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. Raytheon follows a 4-4-5 fiscal calendar while Collins Aerospace (Collins) and Pratt & Whitney use a quarter calendar end. Throughout this Form 10-Q, when we refer to the quarters and nine months ended September 30, 2024 and 2023 with respect to Raytheon, we are referring to their September 29, 2024 and October 1, 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 and airframers are key barometers for our commercial aerospace operations. In particular, the ongoing work stoppages at a major airframer customer, may adversely impact our business. 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. Refer to “U.S. Government’s Continuing Resolution” below for additional information. 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 resolved several outstanding legal matters, herein referred to as “Resolution of Certain Legal Matters.” The Company entered into a deferred prosecution agreement (DPA) with the Department of Justice (DOJ) and the Company settled an administrative proceeding with the Securities and Exchange Commission (SEC) to resolve the previously disclosed criminal and civil government investigations into 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 32 Table of Contents Related Matters). The Company also entered into a DPA 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 resolved 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 that were resolved pursuant to a consent agreement with the Department of State (DOS) (Trade Compliance Matters). As a result, we recorded a combined pre-tax charge of $918 million during the second quarter of 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 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, in 2023, Pratt & Whitney 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. U.S. Government’s Continuing Resolution. On September 26, 2024, President Biden signed a continuing resolution that funds federal agencies through December 20, 2024. A continuing resolution authorizes federal agencies to operate generally at the same funding levels from the prior year, but typically does not authorize new spending initiatives during this period. If Congress is unable to enact formal fiscal year 2025 appropriation bills by December 20, 2024, it may pass another continuing resolution. However, if Congress fails to pass the formal appropriations bills or a continuing resolution, then the U.S. government would shut down during which federal agencies would cease all non-essential functions. In the event of a U.S. government shutdown, our business, program performance and results of operations could be impacted by the resulting disruptions to federal government offices, workers, and operations, including risks relating to the funding of certain programs, stop work orders, as well as delays in contract awards, new program starts, payments for work performed, and other actions. We also may experience similar impacts in the event of an extended period of continuing resolutions. Generally, the significance of these impacts will primarily be based on the length of the continuing resolution or shutdown. Furthermore, under the Fiscal Responsibility Act of 2023, which imposes limits on discretionary spending for defense and non-defense programs in exchange for the lifting of the debt ceiling in June 2023, if Congress fails to enact appropriation bills by April 30, 33 Table of Contents 2025, then the budget caps will be reduced and corresponding automatic reductions to agency budget accounts will be enforced through sequestration. 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 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 during the third quarter of 2023), 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 has 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, during the third quarter of 2024, we received a critical license required to restart work under certain contracts with a Middle East customer. In order to perform under these contracts, significant actions are required, including obtaining additional regulatory approvals, and therefore we have not recognized revenue on these contracts to date. Should the remaining uncertainties be resolved, we do not expect these contracts to have a significant impact on our future financial results. As of September 30, 2024, our Contract liabilities include approximately $430 million of advance payments received in connection with these contracts, which may become refundable to the customer if the contracts are ultimately terminated . We continue to closely monitor potential impacts from the war in Gaza and the recent escalation of conflict in the region on RTX’s business, customers, suppliers, employees, and operations in Israel, the Middle East, and elsewhere. To date, the impacts to RTX have been minimal, though a number of countries have imposed restrictions on exports to or imports from Israel. 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 34 Table of Contents results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the nine months ended September 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 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Net sales $ 20,089 $ 13,464 $ 59,115 $ 48,993 The factors contributing to the change year-over-year in total net sales for the quarter and nine months ended September 30, 2024 are as follows: (dollars in millions) Quarter Ended September 30, 2024 Nine Months Ended September 30, 2024 Organic (1) $ 1,555 $ 5,589 Acquisitions and divestitures, net (430) (862) Other 5,500 5,395 Total change $ 6,625 $ 10,122 (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 $1.6 billion organically in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily due to higher organic net sales of $0.9 billion at Pratt & Whitney, $0.4 billion at Collins, and $0.3 billion at Raytheon. Other sales increased $5.5 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily driven by the absence of the net sales charge of $5.4 billion associated with the Powder Metal Matter recorded in the third quarter of 2023. Net sales increased $5.6 billion organically in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to higher organic net sales of $3.2 billion at Pratt & Whitney, $1.6 billion at Collins, and $1.0 billion at Raytheon. Other sales increased $5.4 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily driven by the absence of the net sales charge of $5.4 billion associated with the Powder Metal Matter recorded in the third quarter of 2023. 