RTX Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS OVERVIEW We are a global premier systems provider of high technology products and services to the aerospace and defense industries. Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries. Effective July 1, 2023, we streamlined the structure of our core businesses to three principal business segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. Prior period information has been recast to conform to our current period presentation. Raytheon follows a 4-4-5 fiscal calendar while Collins and Pratt & Whitney use a quarter calendar end. Throughout this Form 10-Q, when we refer to the quarters and six months ended June 30, 2024 and 2023 with respect to Raytheon, we are referring to their June 30, 2024 and July 2, 2023 fiscal quarter ends, respectively. The current status of significant factors affecting our business environment in 2024 is discussed below. For additional discussion, refer to the “Business Overview” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2023 Annual Report on Form 10-K. Industry Considerations Our worldwide operations can be affected by industrial, economic, and political factors on both a regional and global level. Our operations include original equipment manufacturer (OEM) and extensive related aftermarket parts and services related to our aerospace operations. Our defense business serves both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture, or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization. Government legislation, policies, and regulations can impact our business and operations. Changes in environmental and climate change-related laws or regulations, including regulations on greenhouse gas emissions, carbon pricing, and energy taxes, could lead to new or additional investment in product designs and facility upgrades and could increase our operational and environmental compliance expenditures, including increased energy and raw materials costs and costs associated with manufacturing changes. In addition, government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses. Collins and Pratt & Whitney serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), available seat miles, and the general economic health of airline carriers are key barometers for our commercial aerospace operations. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Many of our aerospace customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services. Our defense operations are affected by U.S. Department of Defense (DoD) budget and spending levels, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the global and national security threat environment. In addition, our defense businesses engage in both direct commercial sales, which generally require U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S. government. Changes in these budget and spending levels, policies, or priorities, which are subject to U.S. domestic and foreign geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions, or other restrictions. Other Matters Global economic and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, geopolitical conflicts and strained intercountry relations, U.S. and non-U.S. tax law changes, foreign currency exchange rates, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses. Legal Matters. The Company has made progress in the quarter ended June 30, 2024 toward resolving several outstanding legal matters, herein referred to as “Expected Resolution of Certain Legal Matters.” The Company expects to enter into a deferred 32 Table of Contents prosecution agreement with the Department of Justice (DOJ) and to be subject to an administrative order with the Securities and Exchange Commission (SEC) to resolve the previously disclosed criminal and civil government investigations into improper payments made by Raytheon Company and its joint venture, Thales-Raytheon Systems (TRS), in connection with certain Middle East contracts since 2012 (Thales-Raytheon Systems and Related Matters); the Company also expects to enter into a deferred prosecution agreement and a False Claims Act (FCA) settlement agreement with the DOJ to resolve previously disclosed criminal and civil government investigations into defective pricing claims for certain legacy Raytheon Company contracts entered into between 2011 and 2013 and in 2017 (DOJ Investigation and Contract Pricing Disputes). In addition, the Company has made progress in the quarter ended June 30, 2024 toward resolving certain voluntarily disclosed export controls violations primarily identified in connection with the integration of Rockwell Collins and, to a lesser extent, Raytheon Company, including certain violations expected to be resolved pursuant to a consent agreement with the Department of State (DOS) (Trade Compliance Matters). As a result of the progress made, we recorded a combined pre-tax charge of $918 million during the quarter ended June 30, 2024, which included an accrual of $269 million related to the DOJ Investigation and Contract Pricing Disputes (in addition to amounts previously accrued), an accrual of $364 million related to Thales-Raytheon Systems and Related Matters (in addition to amounts previously accrued), and an accrual of $285 million related to Trade Compliance Matters. See “Note 1: Basis of Presentation” and “Note 16: Commitments and Contingencies” within Item 1 of this Form 10-Q for additional information. Pratt & Whitney Powder Metal Matter. As described further in “Note 16: Commitments and Contingencies,” within Item 1 of this Form 10-Q, 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”). Global Supply Chain. We are dependent on a global supply chain and in recent years have experienced supply chain disruptions that resulted in delays and increased costs which adversely affected our performance. These disruptions impacted our ability to procure raw materials, microelectronics, and certain commodities on a timely basis and/or at expected prices, and have been driven by supply chain market constraints and macroeconomic conditions, including inflation and labor market shortages. Current geopolitical conditions, including conflicts and other causes of strained intercountry relations, as well as sanctions and other trade restrictive activities, continue to contribute to these issues. Furthermore, our suppliers and subcontractors have been impacted by these same issues. As a result of the Canadian government’s imposition of sanctions in February 2024, including those imposed on U.S.- and German-based Russian-owned entities from which we source titanium for use in our Canadian operations, we recorded charges of $175 million in the first quarter of 2024 within our Collins segment. These charges are primarily related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that are no longer recoverable as a result of initiating alternative titanium sources. We have implemented actions and programs to mitigate some of the impacts but anticipate supply chain disruptions to continue. Economic Environment. High inflation levels have increased material and component prices, labor rates, and supplier costs and have negatively impacted our operating profit and margin, including the impact on productivity expectations. Due to the nature of our government and commercial aerospace businesses, and their respective customer and supplier contracts, we are not always able to offset cost increases by increasing our contract value or pricing, in particular on our fixed-price contracts. Increasing material, component, and labor prices could subject us to losses in our fixed price contracts in the event of cost overruns. In addition, higher interest rates have increased the cost of borrowing and tightened the availability of capital. Among other things, these effects can constrain our customers’ purchasing power and decrease orders for our products and services and impact the ability of our customers to make payments and of our suppliers to perform. Moreover, volatility in interest rates and financial markets can lead to economic uncertainty, an economic downturn or recession