RTX Corp 10-Q

Item 1. Financial Statements RTX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions, except per share amounts) 2023 2022 2023 2022 Net Sales: Products sales $ 8,615 $ 12,756 $ 34,813 $ 36,876 Services sales 4,849 4,195 14,180 12,105 Total net sales 13,464 16,951 48,993 48,981 Costs and Expenses: Cost of sales - products 9,289 10,493 31,078 30,353 Cost of sales - services 3,461 2,971 9,835 8,527 Research and development 712 662 2,048 1,995 Selling, general and administrative 1,401 1,351 4,364 4,184 Total costs and expenses 14,863 15,477 47,325 45,059 Other income, net 3 46 116 91 Operating profit (loss) ( 1,396 ) 1,520 1,784 4,013 Non-operating expense (income), net: Non-service pension income ( 443 ) ( 468 ) ( 1,334 ) ( 1,422 ) Interest expense, net 369 311 1,017 958 Total non-operating expense (income), net ( 74 ) ( 157 ) ( 317 ) ( 464 ) Income (loss) from continuing operations before income taxes ( 1,322 ) 1,677 2,101 4,477 Income tax expense (benefit) ( 389 ) 282 194 618 Net income (loss) from continuing operations ( 933 ) 1,395 1,907 3,859 Less: Noncontrolling interest in subsidiaries’ earnings from continuing operations 51 8 138 65 Net income (loss) from continuing operations attributable to common shareowners ( 984 ) 1,387 1,769 3,794 Loss from discontinued operations attributable to common shareowners — — — ( 19 ) Net income (loss) attributable to common shareowners $ ( 984 ) $ 1,387 $ 1,769 $ 3,775 Earnings (loss) Per Share attributable to common shareowners - Basic: Income (loss) from continuing operations $ ( 0.68 ) $ 0.94 $ 1.22 $ 2.57 Loss from discontinued operations — — — ( 0.02 ) Net income (loss) attributable to common shareowners $ ( 0.68 ) $ 0.94 $ 1.22 $ 2.55 Earnings (loss) Per Share attributable to common shareowners - Diluted: Income (loss) from continuing operations $ ( 0.68 ) $ 0.94 $ 1.21 $ 2.55 Loss from discontinued operations — — — ( 0.01 ) Net income (loss) attributable to common shareowners $ ( 0.68 ) $ 0.94 $ 1.21 $ 2.54 See accompanying Notes to Condensed Consolidated Financial Statements 4 Table of Contents RTX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2023 2022 2023 2022 Net income (loss) from continuing and discontinued operations $ ( 933 ) $ 1,395 $ 1,907 $ 3,840 Other comprehensive income (loss), before tax: Foreign currency translation adjustments ( 441 ) ( 1,050 ) 85 ( 1,998 ) Pension and postretirement benefit plans adjustments ( 104 ) 48 ( 433 ) 116 Change in unrealized cash flow hedging ( 123 ) ( 251 ) 174 ( 396 ) Other comprehensive income (loss), before tax ( 668 ) ( 1,253 ) ( 174 ) ( 2,278 ) Income tax benefit related to items of other comprehensive income (loss) 54 62 76 71 Other comprehensive income (loss), net of tax ( 614 ) ( 1,191 ) ( 98 ) ( 2,207 ) Comprehensive income (loss) ( 1,547 ) 204 1,809 1,633 Less: Comprehensive income attributable to noncontrolling interest 51 8 138 65 Comprehensive income (loss) attributable to common shareowners $ ( 1,598 ) $ 196 $ 1,671 $ 1,568 See accompanying Notes to Condensed Consolidated Financial Statements 5 Table of Contents RTX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (dollars in millions) September 30, 2023 December 31, 2022 Assets Current Assets Cash and cash equivalents $ 5,456 $ 6,220 Accounts receivable, net 10,058 9,108 Contract assets 12,696 11,534 Inventory, net 12,050 10,617 Other assets, current 6,258 4,964 Total current assets 46,518 42,443 Customer financing assets 2,452 2,603 Fixed assets 30,554 29,116 Accumulated depreciation ( 15,207 ) ( 13,946 ) Fixed assets, net 15,347 15,170 Operating lease right-of-use assets 1,755 1,829 Goodwill 53,883 53,840 Intangible assets, net 35,865 36,823 Other assets 6,623 6,156 Total assets $ 162,443 $ 158,864 Liabilities, Redeemable Noncontrolling Interest, and Equity Current Liabilities Short-term borrowings $ 1,170 $ 625 Accounts payable 10,315 9,896 Accrued employee compensation 2,597 2,401 Other accrued liabilities 14,283 10,999 Contract liabilities 15,248 14,598 Long-term debt currently due 1,389 595 Total current liabilities 45,002 39,114 Long-term debt 32,701 30,694 Operating lease liabilities, non-current 1,523 1,586 Future pension and postretirement benefit obligations 4,457 4,807 Other long-term liabilities 7,514 8,449 Total liabilities 91,197 84,650 Commitments and contingencies (Note 15) Redeemable noncontrolling interest 33 36 Shareowners’ Equity: Common stock 38,388 37,939 Treasury stock ( 18,170 ) ( 15,530 ) Retained earnings 51,513 52,269 Unearned ESOP shares ( 19 ) ( 28 ) Accumulated other comprehensive loss ( 2,116 ) ( 2,018 ) Total shareowners’ equity 69,596 72,632 Noncontrolling interest 1,617 1,546 Total equity 71,213 74,178 Total liabilities, redeemable noncontrolling interest, and equity $ 162,443 $ 158,864 See accompanying Notes to Condensed Consolidated Financial Statements 6 Table of Contents RTX CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (dollars in millions) 2023 2022 Operating Activities: Net income from continuing operations $ 1,907 $ 3,859 Adjustments to reconcile net income from continuing operations to net cash flows provided by operating activities: Depreciation and amortization 3,152 3,060 Deferred income tax benefit ( 728 ) ( 1,681 ) Stock compensation cost 319 318 Net periodic pension and other postretirement income ( 1,164 ) ( 1,062 ) Change in: Accounts receivable ( 913 ) 321 Contract assets ( 1,163 ) ( 999 ) Inventory ( 1,430 ) ( 1,434 ) Other current assets ( 878 ) ( 584 ) Accounts payable and accrued liabilities 3,422 1,298 Contract liabilities 429 ( 284 ) Other operating activities, net 219 ( 272 ) Net cash flows provided by operating activities from continuing operations 3,172 2,540 Investing Activities: Capital expenditures ( 1,610 ) ( 1,433 ) Investments in businesses — ( 66 ) Dispositions of businesses, net of cash transferred 6 94 Customer financing assets receipts, net 41 25 Increase in other intangible assets ( 536 ) ( 318 ) Payments from settlements of derivative contracts, net ( 18 ) ( 259 ) Other investing activities, net 56 66 Net cash flows used in investing activities from continuing operations ( 2,061 ) ( 1,891 ) Financing Activities: Issuance of long-term debt 2,974 — Repayment of long-term debt ( 175 ) ( 2 ) Change in commercial paper, net (Note 8) 473 2,067 Change in other short-term borrowings, net 68 ( 14 ) Dividends paid on common stock ( 2,472 ) ( 2,337 ) Repurchase of common stock ( 2,587 ) ( 2,395 ) Other financing activities, net ( 190 ) ( 329 ) Net cash flows used in financing activities from continuing operations ( 1,909 ) ( 3,010 ) Effect of foreign exchange rate changes on cash and cash equivalents 4 ( 57 ) Net decrease in cash, cash equivalents, and restricted cash ( 794 ) ( 2,418 ) Cash, cash equivalents, and restricted cash, beginning of period 6,291 7,853 Cash, cash equivalents, and restricted cash, end of period 5,497 5,435 Less: Restricted cash, included in Other assets, current and Other assets 41 54 Cash and cash equivalents, end of period $ 5,456 $ 5,381 See accompanying Notes to Condensed Consolidated Financial Statements 7 Table of Contents RTX 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) 2023 2022 2023 2022 Equity beginning balance $ 74,056 $ 71,990 $ 74,178 $ 74,664 Common Stock Beginning balance 38,228 37,673 37,939 37,483 Common stock plans activity 160 156 450 359 Purchase of subsidiary shares from noncontrolling interest, net — — ( 1 ) ( 13 ) Ending balance 38,388 37,829 38,388 37,829 Treasury Stock Beginning balance ( 16,713 ) ( 14,539 ) ( 15,530 ) ( 12,727 ) Common stock repurchased ( 1,457 ) ( 602 ) ( 2,640 ) ( 2,414 ) Ending balance ( 18,170 ) ( 15,141 ) ( 18,170 ) ( 15,141 ) Retained Earnings Beginning balance 52,489 50,271 52,269 50,265 Net income (loss) ( 984 ) 1,387 1,769 3,775 Dividends on common stock 5 5 ( 2,472 ) ( 2,337 ) Dividends on ESOP common stock — — ( 42 ) ( 40 ) Other 3 ( 11 ) ( 11 ) ( 11 ) Ending balance 51,513 51,652 51,513 51,652 Unearned ESOP Shares Beginning balance ( 22 ) ( 33 ) ( 28 ) ( 38 ) Common stock plans activity 3 2 9 7 Ending balance ( 19 ) ( 31 ) ( 19 ) ( 31 ) Accumulated Other Comprehensive Loss Beginning balance ( 1,502 ) ( 2,931 ) ( 2,018 ) ( 1,915 ) Other comprehensive income (loss), net of tax ( 614 ) ( 1,191 ) ( 98 ) ( 2,207 ) Ending balance ( 2,116 ) ( 4,122 ) ( 2,116 ) ( 4,122 ) Noncontrolling Interest Beginning balance 1,576 1,549 1,546 1,596 Net income 51 8 138 65 Less: Redeemable noncontrolling interest net income ( 3 ) ( 3 ) ( 6 ) ( 6 ) Dividends attributable to noncontrolling interest ( 7 ) ( 6 ) ( 58 ) ( 81 ) Purchase of subsidiary shares from noncontrolling interest, net — — — ( 19 ) Disposition of noncontrolling interest, net — — ( 3 ) ( 13 ) Capital contributions — — — 6 Ending balance 1,617 1,548 1,617 1,548 Equity at September 30 $ 71,213 $ 71,735 $ 71,213 $ 71,735 Supplemental share information Shares of common stock issued under employee plans, net 202 189 1,432 2,469 Shares of common stock repurchased 17,816 6,642 29,770 25,688 Dividends declared per share of common stock $ — $ — $ 1.730 $ 1.610 See accompanying Notes to Condensed Consolidated Financial Statements 8 Table of Contents RTX CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1: Basis of Presentation The Condensed Consolidated Financial Statements at September 30, 2023 and for the quarters and nine months ended September 30, 2023 and 2022 are unaudited, and in the opinion of management include adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. 