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. References to “Raytheon Company” mean Raytheon Company, which became a wholly owned subsidiary of RTX on April 3, 2020 during an all-stock merger transaction between United Technologies Corporation and Raytheon Company (the surviving company of which is RTX Corporation). 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 ended March 31, 2025 and 2024 with respect to Raytheon, we are referring to their March 30, 2025 and March 31, 2024 fiscal quarter ends, respectively. The current status of significant factors affecting our business environment in 2025 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 2024 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, as well as the financial strength and performance of airframers, 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, potential changes in U.S. government policy positions, including changes in DoD policies or priorities, geopolitical conflicts and strained intercountry relations, U.S. and non-U.S. tax law changes, foreign currency exchange rates, sanctions, tariffs, 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. As previously announced, in 2024 the Company resolved several outstanding legal matters, herein referred to as “Resolution of Certain Legal Matters.” The Company entered into a deferred prosecution agreement (DPA) (DPA-1) with 30 Table of Contents the Department of Justice (DOJ) and the Company settled an administrative proceeding with the Securities and Exchange Commission (SEC) (the SEC Administrative Order) 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 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). Under these DPAs and the SEC Administrative Order, Raytheon Company and the Company are required to retain, among other things, an independent compliance monitor satisfactory to the DOJ and the SEC (for a term ending three years from the date on which the monitor is engaged) and are required to undertake certain cooperation and disclosure obligations (for a term commencing on the effective date of DPA-1 and the SEC Administrative Order, as applicable, and ending three years from the date on which the monitor is engaged). The compliance monitor will oversee Raytheon Company’s and the Company’s compliance with their respective obligations under the DPAs and the SEC Administrative Order. The DPAs further provide that, in the event the DOJ, in its sole discretion, determines during the period of deferral of prosecution that Raytheon Company or the Company have violated any provision of either DPA, Raytheon Company or the Company may be subject to prosecution for any federal criminal violation, including the charges against Raytheon Company in the relevant DPA. The SEC Administrative Order further provides that, in the event of a breach of the SEC Administrative Order, the SEC may vacate the SEC Administrative Order and institute proceedings against the Company. In the event of any such determination or breach, the Company may face additional adverse impacts. 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 (CA) with the Department of State (DOS) (Trade Compliance Matters). The CA, which has a three-year term, requires the Company to implement remedial compliance measures and to conduct an external audit of the Company’s International Traffic in Arms Regulations (ITAR) compliance program. The CA also requires appointment of an external, independent Special Compliance Officer (SCO). The Company appointed its SCO on September 27, 2024. For further discussion of DPA-1, DPA-2, the SEC Administrative Order, and the CA, see “Note 16: Commitments and Contingencies,” within Item 1 of this Form 10-Q. 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 have experienced supply chain disruptions that resulted in delays and increased costs and 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 are 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, such as tariffs, are contributing 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 were primarily related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that were 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. The inflationary environment has increased material and component prices, labor rates, and supplier costs and has negatively impacted our performance, including our 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 our suppliers to perform. Moreover, changes in the macroeconomic environment, including volatility with respect to global trade policy, 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 31 Table of Contents Customer Oriented Results and 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. Since February 2025, the U.S. government has issued several executive orders imposing tariffs on imports from most countries with whom the U.S. engages in trade (the Tariff EOs). In response to the Tariff EOs, China, the European Union and Canada have announced, and in some cases imposed, counter tariffs on goods that are imported from the U.S. Our businesses import goods subject to tariffs from many countries covered by the Tariff EOs and they also import goods into countries which have announced counter tariffs and other actions. We are pursuing a variety of actions to mitigate the potential impact of tariffs, including (i) utilizing available exemptions or exclusions to tariffs, such as trade agreements, treaties or other statutory relief, (ii) evaluating operational and supply chain changes, and (iii) where feasible, increasing the prices of our goods