35 Table of Contents The decreases in net sales due to Acquisitions and divestitures, net of $0.4 billion and $0.9 billion for the quarter and nine months ended September 30, 2024 compared to the quarter and nine months ended September 30, 2023, respectively, were 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 September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Net Sales Products $ 14,708 $ 8,615 73.2 % 64.0 % Services 5,381 4,849 26.8 % 36.0 % Total net sales $ 20,089 $ 13,464 100 % 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 $6.1 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily due to the absence of the net sales charge of $5.3 billion associated with the Powder Metal Matter recorded in the third quarter of 2023, and increases in external products sales of $0.3 billion at Pratt & Whitney, $0.3 billion at Collins, and $0.2 billion at Raytheon. Net services sales increased $0.5 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily due to increases in external services sales of $0.6 billion at Pratt & Whitney and $0.1 billion at Collins, and the absence of net sales charge of $0.1 billion associated with the Powder Metal Matter recorded in the third quarter of 2023, 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. Nine Months Ended September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Net Sales Products $ 43,573 $ 34,813 73.7 % 71.1 % Services 15,542 14,180 26.3 % 28.9 % Total net sales $ 59,115 $ 48,993 100 % 100 % Net products sales increased $8.8 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily driven by the absence of the net sales charge of $5.3 billion associated with the Powder Metal Matter and increases in external products sales of $1.9 billion at Pratt & Whitney, $1.1 billion at Collins, and $0.5 billion at Raytheon. Net services sales increased $1.4 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to increases in external services sales of $1.4 billion at Pratt & Whitney and $0.3 billion at Collins, and the absence of the net sales charge of $0.1 billion associated with the Powder Metal Matter recorded in the third quarter of 2023, partially offset by a decrease in external services sales of $0.4 billion at Raytheon, primarily driven by the sale of our CIS business completed in the first quarter of 2024. Our sales to major customers were as follows: Quarter Ended September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Sales to the U.S. government (1) $ 7,996 $ 7,678 39.8 % 57.0 % Foreign military sales through the U.S. government 1,502 1,317 7.5 % 9.8 % Foreign government direct commercial sales 1,218 1,020 6.1 % 7.6 % Commercial aerospace and other commercial sales (2) 9,373 3,449 46.7 % 25.6 % Total net sales $ 20,089 $ 13,464 100 % 100 % (1) Excludes foreign military sales through the U.S. government. (2) 2023 includes the reduction in sales from the Powder Metal Matter. 36 Table of Contents Nine Months Ended September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Sales to the U.S. government (1) $ 24,175 $ 23,193 40.9 % 47.3 % Foreign military sales through the U.S. government 4,020 3,820 6.8 % 7.8 % Foreign government direct commercial sales 3,597 3,113 6.1 % 6.4 % Commercial aerospace and other commercial sales (2) 27,323 18,867 46.2 % 38.5 % Total net sales $ 59,115 $ 48,993 100 % 100 % (1) Excludes foreign military sales through the U.S. government. (2) 2023 includes the reduction in sales from the Powder Metal Matter. Cost of Sales Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Total cost of sales $ 16,055 $ 12,750 $ 47,940 $ 40,913 Percentage of net sales 79.9 % 94.7 % 81.1 % 83.5 % The factors contributing to the change year-over-year in total cost of sales for the quarter and nine months ended September 30, 2024 are as follows: (dollars in millions) Quarter Ended September 30, 2024 Nine Months Ended September 30, 2024 Organic (1) $ 1,164 $ 4,505 Acquisitions and divestitures, net (406) (816) Restructuring (33) (26) FAS/CAS operating adjustment 51 173 Acquisition accounting adjustments 16 39 Other 2,513 3,152 Total change $ 3,305 $ 7,027 (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 $1.2 billion for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, was primarily driven by the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. Other cost of sales increased $2.5 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, primarily driven by the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact. The organic increase in total cost of sales of $4.5 billion for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily driven by the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. Other cost of sales increased $3.2 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily driven by the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact, 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. The above items were partially offset by the absence of $0.1 billion of charges at Pratt & Whitney related to a customer insolvency recorded in the second quarter of 2023. The decreases in total cost of sales due to Acquisitions and divestitures, net of $0.4 billion and $0.8 billion for the quarter and nine months ended September 30, 2024 compared to the quarter and nine months ended September 30, 2023, respectively, were 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. 37 Table of Contents 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 September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Cost of sales Products $ 12,336 $ 9,289 61.4 % 69.0 % Services 3,719 3,461 18.5 % 25.7 % Total cost of sales $ 16,055 $ 12,750 79.9 % 94.7 % Net products cost of sales increased $3.0 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, primarily driven by the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact and increases in external products cost of sales at Pratt & Whitney, Collins, and Raytheon, each driven by the products sales changes noted above. Net services cost of sales increased $0.3 billion in the quarter ended September 30, 2024 compared to the quarter ended September 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. Nine Months Ended September 30, % of Total Net Sales (dollars in millions) 2024 2023 2024 2023 Cost of sales Products $ 37,177 $ 31,078 62.9 % 63.4 % Services 10,763 9,835 18.2 % 20.1 % Total cost of sales $ 47,940 $ 40,913 81.1 % 83.5 % Net products cost of sales increased $6.1 