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. The financial information included herein should be read in conjunction with the financial statements and notes in our 2022 Annual Report on Form 10-K. Effective July 17, 2023, we changed our legal name from Raytheon Technologies Corporation to RTX Corporation. Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries. Raytheon follows a 4-4-5 fiscal calendar while Collins Aerospace (Collins) and Pratt & Whitney use a quarter calendar end. Throughout this Quarterly Report on Form 10-Q, when we refer to the quarters ended September 30, 2023 and 2022 with respect to Raytheon, we are referring to their October 1, 2023 and October 2, 2022 fiscal quarter ends, respectively. We reclassified certain immaterial prior period amounts within the Condensed Consolidated Statement of Cash Flows to conform to our current period presentation. Organizational Structure. As previously announced, effective July 1, 2023, we streamlined the structure of our core businesses to three principal business segments: Collins Aerospace, Pratt & Whitney, and Raytheon. All segment information included in this Form 10-Q is reflective of this new structure and prior period information has been recast to conform to our current period presentation. In conjunction with the segment realignment, the Company revised its accounting policy with respect to the financial statement presentation of an immaterial amount of state income taxes allocable to U.S. government contracts related to our legacy Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD) segments. Prior to July 1, 2023, these state income taxes were classified as Selling, general and administrative expenses. Effective with the segment change, state income tax amounts previously reported within Selling, general and administrative expenses were reclassified to Income tax expense (benefit) within the Condensed Consolidated Statement of Operations, and prior period amounts have been reclassified to conform to our current period presentation. Pratt & Whitney Powder Metal Matter. Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts requires accelerated inspection of the PW1100G-JM (PW1100) Geared Turbofan (GTF) fleet, which powers the A320neo family of aircraft (A320neo) (herein referred to as the “Powder Metal Matter”). See “Note 15: Commitments and Contingencies” for additional information. Russia Sanctions. In response to the Russian military’s invasion of Ukraine on February 24, 2022, the U.S. government and the governments of various jurisdictions in which we operate, including Canada, the United Kingdom, the European Union, and others, have imposed broad economic sanctions and export controls targeting specific industries, entities, and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls targeting specific industries, entities, and individuals in the U.S. and other jurisdictions in which we operate, including certain members of the Company’s management team and Board of Directors. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software, and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected, and could continue to adversely affect, the Company and/or our supply chain, business partners, or customers. As a result of these sanctions on Russia and export controls, in the first quarter of 2022, we recorded pretax charges of $ 290 million, $ 210 million net of tax, and the impact of noncontrolling interest, within our Collins and Pratt & Whitney businesses primarily related to increased estimates for credit losses on both our accounts receivable and contract assets, inventory reserves and purchase order obligations, impairment of customer financing assets for products under lease, impairment of contract fulfillment costs that are no longer recoverable, and a loss on the exit of our investment in a Russia-based joint venture. We continue to monitor developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers. Coronavirus Disease 2019 (COVID-19) Pandemic. The COVID-19 pandemic caused continuing negative effects on the global economy, our business and operations, the labor market, supply chains, inflation, and the industries in which we operate. We believe the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand. 9 Table of Contents Our expectations regarding the negative effects of the COVID-19 pandemic and ongoing recovery and their 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. Note 2: Acquisitions, Dispositions, Goodwill, and Intangible Assets Dispositions. On July 20, 2023, we entered into a definitive agreement to sell our actuation and flight control business within our Collins segment for gross proceeds of approximately $ 1.8 billion. The closing of the transaction is subject to regulatory approvals and other customary closing conditions. Goodwill. Changes in our goodwill balances for the nine months ended September 30, 2023 were as follows: (dollars in millions) Balance as of December 31, 2022 Acquisitions and Divestitures Foreign Currency Translation and Other Balance as of September 30, 2023 Collins Aerospace $ 32,846 $ ( 3 ) $ 48 $ 32,891 Pratt & Whitney 1,563 — — 1,563 Raytheon 19,414 — ( 2 ) 19,412 Total Segments 53,823 ( 3 ) 46 53,866 Eliminations and other 17 — — 17 Total $ 53,840 $ ( 3 ) $ 46 $ 53,883 Effective July 1, 2023, we implemented a new organizational structure resulting in a change from four segments to three segments. As a result, we reassigned goodwill and customer relationship intangibles to our new segment structure. Goodwill was reassigned on a relative fair value basis and we tested goodwill related to the impacted reporting units immediately before and after the reassignment and determined that no impairment existed. Intangible Assets. Identifiable intangible assets are comprised of the following: September 30, 2023 December 31, 2022 (dollars in millions) Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Amortized: Collaboration assets $ 5,742 $ ( 1,621 ) $ 5,536 $ ( 1,408 ) Exclusivity assets 3,290 ( 344 ) 2,911 ( 323 ) Developed technology and other 1,212 ( 608 ) 1,202 ( 544 ) Customer relationships 29,830 ( 10,282 ) 29,775 ( 8,967 ) 40,074 ( 12,855 ) 39,424 ( 11,242 ) Indefinite-lived: Trademarks and other 8,646 — 8,641 — Total $ 48,720 $ ( 12,855 ) $ 48,065 $ ( 11,242 ) Amortization of intangible assets for the quarters and nine months ended September 30, 2023 and 2022 was $ 545 million and $ 1,564 million and $ 497 million and $ 1,451 million, respectively. The following is the expected amortization of intangible assets for the remainder of 2023 through 2028: (dollars in millions) Remaining 2023 2024 2025 2026 2027 2028 Amortization expense $ 449 $ 2,195 $ 2,102 $ 2,025 $ 1,905 $ 1,803 10 Table of Contents Note 3: Earnings Per Share Quarter Ended September 30, Nine Months Ended September 30, (dollars and shares in millions, except per share amounts) 2023 2022 2023 2022 Net income (loss) attributable to common shareowners: Income (loss) from continuing operations $ ( 984 ) $ 1,387 $ 1,769 $ 3,794 Loss from discontinued operations — — — ( 19 ) Net income (loss) attributable to common shareowners $ ( 984 ) $ 1,387 $ 1,769 $ 3,775 Basic weighted average number of shares outstanding 1,448.1 1,470.1 1,455.7 1,478.7 Stock awards and equity units (share equivalent) — 9.2 10.2 10.2 Diluted weighted average number of shares outstanding 1,448.1 1,479.3 1,465.9 1,488.9 Earnings (Loss) Per Share attributable to common shareowners - Basic: Income (loss) from continuing operations $ ( 0.68 ) $ 0.94 $ 1.22 $ 2.57 Loss from discontinued operations — — — ( 0.02 ) Net income (loss) attributable to common shareowners $ ( 0.68 ) $ 0.94 $ 1.22 $ 2.55 Earnings (Loss) Per Share attributable to common shareowners - Diluted: Income (loss) from continuing operations $ ( 0.68 ) $ 0.94 $ 1.21 $ 2.55 Loss from discontinued operations — — — ( 0.01 ) Net income (loss) attributable to common shareowners $ ( 0.68 ) $ 0.94 $ 1.21 $ 2.54 The computation of diluted earnings per share (EPS) 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 EPS excludes the effect of the potential release or 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, 2023, the number of stock awards excluded from the computation was 20.5 million and 7.0 million, respectively. For the quarter and nine months ended September 30, 2022, the number of stock awards excluded from the computation was 10.4 million and 7.1 million, respectively. All outstanding stock awards are excluded in the computation of diluted EPS in the quarter ended September 30, 2023 because their effect was antidilutive due to the loss from continuing operations. Note 4: Changes in Contract Estimates at Completion We review our Estimates at Completion (EACs) at least annually or when a change in circumstances warrants a modification to a previous estimate. For significant contracts, we review our EACs more frequently. 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 relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration. 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 including any impact from changing costs or inflation, 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 maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost changes. 