and services. The uncertainties created by these changes in global trade policy and the imposition of tariffs, counter tariffs and non-tariff countermeasures by countries subject to U.S. tariffs may adversely affect our previously issued 2025 outlook with respect to our results of operations and cash flows. If the imposition of current tariff levels is sustained, we expect our profitability, cash flows and estimates inherent in our financial statements to be negatively affected. The actual financial impacts of tariffs are dependent upon various factors, most notably, the scope of goods covered by tariffs, the value of our imports subject to tariffs, the rate of tariffs applied, the timing and duration of tariffs, the implementation of tariff and non-tariff countermeasures by countries subject to U.S. tariffs, and our ability to mitigate the impacts of tariffs. Changes in any of these factors and actual tariff costs incurred could significantly affect the estimates inherent in our financial statements, including those used in our estimates-at-completion (EACs), and estimates supporting the recoverability of our inventories, contract fulfillment costs, deferred tax assets, intangible assets and goodwill, and could have a material effect on our results of operations and cash flows in the periods recognized and paid. U.S. Government’s Budget. On March 15, 2025, the President signed a continuing resolution (CR) under which U.S. government Departments and Agencies will continue to operate through September 30, 2025, the end of the government fiscal year. The CR funds the government at fiscal year 2024 levels with certain exceptions, including the addition of approximately $6 billion to the DoD budget. Although Congress provided guidelines to the Executive Branch, the CR generally permits individual Departments and Agencies to determine the areas and programs to fund. As a result, the impact of the CR on RTX ultimately will depend on those funding decisions, however RTX currently does not expect that the CR will materially impact our business or results of operations. Executive Order Regarding Modernizing Defense Acquisitions . On April 9, 2025, the U.S. government issued an executive order requiring, among other things, a DoD review of its Major Defense Acquisition Programs to identify those that are 15% behind schedule, 15% over budget, unable to meet key performance parameters, or unaligned with the Secretary of Defense’s mission priorities for potential cancellation. Although RTX does not, at this time, believe the Executive Order will have a material impact on our business or results of operations, the longer-term ramifications, if any, to RTX will depend on a variety of factors including the formulation and implementation of the review criteria in the order, the review timeline, the Secretary of Defense’s mission priorities, and future budget determinations based on the results of such review. 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; 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 business segment which became part of the Raytheon business 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. Since that time, China has announced additional sanctions against the Raytheon business and a Collins joint venture. 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. 32 Table of Contents 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. We continue to closely monitor potential impacts to RTX’s business, customers, suppliers, employees, and operations in Israel, the Middle East, and the region at large due to renewed violence in Gaza, resumed Houthi missile attacks against Israel, and uncertainty related to regime change in Syria. 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, although we could experience future delivery delays of certain products if further escalations arise. To date, the overall impacts to RTX from this situation have been minimal; however, 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 2024 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 2024 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 quarter ended March 31, 2025. 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 implement 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. 33 Table of Contents Net Sales Quarter Ended March 31, (dollars in millions) 2025 2024 Net sales $ 20,306 $ 19,305 The factors contributing to the change year-over-year in total net sales for the quarter ended March 31, 2025 are as follows: (dollars in millions) Quarter Ended March 31, 2025 Organic (1) $ 1,521 Acquisitions and divestitures, net (492) Other (28) Total change $ 1,001 (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 $1.5 billion organically in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 primarily due to higher organic net sales of $0.9 billion at Pratt & Whitney, $0.6 billion at Collins, and $0.1 billion at Raytheon. The decrease in net sales due to Acquisitions and divestitures, net of $0.5 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, 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 March 31, % of Total Net Sales (dollars in millions) 2025 2024 2025 2024 Net Sales Products $ 14,591 $ 14,303 71.9 % 74.1 % Services 5,715 5,002 28.1 % 25.9 % Total net sales $ 20,306 $ 19,305 100 % 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 $0.3 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 primarily due to increases in external products sales of $0.3 billion at Collins and $0.1 billion at Pratt & Whitney, partially offset by a