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact. In addition, net product cost of sales includes increases in external products cost of sales at Pratt & Whitney, Collins, and Raytheon 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 $0.9 billion in the nine months ended September 30, 2024 compared to the nine months ended September 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, all driven by the services sales changes noted above. Research and Development Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Company-funded $ 751 $ 712 $ 2,126 $ 2,048 Percentage of net sales 3.7 % 5.3 % 3.6 % 4.2 % Customer-funded (1) $ 1,205 $ 1,107 $ 3,627 $ 3,417 Percentage of net sales 6.0 % 8.2 % 6.1 % 7.0 % (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-funded research and development expenses in the quarter ended September 30, 2024 were relatively consistent with the quarter ended September 30, 2023. The increase in customer-funded research and development expenses of $0.1 billion for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily driven by increased spending at Pratt & Whitney on military 38 Table of Contents programs and higher expenses on defense and commercial programs at Collins, partially offset by lower expenses on development programs at Raytheon. The increase in c ompany- funded research and development expenses of $0.1 billion for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by increased spending on commercial program development at Pratt & Whitney and Collins, partially offset by lower expenses on development programs at Raytheon. The increase in customer-funded research and development expenses of $0.2 billion for the nine months ended September 30, 2024 compared to the nine months ended September 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Selling, general, and administrative $ 1,389 $ 1,401 $ 4,232 $ 4,364 Percentage of net sales 6.9 % 10.4 % 7.2 % 8.9 % Selling, general, and administrative expenses in the quarter ended September 30, 2024 were relatively consistent with the quarter ended September 30, 2023. Selling, general, and administrative expenses decreased $0.1 billion in the nine months ended September 30, 2024 compared to the nine months ended September 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. Other Income (Expense), Net Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Other income (expense), net $ 134 $ 3 $ (390) $ 116 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 increase in Other income (expense), net of $0.1 billion for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024, partially offset by a net unfavorable year-over-year impact of foreign exchange gains and losses. Refer to “Note 11: Income Taxes” within Item 1 of this Form 10-Q for additional information on the indemnity receivable and the offsetting impacts to Income tax expense. The decrease in Other income (expense), net of $0.5 billion for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to a $0.9 billion charge during the second quarter of 2024 related to the Resolution of Certain Legal Matters, the absence of a gain on the sale of land during the first quarter of 2023, and the reversal of certain tax related indemnity receivables associated with the conclusion of the examination phase of certain tax audits in the first quarter of 2024. The above items were partially offset by a $0.4 billion gain on the sale of Raytheon’s CIS business, net of transaction costs, in the first quarter of 2024 and a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024. Refer to “Note 11: Income Taxes” within Item 1 of this Form 10-Q for additional information on the indemnity receivable and the offsetting impacts to Income tax expense. 39 Table of Contents Operating Profit (Loss) Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Operating profit (loss) $ 2,028 $ (1,396) $ 4,427 $ 1,784 Operating profit (loss) margin 10.1 % (10.4) % 7.5 % 3.6 % The increase in Operating profit (loss) of $3.4 billion for the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily driven by the absence of the $2.9 billion of charges associated with the Powder Metal Matter recorded in the third quarter of 2023, the increased operating performance of our segments of approximately $0.4 billion, and a $0.2 billion benefit related to an indemnity receivable recorded in the third quarter of 2024. Refer to “Note 11: Income Taxes” within Item 1 of this Form 10-Q for additional information on the indemnity receivable and the offsetting impacts to Income tax expense. The increase in Operating profit (loss) of $2.6 billion for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by the absence of the $2.9 billion of charges associated with the Powder Metal Matter in the third quarter of 2023. In addition, the increase in Operating profit was driven by the increased operating performance of our segments of approximately $1.0 billion, a $0.4 billion gain on sale of the CIS business recorded in the first quarter of 2024, net of transaction and other related costs, and a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024. The above items were partially offset by a $0.9 billion charge in the second quarter of 2024 related to the Resolution of Certain Legal Matters, a $0.6 billion charge in the second quarter of 2024 related to the anticipated Raytheon Contract Termination, and the change in our FAS/CAS operating adjustment which is described below in “Segment Review.” Refer to “Note 11: Income Taxes” within Item 1 of this Form 10-Q for additional information on the indemnity receivable and the offsetting impacts to Income tax expense. Non-service Pension Income Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Non-service pension income $ (374) $ (443) $ (1,134) $ (1,334) The changes in Non-service pension income of $0.1 billion and $0.2 billion for the quarter and nine months ended September 30, 2024 compared to the quarter and nine months ended September 30, 2023, respectively, were 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. Interest Expense, Net Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Interest expense $ 548 $ 391 $ 1,456 $ 1,102 Interest income (45) (19) (75) (46) Other non-operating expense (income) (1) (7) (3) (5) (39) Interest expense, net $ 496 $ 369 $ 1,376 $ 1,017 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, the gains or losses on liabilities associated with certain of our nonqualified deferred compensation plans, and non-operating dividend income. Interest expense, net increased $0.1 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily due to an increase in Interest expense as a result of long-term debt issuances in 2023. Interest expense, net increased $0.4 billion in the nine months ended September 30, 2024 compared to the nine months ended September 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. 