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 on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior 11 Table of Contents 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, and changes to, loss provisions for 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) 2023 2022 2023 2022 Total net sales $ ( 235 ) $ 72 $ ( 304 ) $ 150 Operating profit (loss) ( 279 ) 7 ( 433 ) 2 Income (loss) from continuing operations attributable to common shareowners (1) ( 220 ) 6 ( 342 ) 2 Diluted earnings (loss) per share from continuing operations attributable to common shareowners (1) $ ( 0.15 ) $ — $ ( 0.23 ) $ — (1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments. Note 5: Accounts Receivable, Net Accounts receivable, net consisted of the following: (dollars in millions) September 30, 2023 December 31, 2022 Accounts receivable $ 10,422 $ 9,560 Allowance for expected credit losses ( 364 ) ( 452 ) Total accounts receivable, net $ 10,058 $ 9,108 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 were as follows: (dollars in millions) September 30, 2023 December 31, 2022 Contract assets $ 12,696 $ 11,534 Contract liabilities ( 15,248 ) ( 14,598 ) Net contract liabilities $ ( 2,552 ) $ ( 3,064 ) Contract assets increased $ 1,162 million during the nine months ended September 30, 2023 primarily due to sales in excess of billings on certain contracts at Raytheon and Pratt & Whitney, partially offset by a decrease in contract assets driven by a customer insolvency charge recorded in the second quarter of 2023 and the EAC impacts related to the Powder Metal Matter, both at Pratt & Whitney. Contract liabilities increased $ 650 million during the nine months ended September 30, 2023 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and Collins. We recognized revenue of $ 0.9 billion and $ 4.4 billion during the quarter and nine months ended September 30, 2023, respectively, related to contract liabilities as of January 1, 2023 and $ 1.1 billion and $ 4.1 billion during the quarter and nine months ended September 30, 2022, respectively, related to contract liabilities as of January 1, 2022. As of September 30, 2023, our Contract liabilities include approximately $ 390 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated. Contract assets include an allowance for expected credit losses of $ 235 million and $ 318 million as of September 30, 2023 and December 31, 2022, respectively. 12 Table of Contents Note 7: Inventory, net Inventory, net consisted of the following: (dollars in millions) September 30, 2023 December 31, 2022 Raw materials $ 3,894 $ 3,477 Work-in-process 4,297 3,839 Finished goods 3,859 3,301 Total inventory, net $ 12,050 $ 10,617 Note 8: Borrowings and Lines of Credit As of September 30, 2023, we had a revolving credit agreement with various banks permitting aggregate borrowings of up to $ 5.0 billion. This agreement was renewed in August 2023 and expires in August 2028. As of September 30, 2023, there were no borrowings outstanding under this agreement. The Company’s $ 2.0 billion revolving credit agreement scheduled to expire September 2023, was terminated in August 2023, and there were no outstanding borrowings at the time of termination. From time to time, we use 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 commercial paper notes have original maturities of not more than 364 days from the date of issuance. As of September 30, 2023, our maximum commercial paper borrowing limit was $ 5.0 billion as the commercial paper is backed by our $ 5.0 billion revolving credit agreement. We had $ 1.0 billion and $ 0.5 billion of commercial paper borrowings outstanding at September 30, 2023 and December 31, 2022, respectively, which is reflected in Short-term borrowings in our Condensed Consolidated Balance Sheet. At September 30, 2023 and December 31, 2022, short-term commercial paper borrowings outstanding had a weighted-average interest rate of 5.6 % and 4.4 %, respectively. During the nine months ended September 30, 2023, we had no new borrowings, and $ 200 million of repayments, of commercial paper with maturities greater than 90 days. During the nine months ended September 30, 2022, we had $ 1.4 billion of proceeds from issuance, and no repayments, of commercial paper with maturities greater than 90 days. We had the following issuances of long-term debt during the nine months ended September 30, 2023: Issuance Date Description of Notes Aggregate Principal Balance (in millions) February 27, 2023 5.000 % notes due 2026 $ 500 5.150 % notes due 2033 1,250 5.375 % notes due 2053 1,250 We made the following repayment of long-term debt during the nine months ended September 30, 2023: Repayment Date Description of Notes Aggregate Principal Balance (in millions) August 16, 2023 3.650 % notes due 2023 $ 171 Long-term debt consisted of the following: (dollars in millions) September 30, 2023 December 31, 2022 3.650 % notes due 2023 (1) $ — $ 171 3.700 % notes due 2023 (1) 400 400 3.200 % notes due 2024 (1) 950 950 3.150 % notes due 2024 (1) 300 300 3.950 % notes due 2025 (1) 1,500 1,500 2.650 % notes due 2026 (1) 719 719 5.000 % notes due 2026 (1) 500 — 3.125 % notes due 2027 (1) 1,100 1,100 3.500 % notes due 2027 (1) 1,300 1,300 7.200 % notes due 2027 (1) 382 382 7.100 % notes due 2027 135 135 6.700 % notes due 2028 285 285 13 Table of Contents 7.000 % notes due 2028 (1) 185 185 4.125 % notes due 2028 (1) 3,000 3,000 7.500 % notes due 2029 (1) 414 414 2.150 % notes due 2030 (€ 500 million principal value) (1) 533 531 2.250 % notes due 2030 (1) 1,000 1,000 1.900 % notes due 2031 (1) 1,000 1,000 2.375 % notes due 2032 (1) 1,000 1,000 5.150 % notes due 2033 (1) 1,250 — 5.400 % notes due 2035 (1) 446 446 6.050 % notes due 2036 (1) 410 410 6.800 % notes due 2036 (1) 117 117 7.000 % notes due 2038 148 148 6.125 % notes due 2038 (1) 575 575 4.450 % notes due 2038 (1) 750 750 5.700 % notes due 2040 (1) 553 553 4.875 % notes due 2040 (1) 600 600 4.700 % notes due 2041 (1) 425 425 4.500 % notes due 2042 (1) 3,500 3,500 4.800 % notes due 2043 (1) 400 400 4.200 % notes due 2044 (1) 300 300 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 2047 (1) 1,000 1,000 4.625 % notes due 2048 (1) 1,750 1,750 3.125 % notes due 2050 (1) 1,000 1,000 2.820 % notes due 2051 (1) 1,000 1,000 3.030 % notes due 2052 (1) 1,100 1,100 5.375 % notes due 2053 (1) 1,250 — Other (including finance leases) 260 253 Total principal long-term debt 34,087 31,249 Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs) 3 40 Total long-term debt 34,090 31,289 Less: current portion 1,389 595 Long-term debt, net of current portion $ 32,701 $ 30,694 (1) We may redeem these notes, in whole or in part, at our option pursuant to their terms prior to the applicable maturity date. The average maturity of our long-term debt at September 30, 2023 is approximately 14 years. Note 9: 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. 14 Table of Contents Contributions to our plans were as follows: Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2023 2022 2023 2022 U.S. qualified defined benefit plans $ 9 $ — $ 9 $ — International defined benefit plans 13 18 42 48 PRB plans 8 8 20 18 Defined contribution plans 296 230 985 792 In December 2020, we approved a change to the Raytheon Company domestic defined benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation under the historical formula effective December 31, 2022. The plan change does not impact participants’ historical benefit accruals. Benefits for service after December 31, 2022 are based on a cash balance formula. This plan change resulted in lower pension service cost beginning January 1, 2023. The amounts recognized in the Condensed Consolidated Balance Sheet consist of: (dollars in millions) September 30, 2023 December 31, 2022 Noncurrent pension assets (included in Other assets) $ 3,996 $ 3,301 Current pension and PRB liabilities (included in Accrued employee compensation) 307 307 Future pension and postretirement benefit obligations 4,457 4,807 The amounts recognized in Future pension and postretirement benefit obligations consist of: (dollars in millions) September 30, 2023 December 31, 2022 Noncurrent pension liabilities $ 3,816 $ 4,133 Noncurrent PRB liabilities 581 611 Other pension and PRB related items 60 63 Future pension and postretirement benefit obligations $ 4,457 $ 4,807 The components of net periodic benefit (income) expense for our defined pension and PRB plans were as follows: Pension Benefits Quarter Ended September 30, PRB Quarter Ended September 30, (dollars in millions) 2023 2022 2023 2022 Operating expense Service cost $ 56 $ 118 $ 1 $ 2 Non-operating expense Interest cost 627 380 12 7 Expected return on plan assets ( 940 ) ( 883 ) ( 5 ) ( 5 ) Amortization of prior service credit ( 39 ) ( 40 ) — — Recognized actuarial net (gain) loss ( 94 ) 76 ( 8 ) ( 3 ) Net settlement, curtailment, and special termination benefit (gain) loss 4 — — — Non-service pension income ( 442 ) ( 467 ) ( 1 ) ( 1 ) Total net periodic benefit (income) expense $ ( 386 ) $ ( 349 ) $ — $ 1 15 Table of Contents Pension Benefits Nine Months Ended September 30, PRB Nine Months Ended September 30, (dollars in millions) 2023 2022 2023 2022 Operating expense Service cost $ 167 $ 354 $ 3 $ 6 Non-operating expense Interest cost 1,880 1,142 36 21 Expected return on plan assets ( 2,815 ) ( 2,661 ) ( 15 ) ( 16 ) Amortization of prior service credit ( 118 ) ( 123 ) — — Recognized actuarial net (gain) loss ( 284 ) 230 ( 24 ) ( 9 ) Net settlement, curtailment, and special termination benefit (gain) loss 6 ( 6 ) — — Non-service pension (income) expense ( 1,331 ) ( 1,418 ) ( 3 ) ( 4 ) Total net periodic benefit (income) expense $ ( 1,164 ) $ ( 1,064 ) $ — $ 2 We have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined benefit and defined contribution plan obligations in excess of qualified plan limits. These assets are included in Other assets in our Condensed Consolidated Balance Sheet. The fair value of marketable securities held in trusts was as follows: (dollars in millions) September 30, 2023 December 31, 2022 Marketable securities held in trusts $ 737 $ 774 Note 10: Income Taxes On September 8, 2023, the Internal Revenue Service (IRS) issued Notice 2023-63 providing interim guidance regarding the capitalization and amortization of research and experimental expenditures for U.S. tax purposes that became effective in 2022; prior to 2022 research and experimental expenditures were generally deductible in the period incurred. The IRS notice also provides that the Department of the Treasury and the IRS intend to issue proposed regulations consistent with the guidance set forth in the notice and that taxpayers may rely on the guidance in the notice prior to the issuance of the proposed regulations. The Company’s initial analysis indicates the guidance provided in the notice will result in fewer costs being subject to capitalization, and as such, costs previously required to be capitalized will now be deductible in the year incurred. Accordingly, the financial statements for the quarter and nine months ended September 30, 2023 include the estimated impacts of the interim guidance provided in the notice for both the 2022 and 2023 tax years. The Company will continue to review the applicability of the notice to our businesses and will review the proposed regulations when issued and adjust the estimates as necessary. Our effective tax rate for the quarter and nine months ended September 30, 2023 was 29.4 % and 9.2 %, respectively, as compared to 16.8 % and 13.8 % for the quarter and nine months ended September 30, 2022, respectively. The change in our effective tax rate for the quarter and nine months ended September 30, 2023 primarily relates to a $ 2.9 billion charge related to the Powder Metal Matter. We recorded a deferred income tax benefit related to this charge of $ 663 million. The remaining change is primarily driven by a higher forecasted annualized effective tax rate for 2023 principally due to a lower forecasted Foreign Derived Intangible Income (FDII) benefit. We conduct business globally and, as a result, RTX 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 Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, 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 2013. The Examination Division of the Internal Revenue Service (IRS) is concluding the examination phase of RTX (formerly United Technologies Corporation) tax years 2017 and 2018, pre-acquisition Rockwell Collins tax years 2016, 2017, and 2018, and pre-merger Raytheon Company tax years 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 phase of these audits is expected to close in 2023. The Company expects to dispute certain IRS proposed adjustments for each exam at the Appeals Division of the IRS. The Company believes that it is reasonably possible that the closure of the audit examination phase for the RTX 2017 and 2018 and Rockwell Collins 2016, 2017, and 2018 tax years, as well as the expected expiration of U.S. federal income tax statute of limitations for RTX’s 2019 tax year in the fourth quarter of 2023, will result in a net income benefit in the range of $ 275 16 Table of Contents million to $ 365 million. This range includes the effects of adjusting interest accruals and certain tax related indemnity receivables related to the separation and distributions of Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis). The tax components of this range are included in the revaluation range discussed below. 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. It is reasonably possible that a net reduction within the range of $ 350 million to $ 475 million of unrecognized tax benefits may occur within the next 12 months as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes. Note 11: Financial Instruments We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments 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, 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 present value of aggregate notional principal of our outstanding foreign currency hedges was $ 12.7 billion and $ 11.2 billion at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, all derivative contracts accounted for as cash flow hedges will m ature by February 2030. The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheet for derivative instruments: (dollars in millions) Balance Sheet Location September 30, 2023 December 31, 2022 Derivatives designated as hedging instruments: Foreign exchange contracts Other assets, current $ 125 $ 67 Other accrued liabilities 231 347 Derivatives not designated as hedging instruments: Foreign exchange contracts Other assets, current $ 26 $ 17 Other accrued liabilities 43 39 The effect of cash flow hedging relationships on Accumulated other comprehensive income (loss) and on the Condensed Consolidated Statement of Operations in the quarters and nine months ended September 30, 2023 and 2022 are presented in “Note 16: Accumulated Other Comprehensive Loss.” The amounts of gain or loss are attributable to foreign exchange contract activity and are primarily recorded as a component of Products sales when reclassified from Accumulated other comprehensive loss. The Company utilizes the critical terms match method in assessing derivatives for hedge effectiveness. Accordingly, the hedged items and derivatives designated as hedging instruments are highly effective. As of September 30, 2023, our € 500 million principal value of euro-denominated long-term debt qualifies as a net investment hedge against our investments in European businesses, which is deemed to be effective. The effect of derivatives not designated as hedging instruments is included within Other income, net, on the Condensed Consolidated Statement of Operations and is not significant. Note 12: Fair Value Measurements The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Condensed Consolidated Balance Sheet: September 30, 2023 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 737 $ 675 $ 62 $ — Derivative assets 151 — 151 — Derivative liabilities 274 — 274 — 17 Table of Contents December 31, 2022 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 774 $ 713 $ 61 $ — Derivative assets 84 — 84 — Derivative liabilities 386 — 386 — Valuation Techniques. 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’ credit risks. As of September 30, 2023, 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’ 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: September 30, 2023 December 31, 2022 (dollars in millions) Carrying Amount Fair Value Carrying Amount Fair Value Customer financing notes receivable $ 88 $ 82 $ 169 $ 161 Long-term debt (excluding finance leases) 33,995 29,125 31,201 28,049 The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Condensed Consolidated Balance Sheet: September 30, 2023 (dollars in millions) Total Level 1 Level 2 Level 3 Customer financing notes receivable $ 82 $ — $ 82 $ — Long-term debt (excluding finance leases) 29,125 — 29,080 45 December 31, 2022 (dollars in millions) Total Level 1 Level 2 Level 3 Customer financing notes receivable $ 161 $ — $ 161 $ — Long-term debt (excluding finance leases) 28,049 — 28,003 46 The fair value of our Short-term borrowings approximates the carrying value due to their short-term nature, with commercial paper classified as level 2 and other short-term borrowings classified as level 3 within the fair value hierarchy. Note 13: Variable Interest Entities Pratt & Whitney holds a 61 % program share interest in the International Aero Engines AG (IAE) collaboration with MTU Aero Engines AG (MTU) and Japanese Aero Engines Corporation (JAEC), and a 49.5 % ownership interest in IAE. IAE’s business purpose is to coordinate the design, development, manufacturing, and product support of the V2500 engine program through involvement with the collaborators. Additionally, Pratt & Whitney, JAEC, and MTU are participants in the International Aero Engines, LLC (IAE LLC) collaboration, whose business purpose is to coordinate the design, development, manufacturing, and product support for the PW1100G-JM engine for the Airbus A320neo family of aircraft. Pratt & Whitney holds a 59 % program share 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 as the primary beneficiary. IAE and IAE LLC have, therefore, been consolidated. Other collaborators participate in Pratt & Whitney’s program share interest in IAE and IAE LLC. Pratt & Whitney’s net program share interest in 18 Table of Contents IAE and IAE LLC, after considering its sub-collaborator share, is 57 % and 51 %, respectively. 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, 2023 December 31, 2022 Current assets $ 8,516 $ 7,609 Noncurrent assets 857 779 Total assets $ 9,373 $ 8,388 Current liabilities $ 12,198 $ 9,154 Noncurrent liabilities 99 19 Total liabilities $ 12,297 $ 9,173 Note 14: Guarantees We extend a variety of financial, market value, and product performance guarantees to third parties. These instruments expire on various dates through 2036. Additional guarantees of project performance for which there is no stated value also remain outstanding. A portion of our third party guarantees are subject to indemnification for our benefit for any liabilities that could arise. As of September 30, 2023 and December 31, 2022, the following financial guarantees were outstanding: September 30, 2023 December 31, 2022 (dollars in millions) Maximum Potential Payment Carrying Amount of Liability Maximum Potential Payment Carrying Amount of Liability Commercial aerospace financing arrangements $ 302 $ — $ 304 $ — Third party guarantees 422 1 335 1 We have made residual value and other guarantees related to various commercial aerospace customer financing arrangements. The estimated fair market values of the guaranteed assets equal or exceed the value of the related guarantees, net of existing reserves. Collaboration partners’ share of these financing guarantees were $ 139 million and $ 140 million at September 30, 2023 and December 31, 2022, respectively. 