decrease in external products sales of $0.1 billion at Raytheon. Net services sales increased $0.7 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 primarily due to increases in external services sales of $0.8 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 the CIS business completed in the first quarter of 2024. Our sales to major customers were as follows: Quarter Ended March 31, % of Total Net Sales (dollars in millions) 2025 2024 2025 2024 Sales to the U.S. government (1) $ 7,732 $ 8,127 38.1 % 42.1 % Foreign military sales through the U.S. government 1,471 1,249 7.2 % 6.5 % Foreign government direct commercial sales 1,352 1,208 6.7 % 6.3 % Commercial aerospace and other commercial sales 9,751 8,721 48.0 % 45.2 % Total net sales $ 20,306 $ 19,305 100 % 100 % (1) Excludes foreign military sales through the U.S. government. 34 Table of Contents Cost of Sales Quarter Ended March 31, (dollars in millions) 2025 2024 Total cost of sales $ 16,190 $ 15,744 Percentage of net sales 79.7 % 81.6 % The factors contributing to the change year-over-year in total cost of sales for the quarter ended March 31, 2025 are as follows: (dollars in millions) Quarter Ended March 31, 2025 Organic (1) $ 1,069 Acquisitions and divestitures, net (448) Restructuring 44 FAS/CAS operating adjustment 30 Acquisition accounting adjustments (28) Other (221) Total change $ 446 (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 $1.1 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, was primarily driven by the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. The decrease in total cost of sales due to Acquisitions and divestitures, net of $0.4 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, was primarily driven by the sale of the CIS business within our Raytheon segment completed in the first quarter of 2024. Other cost of sales decreased $0.2 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, primarily driven by the absence of $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 were no longer recoverable as a result of initiating alternative titanium sources. 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 March 31, % of Total Net Sales (dollars in millions) 2025 2024 2025 2024 Cost of sales Products $ 12,283 $ 12,216 60.5 % 63.3 % Services 3,907 3,528 19.2 % 18.3 % Total cost of sales $ 16,190 $ 15,744 79.7 % 81.6 % Net products cost of sales increased $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, primarily driven by increases in external products cost of sales at Collins and Pratt & Whitney, partially offset by a decrease in external products cost of sales at Raytheon, each driven by the products sales changes noted above. The increase was also partially offset by the absence of charges recorded during the first quarter of 2024 at Collins as a result of initiating alternative titanium sources. Net services cost of sales increased $0.4 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, primarily due to an increase in external services cost of sales at Pratt & Whitney, driven by the services sales change noted above, partially offset by a decrease in external services cost of sales at Raytheon, primarily driven by the sale of the CIS business completed in the first quarter of 2024. 35 Table of Contents Research and Development Quarter Ended March 31, (dollars in millions) 2025 2024 Company-funded $ 637 $ 669 Percentage of net sales 3.1 % 3.5 % Customer-funded (1) $ 1,200 $ 1,236 Percentage of net sales 5.9 % 6.4 % (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 for the quarter ended March 31, 2025 were relatively consistent with the quarter ended March 31, 2024. Selling, General, and Administrative Quarter Ended March 31, (dollars in millions) 2025 2024 Selling, general, and administrative $ 1,448 $ 1,394 Percentage of net sales 7.1 % 7.2 % The increase in Selling, general, and administrative expenses of $0.1 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily driven by higher restructuring related costs as a result of actions initiated in the first quarter of 2025 at Collins. 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, Net Quarter Ended March 31, (dollars in millions) 2025 2024 Other income, net $ 4 $ 372 Other income, 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, net of $0.4 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily due to the absence of a $0.4 billion gain on sale of the CIS business in the first quarter of 2024, which was partially offset by an adjustment to certain tax related indemnity receivables recorded in the same quarter. Operating Profit Quarter Ended March 31, (dollars in millions) 2025 2024 Operating profit $ 2,035 $ 1,870 Operating profit margin 10.0 % 9.7 % The increase in Operating profit of $0.2 billion for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily driven by the operating performance of our segments of $0.4 billion, the absence of $0.2 billion of charges at Collins as a result of initiating alternative titanium sources during the first quarter of 2024, and the absence of the $0.1 billion reversal of certain tax related indemnity receivables recorded in the first quarter of 2024. These increases were partially offset by the absence of a $0.4 billion gain on sale of the CIS business recorded in the first quarter of 2024 and an increase in restructuring charges of $0.1 billion . 