RTX Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of RTX Corporation (RTX) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of RTX’s internal control over financial reporting as of December 31, 2025. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in its Internal Control—Integrated Framework , released in 2013 . Management concluded that based on its assessment, RTX’s internal control over financial reporting was effective as of December 31, 2025. The effectiveness of RTX’s internal control over financial reporting, as of December 31, 2025, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. /s/ CHRISTOPHER T. CALIO Christopher T. Calio Chairman and Chief Executive Officer /s/ NEIL G. MITCHILL, JR. Neil G. Mitchill, Jr. Executive Vice President and Chief Financial Officer /s/ AMY L. JOHNSON Amy L. Johnson Senior Vice President and Controller 61 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareowners and Board of Directors of RTX Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of RTX Corporation and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 62 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition - Contract Estimates at Completion As described in Note 1 to the consolidated financial statements, the majority of the Company’s revenues of $88.6 billion for the year ended December 31, 2025, are from long-term contracts associated with the design, development, manufacture or modification of complex aerospace or defense equipment or related services. The Collins and Pratt & Whitney segments primarily serve commercial and government customers in both the original equipment manufacturer and aftermarket parts and services markets of the aerospace industry, while the Raytheon segment primarily provides products and services to government customers in the defense industry. For certain long-term aftermarket contracts, revenue is recognized over the contract period, and the Company generally accounts for such contracts as a series of daily performance obligations to stand ready to provide spare parts, product maintenance and aftermarket services. Substantially all of the defense business revenue is recognized over time because of the continuous transfer of control to customers. For performance obligations satisfied over time, revenue is recognized on a percentage-of-completion basis generally using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Management reviews the estimated costs at completion at least annually or when a change in circumstances warrants a modification to a previous estimate. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many inputs and requires significant judgment by management on a contract-by-contract basis. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration. Management must make assumptions and estimates regarding contract revenues and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials, including any impact from changing costs or inflation, the length of time to complete the performance obligation, execution by its subcontractors, the availability and timing of funding from the customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. Changes in estimates of net sales, cost of sales and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based on a performance obligation’s percentage of completion in the current period. A significant change in one or more of these estimates could affect the profitability of one or more of the performance obligations. The principal considerations for our determination that performing procedures relating to revenue recognition - contract estimates at completion is a critical audit matter are (i) the significant judgment by management in developing the estimates of total revenue and total costs at completion, including significant judgments and assumptions on a contract-by-contract basis, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s estimates of total revenue and total costs at completion for contracts. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the estimates of total revenue and total costs at completion. These procedures also included, among others, testing management’s process for developing the estimated total revenue and total costs at completion, including evaluating on a test basis the reasonableness of certain significant judgments and inputs considered by management specific to each contract or performance obligation. Evaluating the significant judgments and assumptions related to the estimates of total revenue and total costs at completion on a contract-by-contract basis involved evaluating whether the significant judgments and assumptions used were reasonable considering: (i) management’s historical 63 Table of Contents forecasting accuracy, (ii) evidence to support the aforementioned inputs relevant to an individual contract, (iii) the consistent application of accounting policies, and (iv) the timely identification of circumstances which may warrant a modification to a previous estimate. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 6, 2026 We have served as the Company’s auditor since 1947. 64 Table of Contents RTX CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (dollars in millions, except per share amounts; shares in millions) 2025 2024 2023 Net sales: Products sales $ 64,171 $ 59,612 $ 49,571 Services sales 24,432 21,126 19,349 Total net sales 88,603 80,738 68,920 Costs and expenses: Cost of sales - products 53,780 50,768 43,425 Cost of sales - services 17,034 14,560 13,406 Research and development 2,807 2,934 2,805 Selling, general, and administrative 6,095 5,806 5,809 Total costs and expenses 79,716 74,068 65,445 Other income (expense), net 413 ( 132 ) 86 Operating profit 9,300 6,538 3,561 Non-operating expense (income), net: Non-service pension income ( 1,182 ) ( 1,518 ) ( 1,780 ) Interest expense, net 1,749 1,862 1,505 Total non-operating expense (income), net 567 344 ( 275 ) Income before income taxes 8,733 6,194 3,836 Income tax expense 1,664 1,181 456 Net income 7,069 5,013 3,380 Less: Noncontrolling interest in subsidiaries’ earnings 337 239 185 Net income attributable to common shareowners $ 6,732 $ 4,774 $ 3,195 Earnings Per Share attributable to common shareowners: Basic $ 5.02 $ 3.58 $ 2.24 Diluted 4.96 3.55 2.23 Weighted average number of shares outstanding: Basic shares 1,341.4 1,332.1 1,426.0 Diluted shares 1,356.4 1,343.6 1,435.4 See accompanying Notes to Consolidated Financial Statements 65 Table of Contents RTX CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (dollars in millions) 2025 2024 2023 Net income $ 7,069 $ 5,013 $ 3,380 Pension and postretirement benefit plans adjustments Net actuarial loss arising during period ( 739 ) ( 645 ) ( 971 ) Prior service cost arising during period ( 100 ) ( 36 ) ( 19 ) Amortization of actuarial loss and prior service credit ( 142 ) ( 174 ) ( 568 ) Other 189 8 ( 51 ) Pension and postretirement benefit plans adjustments ( 792 ) ( 847 ) ( 1,609 ) Change in unrealized cash flow hedging 284 ( 228 ) 358 Foreign currency translation adjustments 1,436 ( 506 ) 562 Other comprehensive income (loss), before tax 928 ( 1,581 ) ( 689 ) Income tax benefit related to items of other comprehensive income 109 245 288 Other comprehensive income (loss), net of tax 1,037 ( 1,336 ) ( 401 ) Comprehensive income 8,106 3,677 2,979 Less: Comprehensive income attributable to noncontrolling interest 337 239 185 Comprehensive income attributable to common shareowners $ 7,769 $ 3,438 $ 2,794 See accompanying Notes to Consolidated Financial Statements 66 Table of Contents RTX CORPORATION CONSOLIDATED BALANCE SHEET (dollars in millions; shares in thousands) 2025 2024 Assets Current assets Cash and cash equivalents $ 7,435 $ 5,578 Accounts receivable, net 14,701 10,976 Contract assets, net 17,092 14,570 Inventory, net 13,364 12,768 Other assets, current 7,740 7,241 Total current assets 60,332 51,133 Customer financing assets 2,132 2,246 Fixed assets, net 16,868 16,089 Operating lease right-of-use assets 1,887 1,864 Goodwill 53,343 52,789 Intangible assets, net 31,845 33,443 Other assets 4,672 5,297 Total assets $ 171,079 $ 162,861 Liabilities, Redeemable Noncontrolling Interest, and Equity Current liabilities Short-term borrowings $ 204 $ 183 Accounts payable 15,895 12,897 Accrued employee compensation 3,308 2,620 Other accrued liabilities 14,350 14,831 Contract liabilities 21,615 18,616 Long-term debt currently due 3,412 2,352 Total current liabilities 58,784 51,499 Long-term debt 34,288 38,726 Operating lease liabilities, non-current 1,602 1,632 Future pension and postretirement benefit obligations 2,067 2,104 Other long-term liabilities 7,200 6,942 Total liabilities 103,941 100,903 Commitments and contingencies (Note 17) Redeemable noncontrolling interest 36 35 Shareowners’ equity: Capital stock: Preferred stock, $ 1 par value; 250,000 shares authorized; None issued or outstanding — — Common stock, $ 1 par value; 4,000,000 shares authorized; 1,725,312 and 1,718,756 shares issued 38,126 37,434 Treasury stock, 383,025 and 386,633 common shares at average cost ( 26,881 ) ( 27,112 ) Retained earnings 56,718 53,589 Accumulated other comprehensive loss ( 2,718 ) ( 3,755 ) Total shareowners’ equity 65,245 60,156 Noncontrolling interest 1,857 1,767 Total equity 67,102 61,923 Total liabilities, redeemable noncontrolling interest, and equity $ 171,079 $ 