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 $ 96 million and $ 97 million at September 30, 2023 and December 31, 2022, respectively. These primarily relate to environmental liabilities, which are included in our total environmental liabilities as further discussed in “Note 15: Commitments and Contingencies.” We accrue for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. We also provide service and warranty policies on our products and extend performance and operating cost guarantees beyond our normal service and warranty policies on some of our products, particularly commercial aircraft engines. In addition, we incur discretionary costs to service our products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are made to accruals as claims data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the nine months ended September 30, 2023 and 2022 were as follows: (dollars in millions) 2023 2022 Balance as of January 1 $ 1,109 $ 1,157 Warranties and performance guarantees issued 244 203 Settlements ( 221 ) ( 196 ) Other ( 21 ) ( 21 ) Balance as of September 30 $ 1,111 $ 1,143 Product and service guarantees incurred in connection with long term production contracts and certain aftermarket arrangements are generally accounted for within the contract estimates at completion. 19 Table of Contents Note 15: Commitments and Contingencies 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, financial condition, or liquidity. Environmental. Our operations are subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. 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 do not expect any additional liability to have a material adverse effect on our results of operations, financial condition, or liquidity. As of September 30, 2023 and December 31, 2022, we had $ 770 million and $ 798 million, respectively, reserved for environmental remediation. Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $ 14.5 billion and $ 15.3 billion as of September 30, 2023 and December 31, 2022, respectively, on a gross basis before reduction for our collaboration partners’ share. Aircraft financing commitments, in the form of debt or lease financing, are provided to certain commercial aerospace customers. The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other financing sources. We may also arrange for third-party investors to assume a portion of these commitments. The majority of financing commitments are collateralized arrangements. We may also lease aircraft and subsequently sublease the aircraft to customers under long-term non-cancelable operating leases, or pay deposits on behalf of our customers to secure production slots with the airframers (pre-delivery payments). Our financing commitments with customers are contingent upon maintenance of certain levels of financial condition by our customers. Associated risks on these commitments are mitigated due to the 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 our customers. As a result, the fair value of these financing commitments is expected to equal the amounts funded. We also have other contractual commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms. The estimated amount and timing of these payments are generally based on future sales or engine flight hours. Payments made on these contractual commitments are included within intangible assets as exclusivity assets and are amortized over the term of underlying economic benefit. We have entered into certain collaboration arrangements, which may include participation by our collaboration partners in these commitments. In addition, 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 are capitalized as collaboration intangible assets as payments are made. 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 $ 3.1 billion as of September 30, 2023. 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, 2023, the aggregate amount of our offset agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $ 12.4 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 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 20 Table of Contents actions and proceedings. For example, we are now, and believe that, in light of the current U.S. government 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 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 investigations and audits may be initiated due to a 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 or other damages, forfeitures, restitution, or penalties being imposed upon us, the suspension of government export licenses, or the suspension or debarment from future U.S. government contracting. U.S. government investigations often take years to complete. The U.S. government also reserves the right to debar a contractor from receiving new government contracts for fraudulent, criminal, or other seriously improper conduct. The U.S. government could void any contracts found to be tainted by fraud. 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 in some cases 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 liability 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 results of operations, financial condition, or liquidity, either individually or in the aggregate. Tax Treatment of Carrier and Otis Dispositions. 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 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, results of operations, financial condition, or liquidity in future reporting periods. Pratt & Whitney Powder Metal Matter. Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts requires accelerated inspection of the PW1100G-JM (PW1100) Geared Turbofan (GTF) fleet, which powers the A320neo family of aircraft (A320neo). This determination was made pursuant to Pratt & Whitney’s safety management system. On August 4, 2023, Pratt & Whitney issued a special instruction (SI), to operators of PW1100 GTF powered A320neo aircraft, which required accelerated inspections and engine removals covering an initial subset of operational engines, no later than September 15, 2023. During the third quarter, through its safety management system, Pratt & Whitney continued its engineering and industrial assessment which resulted in an updated fleet management plan for the remaining PW1100 fleet. This updated plan requires a repetitive inspection protocol for high pressure turbine disks as well as part life limits for high pressure turbine disks and high pressure compressor disks. This fleet management plan is expected to be released in one or more service bulletins (SB) beginning in the fourth quarter of 2023, following alignment with regulators. The actions set forth in the SI and SBs are expected to result in significant incremental shop visits through the end of 2026. These incremental shop visits are above Pratt & Whitney's prior estimates as of June 30, 2023. As a result, Pratt & Whitney expects a significant increase in aircraft on ground levels for the PW1100 powered A320neo fleet through 2026. As a result of anticipated increased aircraft on ground levels and expected compensation to customers for this disruption, as well as incremental maintenance costs resulting from increased inspections and shop visits, RTX recorded a pre-tax operating 21 Table of Contents profit charge in the third quarter of 2023 of $ 2.9 billion, reflecting Pratt & Whitney’s net 51 % program share of the PW1100 program. This reflects our current best estimate of expected customer compensation for the estimated duration of the disruption as well as the third quarter Estimate-at-Completion (EAC) adjustment impact of this matter to Pratt & Whitney’s long-term maintenance contracts. The incremental costs to the business’s long-term maintenance contracts include the estimated cost of additional inspections, replacement of parts, and other related impacts. The $ 2.9 billion charge is reflected in the Condensed Consolidated Statement of Operations as a reduction of sales of $ 5.4 billion which was partially offset by a net reduction of cost of sales of $ 2.5 billion primarily representing our partners’ 49 % share of this charge. This resulted in a net increase in Other accrued liabilities of $ 2.8 billion, which principally relates to our 51 % share of an accrual for expected customer compensation. While Pratt & Whitney continues to evaluate the impact of this powder metal issue on other engine models within its fleet, we do not currently believe there will be any significant financial impact with respect to these other engine models. The financial impact of the powder metal issue is based on historical experience and is subject to various assumptions and judgments, most notably, the number and expected timing of shop visits, inspection results and scope of work to be performed, turnaround time, availability of new parts, available capacity at overhaul facilities and outcomes of negotiations with impacted customers. While these assumptions reflect our best estimates at this time, they are subject to variability. Potential changes to these assumptions and actual incurred costs could significantly affect the estimates inherent in our financial statements and could have a material effect on the Company’s results of operations for the periods in which they are recognized. Legal Proceedings. The Company and its subsidiaries are subject to various contract pricing disputes, government investigations, and litigation matters across jurisdictions, updates to certain of which are set forth below. Cost Accounting Standards