September 30,
(dollars in millions)2019 2018(dollars in millions)20202019
Net cash flows (used in) provided by financing activities$(2,894) $10,839
Net cash flows used in financing activities from continuing operationsNet cash flows used in financing activities from continuing operations$(2,056)$(1,484)
Net cash used in financing activities from discontinued operationsNet cash used in financing activities from discontinued operations(1,449)(1,410)
Our financing activities primarily include the issuance and repayment of short-term and long-term debt, payment of dividends and stock repurchases.
Financing Activities - Continuing Operations. The $572 million increase in cash used in financing activities was a cash outflow of $2.9 billionfrom continuing operations in the nine months ended September 30, 20192020 compared to September 30, 2019 is driven by increases in long-term debt repayments of $14.4 billion, a $3.3 billion change in net cash inflowtransfers to discontinued operations, and an increase in short-term borrowing repayments of $10.8$1.9 billion, partially offset by an increase in long-term debt issuances of $19.2 billion. The debt issuances as of September 30, 2020 reflect debt incurred by Otis and Carrier of approximately $6 billion and $11 billion, respectively. The net proceeds of these issuances and draws were primarily utilized by UTC 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.
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 by2020, which are included in the absencetables below.
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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 wasCompany 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:
(dollars in millions)
Issuance DateDescription of NotesAggregate Principal Balance
May 18, 20202.250% notes due 2030$1,000 
3.125% notes due 20501,000 
March 27, 2020
Term Loan due 2023 (Otis) (1)
1,000 
Term Loan due 2023 (Carrier) (1)
1,750 
February 27, 2020
1.923% notes due 2023 (1)
500 
LIBOR plus 0.450% floating rate notes due 2023 (1)
500 
2.056% notes due 2025 (1)
1,300 
2.242% notes due 2025 (1)
2,000 
2.293% notes due 2027 (1)
500 
2.493% notes due 2027 (1)
1,250 
2.565% notes due 2030 (1)
1,500 
2.722% notes due 2030 (1)
2,000 
3.112% notes due 2040 (1)
750 
3.377% notes due 2040 (1)
1,500 
3.362% notes due 2050 (1)
750 
3.577% notes due 2050 (1)
2,000 
$19,300 
(1)    The debt issuances and term loan draws reflect debt incurred by Otis and Carrier. The net proceeds of these issuances were primarily utilized to fund the Rockwell Acquisition, a decrease inextinguish Raytheon Technologies short-term borrowings of $1.3 billion, and an increase in dividends paid on common stock of $0.2 billion, partially offset by a reduction in long-term debt repayments of $1.4 billion.in order to not exceed the maximum applicable net indebtedness required by the Raytheon Merger Agreement.
Commercial paper borrowings and revolving credit facilities provide short-term liquidity to supplement operating cash flows and are used for general corporate purposes, including the funding of potential acquisitions and repurchases of our stock. We had approximately $984 millionno issuances of outstanding commercial paper atlong-term debt during the nine months ended September 30, 2019.
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We had the following repayments of long-term debt during the nine months ended September 30, 2020 and 2019:
(dollars in millions)
Repayment DateDescription of NotesAggregate Principal Balance
May 19, 2020
3.650% notes due 2023 (1)(2)
$410 
May 15, 2020
EURIBOR plus 0.20% floating rate notes due 2020 (€750 million principal value)(2)
817 
March 29, 2020
4.500% notes due 2020 (1)(2)
1,250 
1.125% notes due 2021 (€950 million principal value) (1)(2)
1,082 
1.250% notes due 2023 (€750 million principal value) (1)(2)
836 
1.150% notes due 2024 (€750 million principal value) (1)(2)
841 
1.875% notes due 2026 (€500 million principal value) (1)(2)
567 
March 3, 2020
1.900% notes due 2020 (1)(2)
1,000 
3.350% notes due 2021 (1)(2)
1,000 
LIBOR plus 0.650% floating rate notes due 2021 (1)(2)
750 
1.950% notes due 2021 (1)(2)
750 
2.300% notes due 2022 (1)(2)
500 
3.100% notes due 2022 (1)(2)
2,300 
2.800% notes due 2024 (1)(2)
800 
March 2, 2020
4.875% notes due 2020 (1)(2)
171 
February 28, 2020
3.650% notes due 2023 (1)(2)
1,669 
2.650% notes due 2026 (1)(2)
431 
Total debt repayments during the nine months ended September 30, 2020$15,174 
July 15, 20191.950% notes due 2019300 
