RTX Corporation (RTX) Earnings Call Transcript & Summary

Good morning. And welcome to the 2020 Annual Meeting of the Shareowners of Raytheon Technologies Corporation, the name of the company since the April 3 merger between United Technologies and Raytheon Company. I'm Tom Kennedy, the Raytheon Technologies Chairman of the Board. It is now 8:00 AM, and I will call the annual meeting to order. In accordance with the company's press release issued on April 9, 2020, and proxy supplement filed with the Securities and Exchange Commission on the same date, due to the public health impact of the COVID-19 pandemic, this meeting is being held in a virtual format only. Shareowners as of the meeting record date are able to participate online by remote communication via the meeting web page. Instructions for assessing the meeting web page are provided in the press release and the proxy supplement. With me today are Greg Hayes, Raytheon Technologies Chief Executive Officer; Frank Jimenez, our Executive Vice President and General Counsel; and Dana Ng, our Corporate Vice President and Secretary. Joining the meeting telephonically are the following directors who, in addition to Mr. Hayes, are nominees listed in the proxy for election to the Board: General Lloyd Austin, retired U.S. Army general and former Commander of U.S. Central Command; Marshall Larsen, retired Chairman and CEO of Goodrich Corporation; Kelly Ortberg, special adviser to the office of the Chief Executive Officer; Dr. Meghan O'Sullivan, professor at Harvard University's Kennedy School; Denise Ramos, retired CEO of ITT; Fred Reynolds, retired Executive Vice President and CFO of CBS Corporation; Brian Rogers, retired Chairman of T. Rowe Price Group. We also welcome the following former Raytheon Company directors who, in addition to myself, joined the Raytheon Technologies Board at the time of the merger: Dinesh Paliwal, retired Chairman, President and CEO of Harman International and current Senior Adviser to the Harman Board and CEO, who is our Lead Director; Tracy Atkinson, retired Executive Vice President of State Street Corporation; George Oliver, President and CEO of Johnson Controls Incorporated; Ellen Pawlikowski, retired U.S. Air Force general and former Commander of U.S. Air Force Material Command; James Winnefeld, Jr., retired U.S. Navy admiral and formal (sic) [ former ] Vice Chairman of the chief -- Joint Chiefs of Staff; and Bob Work, retired Deputy Secretary of Defense. The terms of the directors who joined the Board at the time of the merger will expire at the 2021 annual meeting. Before proceeding, I would like to ask Greg to say a few words about the UTC directors who have retired.

Thank you, Tom. The Raytheon Technologies Board and management would like to recognize the contributions of the following individuals, each of whom recently resigned from the Board preceding the merger closing: Chris Kearney and Harold McGraw, who have joined the Board and directors of Otis Worldwide Corporation; John Faraci and Jean-Pierre Garnier, who have joined the Board of Directors of Carrier Global Corporation; and Ellen Kullman and Diane Bryant, each of whom have assumed Chief Executive Officer positions at outside companies. We'd like to thank each of them for guiding United Technologies through a dynamic period of value creation for shareowners and helping to charter a new strategic course culminating with the merger with Raytheon Technologies.

Thank you, Greg. We will now turn to the formal part of the meeting. In addition to providing live audio of the proceedings, the meeting web page also includes an agenda, a method for submitting questions and a voting capability, subject to provisions governing shareowner voting found in the proxy statement and proxy supplement. The order of business will be in accordance with the agenda. After the company-sponsored proposals are presented, the proponents of each of the 2 shareowner proposals set forth in the proxy statements will have the opportunity to present their proposal on live audio. After the matters to be voted on have been presented, the polls will close. After the polls close, we will announce the preliminary voting results and adjourn the formal meeting. After the formal meeting is adjourned, a limited period of time has been set aside during which Greg Hayes will address questions submitted either prior to or during the meeting. Questions relevant to the business of the meeting to which a response is not provided during the question-and-answer period will be addressed on the company's website in the coming days. The inspector of election at today's meeting is [ Michael Barbera ], who has been appointed by the Board to act in that capacity. Mr. [ Barbera ] has signed the customary oath of office, which will be an exhibit to the meeting minutes. Mr. [ Barbera ] has informed us that a quorum is represented in person or by proxy at the meeting. Because proper notice was given and a quorum is present, the meeting is duly convened to transact such business as may properly come before it. The polls are now open for voting on a total of 5 matters that will be presented for a vote at the meeting as set forth in the proxy statement and reflected on the agenda. There are 3 items on the ballot and proxy card as proposed by the Board and discussed in the proxy statement. They are as follows: number one, the elections of directors; number two, the advisory vote on executive compensation; number three, the vote to appoint PricewaterhouseCoopers as the independent public accountants to serve as Raytheon Technologies' independent auditor until the next annual meeting. These 3 items are now presented for the meeting. We will next proceed to the 2 shareholder proposals. Proposal #4 as a shareholder proposal regarding a simple majority vote requirement. We now ask John Chevedden to introduce and discuss the proposal.