162,861 See accompanying Notes to Consolidated Financial Statements 67 Table of Contents RTX CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in millions) 2025 2024 2023 Operating Activities: Net income $ 7,069 $ 5,013 $ 3,380 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 4,378 4,364 4,211 Deferred income tax provision (benefit) 789 ( 47 ) ( 402 ) Stock compensation cost 519 437 425 Net periodic pension and other postretirement income ( 1,011 ) ( 1,326 ) ( 1,555 ) Share-based 401(k) matching contributions 573 353 261 Gain on sale of Cybersecurity, Intelligence and Services (CIS) business, net of transaction costs (Note 2) — ( 415 ) — Change in: Accounts receivable ( 3,235 ) ( 175 ) ( 1,805 ) Contract assets ( 2,643 ) ( 2,414 ) ( 753 ) Inventory ( 532 ) ( 1,474 ) ( 1,104 ) Other current assets ( 1,055 ) ( 402 ) ( 1,161 ) Accounts payable and accrued liabilities 3,418 1,508 4,016 Contract liabilities 2,773 1,872 2,322 Other operating activities, net ( 476 ) ( 135 ) 48 Net cash flows provided by operating activities 10,567 7,159 7,883 Investing Activities: Capital expenditures ( 2,627 ) ( 2,625 ) ( 2,415 ) Payments on customer financing assets ( 233 ) ( 218 ) ( 117 ) Receipts from customer financing assets 161 202 212 Dispositions of businesses, net of cash transferred 1,931 1,795 6 Increase in other intangible assets ( 492 ) ( 611 ) ( 751 ) Receipts (payments) from settlements of derivative contracts, net 118 ( 142 ) 14 Other investing activities, net ( 123 ) 65 12 Net cash flows used in investing activities ( 1,265 ) ( 1,534 ) ( 3,039 ) Financing Activities: Proceeds from long-term debt — — 12,914 Repayment of long-term debt ( 3,429 ) ( 2,500 ) ( 578 ) Proceeds from bridge loan — — 10,000 Repayment of bridge loan — — ( 10,000 ) Change in commercial paper, net (Note 9) — — ( 524 ) Dividends paid ( 3,574 ) ( 3,217 ) ( 3,239 ) Repurchase of common stock ( 50 ) ( 444 ) ( 12,870 ) Other financing activities, net ( 433 ) ( 456 ) ( 230 ) Net cash flows used in financing activities ( 7,486 ) ( 6,617 ) ( 4,527 ) Effect of foreign exchange rate changes on cash and cash equivalents 48 ( 28 ) 18 Net increase (decrease) in cash, cash equivalents and restricted cash 1,864 ( 1,020 ) 335 Cash, cash equivalents and restricted cash, beginning of year 5,606 6,626 6,291 Cash, cash equivalents and restricted cash, end of year 7,470 5,606 6,626 Less: Restricted cash, included in Other assets, current and Other assets 35 28 39 Cash and cash equivalents, end of year $ 7,435 $ 5,578 $ 6,587 Supplemental Disclosure of Cash Flow Information: Interest paid, net of amounts capitalized $ 1,858 $ 1,942 $ 1,464 Income taxes paid, net of refunds 1,607 1,176 1,527 See accompanying Notes to Consolidated Financial Statements 68 Table of Contents RTX CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (dollars in millions, except per share amounts; shares in thousands) 2025 2024 2023 Equity at January 1 $ 61,923 $ 61,410 $ 74,178 Common Stock Balance at January 1 37,434 37,055 37,939 Common stock plans activity 400 110 368 Share-based 401(k) matching contributions 292 269 242 Common stock repurchased — — ( 1,500 ) Common stock contributed to defined benefit pension plans — — 7 Purchase of subsidiary shares from noncontrolling interest, net — — ( 1 ) Balance at December 31 38,126 37,434 37,055 Treasury Stock Balance at January 1 ( 27,112 ) ( 26,977 ) ( 15,530 ) Common stock repurchased ( 50 ) ( 225 ) ( 11,490 ) Share-based 401(k) matching contributions 281 90 — Common stock contributed to defined benefit pension plans — — 43 Balance at December 31 ( 26,881 ) ( 27,112 ) ( 26,977 ) Retained Earnings Balance at January 1 53,589 52,154 52,269 Net income attributable to common shareholders 6,732 4,774 3,195 Dividends on common stock ( 3,419 ) ( 3,217 ) ( 3,239 ) Dividends on ESOP common stock ( 155 ) ( 81 ) ( 56 ) Other ( 29 ) ( 41 ) ( 15 ) Balance at December 31 56,718 53,589 52,154 Unearned ESOP Shares Balance at January 1 — ( 15 ) ( 28 ) Share-based 401(k) matching contributions — 15 13 Balance at December 31 — — ( 15 ) Accumulated Other Comprehensive Loss Balance at January 1 ( 3,755 ) ( 2,419 ) ( 2,018 ) Other comprehensive income (loss), net of tax 1,037 ( 1,336 ) ( 401 ) Balance at December 31 ( 2,718 ) ( 3,755 ) ( 2,419 ) Noncontrolling Interest Balance at January 1 1,767 1,612 1,546 Net income 337 239 185 Redeemable noncontrolling interest net income ( 10 ) ( 8 ) ( 8 ) Dividends attributable to noncontrolling interest ( 237 ) ( 123 ) ( 108 ) Sale (purchase) of subsidiary shares from noncontrolling interest, net — 33 — Disposition of noncontrolling interest, net — — ( 3 ) Capital contributions — 14 — Balance at December 31 1,857 1,767 1,612 Equity at December 31 $ 67,102 $ 61,923 $ 61,410 Supplemental share information Shares of common stock issued under employee plans, net 6,556 6,039 1,757 Shares of common stock repurchased 396 2,116 141,712 Treasury shares reissued related to 401(k) matching contributions 4,004 1,293 — Shares of common stock contributed to defined benefit pension plans — — 623 Dividends declared per share of common stock $ 2.670 $ 2.480 $ 2.320 See accompanying Notes to Consolidated Financial Statements 69 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING PRINCIPLES The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates. Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries. We reclassified certain immaterial prior period amounts within our Consolidated Statement of Cash Flows and Consolidated Statement of Changes in Equity related to our share-based 401(k) matching contributions to conform to our current period presentation. Legal Matters. As previously disclosed, in 2024 the Company resolved several outstanding legal matters, herein referred to as “Resolution of Certain Legal Matters.” See “Note 17: Commitments and Contingencies” for additional information. Russia Sanctions. 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. 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 Aerospace (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 continue to monitor developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers. Pratt & Whitney Powder Metal Matter. 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”). See “Note 17: Commitments and Contingencies” for additional information. Summary of Accounting Principles. The following represents the significant accounting principles of RTX Corporation. Consolidation and Classification. The Consolidated Financial Statements include the accounts of RTX Corporation, and all wholly owned, majority-owned, and otherwise controlled domestic and foreign subsidiaries. All intercompany transactions have been eliminated. For our consolidated non-wholly owned subsidiaries, a noncontrolling interest is recognized to reflect the portion of income and equity that is not attributable to us. For classification of certain current assets and liabilities, the duration of our contracts or programs is utilized to define our operating cycle, which is generally longer than one year. Included within our current assets and liabilities are Contract assets and Contract liabilities related to our development and aftermarket arrangements, which can generally span up to twenty years . Use of Estimates. Our Consolidated Financial Statements are based on the application of U.S. Generally Accepted Accounting Principles (GAAP), which require us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Actual results could differ from those estimates, and any such differences may be material to our Consolidated Financial Statements. Estimates and assumptions are reviewed periodically and the effects of changes, if any, are reflected in our Consolidated Financial Statements in the period they are determined. Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand, demand deposits, and short-term cash investments that are highly liquid in nature and have original maturities of three months or less. The estimated fair value of Cash and cash equivalents approximates the carrying value due to their short maturities. Accounts Receivable. Accounts receivable are stated at the net amount expected to be collected. Accounts receivable related to the commercial aerospace industry was approximately 79 % of Accounts receivable, net at December 31, 2025 and 2024. We are exposed to credit losses primarily on our accounts receivable and contract assets related to our sales of products and services to commercial customers. The allowance for expected credit losses is established to provide for the expected lifetime credit 70 Table of Contents losses by evaluating factors such as customer creditworthiness, historical payment and loss experiences, current economic conditions, including geographic and political risk, and the age and status of outstanding receivables. In certain circumstances, we may be able to develop reasonable and supportable forecasts over the contractual term of the financial asset. For periods beyond which we are able to make or obtain reasonable and supportable forecasts, we revert to historical loss experience and information. We determine credit ratings for each customer in our portfolio based upon public information and information obtained directly from our customers. We conduct a review of customer credit ratings, published historical credit default rates for different rating categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness of the allowance for expected credit losses on a quarterly basis, or when events and circumstances warrant. A credit limit is established for each customer based on the outcome of this review and consideration of the other factors discussed above. In certain cases, we may require collateral or prepayment to mitigate credit risk. Expected credit losses are written off in the period in which the financial asset is no longer collectible. Unbilled receivables represent revenues that are not currently billable to the customer under the terms of the contract and include unbilled amounts under commercial contracts where payment is solely subject to the passage of time. These items are expected to be billed and collected in the normal course of business. Accounts receivable, net as of December 31, 2025 and 2024 includes unbilled receivables of $ 411 million and $ 374 million, respectively, which primarily includes unbilled receivables with commercial aerospace customers. Other unbilled receivables where payment is subject to factors beyond just the passage of time are included in Contract assets, net in the Consolidated Balance Sheet. Contract Assets and Liabilities. Contract assets and liabilities represent the difference in the timing of revenue recognition from receipt of cash from our customers. Contract assets reflect revenue recognized and performance obligations satisfied or partially satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Contract assets and contract liabilities are generally classified as current as our operating cycle is generally longer than one year. See “Note 6: Contract Assets and Liabilities” for further discussion of contract assets and liabilities. As described in more detail above in “Accounts Receivable,” we are exposed to credit losses on our Contract assets related to our sales of products and services to commercial customers and regularly assess our allowance for expected credit losses as it relates to our contract assets. Inventory. Inventory is stated at the lower of cost or estimated realizable value and is primarily based on first-in, first-out (FIFO) or average cost methods. Valuation reserves for excess, obsolete, and slow-moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than inventoriable cost. Other factors that management considers in determining the adequacy of these reserves include whether individual inventory parts meet current specifications and can be substituted for a part currently being sold or used as a service part, overall market conditions, and other inventory management initiatives. Manufacturing costs are allocated to current production contracts. Investments. Investments in entities we do not control are presented in Other assets in our Consolidated Balance Sheet. For investments in which we have significant influence, we apply the equity method of accounting. Under this method, we record our proportionate share of the investee’s net earnings or losses. If we determine that a decline in the value of an equity‑method investment is other than temporary, we recognize an impairment loss in current‑period earnings. Transactions with equity‑method investees, which are considered related parties, were not material for the periods presented. We also make strategic investments in companies that we believe are advancing or developing new technologies applicable to our business. These investments are primarily in early‑stage entities and may be in the form of convertible debt or equity investments. Most of these investments are in equity securities without readily determinable fair values. These securities are measured at cost with adjustments recorded for observable price changes under the measurement alternative. We evaluate these investments for indicators of impairment each reporting period. Income and losses from these investments are included in Other income (expense), net in our Consolidated Statement of Operations, as the activities of the investees are closely aligned with our operations. Customer Financing Assets. Customer financing assets (CFA) relate to our commercial aerospace businesses in which we provide financing to airline customers. Our financing predominantly relates to leased engines, often provided through the customers’ aftermarket maintenance coverage, and to a lesser extent, notes and lease receivables. In certain limited 71 Table of Contents circumstances, we pay deposits on behalf of our airline customers to secure production slots with the airframers, and such pre-delivery payments are included in Accounts receivable, net, if current, and Customer financing assets, if non-current, in our Consolidated