5.250% notes due 2019300 
Total debt repayments during the nine months ended September 30, 2019$600 
(1)    In connection with the early repayment of outstanding principal, Raytheon Technologies recorded debt extinguishment costs of $703 million for the nine months ended September 30, 2020, which are classified as discontinued operations in our Condensed Consolidated Statement of Operations as we would not have had to redeem the debt, except for the Separation Transactions. No proceeds of the notes issued May 18, 2020 were used to fund the May 19, 2020 redemption.
(2)    Extinguishment of Raytheon Technologies short-term and long-term debt in order to not exceed the maximum net indebtedness required by the Raytheon Merger Agreement.
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 fromlaw. We currently do not anticipate any additional share repurchases in 2020.
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Our share repurchases were as follows:
Nine Months Ended September 30,
(dollars in millions; shares in thousands)20202019
$Shares$Shares
Shares of Common Stock repurchased$47 330 $111 857 
Our Board of Directors authorized the pending merger transaction with Raytheon. We madefollowing 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:
We paid dividends on common stock of $0.735 per share, totaling approximately $1,830 million in the aggregate for the nine months ended September 30, 2019.
 Nine Months Ended September 30,
(dollars in millions, except per share amounts)20202019
Dividends per share of Common Stock$1.685 $2.210 
Total dividends paid$2,026 1,830 
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, 201917, 2020 to shareowners of record at the close of business on November 15,13, 2020.
Financing Activities - Discontinued Operations. The $39 million increase in cash used in financing activities from discontinued operations in the nine months ended September 30, 2020 compared to September 30, 2019.
On September 27, 2019 we filed a universal shelf registration statement with the SEC for an indeterminate amount is driven by $703 million of debt and equity securities for future issuance, subjectextinguishment costs related to our internal limitations on the amountearly repayment of debt in the nine months ended September 30, 2020 and cash distributions made to be issued under the shelf registration statement.Carrier and Otis of $2.8 billion, partially offset by a change in net transfer activity of $3.3 billion.
Off-Balance Sheet Arrangements and Contractual Obligations
In our 20182019 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.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There has been no significant change in our exposure to market risk during the nine months ended September 30, 2019. For discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative3.    Quantitative and Qualitative Disclosures About Market Risk" contained
Our primary market exposures are to fluctuations in foreign currency exchange rates and interest rates as it relates to our market risk sensitive instruments, which are primarily cash, debt and derivative instruments. To quantify our market risk exposure, we perform a sensitivity analysis based on hypothetical changes in foreign currency exchange rates and interest rates. We changed our methodology for quantifying our market risk exposure in the second quarter of 2020 to better align with how we manage our risk exposure.
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies and to various internal or external financing arrangements. We use foreign currency forward contracts to hedge the price risk associated with firmly committed and forecasted foreign denominated payments and receipts related to our ongoing business and financing. The aggregate notional amount of our outstanding foreign currency hedges was $12.8 billion and $13.0 billion at September 30, 2020 and December 31, 2019, respectively. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. A 10% unfavorable exchange rate movement in our 2018 Form 10-K.portfolio of foreign currency contracts would have resulted in an increase in unrealized losses of $1.0 billion and $1.2 billion at September 30, 2020 and December 31, 2019, respectively. Such losses or gains would be offset by corresponding gains or losses in the remeasurement of the underlying transactions being hedged. We believe these foreign currency forward exchange contracts and the offsetting underlying commitments, when taken together, do not create material market risk.