and impact the demand for our products and services as well as our supply chain. We continue to pursue strategic and operational initiatives to help address these macroeconomic pressures, including our digital transformation, operational modernization, cost reduction, and advanced technology programs, and we apply our Customer Oriented Results Excellence (CORE) operating platform to the execution of these initiatives. However, the impact of these pressures and corresponding initiatives is uncertain and subject to a range of factors and future developments. Geopolitical Matters. In response to Russia’s invasion of Ukraine, the U.S. government and the governments of various jurisdictions in which we operate, 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, including as discussed above in Global Supply Chain; however, based 33 Table of Contents on information available to date, we do not currently expect these issues will have a material adverse effect on our financial results. We will continue to monitor future developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers. In February 2023, China announced sanctions against Raytheon Missiles & Defense (RMD) (a former RTX Corporation (RTX) business segment which became part of Raytheon as a result of the July 1, 2023 RTX segment realignment), and previously announced it may take measures against RTX, in connection with certain foreign military sales to Taiwan. The Chinese sanctions against RMD included a fine equal to twice the value of the arms that RMD sold to Taiwan since September 2020. In addition, in September 2022, China indicated that it decided to sanction our Chairman and former Chief Executive Officer, Gregory Hayes, in connection with another foreign military sale to Taiwan involving RTX products and services. In January 2024, China announced sanctions against Data Link Solutions LLC, a Collins joint venture and, most recently, in May 2024, China announced sanctions against Raytheon Missile Systems and the Javelin Joint Venture between Raytheon and Lockheed Martin. If China were to impose additional sanctions, enforce announced sanctions, or take other regulatory action against RTX, our suppliers, affiliates, or partners, it could potentially disrupt our business operations. Any impact of these or other potential sanctions or other actions by China is uncertain. We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S. government review and approval have been pending. The U.S. government’s approval of these sales is subject to a range of factors, including its foreign policies related to these customers, which are subject to continuing review and potential changes. Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer. In addition, certain programs require approvals by foreign governments, and those approvals may not be obtained on a timely basis or at all or may be revoked. If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results. In particular, as of June 30, 2024, our Contract liabilities include approximately $405 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. We continue to closely monitor potential impacts to RTX’s business, customers, suppliers, employees, and operations in Israel, the Middle East, and elsewhere relating to the ongoing war between Israel and Hamas and the associated rising regional conflicts and tensions, such as Houthi attacks on shipping in the Red Sea, and the U.S. and its partners’ responses to the foregoing. To date, the impacts to RTX have been minimal. RTX’s commercial manufacturing facilities in Israel remain open and operational and have continued exporting products and importing critical items and raw materials. RTX’s defense programs’ ability to receive components from Israel has not been impacted in any material respect, though we could experience future delivery delays of certain products because of the current situation. Given the volatile nature of the situation, the potential impacts to RTX are subject to change. See Part I, Item 1A, “Risk Factors” in our 2023 Annual Report on Form 10-K for further discussion of these items. CRITICAL ACCOUNTING ESTIMATES Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. See “Critical Accounting Estimates” within Item 7 and “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2023 Annual Report on Form 10-K, which describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2024. RESULTS OF OPERATIONS As described in our “Cautionary Note Concerning Factors That May Affect Future Results” of this Form 10-Q, our interim period results of operations and period-to-period comparisons of our results, particularly at a segment level, may not be indicative of our future operating results. The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context. We provide the organic change in Net sales and Cost of sales for our consolidated results of operations as well as the organic change in Net sales and Operating profit for our segments. We believe that these non-Generally Accepted Accounting Principles (non-GAAP) measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change in Net sales, Cost of sales, and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation 34 Table of Contents fluctuations and other significant non-operational items and/or significant operational items that may occur at irregular intervals (Other). Additionally, the organic change in Cost of sales and Operating profit excludes restructuring costs, the FAS/CAS operating adjustment, and costs related to certain acquisition accounting adjustments. Restructuring costs generally arise from severance related to workforce reductions and facility exit costs. We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive. The FAS/CAS operating adjustment represents the difference between the service cost component of our pension and postretirement benefit (PRB) expense under the Financial Accounting Standards (FAS) requirements of U.S. GAAP and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS), primarily related to our Raytheon segment. 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, if applicable. Net Sales Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Net sales $ 19,721 $ 18,315 $ 39,026 $ 35,529 The factors contributing to the change year-over-year in total net sales for the quarter and six months ended June 30, 2024 are as follows: (dollars in millions) Quarter Ended June 30, 2024 Six Months Ended June 30, 2024 Organic (1) $ 1,911 $ 4,034 Acquisitions and divestitures, net (413) (432) Other (92) (105) Total change $ 1,406 $ 3,497 (1) See “Results of Operations” for definition of organic. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above. Net sales increased $1.9 billion organically in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily due to higher organic net sales of $1.1 billion at Pratt & Whitney, $0.6 billion at Collins, and $0.3 billion at Raytheon. Net sales increased $4.0 billion organically in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to higher organic net sales of $2.3 billion at Pratt & Whitney, $1.2 billion at Collins, and $0.7 billion at Raytheon. The decrease in net sales due to Acquisitions and divestitures, net of $0.4 billion for both the quarter and six months ended June 30, 2024 compared to the quarter and six months ended June 30, 2023, was primarily driven by the sale of our Cybersecurity, Intelligence and Services (CIS) business within our Raytheon segment completed in the first quarter of 2024. See “Segment Review” below for further information by segment. Quarter Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Net Sales Products $ 14,562 $ 13,411 73.8 % 73.2 % Services 5,159 4,904 26.2 % 26.8 % Total net sales $ 19,721 $ 18,315 100 % 100 % Refer to “Note 18: Segment Financial Data” within Item 1 of this Form 10-Q for the composition of external net sales by products and services by segment. Net products sales increased $1.2 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily due to increases in external products sales of $0.7 billion at Pratt & Whitney, $0.4 billion at Collins, and $0.1 billion at Raytheon. Net services sales increased $0.3 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily due to increases in external services sales of $0.5 billion at Pratt & Whitney and $0.1 billion at Collins, partially offset by a decrease in external services sales of $0.3 billion at Raytheon, primarily driven by the sale of our CIS business completed in the first quarter of 2024. 