Balance Sheet. Any unfunded pre-delivery payments are included within our commercial aerospace financing commitments as further discussed in “Note 17: Commitments and Contingencies.” Interest income from notes and financing leases and rental income from operating lease assets is generally included in Other income (expense), net in the Consolidated Statement of Operations, while gains or losses on sales of operating lease assets are included in Products sales and Cost of sales. The current portion of these financing arrangements are aggregated in Accounts receivable, net and the non-current portion of these financing arrangements are aggregated in Customer financing assets in the Consolidated Balance Sheet. The increases and decreases in CFA from funding, receipts, and certain other activity, are generally reflected as Investing Activities in the Consolidated Statement of Cash Flows. Leased assets are valued at cost and reviewed for impairment when circumstances indicate that the related carrying amounts may not be recoverable. Notes and lease receivables are valued at the net amount expected to be collected. For notes and lease receivables, we determine a specific reserve for exposure based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral in connection with the evaluation of credit risk and collectability. As of December 31, 2025 and 2024, the reserves related to CFA were not material. At December 31, 2025 and 2024, we did not have any material balances that are considered to be delinquent, on non-accrual status, past due 90 days or more, or considered to be impaired. Fixed Assets, Net. Fixed assets, net, are stated at cost less accumulated depreciation. Major improvements are capitalized while expenditures for maintenance, repairs, and minor improvements are expensed. For asset sales or retirements, the assets and related accumulated depreciation and amortization are eliminated from the accounts. Gains and losses on sales of our Fixed assets, net, are generally recorded in Other income (expense), net. Business Combinations. Once a business is acquired, the fair value of the identifiable assets acquired and liabilities assumed is determined with the excess cost recorded to goodwill. A preliminary fair value is determined once a business is acquired, with the final determination of the fair value being completed no later than one year from the date of acquisition. In connection with the acquisitions of Rockwell Collins in 2018 and Goodrich in 2012, and to a lesser extent the acquisition of Raytheon Company in 2020, we recorded assumed liabilities related to customer contractual obligations on certain contracts with economic returns that were lower than what could be realized in market transactions as of the acquisition date. We measured these assumed liabilities based on the estimated cash flows of the programs plus a reasonable contracting profit margin required to transfer the contracts to market participants. These liabilities are being amortized in accordance with the underlying pattern of obligations, as reflected by the expenses incurred on the contracts. The balance of the contractual obligations was $ 576 million and $ 654 million at December 31, 2025 and 2024, respectively. Total consumption of the contractual obligations for the years ended December 31, 2025, 2024, and 2023 was $ 78 million, $ 81 million, and $ 83 million, respectively, with future consumption expected to be as follows: $ 69 million in 2026, $ 81 million in 2027, $ 84 million in 2028, $ 82 million in 2029, $ 74 million in 2030, and $ 186 million thereafter. Goodwill and Intangible Assets. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment testing annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The goodwill impairment test compares carrying values of the reporting units to their estimated fair values. If the carrying value exceeds the fair value then the carrying value is reduced to fair value. In evaluating our reporting units and indefinite-lived intangible assets for impairment, we may perform both qualitative and quantitative assessments. For the quantitative assessments that are performed, fair value is primarily based on market-based valuation methods, income-based methods using a discounted cash flow model, relief from royalty methods, or a combination of each. These assessments utilize significant assumptions including sales growth rates, projected operating profit, terminal growth rates, discount rates, royalty rates, and comparable multiples from publicly-traded companies in our industry. Such assumptions are subject to variability from year to year and are directly impacted by, among other things, global market