Claims As previously disclosed, in April 2019, a Divisional Administrative Contracting Officer (DACO) of the United States DCMA asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 1.73 billion plus interest ($ 982 million at September 30, 2023). The claim is based on Pratt & Whitney’s alleged noncompliance with Cost Accounting Standards (CAS) from January 1, 2007 to March 31, 2019, due to its method of allocating independent research and development costs to government contracts. Pratt & Whitney believes that the claim is without merit and filed an appeal to the ASBCA on June 7, 2019. As previously disclosed, in December 2013, a DCMA DACO asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 177 million plus interest ($ 149 million at September 30, 2023). The claim is based on Pratt & Whitney’s alleged noncompliance with CAS from January 1, 2005 to December 31, 2012, due to its method of determining the 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. On November 22, 2021, the ASBCA issued its written decision sustaining in part and denying in part Pratt & Whitney’s appeal. The ASBCA rejected the DCMA’s asserted measure of the cost of collaborator parts, and ruled substantially in Pratt & Whitney’s favor on other liability issues. The ASBCA remanded the appeal to the parties for resolution of damages issues, which could require further proceedings at the ASBCA. On December 23, 2021, the DCMA filed a motion with the ASBCA seeking partial reconsideration of the November 22, 2021 decision. The motion for reconsideration was denied on August 29, 2022. On December 23, 2022, the DCMA filed an appeal to the United States Court of Appeals for the Federal Circuit. We continue to believe that the ASBCA’s rejection of the DCMA’s asserted measure of the cost of collaborator parts is well supported in fact and law and likely will be sustained. 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 CAS for calendar years 2013 through 2017. This second claim, which asserts the same measure of the cost of collaborator parts rejected by the ASBCA’s recent decision, demands payment of $ 269 million plus interest ($ 116 million at September 30, 2023). Pratt & Whitney appealed this second claim to the ASBCA in January 2019. Although subject to further litigation at the ASBCA and potentially further appellate proceedings, we continue to believe that the November 22, 2021 decision in the first claim will apply with equal legal effect to the second claim. Accordingly, we believe that the amounts demanded by the DCMA as set forth in the two claims are without legal basis and that any damages owed to the U.S. government for the two claims will not have a material adverse effect on our results of operations, financial condition, or liquidity. Thales-Raytheon Systems and Related Matters As previously disclosed, in 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 Raytheon Company, our joint venture known as 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 criminal investigation. In the third quarter of 2020, Raytheon Company received an 22 Table of Contents additional subpoena from the SEC, seeking information and documents as part of its ongoing investigation. The Company maintains a rigorous anti-corruption compliance program, and continues to cooperate fully with the SEC’s and DOJ’s inquiries, and to examine through our own investigation whether there were any improper payments or any such conduct that was in violation of Raytheon Company policy. At this time, the Company is unable to predict the outcome of the SEC’s or DOJ’s inquiries. Based on the information available to date, however, we cannot reasonably estimate the range of any potential loss or impact to the business that may result, but do not believe that the results of these inquiries will have a material adverse effect on our results of operations, financial condition, or liquidity. DOJ Investigation, Contract Pricing Disputes, and Related Civil Litigation As previously disclosed, 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 (RMD) business since 2009. The investigation involves multi-year contracts subject to governmental regulation, including potential civil defective pricing claims for three RMD contracts entered into between 2011 and 2013. As part of the same investigation, on March 24, 2021, the Company received a second criminal subpoena from the DOJ seeking documents relating to a different RMD contract entered into in 2017. We are cooperating fully with, and will continue to review the issues raised by, the DOJ’s ongoing investigation. We continue to make substantial progress in our internal review of the issues raised by the DOJ investigation. Although we believe we have defenses to the potential claims, the Company has determined that there is a probable risk of liability for damages, interest, and potential penalties, and has accrued approximately $ 300 million for this matter . We are currently unable to estimate an incremental loss, if any, which may result when the DOJ investigation is complete. Based on the information available to date, we do not believe the results of the DOJ investigation, or of any pending or potential civil litigation, will have a material adverse effect on our results of operations, financial condition, or liquidity. Following the Company’s initial disclosure of the DOJ subpoena, three shareholder derivative lawsuits were also filed in the United States District Court for the District of Delaware against the former Raytheon Company Board of Directors, the Company, and certain of its executives, each alleging that defendants violated federal securities laws and breached their fiduciary duties by engaging in improper accounting practices, failing to implement sufficient internal financial and compliance controls, and making a series of false and misleading statements in regulatory filings. Those shareholder derivative lawsuits were consolidated and remain pending. We continue to believe that the consolidated action lacks merit. Darnis, et al. and Related Matter As previously disclosed, on August 12, 2020, several former employees of United Technologies Corporation (UTC) or its subsidiaries filed a putative class action complaint in the United States District Court for the District of Connecticut against the Company, Otis, Carrier, the former members of the UTC Board of Directors, and the members of the Carrier and Otis Boards of Directors. The complaint challenged 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 also claimed that the defendants are liable for breach of certain equity compensation plans and also asserted claims under certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). On September 13, 2021, Plaintiffs filed an amended complaint, which superseded the initial complaint, and continued to assert claims for breach of the equity compensation plans against the Company, Otis, and Carrier, but no longer asserted ERISA claims. Further, no claim was made in the amended complaint against any current or former director of any of the three companies. Plaintiffs sought money damages, attorneys’ fees, and other relief. On September 30, 2022, in response to motions to dismiss filed by the Company, Otis and Carrier, the Court dismissed the class action in its entirety with prejudice. On October 26, 2022, Plaintiffs filed an appeal to the United States Court of Appeals for the Second Circuit, which affirmed the dismissal on August 3, 2023. On December 6, 2022, a shareholder derivative lawsuit was filed in the Delaware Court of Chancery against the Company and certain current and former members of its Board of Directors, alleging that defendants breached their fiduciary duties in May 2020 by amending the method by which UTC equity awards were converted to certain Company equity awards following the separation of UTC into three independent, publicly-traded companies. We believe that the lawsuit lacks merit. Civil Litigation Related to Employee Hiring Practices Pratt & Whitney is one of multiple defendants in a putative class action lawsuit pending in the United States District Court for the District of Connecticut alleging that Pratt & Whitney and the other defendants agreed to restrict the hiring and recruiting of certain engineers and skilled laborers in a manner that violated federal antitrust laws. Plaintiffs seek to represent different purported classes of engineers and skilled laborers employed by Pratt & Whitney and other supplier-defendants since 2011, and are seeking to recover treble damages in an undetermined amount, plus attorneys’ fees and costs of suit. We believe that the claims asserted lack merit. Based on the information available to date, we do not believe that this matter will have a material adverse effect on our results of operations, financial condition, or liquidity. 