35 Table of Contents Six Months Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Net Sales Products $ 28,865 $ 26,198 74.0 % 73.7 % Services 10,161 9,331 26.0 % 26.3 % Total net sales $ 39,026 $ 35,529 100 % 100 % Net products sales increased $2.7 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily driven by increases in external products sales of $1.6 billion at Pratt & Whitney, $0.8 billion at Collins, and $0.3 billion at Raytheon. Net services sales increased $0.8 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to increases in external services sales of $0.8 billion at Pratt & Whitney and $0.2 billion at Collins, partially offset by a decrease in external services sales of $0.1 billion at Raytheon, including the sale of our CIS business in the first quarter of 2024. Our sales to major customers were as follows: Quarter Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Sales to the U.S. government (1) $ 8,052 $ 7,958 40.8 % 43.5 % Foreign military sales through the U.S. government 1,269 1,241 6.4 % 6.8 % Foreign government direct commercial sales 1,171 1,089 5.9 % 5.9 % Commercial aerospace and other commercial sales 9,229 8,027 46.8 % 43.8 % Total net sales $ 19,721 $ 18,315 100 % 100 % (1) Excludes foreign military sales through the U.S. government. Six Months Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Sales to the U.S. government (1) $ 16,179 $ 15,515 41.5 % 43.7 % Foreign military sales through the U.S. government 2,518 2,503 6.5 % 7.0 % Foreign government direct commercial sales 2,379 2,093 6.1 % 5.9 % Commercial aerospace and other commercial sales 17,950 15,418 46.0 % 43.4 % Total net sales $ 39,026 $ 35,529 100 % 100 % (1) Excludes foreign military sales through the U.S. government. Cost of Sales Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Total cost of sales $ 16,141 $ 14,518 $ 31,885 $ 28,163 Percentage of net sales 81.8 % 79.3 % 81.7 % 79.3 % 36 Table of Contents The factors contributing to the change year-over-year in total cost of sales for the quarter and six months ended June 30, 2024 are as follows: (dollars in millions) Quarter Ended June 30, 2024 Six Months Ended June 30, 2024 Organic (1) $ 1,512 $ 3,341 Acquisitions and divestitures, net (391) (410) Restructuring 1 7 FAS/CAS operating adjustment 59 122 Acquisition accounting adjustments 16 23 Other 426 639 Total change $ 1,623 $ 3,722 (1) See “Results of Operations” for definition of organic. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above. The organic increase in total cost of sales of $1.5 billion for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, was primarily driven by the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. Other cost of sales increased $0.4 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily driven by a $0.5 billion charge at Raytheon related to the anticipated termination of a fixed price development contract with a foreign customer (herein referred to as “Raytheon Contract Termination”), partially offset by the absence of charges of $0.1 billion at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. The organic increase in total cost of sales of $3.3 billion for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was primarily driven by the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. Other cost of sales increased $0.6 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily driven by a $0.5 billion charge related to the anticipated Raytheon Contract Termination in the second quarter of 2024 and $0.2 billion of charges recorded in the first quarter of 2024 at Collins related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that are no longer recoverable as a result of initiating alternative titanium sources, partially offset by the absence of charges of $0.1 billion at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. The decrease in total cost of sales due to Acquisitions and divestitures, net of $0.4 billion for both the quarter and six months ended June 30, 2024 compared to the quarter and six months ended June 30, 2023, was primarily driven by the sale of our CIS business within our Raytheon segment completed in the first quarter of 2024. Restructuring actions relate to ongoing cost reduction efforts including workforce reductions and the consolidation of facilities. For discussion on FAS/CAS operating adjustment, see the “FAS/CAS operating adjustment” subsection under the “Segment Review” section below. For discussion on Acquisition accounting adjustments, see the “Acquisition accounting adjustments” subsection under the “Segment Review” section below. Quarter Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Cost of sales Products $ 12,625 $ 11,089 64.0 % 60.5 % Services 3,516 3,429 17.8 % 18.7 % Total cost of sales $ 16,141 $ 14,518 81.8 % 79.3 % Net products cost of sales increased $1.5 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, primarily driven by increases in external products cost of sales at Pratt & Whitney, Raytheon, and Collins, all driven by the products sales changes noted above, and a $0.5 billion charge related to the anticipated Raytheon Contract Termination in the second quarter of 2024. Net services cost of sales increased $0.1 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, primarily due to increases in external services cost of sales at Pratt & Whitney and Collins, partially offset by a decrease in external services cost of sales at Raytheon, each driven by the services sales changes noted above. 37 Table of Contents Six Months Ended June 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Cost of sales Products $ 24,841 $ 21,789 63.7 % 61.3 % Services 7,044 6,374 18.0 % 17.9 % Total cost of sales $ 31,885 $ 28,163 81.7 % 79.3 % Net products cost of sales increased $3.1 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by increases in external products cost of sales at Pratt & Whitney, Raytheon, and Collins, all driven by the products sales changes noted above, a $0.5 billion charge related to the anticipated Raytheon Contract Termination in the second quarter of 2024, and charges of $0.2 billion at Collins as a result of initiating alternative titanium sources recorded in the first quarter of 2024. Net services cost of sales increased $0.7 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to increases in external services cost of sales at Pratt & Whitney and Collins, partially offset by a decrease in external services sales at Raytheon, all driven by the services sales changes noted above. Research and Development Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Company-funded $ 706 $ 729 $ 1,375 $ 1,336 Percentage of net sales 3.6 % 4.0 % 3.5 % 3.8 % Customer-funded (1) $ 1,186 $ 1,188 $ 2,422 $ 2,310 Percentage of net sales 6.0 % 6.5 % 6.2 % 6.5 % (1) Included in Cost of sales in our Condensed Consolidated Statement of Operations. Research and development spending is subject to the variable nature of program development schedules and, therefore, year-over-year fluctuations in spending levels are expected. Company- and customer-funded research and development expenses in the quarter ended June 30, 2024 were relatively consistent with the quarter ended June 30, 2023. Company- funded research and development expenses in the six months ended June 30, 2024 were relatively consistent with the six months ended June 30, 2023. The increase in customer-funded research and development of $0.1 billion for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by higher expenses on commercial and defense programs at Collins and increased spending at Pratt & Whitney on military programs, partially offset by lower expenses on various development programs at Raytheon. Selling, General, and Administrative Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Selling, general, and administrative $ 1,449 $ 1,600 $ 2,843 $ 2,963 Percentage of net sales 7.3 % 8.7 % 7.3 % 8.3 % Selling, general, and administrative expenses decreased $0.2 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, primarily driven by the absence of a $0.1 billion charge at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. Selling, general and administrative expenses decreased $0.1 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by the absence of a $0.1 billion charge at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive. Therefore, the amounts reflected above include the beneficial impact of previous restructuring actions on Selling, general, and administrative expenses. 