36 Table of Contents Non-service Pension Income Quarter Ended March 31, (dollars in millions) 2025 2024 Non-service pension income $ (366) $ (386) The Non-service pension income for the quarter ended March 31, 2025 was relatively consistent with the quarter ended March 31, 2024. Interest Expense, Net Quarter Ended March 31, (dollars in millions) 2025 2024 Interest expense $ 502 $ 420 Interest income (51) (11) Other non-operating expense (income) (1) (8) (4) Interest expense, net $ 443 $ 405 Average interest expense rate 4.5 % 4.7 % (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 $38 million in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024. The increase in Interest expense is primarily due to the reversal of interest accruals as a result of the conclusion of certain tax audits recorded during the first quarter of 2024, partially offset by lower interest expense on long-term debt in the first quarter of 2025. Income Taxes Quarter Ended March 31, 2025 2024 Effective income tax rate 17.0 % 5.8 % Our effective tax rate for the quarter ended March 31, 2025 was 17.0% as compared to 5.8% for the quarter ended March 31, 2024. The effective tax rate for the quarter ended March 31, 2024 included tax benefits of $275 million recognized as a result of the conclusion of the examination phases of the RTX and Rockwell Collins Internal Revenue Service (IRS) audits, which was partially offset by the tax cost of $143 million associated with the sale of the CIS business. Net Income Attributable to Common Shareowners Quarter Ended March 31, (dollars in millions, except per share amounts) 2025 2024 Net income attributable to common shareowners $ 1,535 $ 1,709 Diluted earnings per share $ 1.14 $ 1.28 Net income attributable to common shareowners for the quarter ended March 31, 2025 includes the following: • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) of $0.27; and • restructuring charges of $0.1 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.07. Net income attributable to common shareowners for the quarter ended March 31, 2024 includes the following: • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.29; • a 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. 37 Table of Contents 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 Operating Profit excludes 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 March 31, (dollars in millions) 2025 2024 Collins Aerospace $ 7,217 $ 6,673 Pratt & Whitney 7,366 6,456 Raytheon 6,340 6,659 Total segment 20,923 19,788 Eliminations and other (1) (617) (483) Consolidated $ 20,306 $ 19,305 (1) Includes the operating results of certain smaller operations. Operating Profit. Operating profit by segment was as follows: Quarter Ended March 31, (dollars in millions) 2025 2024 Collins Aerospace $ 1,088 $ 849 Pratt & Whitney 580 412 Raytheon (2) 678 996 Total segment 2,346 2,257 Eliminations and other (1) 12 (5) Corporate expenses and other unallocated items (38) (96) FAS/CAS operating adjustment 185 214 Acquisition accounting adjustments (470) (500) Consolidated $ 2,035 $ 1,870 (1) Includes the operating results of certain smaller operations. (2) The quarter ended March 31, 2024 includes a $0.4 billion gain, net of transaction and other related costs, related to the sale of the CIS business. See “Note 2: Acquisitions and Dispositions” 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. 38 Table of Contents We had the following net EAC adjustments for the periods presented: Quarter Ended March 31, (dollars in millions) 2025 2024 Total net EAC adjustments $ (158) $ (162) Total net EAC adjustments in the quarter ended March 31, 2025 were relatively consistent with the quarter ended March 31, 2024. Significant EAC adjustments, when they occur, are discussed in each business segment’s discussion below. Backlog and Bookings. Total backlog was $217 billion and $218 billion as of March 31, 2025 and December 31, 2024, respectively. Total backlog includes commercial backlog of $125 billion as of both March 31, 2025 and December 31, 2024, and defense backlog of $92 billion and $93 billion as of March 31, 2025 and December 31, 2024, respectively. 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 $9 billion and $11 billion for the quarters ended March 31, 2025 and 2024, 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 March 31, (dollars in millions) 2025 2024 Change Net sales $ 7,217 $ 6,673 8 % Operating profit 1,088 849 28 % Operating profit margins 15.1 % 12.7 % Quarter Ended March 31, 2025 Compared with Quarter Ended March 31, 2024 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 592 $ (32) $ — $ (16) $ 544 Operating profit 187 (3) (107) 162 239 (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 March 31, 2025 compared to the quarter ended March 31, 2024 primarily relates to higher commercial aerospace aftermarket sales of $0.3 billion, higher defense sales of $0.2 billion, and a modest increase in commercial aerospace OEM sales. The increase in commercial aerospace sales was principally driven by continued growth in commercial air traffic, which has resulted in an increase in flight hours and increased volume. The increase in defense sales was primarily due to higher volume across multiple programs and platforms . The organic operating profit increase of $0.2 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily due to higher commercial aerospace operating profit of $0.2 billion, principally driven by the higher aftermarket sales volume discussed above. Defense operating profit increased $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 due to the higher sales volume discussed above. The increase in other operating profit of $0.2 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily driven by the absence of $0.2 billion of charges recorded in the first quarter of 2024 related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that were no longer recoverable as a result of initiating alternative titanium sources. The increase in restructuring costs during the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 relates primarily to workforce reductions initiated in the quarter ended March 31, 2025. 