23 Table of Contents Securities Suit Related to Powder Metal Disclosure Following the Company’s disclosures of a rare condition in powder metal used to manufacture certain Pratt & Whitney engine parts, two putative federal securities class action lawsuits were filed in the United States District Court for the District of Connecticut against the Company and certain current and former executives of the Company. The lawsuits allege that defendants violated federal securities laws by making material misstatements and omitting material facts relating to Pratt & Whitney’s Geared Turbofan engine fleet, including the impact of the powder metal issue on the fleet, in various regulatory filings. Based on the information available to date, we do not believe that this matter will have a material adverse effect on our results of operations, financial condition, or liquidity. Where appropriate, we have recorded loss contingency accruals for the above-referenced matters, and the amounts individually, or in the aggregate, are not material. Other. As described in “Note 14: 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 results of operations, financial condition, or liquidity. Note 16: 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, 2023 and 2022 is provided below: (dollars in millions) Foreign Currency Translation Defined Benefit Pension and Postretirement Plans Unrealized Hedging Gains (Losses) Accumulated Other Comprehensive Income (Loss) Quarter Ended September 30, 2023 Balance at June 30, 2023 $ ( 476 ) $ ( 1,035 ) $ 9 $ ( 1,502 ) Other comprehensive income (loss) before reclassifications, net ( 441 ) 37 ( 132 ) ( 536 ) Amounts reclassified, pre-tax — ( 141 ) 9 ( 132 ) Tax benefit (expense) ( 3 ) 33 24 54 Balance at September 30, 2023 $ ( 920 ) $ ( 1,106 ) $ ( 90 ) $ ( 2,116 ) Nine Months Ended September 30, 2023 Balance at December 31, 2022 $ ( 1,005 ) $ ( 782 ) $ ( 231 ) $ ( 2,018 ) Other comprehensive income (loss) before reclassifications, net 85 ( 7 ) 101 179 Amounts reclassified, pre-tax — ( 426 ) 73 ( 353 ) Tax benefit (expense) — 109 ( 33 ) 76 Balance at September 30, 2023 $ ( 920 ) $ ( 1,106 ) $ ( 90 ) $ ( 2,116 ) 24 Table of Contents (dollars in millions) Foreign Currency Translation Defined Benefit Pension and Postretirement Plans Unrealized Hedging Gains (Losses) Accumulated Other Comprehensive Income (Loss) Quarter Ended September 30, 2022 Balance at June 30, 2022 $ ( 908 ) $ ( 1,772 ) $ ( 251 ) $ ( 2,931 ) Other comprehensive income (loss) before reclassifications, net ( 1,050 ) 15 ( 285 ) ( 1,320 ) Amounts reclassified, pre-tax — 33 34 67 Tax benefit (expense) 4 ( 6 ) 64 62 Balance at September 30, 2022 $ ( 1,954 ) $ ( 1,730 ) $ ( 438 ) $ ( 4,122 ) Nine Months Ended September 30, 2022 Balance at December 31, 2021 $ 49 $ ( 1,828 ) $ ( 136 ) $ ( 1,915 ) Other comprehensive income (loss) before reclassifications, net ( 2,000 ) 18 ( 453 ) ( 2,435 ) Amounts reclassified, pre-tax 2 98 57 157 Tax benefit (expense) ( 5 ) ( 18 ) 94 71 Balance at September 30, 2022 $ ( 1,954 ) $ ( 1,730 ) $ ( 438 ) $ ( 4,122 ) Note 17: Segment Financial Data Our 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 diversified products and services. As previously announced, effective July 1, 2023, we streamlined the structure of our core businesses to three principal business segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. All segment information is reflective of this new structure and prior period information has been recast to conform to our current period presentation. Collins Aerospace is a leading global provider of technologically advanced aerospace and defense products and aftermarket service solutions for aircraft manufacturers, airlines, and regional, business, and general aviation, as well as for defense and commercial space operations. Collins’ product lines include integrated avionics systems, aviation systems, communications systems, navigation systems, electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft seating and cargo systems, evacuation systems, landing systems (including landing gear, wheels, and braking systems), hoists and winches, fire and ice detection and protection systems, actuation systems, and propeller systems. Collins also designs, manufactures, and supports cabin interior, oxygen systems, food and beverage preparation, storage and galley systems, lavatory, and wastewater management systems. Collins’ solutions support human space exploration with environmental control and power systems and extravehicular activity suits and support government and defense customer missions by providing connected battlespace systems, test and training range systems, crew escape systems, and simulation and training solutions. Collins also provides connected aviation solutions and services through worldwide voice and data communication networks and air traffic management solutions. Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, asset management services, and information management services. Pratt & Whitney is among the world’s leading suppliers of aircraft engines for commercial, military, business jet and general aviation customers. Pratt & Whitney’s Commercial Engines and Military Engines businesses design, develop, produce, and maintain families of large engines for wide- and narrow-body and large regional aircraft for commercial customers and for fighter, bomber, tanker, and transport aircraft for military customers. Pratt & Whitney’s small engine business, Pratt & Whitney Canada, is among the world’s leading suppliers of engines powering regional airlines, general and business aviation, as well as helicopters. Pratt & Whitney also produces, sells, and services military and commercial auxiliary power units. Pratt & Whitney provides fleet management services and aftermarket maintenance, repair, and overhaul services in all of these segments. Raytheon is a leading provider of defensive and offensive threat detection, tracking and mitigation capabilities for U.S. and foreign government and commercial customers. Raytheon designs, develops, and provides advanced capabilities in integrated air and missile defense, smart weapons, missiles, advanced sensors and radars, offensive and defensive cybersecurity tools, interceptors, space-based systems, hypersonics, and missile defense across land, air, sea, and space. 25 Table of Contents We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and PRB expense under the Financial Accounting Standards (FAS) requirements of U.S. Generally Accepted Accounting Principles (GAAP) and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our Raytheon segment. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related Raytheon pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis . In connection with the segment realignment, prior period results were recast in order to maintain the segment cost recognition patterns described above. Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant and equipment fair value adjustment acquired through acquisitions, the amortization of customer contractual obligations related to loss making or below market contracts acquired, and goodwill impairment. These adjustments are not considered part of management’s evaluation of segment results . Total sales and operating profit (loss) by segment include inter-segment sales which are generally recorded at cost-plus a specified fee or at a negotiated fixed price. These pricing arrangements may result in margins different than what the purchasing segment realizes on the ultimate third-party sale. Results for the quarters ended September 30, 2023 and 2022 are as follows: Net Sales Operating Profit (Loss) Operating Profit (Loss) Margins (dollars in millions) 2023 2022 2023 2022 2023 2022 Collins Aerospace $ 6,629 $ 5,718 $ 903 $ 742 13.6 % 13.0 % Pratt & Whitney (2) 926 5,380 ( 2,482 ) 316 ( 268.0 ) % 5.9 % Raytheon 6,472 6,308 560 686 8.7 % 10.9 % Total segment 14,027 17,406 ( 1,019 ) 1,744 ( 7.3 ) % 10.0 % Eliminations and other (1) ( 563 ) ( 455 ) ( 69 ) ( 13 ) Corporate expenses and other unallocated items (3) — — ( 63 ) ( 77 ) FAS/CAS operating adjustment — — 272 348 Acquisition accounting adjustments — — ( 517 ) ( 482 ) Consolidated $ 13,464 $ 16,951 $ ( 1,396 ) $ 1,520 ( 10.4 ) % 9.0 % (1) Includes the operating results of certain smaller operations. (2) 2023 includes the impacts of the Powder Metal Matter. (3) 2022 included the net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) program. Beginning in 2023, LTAMDS results are included in the Raytheon segment. Results for the nine months ended September 30, 2023 and 2022 are as follows: Net Sales Operating Profit (Loss) Operating Profit (Loss) Margins (dollars in millions) 2023 2022 2023 2022 2023 2022 Collins Aerospace $ 19,133 $ 16,821 $ 2,699 $ 1,973 14.1 % 11.7 % Pratt & Whitney (2) 11,857 14,878 ( 1,837 ) 769 ( 15.5 ) % 5.2 % Raytheon 19,464 18,515 1,775 1,920 9.1 % 10.4 % Total segment 50,454 50,214 2,637 4,662 5.2 % 9.3 % Eliminations and other (1) ( 1,461 ) ( 1,233 ) ( 34 ) ( 25 ) Corporate expenses and other unallocated items (3) — — ( 165 ) ( 255 ) FAS/CAS operating adjustment — — 845 1,045 Acquisition accounting adjustments — — ( 1,499 ) ( 1,414 ) Consolidated $ 48,993 $ 48,981 $ 1,784 $ 4,013 3.6 % 8.2 % (1) Includes the operating results of certain smaller operations. (2) 2023 includes the impacts of the Powder Metal Matter. (3) 2022 included the net expenses related to the U.S. Army’s Lower Tier Air and Missile Defense Sensor (LTAMDS) program. Beginning in 2023, LTAMDS results are included in the Raytheon segment. 