38 Table of Contents Other Income (Expense), Net Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Other income (expense), net $ (896) $ 25 $ (524) $ 113 Other income (expense), net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, and other ongoing and non-recurring items. The decrease in Other income (expense), net of $0.9 billion for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily due to a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters. The decrease in Other income (expense), net of $0.6 billion for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters, partially offset by a $0.4 billion gain on sale of Raytheon’s CIS business, net of transaction costs. Operating Profit Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Operating profit $ 529 $ 1,493 $ 2,399 $ 3,180 Operating profit margin 2.7 % 8.2 % 6.1 % 9.0 % The decrease in Operating profit of $1.0 billion for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily driven by a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters and a $0.6 billion charge related to the anticipated Raytheon Contract Termination, partially offset by the operating performance of our segments and the absence of $0.2 billion of charges at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. The decrease in Operating profit of $0.8 billion for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters, a $0.6 billion charge related to the anticipated Raytheon Contract Termination, $0.2 billion of charges at Collins related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that are no longer recoverable as a result of initiating alternative titanium sources recorded in the first quarter of 2024, and the change in our FAS/CAS operating adjustment which is described below in “Segment Review.” The above items were partially offset by the operating performance of our segments, a $0.4 billion gain on sale of the CIS business, net of transaction and other related costs, and the absence of $0.2 billion of charges at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. Non-service Pension Income Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Non-service pension income $ (374) $ (447) $ (760) $ (891) The change in Non-service pension income of $73 million for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily driven by the decrease in the recognized actuarial net (gain) loss as a result of the merger of the remaining Raytheon Company qualified pension plans into the RTX Consolidated Pension Plan at December 31, 2023. The change in Non-service pension income of $131 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by the decrease in the recognized actuarial net (gain) loss as a result of the merger of the remaining Raytheon Company qualified pension plans into the RTX Consolidated Pension Plan at December 31, 2023. 39 Table of Contents Interest Expense, Net Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Interest expense $ 488 $ 372 $ 908 $ 711 Interest income (19) (17) (30) (27) Other non-operating expense (income) (1) 6 (22) 2 (36) Interest expense, net $ 475 $ 333 $ 880 $ 648 Average interest expense rate 4.6 % 4.2 % 4.6 % 4.1 % (1) Primarily consists of the gains or losses on assets associated with certain of our nonqualified deferred compensation and employee benefit plans, as well as the gains or losses on liabilities associated with certain of our nonqualified deferred compensation plans and non-operating dividend income. Interest expense, net increased $142 million in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily due to an increase in Interest expense as a result of the long-term debt issuances in 2023. Interest expense, net increased $232 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to an increase in Interest expense as a result of long-term debt issuances in 2023, partially offset by the reversal of interest accruals as a result of the conclusion of the examination phases of the RTX and Rockwell Collins tax audits in the first quarter of 2024. Income Taxes Quarter Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Effective income tax rate 59.1 % 15.4 % 15.8 % 17.0 % The increase in the effective tax rate for the quarter ended June 30, 2024 as compared to the quarter ended June 30, 2023 is primarily driven by a $918 million charge associated with the Expected Resolution of Certain Legal Matters accrued during the quarter ended June 30, 2024 where no tax benefit has been recorded. Additionally, the annualized effective tax rate currently forecasted for 2024 is higher than the comparable period in 2023, principally driven by lower U.S. federal research and development tax credits and higher non-U.S. income taxes. The higher forecasted non-U.S. income taxes are principally driven by legislation enacted during the quarter ended June 30, 2024 by the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two initiatives. The effective tax rate for the six months ended June 30, 2024 includes a $275 million tax benefit recognized in the quarter ended March 31, 2024 resulting from the conclusion of the examination phases of the RTX and Rockwell Collins audits and $143 million of tax costs associated with the sale of the CIS business. The resulting net tax benefit from these items, coupled with lower year to date pre-tax income, more than offset the effective tax rate impact of a $918 million charge associated with the Expected Resolution of Certain Legal Matters accrued during the quarter ended June 30, 2024 where no tax benefit has been recorded. Net Income Attributable to Common Shareowners Quarter Ended June 30, Six Months Ended June 30, (dollars in millions, except per share amounts) 2024 2023 2024 2023 Net income attributable to common shareowners $ 111 $ 1,327 $ 1,820 $ 2,753 Diluted earnings per share $ 0.08 $ 0.90 $ 1.36 $ 1.87 Net income attributable to common shareowners for the quarter ended June 30, 2024 includes the following: • charge related to the Expected Resolution of Certain Legal Matters of $918 million, which had an unfavorable impact on diluted earnings per share (EPS) of $0.68; • a charge of $438 million, net of tax, related to the anticipated Raytheon Contract Termination, which had an unfavorable impact on diluted EPS of $0.33; and • acquisition accounting adjustments of $393 million, net of tax, which had an unfavorable impact on diluted EPS of $0.29. Net income attributable to common shareowners for the quarter ended June 30, 2023 includes the following: • acquisition accounting adjustments of $384 million, net of tax, which had an unfavorable impact on diluted EPS of $0.26; and • charges on our contract assets and customer financing assets related to a customer insolvency of $114 million, net of tax and noncontrolling interest, which had an unfavorable impact on diluted EPS of $0.08. 