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Interest Rate Risk
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.
Item 4.Controls and Procedures
Item 4.    Controls and Procedures
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 beenwere no changechanges in our internal control over financial reporting during the nine monthsquarter ended September 30, 2019,2020 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



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Cautionary Note Concerning Factors That May Affect Future Results
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&Dresearch 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 mergerRaytheon Merger and the separation transactions, estimated costs associated with such transactionsSeparation 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:

the effect of economic conditions in the industries and markets in which we and Raytheon operateRTC operates in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end market demand in construction and in both the commercial and defense segments of the aerospace industry, levels of air travel, financial condition of commercial airlines, and the impact of pandemic health issues (including the coronavirus disease 2019 (COVID-19) and its effects, among other things, on global supply, demand and distribution capabilities as the COVID-19 outbreak continues and results in an increasingly prolonged period of disruption to air travel and commercial activities generally, and significant restrictions and limitations on businesses, particularly within the aerospace and commercial airlines industries), aviation safety concerns, weather conditions and natural disasters, the financial condition of our customers and suppliers, and the risks associated with U.S. government sales (including changes or shifts in defense spending due to budgetary constraints, spending cuts resulting from sequestration or the allocation of funds to governmental responses to COVID-19, a government shutdown, or otherwise, and uncertain funding of programs);
challenges in the development, production, delivery, support, performance and realization of the anticipated benefits (including our expected returns under customer contracts) of advanced technologies and new products and services;
the scope, nature, impact or timing of the proposed merger with Raytheon and the separation transactions and other merger, acquisition and divestiture activity, including among other things the integration of UTC’s and Raytheon’s businesses or the integration of RTC with other businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs and expenses;
futureRTC’s levels of indebtedness, including indebtedness that may be incurred in connection with the proposed merger with Raytheon and the separation transactions, and capital spending and research and development spending;
future availability of credit and factors that may affect such availability, including credit market conditions and our capital structure;
the timing and scope of future repurchases by RTC of ourits common stock, which have been suspended through the end of the calendar year 2020 and may continue to be suspended, or discontinued or delayed, at any time due to various factors, including market conditions and the level of other investing activities and uses of cash, including in connection with the proposed merger with Raytheon;cash;
delays and disruption in delivery of materials and services from suppliers;
company and customer-directed cost reduction efforts and restructuring costs and savings and other consequences thereof (including the potential termination of U.S. government contracts and performance under undefinitized contract awards and the potential inability to recover termination costs);
new business and investment opportunities;
the ability to realize the intended benefits of organizational changes;
the anticipated benefits of diversification and balance of operations across product lines, regions and industries;
the outcome of legal proceedings, investigations and other contingencies;
pension plan assumptions and future contributions;
the impact of the negotiation of collective bargaining agreements and labor disputes;
the effect of changes in political conditions in the U.S. and other countries in which weRTC and Raytheon and ourits businesses each operate, including a change in the Administration or change in the makeup of Congress following the outcome of the November 2020 elections that may impact, among other things, regulatory approvals, the effect of changes in U.S.
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trade policies or the U.K.’s pendingUnited Kingdom’s withdrawal from the European Union, on general market conditions, global trade policies and currency exchange rates in the near term and beyond;
the effect of changes in tax (including U.S. tax reform enacted on December 22, 2017, which is commonly referred to as the Tax Cuts and Jobs Act of 2017)TCJA), environmental, regulatory and other laws and regulations (including, among other things, export and import requirements such as the International Traffic in Arms Regulations and the Export Administration Regulations, anti-bribery and anti-corruption requirements, including the Foreign Corrupt Practices

Act, industrial cooperation agreement obligations, and procurement and other regulations) in the U.S. and other countries in which we, RaytheonRTC and ourits businesses each operate;
negative effects of the announcement or pendency of the proposed merger with Raytheon or the separation transactions on the market price of our and/or Raytheon’s respective common stock and/or on our respective financial performance; 
the ability of UTC and Raytheon to receive the required regulatory approvals for the proposed merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and to satisfy the other conditions to the closing of the merger on a timely basis or at all;
the occurrence of events that may give rise to a right of one or both of UTC or Raytheon to terminate the merger agreement;
risks relating to the value of our shares to be issued in the proposed merger with Raytheon, significant transaction costs and/or unknown liabilities;
the possibility that the anticipated benefits from the proposed merger withcombination of UTC’s and Raytheon’s businesses (including ongoing integration activities from historic UTC and Raytheon acquisitions prior to the merger) cannot be realized in full or at all or may take longer to realize than expected, including risks associated with third party contracts containing consent and/or other provisions that may be triggered by the proposed transaction;  
risks associated with merger-related litigation;
the possibility that costs or difficulties related to the integration of UTC’s andbusinesses with Raytheon’s operations will be greater than expected;
risks relating to completed merger, acquisition and divestiture activity, including UTC’s integration of Rockwell Collins, including the risk that the integration may be more difficult, time-consuming or costly than expected or may not result in the achievement of estimated synergies within the contemplated time frame or at all;
the ability of each of UTC, Raytheon, the companies resulting from the separation transactions and the combined companyRTC to retain and hire key personnel;  personnel and the ability of our personnel to continue to operate our facilities and businesses around the world in light of, among other factors, the COVID-19 outbreak;
the expected benefits and timingto RTC of the separation transactions, and the risk that conditions to the separation transactions will not be satisfied and/or that the separation transactions will not be completed within the expected time frame, on the expected terms or at all;Separation Transactions;
the intended qualification of (i)(1) the mergerRaytheon Merger as a tax-free reorganization and (ii)(2) the separation transactionsSeparation Transactions as tax-free to UTC and UTC’sformer UTC shareowners, in each case, for U.S. federal income tax purposes; and
the possibility that any opinions, consents, approvals or rulings required in connection with the separation transactions will not be received or obtained within the expected time frame, on the expected terms or at all;
expected financing transactions undertaken in connection with the proposed merger with Raytheon and the separation transactions and risks associated with additional indebtedness;  
the risk that dissynergy costs, costs of restructuring transactions and otherdis-synergy costs incurred in connection with the separation transactionsSeparation Transactions will exceed our estimates; and
the impact of the proposed merger and the separation transactions on the respective businesses of UTC and Raytheon and the risk that the separation transactions may be more difficult, time-consuminglegacy UTC’s or costly than expected, including the impact on UTC’s resources, systems, procedures and controls and the impact on relationships with customers, suppliers, employees and other business counterparties.legacy Raytheon’s estimates.
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 2018Annual 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 20182019 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 20182019 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.