40 Table of Contents Income Taxes Quarter Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Effective income tax rate 19.5 % 29.4 % 17.5 % 9.2 % The change in the effective tax rate for the quarter ended September 30, 2024, as compared to the quarter ended September 30, 2023, is driven in part by the $2.9 billion Powder Metal Matter charge and the associated deferred tax benefit of $663 million recorded in the quarter ended September 30, 2023. Additionally, in the quarter ended September 30, 2024, the Company recorded a $138 million deferred tax benefit associated with legal entity reorganizations and a $56 million tax benefit in response to favorable U.S. Tax Court rulings issued to unrelated taxpayers, but with facts similar to ours. The nature of the tax item in the rulings is subject to a tax matters agreement entered into with Carrier and Otis in connection with the separation of those businesses in 2020, and therefore we recorded a pre-tax charge of $32 million for their respective indemnified amounts. The quarter ended September 30, 2024 also includes a $212 million tax charge related to U.S. federal income taxes now owed by the Company resulting from a favorable non-U.S. tax ruling Otis received in the quarter impacting pre-separation tax years. This tax ruling results in a reduction of U.S. foreign tax credits previously claimed by the Company in pre-separation tax years for which Otis must indemnify us. The Company currently expects to receive approximately $300 million from Otis in connection with the reduction to the foreign tax credits claimed and resulting indemnification obligation. The Company recorded a pre-tax benefit of $212 million representing a portion of the indemnity owed by Otis pursuant to the tax matters agreement and will record the remaining amount owed upon receipt. Additionally, the Company is indemnified for associated interest of $31 million as of September 30, 2024. In addition to items described above, the effective tax rate for the nine months ended September 30, 2024 also includes a $275 million tax benefit recognized in the first quarter of 2024 resulting from the conclusion of the examination phases of the U.S. federal income tax audits for RTX 2017 and 2018 tax years and Rockwell Collins 2016, 2017, and 2018 tax years, a $143 million tax cost associated with the sale of the CIS business, and the effective tax rate impact of the $918 million charge associated with the Resolution of Certain Legal Matters accrued during the second quarter of 2024 where no tax benefit has been recorded. Net Income (Loss) Attributable to Common Shareowners Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions, except per share amounts) 2024 2023 2024 2023 Net income (loss) attributable to common shareowners $ 1,472 $ (984) $ 3,292 $ 1,769 Diluted earnings (loss) per share $ 1.09 $ (0.68) $ 2.45 $ 1.21 Net income attributable to common shareowners for the quarter ended September 30, 2024 includes the following: • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted earnings (loss) per share (EPS) of $0.31. Net loss attributable to common shareowners for the quarter ended September 30, 2023 includes the following: • charge associated with the Powder Metal Matter of $2.2 billion, net of tax and partner share, which had an unfavorable impact on diluted EPS of $1.53; and • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.28. Net income attributable to common shareowners for the nine months ended September 30, 2024 includes the following: • acquisition accounting adjustments of $1.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.89; • charge related to the Resolution of Certain Legal Matters of $0.9 billion, which had an unfavorable impact on diluted EPS of $0.68; • a charge of $0.4 billion, 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 $0.3 billion, 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 $0.2 billion, 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 $0.2 billion, which had an unfavorable impact on diluted EPS of $0.13. 41 Table of Contents Net income attributable to common shareowners for the nine months ended September 30, 2023 includes the following: • charge associated with the Powder Metal Matter of $2.2 billion, net of tax and partner share, which had an unfavorable impact on diluted EPS of $1.52; • acquisition accounting adjustments of $1.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.80; and • charges on our contract assets and customer financing assets related to a customer insolvency of $0.1 billion, 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 (loss) (and the related operating profit (loss) 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 (loss) 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ 7,075 $ 6,629 $ 20,747 $ 19,133 Pratt & Whitney (2) 7,239 926 20,497 11,857 Raytheon 6,386 6,472 19,556 19,464 Total segment 20,700 14,027 60,800 50,454 Eliminations and other (1) (611) (563) (1,685) (1,461) Consolidated $ 20,089 $ 13,464 $ 59,115 $ 48,993 (1) Includes the operating results of certain smaller operations. (2) 2023 includes the impacts of the Powder Metal Matter. 42 Table of Contents Operating Profit (Loss). Operating profit (loss) by segment was as follows: Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ 1,062 $ 903 $ 3,029 $ 2,699 Pratt & Whitney (2) 557 (2,482) 1,511 (1,837) Raytheon (3) 647 560 1,770 1,775 Total segment 2,266 (1,019) 6,310 2,637 Eliminations and other (1) (14) (69) (55) (34) Corporate expenses and other unallocated items (4) 100 (63) (926) (165) FAS/CAS operating adjustment 210 272 636 845 Acquisition accounting adjustments (534) (517) (1,538) (1,499) Consolidated $ 2,028 $ (1,396) $ 4,427 $ 1,784 (1) Includes the operating results of certain smaller operations. (2) 2023 includes the impacts of the Powder Metal Matter. (3) 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. (4) Includes a $0.9 billion charge in the second quarter of 2024 related to the 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 (loss) 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Gross favorable $ 260 $ 247 $ 803 $ 851 Gross unfavorable (351) (526) (1,118) (1,284) Total net EAC adjustments $ (91) $ (279) $ (315) $ (433) The change in net EAC adjustments of $0.2 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to the absence of a $0.1 billion unfavorable impact recorded at Pratt & Whitney in the third quarter of 2023 as a result of increased cost to our aftermarket contracts resulting from the Powder Metal Matter. The change in net EAC adjustments of $0.1 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to favorable changes in net EAC adjustments at Pratt & Whitney, as discussed above, and Raytheon, partially offset by unfavorable changes in net EAC adjustments at Collins. In addition to the amounts included in the table above, during the second quarter of 2024, Raytheon initiated the termination of a fixed price development contract with a foreign customer. As a result of this action, Raytheon recognized a $0.6 billion 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 $221 billion and $196 billion as of September 30, 2024 and December 31, 2023, respectively. Total backlog includes commercial backlog of $131 billion and $118 billion as of September 30, 2024 and December 31, 2023, respectively, and defense backlog of $90 billion and $78 billion as of September 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. 43 Table of Contents 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 segments. Defense bookings were approximately $25 billion and $12 billion for the quarters ended September 30, 2024 and 2023, respectively, and approximately $47 billion and $37 billion for the nine months ended September 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 7,075 $ 6,629 7 % $ 20,747 $ 19,133 8 % Operating profit 1,062 903 18 % 3,029 2,699 12 % Operating profit margins 15.0 % 13.6 % 14.6 % 14.1 % Quarter Ended September 30, 2024 Compared with Quarter Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 387 $ — $ — $ 59 $ 446 Operating profit 54 — 52 53 159 (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 $0.4 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily relates to higher defense sales of $0.3 billion due to higher volume across multiple programs and higher commercial aerospace aftermarket sales of $0.2 billion principally driven by continued growth in commercial air traffic, which has resulted in an increase in flight hours and increased volume. This increase was partially offset by lower commercial aerospace OEM sales of $0.1 billion driven by lower volume on certain narrowbody aircraft. The increase in Other net sales in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to the absence of a $0.1 billion charge related to a litigation matter in the third quarter of 2023. The organic operating profit increase of $0.1 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to higher defense operating profit of $0.1 billion, principally driven by the higher sales volume discussed above. Commercial aerospace operating profit in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was relatively flat as higher commercial aftermarket volume was offset by the lower commercial OEM volume discussed above and unfavorable OEM mix. The organic operating profit increase was also partially offset by higher research and development costs. The increase in Other operating profit in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to the absence of a charge related to the litigation matter discussed above. Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 1,554 $ — $ — $ 60 $ 1,614 Operating profit 456 — 42 (168) $ 330 (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 $1.6 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily relates to higher commercial aerospace aftermarket sales of $0.8 billion, higher defense sales of $0.5 billion, and higher commercial aerospace OEM sales of $0.2 billion. The increase in commercial aerospace sales was 44 Table of Contents principally driven by continued growth in commercial air traffic, which has resulted in an increase in flight hours and increased volume. The defense sales increase was primarily due to higher volume across multiple programs. The increase in Other net sales in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to the absence of a $0.1 billion charge related to a litigation matter in the third quarter of 2023. The organic operating profit increase of $0.5 billion in the nine months ended September 30, 2024 compared to the nine months ended September 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, partially offset by unfavorable OEM mix. Defense operating profit increased $0.1 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to the higher volume discussed above, partially offset by higher space program costs. The above increases were partially offset by $0.1 billion of higher research and development costs. The decrease in Other operating profit of $0.2 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by $0.2 billion 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 of initiating alternative titanium sources, partially offset by the absence of a charge related to the litigation matter discussed above. 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 September 30, 2024, Collins booked $470 million for Federal Aviation Administration air traffic control automation system sustainment. In addition to these bookings, in the nine months ended September 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 7,239 $ 926 682 % $ 20,497 $ 11,857 73 % Operating profit (loss) 557 (2,482) NM 1,511 (1,837) NM Operating profit (loss) margins 7.7 % (268.0) % 7.4 % (15.5) % NM = Not Meaningful Quarter Ended September 30, 2024 Compared with Quarter Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 899 $ — $ — $ 5,414 $ 6,313 Operating profit (loss) 178 — (6) 2,867 3,039 (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 $0.9 billion in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, reflects higher commercial aftermarket sales of $0.4 billion, primarily driven by higher volume. The increase also includes higher commercial OEM sales of $0.1 billion, primarily driven by favorable mix within large commercial engines. Military sales were up $0.4 billion primarily driven by higher sustainment volume across multiple platforms and higher F135 development volume. The Other net sales increase of $5.4 billion in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023 reflects the absence of a charge recognized in the third quarter of 2023 related to the Powder Metal Matter. The organic operating profit increase of $0.2 billion in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023 reflects higher commercial aerospace aftermarket operating profit of $0.1 billion, driven by the commercial aftermarket sales volume discussed above, while the favorable OEM mix and benefit of lower volume was offset by higher production costs. The increase in military operating profit was $0.1 billion, driven by the sales volume discussed above. The Other operating profit increase of $2.9 billion in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, reflects the absence of a charge recognized in the third quarter of 2023 related to the Powder Metal Matter. 