This is John Chevedden. Can you hear me okay?

Yes.

Just a point of order. It's impossible for me to log into this meeting on the website. So does the company have any confirmation that any other people have logged into this meeting on the website?

Mr. Chevedden, this is Frank Jimenez, the General Counsel. We have 58 shareholders who have logged in according to the instructions sent to all shareholders of record.

This is Proposal 4, simple majority vote. Shareholders request that our Board take the steps necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated and replaced by a requirement for a majority of the votes cast for and against applicable proposals or a simple majority. Shareholders are willing to pay a premium for shares of companies that have excellent corporate governance. Shareholder proposal voting requirements have been found to be 1 of 6 entrenching mechanisms that are negatively related to company performance according to What Matters in Corporate Governance? by Lucian Bebchuk of the Harvard Law School. Supermajority requirements are used to block initiatives supported by most shareholders but opposed by a status quo management. This proposal topic won from 74% to 88% support at Alcoa waste management, Goldman Sachs, FirstEnergy and Macy's. These votes would have been higher than 74% to 88% if more shareholders had access to independent proxy voting advice. This proposal topic also received overwhelming 99% support at the 2019 [ Fortive ] annual meeting. Currently, a 1% minority can frustrate the will of a 79% shareholder majority in an election with 80% of shares casting ballots. In other words, a 1% minority could have the power to prevent shareholders from improving the governance of our company. This can be particularly important during periods of management underperformance or an economic downturn. Currently, the role of shareholders is downsized because management can't simply ignore shareholders in response to an overwhelming 79% shareholder vote. Raytheon already adopted this proposal topic years ago. This proposal topic, as a management proposal, nearly missed obtaining the overwhelming 80% support of all shares in existence in both 2018 and 2019 at United Technologies. Despite overwhelming shareholder support for this, the Corporate Governance Committee has allowed this proposal to go nowhere for 3 years. Mr. Brian Rogers, who chaired the United Technologies Governance Committee in 2019, is asked to explain today why he did not put greater effort in the passage of this proposal topic as a management proposal in 2019.

For the reasons stated in the proxy statement, the Board has made no recommendation regarding this proposal. Proposal #5 is a shareholder proposal to create a committee to prepare a report regarding the impact of plant closure on communities and alternatives to help mitigate the effects. We now ask David White, a representative of the proponents, United Steelworkers and the AFL-CIO, to introduce and discuss the proposal.

Thank you. Again, my name is David White. I'm with the International Association of Machinists and Aerospace Workers. On behalf of the AFL-CIO and the steel workers international union, I am presenting this resolution seeking a committee of representatives for management and employees to prepare a report regarding the impact on communities from a closure of company manufacturing site and alternatives that may be developed to help mitigate the impact of closures in the future. In recent years, the closing of manufacturing facilities has become a significant social policy issue that it has had a tremendous impact on our nation's economy and politics. The economies of local communities are adversely affected by manufacturing site closings. And these plant closings are often associated with moving production to other countries. The resulting negative public attention from job losses can damage the corporate reputation of companies who close manufacturing facilities. Companies have received significant public attention in recent years for closure of manufacturing facilities. For example, United Technologies received widespread media attention for the closure of a manufacturing site in Huntington, Indiana and the partial closure of a carrier manufacturing facility in Indianapolis, Indiana. More recently, United Technologies aerospace systems announced plans to close its manufacturing facility in Chula Vista, California. Raytheon's -- Raytheon Technologies' CEO has personally signed the Business Roundtable Statement on the Purpose of a Corporation. This statement affirmed the company's commitment to serve all stakeholders, including investing in our employees and supporting the communities in which we work. We believe that honoring these commitments to employees and their communities is the best way for the company to generate long-term value for shareholders. For these reasons, it is critically important to address the impact of plant closures on the communities in which the plants are located. This is particularly true given the close relationship between the company and the communities where it has operated for many years. Establishing the proposed committee will be a first step towards understanding the impact of future plant closings and the consideration of alternatives that can be developed to help mitigate the impact of such plant closures in the future. Thank you.

For the reasons stated in the proxy statement, the Board has recommended a vote against this proposal. With all proposals having been formally placed before the meeting, the polls are now closed for voting. Mr. [ Barbera ], may we please have the preliminary voting results?

Mr. Chairman, the preliminary voting results are as follows. Each of the nominees received over 97.5% of the vote in favor of election, and each nominee has been elected to the Board. With regard to the advisory vote to approve the compensation of the senior executives named in the proxy statement, the proposal was approved, having received 93.5% of the vote in favor. With regard to the appointment of the independent auditor, 95.8% of the shares have been voted in favor of appointing PricewaterhouseCoopers, and the appointment is approved. Next, with regard to the shareholder proposal regarding a simple majority vote requirement, 71% of the shares outstanding voted in favor of the proposal. Lastly, the shareholder proposal, to create a committee to prepare a report regarding the impact of plant closure on communities proposal, has received 5.3% of the vote in favor. My certificate as inspector of election will be executed and delivered to the Corporate Secretary.