26 Table of Contents Total assets by segment are as follows: (dollars in millions) September 30, 2023 December 31, 2022 Collins Aerospace (1) $ 72,006 $ 70,404 Pratt & Whitney (1) 39,619 36,205 Raytheon (1) 46,075 45,666 Total segment 157,700 152,275 Corporate, eliminations, and other 4,743 6,589 Consolidated $ 162,443 $ 158,864 (1) Total assets include acquired intangible assets and the property, plant, and equipment fair value adjustment. Related amortization expense is included in Acquisition accounting adjustments. We disaggregate our contracts from customers by geographic region based on customer location, by customer, and by sales type. Our geographic region based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, we utilize “ship to” location as the customer location. In addition, for our Raytheon segment, we disaggregate our contracts from customers by contract type. We believe these categories best depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. Segment sales disaggregated by geographic region for the quarters ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total United States $ 3,323 $ 2,849 $ 4,987 $ ( 4 ) $ 11,155 $ 2,988 $ 2,756 $ 4,635 $ 43 $ 10,422 Europe 1,580 1,533 400 1 3,514 1,251 1,074 337 1 2,663 Asia Pacific 674 1,191 549 — 2,414 563 1,028 569 — 2,160 Middle East and North Africa 187 168 469 — 824 143 160 675 — 978 Other regions 335 586 37 — 958 313 360 55 — 728 Powder Metal Matter — ( 5,401 ) — — ( 5,401 ) — — — — — Consolidated net sales 6,099 926 6,442 ( 3 ) 13,464 5,258 5,378 6,271 44 16,951 Inter-segment sales 530 — 30 ( 560 ) — 460 2 37 ( 499 ) — Business segment sales $ 6,629 $ 926 $ 6,472 $ ( 563 ) $ 13,464 $ 5,718 $ 5,380 $ 6,308 $ ( 455 ) $ 16,951 Segment sales disaggregated by geographic region for the nine months ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total United States $ 9,657 $ 8,327 $ 14,865 $ 81 $ 32,930 $ 8,775 $ 7,630 $ 13,802 $ 130 $ 30,337 Europe 4,580 3,998 1,209 3 9,790 3,875 3,010 1,026 2 7,913 Asia Pacific 1,864 3,068 1,640 1 6,573 1,594 2,726 1,505 — 5,825 Middle East and North Africa 531 382 1,525 — 2,438 397 350 1,929 — 2,676 Other regions 1,050 1,482 131 — 2,663 918 1,160 151 1 2,230 Powder Metal Matter — ( 5,401 ) — — ( 5,401 ) — — — — — Consolidated net sales 17,682 11,856 19,370 85 48,993 15,559 14,876 18,413 133 48,981 Inter-segment sales 1,451 1 94 ( 1,546 ) — 1,262 2 102 ( 1,366 ) — Business segment sales $ 19,133 $ 11,857 $ 19,464 $ ( 1,461 ) $ 48,993 $ 16,821 $ 14,878 $ 18,515 $ ( 1,233 ) $ 48,981 27 Table of Contents Segment sales disaggregated by type of customer for the quarters ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney (2) Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total Sales to the U.S. government (1) $ 1,502 $ 1,239 $ 4,943 $ ( 6 ) $ 7,678 $ 1,610 $ 1,324 $ 4,579 $ 42 $ 7,555 Foreign military sales through the U.S. government 76 474 767 — 1,317 85 295 895 — 1,275 Foreign government direct commercial sales 257 127 636 — 1,020 227 116 720 1 1,064 Commercial aerospace and other commercial sales 4,264 ( 914 ) 96 3 3,449 3,336 3,643 77 1 7,057 Consolidated net sales 6,099 926 6,442 ( 3 ) 13,464 5,258 5,378 6,271 44 16,951 Inter-segment sales 530 — 30 ( 560 ) — 460 2 37 ( 499 ) — Business segment sales $ 6,629 $ 926 $ 6,472 $ ( 563 ) $ 13,464 $ 5,718 $ 5,380 $ 6,308 $ ( 455 ) $ 16,951 (1) Excludes foreign military sales through the U.S. government. (2) Includes the reduction in sales from the Powder Metal Matter. Segment sales disaggregated by type of customer for the nine months ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney (2) Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total Sales to the U.S. government (1) $ 4,670 $ 3,774 $ 14,670 $ 79 $ 23,193 $ 4,785 $ 3,915 $ 13,624 $ 128 $ 22,452 Foreign military sales through the U.S. government 226 1,158 2,436 — 3,820 271 796 2,565 — 3,632 Foreign government direct commercial sales 793 347 1,970 3 3,113 784 335 1,996 3 3,118 Commercial aerospace and other commercial sales 11,993 6,577 294 3 18,867 9,719 9,830 228 2 19,779 Consolidated net sales 17,682 11,856 19,370 85 48,993 15,559 14,876 18,413 133 48,981 Inter-segment sales 1,451 1 94 ( 1,546 ) — 1,262 2 102 ( 1,366 ) — Business segment sales $ 19,133 $ 11,857 $ 19,464 $ ( 1,461 ) $ 48,993 $ 16,821 $ 14,878 $ 18,515 $ ( 1,233 ) $ 48,981 (1) Excludes foreign military sales through the U.S. government. (2) Includes the reduction in sales from the Powder Metal Matter. Segment sales disaggregated by sales type for the quarters ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney (1) Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total Products $ 4,761 $ ( 1,486 ) $ 5,339 $ 1 $ 8,615 $ 4,194 $ 3,183 $ 5,336 $ 43 $ 12,756 Services 1,338 2,412 1,103 ( 4 ) 4,849 1,064 2,195 935 1 4,195 Consolidated net sales 6,099 926 6,442 ( 3 ) 13,464 5,258 5,378 6,271 44 16,951 Inter-segment sales 530 — 30 ( 560 ) — 460 2 37 ( 499 ) — Business segment sales $ 6,629 $ 926 $ 6,472 $ ( 563 ) $ 13,464 $ 5,718 $ 5,380 $ 6,308 $ ( 455 ) $ 16,951 (1) Includes the reduction in sales from the Powder Metal Matter. 28 Table of Contents Segment sales disaggregated by sales type for the nine months ended September 30, 2023 and 2022 are as follows: 2023 2022 (dollars in millions) Collins Aerospace Pratt & Whitney (1) Raytheon Other Total Collins Aerospace Pratt & Whitney Raytheon Other Total Products $ 13,813 $ 4,765 $ 16,149 $ 86 $ 34,813 $ 12,309 $ 8,798 $ 15,640 $ 129 $ 36,876 Services 3,869 7,091 3,221 ( 1 ) 14,180 3,250 6,078 2,773 4 12,105 Consolidated net sales $ 17,682 $ 11,856 $ 19,370 $ 85 $ 48,993 $ 15,559 $ 14,876 $ 18,413 $ 133 $ 48,981 Inter-segment sales 1,451 1 94 ( 1,546 ) — 1,262 2 102 ( 1,366 ) — Business segment sales $ 19,133 $ 11,857 $ 19,464 $ ( 1,461 ) $ 48,993 $ 16,821 $ 14,878 $ 18,515 $ ( 1,233 ) $ 48,981 (1) Includes the reduction in sales from the Powder Metal Matter. Raytheon segment sales disaggregated by contract type for the quarters ended September 30, 2023 and 2022 are as follows: (dollars in millions) 2023 2022 Fixed-price $ 2,997 $ 3,180 Cost-type 3,445 3,091 Consolidated net sales 6,442 6,271 Inter-segment sales 30 37 Business segment sales $ 6,472 $ 6,308 Raytheon segment sales disaggregated by contract type for the nine months ended September 30, 2023 and 2022 are as follows: (dollars in millions) 2023 2022 Fixed-price $ 9,639 $ 9,369 Cost-type 9,731 9,044 Consolidated net sales 19,370 18,413 Inter-segment sales 94 102 Business segment sales $ 19,464 $ 18,515 Note 18: Remaining Performance Obligations (RPO) RPO represent the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $ 190 billion as of September 30, 2023. Of the total RPO as of September 30, 2023, we expect approximately 30 % will be recognized as revenue over the next 12 months. Approximately 45 % of our RPO relates to long-term commercial aerospace maintenance contracts at Pratt & Whitney, which are generally expected to be realized over a span of up to 15 years. Note 19: Accounting Pronouncements In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose the key terms of supplier finance programs, the amount of obligations outstanding at the end of the reporting period that the entity has confirmed as valid to the finance provider, where these obligations are recorded in the balance sheet, and a roll forward of the obligations. The new standard is effective for fiscal years beginning after December 15, 2022, on a retrospective basis, including interim periods within those fiscal years. The adoption of this standard did not have an impact on our disclosures as we have determined impact of supplier finance programs is not material. Other new pronouncements issued but not effective until after September 30, 2023 are not expected to have a material impact on our results of operations, financial condition, or liquidity. Note 20: Subsequent Events Accelerated Share Repurchase. On October 21, 2023, our Board of Directors authorized a share repurchase program for up to $ 11 billion of our common stock, replacing the previous program announced on December 12, 2022. This $ 11 billion share repurchase authorization is inclusive of authority to enter into a $ 10 billion accelerated share repurchase program (ASR). 29 Table of Contents On October 24, 2023, we entered into a $ 10 billion bridge loan facility, the proceeds of which are expected to be used to fund the ASR, and on October 24, 2023, we announced our intention to enter into the ASR. We expect to enter into ASR agreements in October 2023 which will provide for the repurchase of an aggregate of $ 10 billion of the Company’s common stock. Under the ASR we expect to take delivery of the majority of the shares in the fourth quarter of 2023 with the expected final settlement of the transactions under the ASR agreements to occur no later than the third quarter of 2024. We intend to repay the bridge loan with long-term debt. Definitive Agreement. On October 18, 2023, we entered into a definitive agreement to sell our Cybersecurity, Intelligence and Services business within our Raytheon segment for a sales price of approximately $ 1.3 billion. The closing of the transaction is subject to regulatory approvals and other customary closing conditions. 30 Table of Contents With respect to the unaudited condensed consolidated financial information of RTX for the quarters and nine months ended September 30, 2023 and 2022, PricewaterhouseCoopers LLP (PwC) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated October 24, 2023, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PwC 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. PwC 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” or a “part” of a registration statement prepared or certified by PwC 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 RTX Corporation Results of Review of Interim Financial Information We have reviewed the accompanying condensed consolidated balance sheet of RTX Corporation and its subsidiaries (the “Company”) as of September 30, 2023, 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, 2023 and 2022, and the condensed consolidated statement of cash flows for the nine-month periods ended September 30, 2023 and 2022, 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) (“PCAOB”), the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 6, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. 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 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 Boston, Massachusetts October 24, 2023 31 Table of Contents