40 Table of Contents Net income attributable to common shareowners for the six months ended June 30, 2024 includes the following: • charge related to the Expected Resolution of Certain Legal Matters of $918 million, which had an unfavorable impact on diluted EPS of $0.69; • acquisition accounting adjustments of $782 million, net of tax, which had an unfavorable impact on diluted EPS of $0.58; • a charge of $438 million, net of tax, related to the anticipated Raytheon Contract Termination, which had an unfavorable impact on diluted EPS of $0.33; • benefit recognized as a result of the conclusion of the examination phases of the RTX and Rockwell Collins tax audits of $285 million, net of tax, which had a favorable impact on diluted EPS of $0.21; • a gain on sale of the CIS business, net of transaction and other related costs, of $241 million, net of tax, which had a favorable impact on diluted EPS of $0.18; and • charges related to initiating alternative titanium sources at our Collins segment of $175 million, which had an unfavorable impact on diluted EPS of $0.13. Net income attributable to common shareowners for the six months ended June 30, 2023 includes the following: • acquisition accounting adjustments of $769 million, net of tax, which had an unfavorable impact on diluted EPS of $0.52; and • charges on our contract assets and customer financing assets related to a customer insolvency of $114 million, net of tax and noncontrolling interest, which had an unfavorable impact on diluted EPS of $0.08. SEGMENT REVIEW Our operations, for the periods presented herein, are classified into three principal segments: Collins, Pratt & Whitney, and Raytheon. Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. Segment Total net sales and Operating profit include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment, and certain corporate expenses, as further discussed below. Given the nature of our business, we believe that total net sales and operating profit (and the related operating profit margin percentage), which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our segment performance, as described below. We provide the organic change in Net sales and Operating profit for our segments as discussed above in “Results of Operations.” We believe that these non-GAAP measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. For Pratt & Whitney only, Other also includes the transactional impact of foreign exchange hedging at Pratt & Whitney Canada due to its significance to Pratt & Whitney’s overall operating results. Total Net Sales. Total net sales by segment were as follows: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ 6,999 $ 6,384 $ 13,672 $ 12,504 Pratt & Whitney 6,802 5,701 13,258 10,931 Raytheon 6,511 6,700 13,170 12,992 Total segment 20,312 18,785 40,100 36,427 Eliminations and other (1) (591) (470) (1,074) (898) Consolidated $ 19,721 $ 18,315 $ 39,026 $ 35,529 (1) Includes the operating results of certain smaller operations. 41 Table of Contents Operating Profit. Operating profit by segment was as follows: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ 1,118 $ 899 $ 1,967 $ 1,796 Pratt & Whitney 542 230 954 645 Raytheon (2) 127 644 1,123 1,215 Total segment 1,787 1,773 4,044 3,656 Eliminations and other (1) (36) (16) (41) 35 Corporate expenses and other unallocated items (3) (930) (59) (1,026) (102) FAS/CAS operating adjustment 212 284 426 573 Acquisition accounting adjustments (504) (489) (1,004) (982) Consolidated $ 529 $ 1,493 $ 2,399 $ 3,180 (1) Includes the operating results of certain smaller operations. (2) Operating Profit includes a $0.6 billion charge in the second quarter of 2024 related to the anticipated Raytheon Contract Termination and a $0.4 billion gain, net of transaction and other related costs, in the first quarter of 2024 related to the sale of our CIS business. See “Note 5: Changes in Contract Estimates at Completion” and “Note 2: Acquisitions and Dispositions” within Item 1 of this Form 10-Q, respectively, for additional information. (3) Includes a $0.9 billion charge in the second quarter of 2024 related to the Expected Resolution of Certain Legal Matters. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information. Included in segment Operating profit are Estimate at Completion (EAC) adjustments, which relate to changes in Operating profit and margin due to revisions to total estimated revenues and costs at completion. These changes may reflect improved or deteriorated operating performance, as well as changes in facts and assumptions related to contract options, contract modifications, incentive and award fees associated with program performance, customer activity levels, and other customer-directed changes. For a full description of our EAC process, refer to “Note 5: Changes in Contract Estimates at Completion” within Item 1 of this Form 10-Q. Given that we have thousands of individual contracts, and given the types and complexity of the assumptions and estimates we must make on an on-going basis, and the nature of the work required to be performed under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course. We had the following aggregate EAC adjustments for the periods presented: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Gross favorable $ 333 $ 301 $ 543 $ 604 Gross unfavorable (395) (331) (767) (758) Total net EAC adjustments $ (62) $ (30) $ (224) $ (154) The change in net EAC adjustments of $32 million in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily due to unfavorable changes in net EAC adjustments at Collins, partially offset by favorable changes in net EAC adjustments at Raytheon. The change in net EAC adjustments of $70 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to unfavorable changes in net EAC adjustments at Collins, partially offset by favorable changes in net EAC adjustments at Raytheon. In addition to the amounts included in the table above, during the quarter ended June 30, 2024, Raytheon initiated the termination of a fixed price development contract with a foreign customer. As a result of this action, Raytheon recognized a $575 million charge related to the estimated impact of this termination. This charge includes the write-off of remaining contract assets and our best estimate of the expected settlement in conjunction with this termination. Significant EAC adjustments, when they occur, are discussed in each business segment’s discussion below. Backlog and Bookings. Total backlog was approximately $206 billion and $196 billion as of June 30, 2024 and December 31, 2023, respectively. Total backlog includes commercial backlog of $129 billion and $118 billion as of June 30, 2024 and December 31, 2023, respectively, and defense backlog of $77 billion and $78 billion as of June 30, 2024 and December 31, 2023, respectively. In the quarter ended March 31, 2024, Raytheon backlog was reduced by $1.1 billion as a result of the sale of the CIS business. We believe bookings are an important measure of future performance for our defense businesses. Our defense operations consist primarily of our Raytheon business and operations in the defense businesses within our Collins and Pratt & Whitney 42 Table of Contents segments. Defense bookings were approximately $11 billion and $13 billion for the quarters ended June 30, 2024 and 2023, respectively, and approximately $22 billion and $25 billion for the six months ended June 30, 2024 and 2023, respectively. Bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: the desired capability by the customer and urgency of customer needs, customer budgets and other fiscal constraints, political and economic and other environmental factors, the timing of customer negotiations, and the timing of customer and governmental approvals and notifications. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis. Collins Aerospace Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 6,999 $ 6,384 10 % $ 13,672 $ 12,504 9 % Operating profit 1,118 899 24 % 1,967 1,796 10 % Operating profit margins 16.0 % 14.1 % 14.4 % 14.4 % Quarter Ended June 30, 2024 Compared with Quarter Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 622 $ — $ — $ (7) $ 615 Operating profit 251 — (7) (25) 219 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $0.6 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily relates to higher commercial aerospace aftermarket sales of $0.3 billion, higher commercial aerospace OEM sales of $0.2 billion, and a $0.1 billion increase in defense sales. The increase in commercial aerospace sales was principally driven by an increase in commercial air traffic, which has resulted in an increase in flight hours, and increased volume across all OEM sales channels. The defense sales increase was primarily due to higher volume. The organic operating profit increase of $0.3 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily due to higher commercial aerospace operating profit of $0.2 billion, principally driven by the higher aftermarket and OEM sales volume discussed above. Defense operating profit increased in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 due to the higher volume discussed above. Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 1,167 $ — $ — $ 1 $ 1,168 Operating profit 402 — (10) (221) $ 171 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $1.2 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily relates to higher commercial aerospace aftermarket sales of $0.6 billion, higher commercial aerospace OEM sales of $0.4 billion, and a $0.2 billion increase in defense sales. The increase in commercial aerospace sales was principally driven by an increase in commercial air traffic, which has resulted in an increase in flight hours, and increased volume across all OEM sales channels. The defense sales increase was primarily due to higher volume. The organic profit increase of $0.4 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to higher commercial aerospace operating profit of $0.4 billion, principally driven by the higher aftermarket and OEM sales volume discussed above. Defense operating profit was relatively flat in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 as the higher volume discussed above was partially offset by higher space program costs. The decrease in Other operating profit of $0.2 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by $175 million of charges in the first quarter of 2024, primarily related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that are no longer recoverable as a result 43 Table of Contents of initiating alternative titanium sources. See “Note 1: Basis of Presentation” within Item 1 of this Form 10-Q for additional information on Russia sanctions. Defense Bookings – In addition to a number of smaller bookings, in the quarter ended June 30, 2024, Collins booked $1.9 billion to support the U.S. Air Force’s next-generation Survivable Airborne Operations Center and $254 million for F-35 landing gear Lots 18 and 19. Pratt & Whitney Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 6,802 $ 5,701 19 % $ 13,258 $ 10,931 21 % Operating profit 542 230 136 % 954 645 48 % Operating profit margins 8.0 % 4.0 % 7.2 % 5.9 % Quarter Ended June 30, 2024 Compared with Quarter Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 1,106 $ — $ — $ (5) $ 1,101 Operating profit 88 — 10 214 312 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $1.1 billion in the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, reflects higher commercial aftermarket sales of $0.4 billion, driven by higher volume and favorable mix. The increase in commercial OEM sales was $0.4 billion driven by higher volume and favorable mix within large commercial engines. The increase also includes higher military sales of $0.3 billion driven by higher sustainment volume across multiple platforms. Organic operating profit increased $0.1 billion in the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023. Commercial aerospace operating profit increased $0.1 billion as the benefit from higher commercial aftermarket volume as well as favorable large commercial OEM and commercial aftermarket mix, was partially offset by the unfavorable impact from higher large commercial OEM volume and the absence of a $60 million favorable contract matter in the second quarter of 2023. Additionally, the increase in military operating profit, driven by the sales volume discussed above and favorable mix, was more than offset by higher production costs and higher research and development and selling, general, and administrative expenses. The increase in Other operating profit of $0.2 billion in the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, reflects the absence of a $181 million charge related to a customer insolvency during the second quarter of 2023. Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 2,332 $ — $ — $ (5) $ 2,327 Operating profit 95 — 11 203 309 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $2.3 billion in the six months ended June 30, 2024, compared to the six months ended June 30, 2023 reflects higher commercial OEM sales of $1.0 billion primarily driven by volume and favorable mix and higher commercial aftermarket sales of $0.7 billion primarily driven by higher volume. The organic increase also includes higher military sales of $0.6 billion, driven by higher sustainment volume across multiple platforms. Organic operating profit increase of $0.1 billion in the six months ended June 30, 2024, compared to the six months ended June 30, 2023 reflects higher commercial aerospace operating profit of $0.1 billion as the benefit from favorable large commercial OEM mix and higher commercial aftermarket volume was partially offset by the unfavorable impact from higher large commercial OEM volume, as well as, the absence of two favorable contracts matters totaling approximately $120 million during the six months ended June 30, 2023. Additionally, the increase in military operating profit of $0.1 billion, driven by the higher sales volume discussed above and favorable mix, was partially offset by higher production costs. The increases described above were also partially offset by higher research and development and selling, general and administrative expenses of $0.1 billion. 44 Table of Contents The increase in Other operating profit of $0.2 billion in the six months ended June 30, 2024, compared to in the six months ended June 30, 2023, reflects the absence of a $181 million charge related to a customer insolvency during the second quarter of 2023. Defense Bookings – In addition to a number of smaller bookings, in the six months ended June 30, 2024, Pratt & Whitney booked $381 million for F135 sustainment and $302 million for F135 production. Raytheon Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 6,511 $ 6,700 (3) % $ 13,170 $ 12,992 1 % Operating profit 127 644 (80) % 1,123 1,215 (8) % Operating profit margins 2.0 % 9.6 % 8.5 % 9.4 % Defense Bookings $ 5,028 $ 6,203 (19) % $ 13,150 $ 15,308 (14) % Quarter Ended June 30, 2024 Compared with Quarter Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 295 $ (413) $ — $ (71) $ (189) Operating Profit 82 (23) 10 (586) (517) (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $0.3 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily due to higher net sales of $0.4 billion from land and air defense systems programs primarily driven by higher net sales on certain international Patriot programs, higher net sales on Counter-Unmanned Aircraft Systems (C-UAS) programs, and higher volume on Stinger. The organic operating profit increase of $0.1 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was driven by a favorable change in mix and other performance of approximately $40 million spread across numerous individual programs, higher volume of approximately $30 million primarily driven by the sales increases noted above, and a net favorable change in EAC adjustments of approximately $20 million. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 primarily relates to the sale of the CIS business completed in the first quarter of 2024. The Other net sales and operating profit decreases of $0.1 billion and $0.6 billion, respectively, in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 was primarily due to a charge of $0.6 billion related to the anticipated Raytheon Contract Termination initiated in the quarter ended June 30, 2024. Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 679 $ (432) $ — $ (69) $ 178 Operating Profit 133 (23) 8 (210) (92) (1) See “Segment Review” above for definition of organic. A reconciliation of this measure to the reported U.S. GAAP amount is provided in the table above. The organic net sales increase of $0.7 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by higher net sales of $0.6 billion from land and air defense systems programs and $0.2 billion from advanced technology programs. The increase in land and air defense systems programs was primarily driven by higher net sales on certain international Patriot programs, higher net sales on C-UAS programs, higher volume on Stinger, and higher volume 45 Table of Contents on certain international National Advanced Surface-to-air Missile System (NASAMS) programs. The increase in advanced technology programs was primarily driven by higher volume on classified programs and an advanced development program. The organic operating profit increase of $0.1 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to a favorable change in net EAC adjustments of approximately $80 million and higher volume of approximately $70 million primarily driven by the sales increases noted above, partially offset by a decrease in mix and other performance of approximately $20 million. The favorable change in net EAC adjustments benefited from the absence of an unfavorable impact related to a significant contract option exercised in the first quarter of 2023, and the remaining change was spread across numerous individual programs. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily relates to the sale of the CIS business completed in the first quarter of 2024. The Other net sales and operating profit decreases of $0.1 billion and $0.2 billion, respectively in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 were primarily due to a charge of $0.6 billion related to the anticipated Raytheon Contract Termination initiated in the quarter ended June 30, 2024, with the operating profit decrease partially offset by a $0.4 billion gain on sale of the CIS business, net of transaction and other related costs, in the first quarter of 2024. Defense Backlog and Bookings – Backlog was $51 billion as of June 30, 2024 and $52 billion as of December 31, 2023. Included in the change in backlog was a $1.1 billion reduction related to the sale of the CIS business discussed above. In addition to a number of smaller bookings, in the quarter ended June 30, 2024, Raytheon booked $928 million on a number of classified contracts, $639 million to produce AN/SPY-6(V) radars for the U.S. Navy, and $393 million to design and build the Landsat Next Instrument Suite (LandIS) for NASA. In addition to these bookings, in the six months ended June 30, 2024, Raytheon booked $1.6 billion on a number of classified contracts, $1.2 billion to provide Patriot Air Defense systems to Germany, $818 million to provide Guidance Enhanced Missiles (GEM-T) for NATO Support and Procurement Agency (NSPA), $623 million to provide GEM-T for an international customer, $282 million to provide NASAMS for Ukraine, and $251 million to provide GEM-T for an international customer. Corporate and Eliminations and other Eliminations and other reflects the elimination of sales, other income, and operating profit transacted between segments, as well as the operating results of certain smaller operations. Corporate expenses and other unallocated items consists of costs not considered part of management’s evaluation of reportable segment operating performance, including certain unallowable costs and reserves. Net Sales Operating Profit Quarter Ended June 30, Quarter Ended June 30, (dollars in millions) 2024 2023 2024 2023 Eliminations and other $ (591) $ (470) $ (36) $ (16) Corporate expenses and other unallocated items — — (930) (59) The increase in eliminations and other net sales of $0.1 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, was primarily due to an increase in intersegment eliminations, principally driven by Collins. Eliminations and other operating profit in the quarter ended June 30, 2024 was relatively consistent with the quarter ended June 30, 2023. The change in Corporate expenses and other unallocated items of $0.9 billion in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, was primarily due to a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters. Net Sales Operating Profit Six months ended June 30, Six months ended June 30, (dollars in millions) 2024 2023 2024 2023 Eliminations and other $ (1,074) $ (898) $ (41) $ 35 Corporate expenses and other unallocated items — — (1,026) (102) The increase in eliminations and other sales of $0.2 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was primarily due to an increase in intersegment eliminations, principally driven by Collins. 46 Table of Contents The change in eliminations and other operating profit of $0.1 billion in the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to a gain on sale of land recorded in the first quarter of 2023. The change in Corporate expenses and other unallocated items of $0.9 billion in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was primarily due to a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters. FAS/CAS operating adjustment 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 FAS requirements of U.S. GAAP and our pension and PRB expense under U.S. government 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 . The components of the FAS/CAS operating adjustment were as follows: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 FAS service cost (expense) $ (34) $ (35) $ (69) $ (72) CAS expense 246 319 495 645 FAS/CAS operating adjustment $ 212 $ 284 $ 426 $ 573 The change in our FAS/CAS operating adjustment of $72 million in the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, was driven by a decrease in CAS expense, primarily due to the recognition of historical CAS gain/loss experience. The change in our FAS/CAS operating adjustment of $147 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, was driven by a decrease in CAS expense, primarily due to the recognition of historical CAS gain/loss experience. Acquisition accounting adjustments 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, if applicable. These adjustments are not considered part of management’s evaluation of segment results . The components of Acquisition accounting adjustments were as follows: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Amortization of acquired intangibles $ (516) $ (496) $ (1,022) $ (991) Amortization of property, plant, and equipment fair value adjustment (11) (15) (23) (31) Amortization of customer contractual obligations related to acquired loss-making and below-market contracts 23 22 41 40 Acquisition accounting adjustments $ (504) $ (489) $ (1,004) $ (982) 47 Table of Contents Acquisition accounting adjustments related to acquisitions in each segment were as follows: Quarter Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ (205) $ (214) $ (416) $ (431) Pratt & Whitney (70) (62) (130) (126) Raytheon (229) (213) (458) (425) Total segment (504) (489) (1,004) (982) Eliminations and other — — — — Acquisition accounting adjustments $ (504) $ (489) $ (1,004) $ (982) Acquisition accounting adjustments for the quarter and six months ended June 30, 2024 were relatively consistent with the quarter and six months ended June 30, 2023, respectively. LIQUIDITY AND FINANCIAL CONDITION (dollars in millions) June 30, 2024 December 31, 2023 Cash and cash equivalents $ 6,011 $ 6,587 Total debt 42,151 43,827 Total equity 60,650 61,410 Total capitalization (total debt plus total equity) 102,801 105,237 Total debt to total capitalization 41 % 42 % We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities and the timing of such activities. Our principal source of liquidity is cash flows from operating activities. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in and divestitures of businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms. At June 30, 2024, we had cash and cash equivalents of $6.0 billion, of which approximatel y 31% was held by RTX’s foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The Company intends to repatriate certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. Taxes associated with the future remittance of these earnings have been recorded. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTX will continue to permanently reinvest these earnings. Our ability to access global debt markets and the related cost of these borrowings depends on the strength of our credit rating and market conditions. Our S&P Global credit rating remains at BBB+/negative, and our Moody’s Investors Service outlook is Baa1/negative. Though the Company expects to continue having adequate access to funds, declines in our credit ratings or Company outlook could result in higher borrowing costs. As of June 30, 2024, we had a revolving credit agreement with various banks permitting aggregate borrowings of up to $5.0 billion, which expires in August 2028. As of June 30, 2024, there were no borrowings outstanding under this agreement. 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 June 30, 2024, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. At June 30, 2024, we had no commercial paper borrowings outstanding. 48 Table of Contents We made the following repayments of long-term debt during the six months ended June 30, 2024: Date Description of Notes Aggregate Principal Balance (in millions) May 7, 2024 3 Month SOFR plus 1.225% Term Loan due 2025 $ 250 April 17, 2024 3 Month SOFR plus 1.225% Term Loan due 2025 250 April 4, 2024 3 Month SOFR plus 1.225% Term Loan due 2025 250 March 15, 2024 3.200% notes due 2024 950 We have an existing universal shelf registration statement, which we filed with the Securities and Exchange Commission (SEC) on September 22, 2022, for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement. The Company offers voluntary supply chain finance (SCF) programs with global financial institutions which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institutions at a rate that leverages our credit rating, which might be beneficial to them. Our suppliers’ participation in the SCF programs does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the programs. In addition, we do not pay for any of the costs of the programs incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institutions, as it relates to sales of receivables made by those suppliers. As such, the SCF programs do not impact our working capital, cash flows, or overall liquidity. We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate. Cash Flow - Operating Activities Six Months Ended June 30, (dollars in millions) 2024 2023 Net cash flows provided by (used in) operating activities $ 3,075 $ (144) Net income for the six months ended June 30, 2024 included a $0.9 billion charge related to the Expected Resolution of Certain Legal Matters and a $0.4 billion, net of tax, charge related to the anticipated Raytheon Contract Termination, both of which had no effect on cash flow in the period. These charges also had the effect of increasing Other accrued liabilities by $1.3 billion in the six months ended June 30, 2024. Excluding the impact of these charges, the $3.2 billion change in cash flows provided by (used in) operating activities in the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was driven by a favorable impact from accounts receivable collections, including the related increase in factoring, as discussed below, the timing of collaborator receivables and lower tax payments year-over-year including a tax refund received in the second quarter of 2024. The Company enters into various factoring agreements with third-parties to sell certain of its receivables, primarily related to customer facilitated programs. The activity in these agreements is generally dependent on underlying delivery volumes within our commercial OEM programs. During the six months ended June 30, 2024, factoring activity resulted in an increase of approximately $0.4 billion in cash provided by operating activities, compared to a decrease of approximately $0.3 billion in cash provided by operating activities during the six months ended June 30, 2023. Factoring activity includes amounts factored on certain aerospace receivables at the customer’s request for which we may be compensated by the customer. We made net tax payments of $0.2 billion and $1.4 billion in the six months ended June 30, 2024 and 2023, respectively. While the timing of cash flows are subject to a number of variables, for the Powder Metal Matter we estimate the accrual for expected customer compensation to be utilized consistent with the timing of execution of the fleet management plan, the period of increased aircraft on ground levels, and contractual terms with customers. We currently estimate cash outflows related to the Powder Metal Matter of approximately $1.3 billion in 2024. Additionally, we currently estimate 2024 cash outflows of approximately $1.0 billion related to the Expected Resolution of Certain Legal Matters. 49 Table of Contents Cash Flow - Investing Activities Six Months Ended June 30, (dollars in millions) 2024 2023 Net cash flows used in investing activities $ (40) $ (1,202) Our investing activities primarily include capital expenditures, cash investments in customer financing assets, investments in and dispositions of businesses, payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms, and settlements of derivative contracts not designated as hedging instruments. The $1.2 billion change in cash flows used in investing activities in the six months ended June 30, 2024, compared to in the six months ended June 30, 2023, was primarily related to the sale of our CIS business within Raytheon for proceeds of approximately $1.3 billion in cash. During the six months ended June 30, 2024 and 2023, we increased other intangible assets by $318 million and $314 million, respectively, primarily related to collaboration payment commitments made under our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE) and exclusivity payments made on contractual commitments included within intangible assets. Cash Flow - Financing Activities Six Months Ended June 30, (dollars in millions) 2024 2023 Net cash flows (used in) provided by financing activities $ (3,591) $ 468 Our financing activities primarily include the issuance and repayment of commercial paper and other short-term and long-term debt, payment of dividends, and stock repurchases. The $4.1 billion change in cash flows (used in) provided by financing activities in the six months ended June 30, 2024, compared to in the six months ended June 30, 2023, was primarily driven by the absence of prior year long-term debt issuances of $3.0 billion, current year repayment of long-term debt of $1.7 billion, and the absence of prior year issuances of commercial paper, net, of $0.5 billion, partially offset by lower share repurchases of $1.1 billion. Refer to “Note 9: Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on debt issuances and repayments and commercial paper. At June 30, 2024, management had remaining authority to repurchase approximately $1.0 billion of our common stock under the October 21, 2023 share repurchase program. Under the 2023 program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program in connection with the surrender of shares to cover taxes on vesting of restricted stock and as required under our employee savings plan. Our ability to repurchase shares is subject to applicable law. Our share repurchases, which include shares reacquired outside of our share repurchase program, were as follows: Six Months Ended June 30, (dollars in millions; shares in thousands) 2024 2023 $ Shares $ Shares Shares of common stock repurchased (1) $ 100 1,045 $ 1,158 11,821 (1) Relates to share repurchases that were settled in cash during the period. Our Board of Directors authorized the following cash dividends: Six Months Ended June 30, (dollars in millions, except per share amounts) 2024 2023 Dividends paid per share of common stock $ 1.220 $ 1.140 Total dividends paid $ 1,592 $ 1,634 On June 3, 2024, the Board of Directors declared a dividend of $0.63 per share payable September 5, 2024 to shareowners of record at the close of business on August 16, 2024. 50 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no significant change in our exposure to market risk during the six months ended June 30, 2024. For discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our 2023 Form 10-K.