Thank you, [ Michael ]. Please note that these are all preliminary voting results. The final votes will be certified by the inspector of election and reported on a Form 8-K that Raytheon Technologies will file in the next few days with the Securities and Exchange Commission. There being no other business properly before the meeting, the 2020 Annual Meeting of the Shareowners is now adjourned. I would now like to turn the microphone over to Greg Hayes, who will respond to questions submitted by shareowners.

Thank you, Tom.

Greg, we will take the questions in the order in which they were submitted. The first question is, do you have a plan for 2021?

Thank you, Frank. The question is, do we have a plan for 2021? And the answer quite simply is, of course, we do, although the exact details from a financial guidance standpoint are still relatively uncertain. I would remind shareowners, however, that the benefits of the merger remain intact, in our minds, despite the pandemic. By bringing these 2 great technology companies together, we'll be able to provide systems and solutions that nobody else in the industry could possibly imagine. And while again there will be some short-term issues associated with the pandemic, we believe the long-term benefits of this merger, cost synergies, talent synergies and technology synergies, will ultimately prove this to be a wonderful deal.

The second question is, what are you doing in response to COVID-19?

Thank you, Frank. As it relates to COVID-19, as we have said publicly, we are doing a number of things. We have obviously provided for the health and safety of our employees, first and foremost, by providing personal protective equipment, by providing social distancing. Today, of the 195,000 employees of Raytheon Technologies, approximately half of those people are working remotely. The other folks who are in the front lines and the factories continue to show up to work every day, and we thank them for their efforts. And again, their health and safety are first and foremost in our minds. For the community response, we have been as generous as you can imagine. We have contributed over 1 million pieces of personal protective equipment to the federal and state governments. We have dedicated our additive manufacturing facilities around the globe to producing medical-grade face masks. In the first 3 weeks, we have been able to produce 10,000 of these face shields, on our way to producing 30,000 in the next couple of months. We're also redirecting our charitable contributions this year to provide food relief across the nation. Food security continues to be an issue because of the pandemic, and we think this is the best thing that we can do in terms of directing charitable contributions during the year. Then lastly, of course, we continue to support STEM education as part of the solution as people work from home. We have aligned ourselves with an organization called Girls Who Code as well as other STEM-related programs across the country.

Thank you, Greg. The third question is, will the Board of Directors be taking the salary cuts as the employees across RTX are? Also, will the Board not take bonuses as is being done at other corporations under the present circumstances?

Thank you, Frank. So just to be clear, we will be instituting some very drastic spending cuts on our commercial aerospace businesses over these next few months as passenger traffic remains at record-low levels. There will be approximately a 10% reduction in the salaries of all corporate office and Collins Aerospace and Pratt & Whitney salaried employees for the remainder of the year. In addition, Dr. Tom Kennedy and myself have agreed to a 20% pay reduction for the remainder of the year. The Raytheon Technologies Board of Directors will take up this issue of their own compensation later today, and we will report on that. Their compensation is strictly related to an annual stipend. There are no bonuses and therefore nothing to cut.

Thank you, Greg. The fourth question is shareholders of original Raytheon have not been granted the opportunity to vote at the meeting. Why have those shareholders been disenfranchised from voting? Would you like me to take that...

Yes, Frank, please.

So as a formal matter, this is the Annual Meeting of Shareowners of the company that used to be called United Technologies Corporation, now called Raytheon Technologies. The proxy statement for this meeting was issued by United Technologies Corporation before the merger and the compensation information in the proxy statement covers the calendar year 2019. The record date for this meeting was March 3, before the merger, meaning that individuals who owned shares on that day were entitled to vote at this meeting. Raytheon shareowners who also held UTC shares on March 3 were entitled to vote today. Raytheon shareholders who didn't own UTC shares on March 3 but who own shares of RTX next year can vote at next year's meeting.

Thank you, Frank.

The last question submitted is, and I believe, Greg, that you've covered this in part by your first answer, any comments regarding the virus impact on future earnings?

Thank you, Frank. Obviously, as most shareowners have seen, Raytheon Technologies has withdrawn its annual earnings guidance as it relates to the impact from the COVID-19 pandemic. There will obviously be an impact to our business related to commercial aerospace. However, the defense and military business remains robust with over $70 billion of backlog and it is through that backlog and through the execution of the defense-related businesses that we will remain highly liquid and have a continued upside in our financial results.

And those were all the questions that were submitted.

Thank you, Frank. Okay. So this marks the end of the period that we've set aside for questions. As Tom noted earlier, questions relevant to the business of the meeting to which we are not -- we have not provided a response will be addressed in the company's website in the coming days. In closing, it is our sincere wish that all listening remain healthy and safe during these challenging times. Thank you, everyone.

Thank you. The conference has now concluded, thank you for attending today's presentation [Audio Gap]