PART II – OTHER INFORMATION
Item 1.    Legal Proceedings
Federal Securities Laws Litigation
On January 2, 2018, a purported shareowner filed a second amended complaint in the United States District Court for the Southern DistrictSee “Note 17: Commitments and Contingencies” within Item 1 of New York (the "District Court") under the federal securities laws against the Company and certain of its current and former executives (Frankfurt-Trust Investment Luxemburg AG v. United Technologies Corporation et al.), which further amends a previously disclosed complaint that was filed on May 10, 2017. In the second amended complaint, the plaintiff purports to represent a class of shareowners who purchased the Company’s stock between December 11, 2014 and July 20, 2015. The second amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, related to alleged false and misleading statements and omissions of material fact made in connection with the Company’s 2015 earnings expectations. On September 28, 2018, the District Court granted the defendants’ motion to dismiss the case in its entirety. On October 25, 2018, the plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Second Circuit (the "Court of Appeals"). On October 15, 2019, the Court of Appeals affirmed the District Court's decision.
See Note 15: Contingent Liabilities,this Form 10-Q for discussion regarding othermaterial legal proceedings.
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.
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Item 1A.Risk Factors
Item 1A.    Risk Factors
Risk Factors
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 2019Quarterly Report on Form 10-Q for the quarterquarterly 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).
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about our purchases during the quarter ended September 30, 20192020 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.
2019 
Total Number of Shares Purchased
(000's)
 Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Program
(000's)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(dollars in millions)
July 1 - July 31 95
 $132.96
 95
 $1,880
August 1 - August 31 118
 127.87
 118
 $1,865
September 1 - September 30 92
 136.78
 92
 $1,852
Total 305
 $132.13
 305
 

2020Total Number of Shares Purchased
(000’)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Program
(000’s)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
(dollars in millions)
July 1 - July 31— $— — $1,767 
August 1 - August 31— — — $1,767 
September 1 - September 30— — — $1,767 
Total— $— — 
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 onWe 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.    

Item 6.    Exhibits
Item 6.Exhibit
Number
Exhibits
Exhibit Description
Exhibit
Number15
Exhibit Description
15
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*
(File name: utx-20190630.xml)
101.SCH
Inline XBRL Taxonomy Extension Schema Document.*
(File name: utx-20190630.xsd)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
(File name: utx-20190630_cal.xml)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
(File name: utx-20190630_def.xml)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
(File name: utx-20190630_lab.xml)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
(File name: utx-20190630_pre.xml)
104
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

Notes to Exhibits List:
*Submitted electronically herewith.
*    Submitted electronically herewith.
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated StatementsStatement of Operations for the quarters and nine months ended September 30, 20192020 and 2018,2019, (ii) Condensed Consolidated StatementsStatement of Comprehensive Income for the quarters and nine months ended September 30, 20192020 and 2018,2019, (iii) Condensed Consolidated Balance Sheets Sheet as of September 30, 20192020 and December 31, 2018,2019, (iv) Condensed Consolidated StatementsStatement of Cash Flows for the nine months ended September 30, 20192020 and 2018,2019, (v) Condensed Consolidated Statement of Changes in Equity for the quarters and nine months ended September 30, 20192020 and 20182019 and (vi) Notes to Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
RAYTHEON TECHNOLOGIES CORPORATION
(Registrant)
Dated:October 27, 2020
UNITED TECHNOLOGIES CORPORATION
(Registrant)
Dated:October 25, 2019by:By:
/s/ AKHILNTHONY JF. O’BOHRI        RIEN
Akhil JohriAnthony F. O’Brien
Executive Vice President &and Chief Financial Officer
(on behalf of the Registrant and as the Registrant'sRegistrant’s Principal Financial Officer)
Dated:October 25, 201927, 2020by:By:
/s/ RMOBERTICHAEL J. BWAILEYOOD
RobertMichael J. BaileyWood
Corporate Vice President and Controller
(on behalf of the Registrant and as the Registrant'sRegistrant’s Principal Accounting Officer)

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