39 Table of Contents Defense Bookings – In addition to a number of smaller bookings, in the quarter ended March 31, 2025, Collins booked $358 million for the U.S. Navy's solution for engineering design and manufacturing of the Very Low Frequency subsystem. Pratt & Whitney Quarter Ended March 31, (dollars in millions) 2025 2024 Change Net sales $ 7,366 $ 6,456 14 % Operating profit 580 412 41 % Operating profit margins 7.9 % 6.4 % Quarter Ended March 31, 2025 Compared with Quarter Ended March 31, 2024 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 930 $ — $ — $ (20) $ 910 Operating profit 163 — 8 (3) 168 (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 March 31, 2025, compared to the quarter ended March 31, 2024, reflects higher commercial aftermarket sales of $0.8 billion, primarily driven by higher volume and favorable mix. The increase also includes higher commercial OEM sales of $0.1 billion, primarily driven by higher volume. Military sales increased $0.1 billion, primarily due to higher engine deliveries on the tanker program and higher volume on the F135 Engine Core Upgrade. The organic operating profit increase of $0.2 billion in the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024 reflects higher commercial aerospace operating profit of $0.2 billion, primarily driven by higher commercial aftermarket sales volume and favorable mix, partially offset by lower commercial OEM operating profit driven by the sales volume discussed above. Defense Bookings – In addition to a number of smaller bookings, in the quarter ended March 31, 2025, Pratt & Whitney booked $552 million for the development phase of the Next Generation Adaptive Propulsion (NGAP) program and $541 million for F135 sustainment. Raytheon Quarter Ended March 31, (dollars in millions) 2025 2024 Change Net sales $ 6,340 $ 6,659 (5) % Operating profit 678 996 (32) % Operating profit margins 10.7 % 15.0 % Defense Bookings $ 4,396 $ 8,122 (46) % Quarter Ended March 31, 2025 Compared with Quarter Ended March 31, 2024 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 146 $ (460) $ — $ (5) $ (319) Operating Profit 88 (34) 9 (381) (318) (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 $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was primarily due to higher net sales of $0.3 billion from land and air defense systems programs primarily driven by higher net sales on international Patriot programs and Lower Tier Air and Missile Defense Sensor (LTAMDS) programs, 40 Table of Contents partially offset by lower net sales of $0.2 billion driven by lower development program volume within air and space defense systems. The organic operating profit increase of $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was driven by a favorable change in mix and other performance of approximately $70 million primarily due to increased production on international Patriot programs with the remaining increase spread across numerous programs with no individual or common significant driver. In addition, favorable changes in net EAC adjustments and volume were modest contributors to the organic operating profit increase. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 primarily relates to the sale of the Cybersecurity, Intelligence and Services (CIS) business completed in the first quarter of 2024. The other operating profit change of $0.4 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 is primarily due to the absence of the $0.4 billion gain on sale of the CIS business, net of transaction and other related costs, recorded in the first quarter of 2024. Defense Backlog and Bookings – Backlog was $61 billion as of March 31, 2025 and $63 billion as of December 31, 2024. In addition to a number of smaller bookings, in the quarter ended March 31, 2025, Raytheon booked $529 million to provide Patriot systems for the Netherlands, $251 million to provide Evolved SeaSparrow Missile (ESSM) for Japan, and $651 million 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 March 31, Quarter Ended March 31, (dollars in millions) 2025 2024 2025 2024 Eliminations and other $ (617) $ (483) $ 12 $ (5) Corporate expenses and other unallocated items — — (38) (96) The increase in eliminations and other net sales of $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, was primarily due to an increase in intersegment eliminations, principally driven by Collins. Eliminations and other operating profit in the quarter ended March 31, 2025 was relatively consistent with the quarter ended March 31, 2024. The change in corporate expenses and other unallocated items of $0.1 billion in the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, was primarily due to an adjustment to reduce certain tax related indemnity receivables recorded in the first quarter of 2024. 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 . 41 Table of Contents The components of the FAS/CAS operating adjustment were as follows: Quarter Ended March 31, (dollars in millions) 2025 2024 FAS service cost (expense) $ (30) $ (35) CAS expense 215 249 FAS/CAS operating adjustment $ 185 $ 214 The FAS/CAS operating adjustment in the quarter ended March 31, 2025 was relatively consistent with the quarter ended March 31, 2024. 