45 Table of Contents Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 3,231 $ — $ — $ 5,409 $ 8,640 Operating profit (loss) 273 — 5 3,070 3,348 (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 $3.2 billion in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 reflects higher commercial OEM sales of $1.2 billion primarily driven by favorable mix on higher volume and higher commercial aftermarket sales of $1.0 billion primarily driven by higher volume. Military sales increased $1.0 billion, primarily due to higher sustainment volume across multiple platforms. The Other net sales increase of $5.4 billion in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily relates to the absence of a charge recognized in the third quarter of 2023 related to the Powder Metal Matter. The organic operating profit increase of $0.3 billion in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 reflects higher commercial aerospace operating profit of $0.2 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, higher production costs, as well as, the absence of two favorable contract matters totaling approximately $0.1 billion during the nine months ended September 30, 2023. Additionally, the increase in military operating profit of $0.2 billion, driven by the higher sales volume discussed above, as well as 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. The increase in Other operating profit of $3.1 billion in the nine months ended September 30, 2024, compared to in the nine months ended September 30, 2023, primarily relates to the absence of a $2.9 billion charge recognized in the third quarter of 2023 related to the Powder Metal Matter and the absence of a $0.2 billion charge related to a customer insolvency during the second quarter of 2023. Defense Bookings – In addition to a number of smaller bookings, in the quarter ended September 30, 2024, Pratt & Whitney booked $2.3 billion for F117, $1.3 billion for F135 Engine Core Upgrade development and $455 million for F135 sustainment. In addition to these bookings, in the nine months ended September 30, 2024, Pratt & Whitney booked $381 million for F135 sustainment and $302 million for F135 production. Raytheon Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 Change 2024 2023 Change Net sales $ 6,386 $ 6,472 (1) % $ 19,556 $ 19,464 — % Operating profit 647 560 16 % 1,770 1,775 — % Operating profit margins 10.1 % 8.7 % 9.1 % 9.1 % Defense Bookings $ 16,551 $ 7,442 122 % $ 29,701 $ 22,750 31 % Quarter Ended September 30, 2024 Compared with Quarter Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 337 $ (430) $ — $ 7 $ (86) Operating Profit 101 (23) (5) 14 87 (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 September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to higher net sales of $0.4 billion from land and air defense systems programs driven by higher net sales on certain international Patriot programs, certain international National Advanced Surface-to-air Missile System (NASAMS) programs, and Counter-Unmanned Aircraft Systems (C-UAS) programs. Also contributing to the increases were higher net sales of $0.1 billion from advanced technology programs primarily driven by higher volume on classified 46 Table of Contents programs and on an advanced development program. These increases were partially offset by lower net sales of $0.2 billion from air and space defense systems programs primarily due to the completion of certain programs. The organic operating profit increase of $0.1 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was driven by a favorable change in mix and other performance of approximately $40 million primarily due to increased production on international Patriot programs, an improvement in net EAC adjustments of approximately $30 million, and higher volume of approximately $30 million primarily driven by the net sales increases noted above. The change in net EAC adjustments was spread across numerous programs and included an unfavorable EAC adjustment of $53 million in the third quarter of 2024 related to cost increases on a classified program. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 primarily relates to the sale of the CIS business completed in the first quarter of 2024. Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 1,016 $ (862) $ — $ (62) $ 92 Operating Profit 234 (46) 3 (196) (5) (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 $1.0 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily driven by higher net sales of $1.0 billion from land and air defense systems programs driven by higher net sales on certain international Patriot programs, C-UAS programs, certain international NASAMS programs, and the Stinger program. Also contributing to the increases were higher net sales of $0.4 billion from advanced technology programs primarily driven by higher volume on classified programs and on an advanced development program. These increases were partially offset by lower net sales of $0.4 billion from air and space defense systems programs primarily due to the completion of certain programs, and the timing of a prior year program award. The organic operating profit increase of $0.2 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due to an improvement in net EAC adjustments of approximately $110 million and higher volume of approximately $100 million primarily driven by the net sales increases noted above. The change in net EAC adjustments was spread across numerous programs and benefited from the absence of a $51 million unfavorable adjustment in the nine months ended September 30, 2023 related to significant contract options exercised, which was offset by a $53 million unfavorable EAC adjustment in the third quarter of 2024 related to cost increases on a classified program. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the nine months ended September 30, 2024 compared to the nine months ended September 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 nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 were primarily due to an impact to net sales and operating profit of $0.1 billion and $0.6 billion, respectively, related to the anticipated Raytheon Contract Termination initiated in the second quarter of 2024, with the operating profit decrease partially offset by a $0.4 billion gain on the sale of the CIS business, net of transaction and other related costs, in the first quarter of 2024. Defense Backlog and Bookings – Backlog was $60 billion as of September 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 September 30, 2024, Raytheon booked $1.9 billion for low-rate initial production (LRIP) of Lower Tier Air and Missile Defense System (LTAMDS) for the U.S. Army and Poland, $1.3 billion to provide Standard Missile III (SM-3) to the U.S. Navy and international customers, $1.2 billion to provide Patriot Air Defense systems to Germany, $1.2 billion to provide advanced medium-range air-to-air missile (AMRAAM) to the U.S. Air Force and international customers, $737 million to provide AIM-9X Sidewinder short-range air-to-air missiles for the U.S. Navy, U.S. Air Force, and international customers, $599 million to provide Guidance Enhanced Missiles (GEM-T) for NATO Support and Procurement Agency (NSPA), $538 million to provide Javelin for the U.S. Army and international customers, $530 million to provide Patriot launchers for Poland, $526 million to provide Evolved SeaSparrow Missile (ESSM) for the U.S. Navy and international consortium partners, $479 million to provide GEM-T for an international customer, $473 million for Irst Capable Raptor Unrivaled Supremacy (ICARUS) production for the U. S. Air Force, $453 million to provide GEM-T for an international customer, $272 million for Standard Missile II (SM-2) provisioned items and ordered spares for the U.S. Navy, 47 Table of Contents and $1.2 billion on a number of classified contracts. In addition to these bookings, in the nine months ended September 30, 2024, Raytheon booked $1.2 billion to provide Patriot Air Defense systems to Germany, $818 million to provide GEM-T for NSPA, $639 million to produce AN/SPY-6(V) radars for the U.S. Navy, $623 million to provide GEM-T for an international customer, $393 million to design and build the Landsat Next Instrument Suite (LandIS) for NASA, $282 million to provide NASAMS for Ukraine, $251 million to provide GEM-T for an international customer and $2.6 billion on a number of classified contracts. 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 September 30, Quarter Ended September 30, (dollars in millions) 2024 2023 2024 2023 Eliminations and other $ (611) $ (563) $ (14) $ (69) Corporate expenses and other unallocated items — — 100 (63) The increase in eliminations and other net sales of $48 million in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, was primarily due to an increase in intersegment eliminations, principally driven by Collins. The change in eliminations and other operating profit of $55 million in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023 was primarily due to the absence of the impact of an Internal Revenue Service (IRS) notice issued in September 2023 related to the research and experimental expenditures capitalization. The change in Corporate expenses and other unallocated items of $0.2 billion in the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023, was primarily due to a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024. Refer to “Note 11: Income Taxes” within Item 1 of this Form 10-Q for additional information on the indemnity receivable and the offsetting impacts to Income tax expense. Net Sales Operating Profit Nine months ended September 30, Nine months ended September 30, (dollars in millions) 2024 2023 2024 2023 Eliminations and other $ (1,685) $ (1,461) $ (55) $ (34) Corporate expenses and other unallocated items — — (926) (165) The increase in eliminations and other net sales of $0.2 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily due to an increase in intersegment eliminations, principally driven by Collins. Eliminations and other operating profit in the nine months ended September 30, 2024 was relatively consistent with the nine months ended September 30, 2023. The change in Corporate expenses and other unallocated items of $0.8 billion in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily due to a $0.9 billion charge related to the Resolution of Certain Legal Matters recorded in the second quarter of 2024, partially offset by a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024, as discussed above. 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 . 48 Table of Contents The components of the FAS/CAS operating adjustment were as follows: Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 FAS service cost (expense) $ (34) $ (38) $ (103) $ (110) CAS expense 244 310 739 955 FAS/CAS operating adjustment $ 210 $ 272 $ 636 $ 845 The changes in our FAS/CAS operating adjustment of $0.1 billion and $0.2 billion in the quarter and nine months ended September 30, 2024 compared to the quarter and nine months ended September 30, 2023, respectively, were 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 September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Amortization of acquired intangibles $ (541) $ (527) $ (1,563) $ (1,518) Amortization of property, plant, and equipment fair value adjustment (12) (14) (35) (45) Amortization of customer contractual obligations related to acquired loss-making and below-market contracts 19 24 60 64 Acquisition accounting adjustments $ (534) $ (517) $ (1,538) $ (1,499) Acquisition accounting adjustments related to acquisitions in each segment were as follows: Quarter Ended September 30, Nine Months Ended September 30, (dollars in millions) 2024 2023 2024 2023 Collins Aerospace $ (210) $ (213) $ (626) $ (644) Pratt & Whitney (95) (92) (225) (218) Raytheon (229) (212) (687) (637) Total segment (534) (517) (1,538) (1,499) Eliminations and other — — — — Acquisition accounting adjustments $ (534) $ (517) $ (1,538) $ (1,499) Acquisition accounting adjustments for the quarter and nine months ended September 30, 2024 were relatively consistent with the quarter and nine months ended September 30, 2023, respectively. LIQUIDITY AND FINANCIAL CONDITION (dollars in