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 March 31, (dollars in millions) 2025 2024 Amortization of acquired intangibles $ (480) $ (506) Amortization of property, plant, and equipment fair value adjustment (9) (12) Amortization of customer contractual obligations related to acquired loss-making and below-market contracts 19 18 Acquisition accounting adjustments $ (470) $ (500) Acquisition accounting adjustments related to acquisitions in each segment were as follows: Quarter Ended March 31, (dollars in millions) 2025 2024 Collins Aerospace $ (200) $ (211) Pratt & Whitney (66) (60) Raytheon (204) (229) Total segment (470) (500) Eliminations and other — — Acquisition accounting adjustments $ (470) $ (500) Acquisition accounting adjustments for the quarter ended March 31, 2025 were relatively consistent with the quarter ended March 31, 2024. LIQUIDITY AND FINANCIAL CONDITION (dollars in millions) March 31, 2025 December 31, 2024 Cash and cash equivalents $ 5,157 $ 5,578 Total debt 41,300 41,261 Total equity 63,307 61,923 Total capitalization (total debt plus total equity) 104,607 103,184 Total debt to total capitalization 39 % 40 % 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 42 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 March 31, 2025, we had cash and cash equivalents of $5.2 billion, of which approximatel y 38% 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. In March 2025, our Moody’s Investors Service outlook improved from Baa1/negative to Baa1/stable. 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 March 31, 2025, 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 March 31, 2025, 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 March 31, 2025, 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 March 31, 2025, we had no commercial paper borrowings outstanding. 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. 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 Quarter Ended March 31, (dollars in millions) 2025 2024 Net cash flows provided by operating activities $ 1,305 $ 342 The $1.0 billion increase in cash flows provided by operating activities in the quarter ended March 31, 2025 compared to in the quarter ended March 31, 2024, was primarily driven by the net change in contract assets and contract liabilities due to timing of collections and higher billings and a favorable change in accounts payable and accrued liabilities driven by timing of collaborator payables. These changes were partially offset by an increase in accounts receivable driven by timing of collections, partially offset by increased factoring activity as discussed below. Higher net income after adjustments for depreciation and amortization, deferred income tax provision (benefit), stock compensation cost, net periodic pension and other postretirement income, share-based matching 401(k) contributions, and gain on sale of business also contributed to the increase in net cash flows provided by operating activities. 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. Factoring activity resulted in a $0.5 billion increase in cash provided by operating activities during the quarter ended March 31, 2025 compared to during the quarter ended March 31, 2024. We made net tax payments of $145 million and $129 million in the quarters ended March 31, 2025 and 2024, 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 2025 cash impact related to the Powder Metal Matter of approximately $1.1 billion to $1.3 billion, which includes the impact of cash paid, customer credits applied, and the timing of partner recovery. 43 Table of Contents Cash Flow - Investing Activities Quarter Ended March 31, (dollars in millions) 2025 2024 Net cash flows (used in) provided by investing activities $ (678) $ 693 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 $1.4 billion change in cash flows (used in) provided by investing activities in the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024, was primarily related to the sale of the CIS business during the quarter ended March 31, 2024 for proceeds of approximately $1.3 billion in cash. During the quarters ended March 31, 2025 and 2024, other intangible assets increased by $0.1 billion and $0.2 billion, respectively, primarily related to collaboration payments 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 Quarter Ended March 31, (dollars in millions) 2025 2024 Net cash flows used in financing activities $ (1,056) $ (2,007) 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 $1.0 billion decrease in cash flows used in financing activities in the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024, was primarily driven by a decrease in long-term debt repayments of $0.9 billion. Refer to “Note 9: Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on debt repayments. At March 31, 2025, management had remaining authority to repurchase approximately $0.6 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. 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: Quarter Ended March 31, 2025 2024 (dollars in millions; shares in thousands) $ Shares $ Shares Shares of common stock repurchased (1) $ 50 396 $ 56 616 (1) Amounts relate to share repurchases that were settled in cash during the period. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no significant change in our exposure to market risk during the quarter ended March 31, 2025. For discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our 2024 Form 10-K.