millions) September 30, 2024 December 31, 2023 Cash and cash equivalents $ 6,682 $ 6,587 Total debt 42,156 43,827 Total equity 62,826 61,410 Total capitalization (total debt plus total equity) 104,982 105,237 Total debt to total capitalization 40 % 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 49 Table of Contents 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 September 30, 2024, we had cash and cash equivalents of $6.7 billion, of which approximatel y 30% 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 September 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 September 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 September 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 September 30, 2024, we had no commercial paper borrowings outstanding. We made the following repayments of long-term debt during the nine months ended September 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 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 Nine Months Ended September 30, (dollars in millions) 2024 2023 Net cash flows provided by operating activities $ 5,598 $ 3,172 Net income for the nine months ended September 30, 2024 included a $0.9 billion charge related to the Resolution of Certain Legal Matters and a $0.4 billion, net of tax, charge related to the anticipated Raytheon Contract Termination, both of which did not have a significant impact on cash flow in the period. These charges also had the effect of increasing Other accrued liabilities by $1.3 billion in the nine months ended September 30, 2024. Net income for the nine months ended September 30, 2023 50 Table of Contents included a $2.2 billion charge related to the Powder Metal Matter, net of tax, which had no effect on cash flow in that period. This charge also had the effect of increasing Other accrued liabilities by $2.8 billion in the nine months ended September 30, 2023. Excluding the impact of these charges, the $3.0 billion change in cash flows provided by operating activities in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was driven by a favorable impact from accounts receivable driven by increased sales volume and timing of collections, including the related impact of factoring as discussed below, a favorable change in accounts payable driven by timing of payments and an increase in material purchases, and lower tax payments year-over-year including a tax refund received in the second quarter of 2024. These favorable changes were partially offset by the net change in contract assets and contract liabilities due to the timing of collections, and a decrease in Other accrued liabilities due to utilization of the Powder Metal Matter accrual as a result of customer compensation. 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 nine months ended September 30, 2024, factoring activity resulted in an increase of approximately $0.9 billion in cash provided by operating activities, compared to an increase of approximately $0.4 billion in cash provided by operating activities during the nine months ended September 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 $0.6 billion and $1.3 billion in the nine months ended September 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 a full year 2024 cash impact related to the Powder Metal Matter of approximately $1.0 billion. Additionally, we currently estimate full year 2024 cash payments of approximately $1.0 billion related to the Resolution of Certain Legal Matters and approximately $0.5 billion for the Raytheon Contract Termination executed subsequent to September 30, 2024. Cash Flow - Investing Activities Nine Months Ended September 30, (dollars in millions) 2024 2023 Net cash flows used in investing activities $ (755) $ (2,061) 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 $1.3 billion change in cash flows used in investing activities in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily related to the sale of our CIS business within our Raytheon segment for proceeds of approximately $1.3 billion in cash. During the nine months ended September 30, 2024 and 2023, we increased other intangible assets by $0.4 billion and $0.5 billion, 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 Nine Months Ended September 30, (dollars in millions) 2024 2023 Net cash flows used in financing activities $ (4,749) $ (1,909) 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 $2.8 billion change in cash flows used in financing activities in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily driven by prior year long-term debt issuances of $3.0 billion, an increase in long-term debt repayments of $1.5 billion, and lower issuances of commercial paper, net, of $0.5 billion, partially offset by lower year-over-year share repurchases of $2.2 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 September 30, 2024, management had remaining authority to repurchase approximately $0.7 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, 51 Table of Contents 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: Nine Months Ended September 30, 2024 2023 (dollars in millions; shares in thousands) $ Shares $ Shares Shares of common stock repurchased (1) $ 136 1,365 $ 2,587 29,397 ASR Tranche 1 settlement - shares received (2) — 391 — — ASR Tranche 2 settlement - financing cash paid (2) (3) 258 — — — Total shares of common stock repurchased $ 394 1,756 $ 2,587 29,397 (1) Amounts relate to share repurchases that were settled in cash during the period. (2) Includes the settlement of the ASR first and second tranches in the third quarter of 2024. Refer to “Note 17: Equity” within Item 1 of this Form 10-Q for additional information. (3) Excludes the change in fair value of the stock price from trade date to settlement date of $3 million, which is classified as an operating cash flow in our Condensed Consolidated Statement of Cash Flows. Our Board of Directors authorized the following cash dividends: Nine Months Ended September 30, (dollars in millions, except per share amounts) 2024 2023 Dividends paid per share of common stock $ 1.850 $ 1.730 Total dividends paid $ 2,415 $ 2,472 On October 9, 2024, the Board of Directors declared a dividend of $0.63 per share payable December 12, 2024 to shareowners of record at the close of business on November 15, 2024. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no significant change in our exposure to market risk during the nine months ended September 30, 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.