conditions. Finite-lived intangible assets are tested for impairment when events occur that indicate that the net book value will not be recovered over future cash flows. Intangible assets consist of patents, trademarks/tradenames, customer relationships, exclusivity assets, developed technology, and other intangible assets, including collaboration assets. Acquired intangible assets are recognized at fair value in purchase accounting. Finite-lived intangible assets are amortized primarily to Cost of sales over the applicable useful lives. Exclusivity assets are commercial aerospace payments made to secure certain contractual rights to provide product on new aircraft platforms. We classify amortization of such payments as a reduction of sales. Such payments are capitalized when there are distinct rights obtained and there are sufficient incremental cash flows to support the recoverability of the assets established. Otherwise, the applicable portion of the payments are expensed. In addition, in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in International Aero Engines AG (IAE), additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments are being capitalized as collaboration assets and amortized to Cost of sales. 72 Table of Contents Useful lives of finite-lived intangible assets are estimated based upon the nature of the intangible asset and how the intangible asset is used. These intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are consumed, as represented by the underlying cash flows, which may result in an amortization method other than straight-line. For both our commercial aerospace collaboration assets and exclusivity arrangements, the pattern of economic benefit generally results in no amortization during the development period with amortization beginning as programs enter full rate production and aftermarket cycles. If a pattern of economic benefit cannot be reliably determined or if straight-line amortization approximates the pattern of economic benefit, a straight-line amortization method may be used. The range of estimated useful lives is as follows: Years Collaboration assets 9 to 30 Customer relationships and related programs 3 to 25 Developed technology 3 to 25 Patents and trademarks 5 to 30 Exclusivity assets 5 to 25 Leases. As a lessee, we record a right-of-use asset and a lease liability on the Consolidated Balance Sheet for leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the Consolidated Statement of Operations. We enter into lease agreements for the use of real estate space, vehicles, IT equipment, and certain other equipment, including engines, under both operating and finance leases. We determine if an arrangement contains a lease at inception. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities, non-current on our Consolidated Balance Sheet. The current portion of our operating lease liabilities is included in Other accrued liabilities on our Consolidated Balance Sheet. Finance leases are not considered significant to our Consolidated Balance Sheet or Consolidated Statement of Operations. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, and use the implicit rate when readily determinable. We determine our incremental borrowing rate through market sources including relevant industry rates. Our lease right-of-use assets also include any initial direct costs and lease pre-payments made at or before the commencement date and are reduced for any lease incentives received at or before the commencement date. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease right-of-use assets and lease liabilities, to the extent such payments are not considered fixed, and instead, expense variable payments as incurred. Variable lease expense and lease expense for short duration contracts are not a material component of lease expense. Some of our leases include the option to extend or terminate the lease. We include these options in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Lease expense is generally recognized on a straight-line basis over the lease term. We act as a lessor, primarily for commercial aerospace engines for a short term during maintenance events. The majority of these leases are classified as operating leases. These leases are not significant to our Consolidated Balance Sheet or Consolidated Statement of Operations. Other Long-Lived Assets. We evaluate the potential impairment of other long-lived assets whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. If the carrying value of other long-lived assets held and used exceeds the sum of the undiscounted expected future cash flows, the carrying value is written down to fair value. In order for long-lived assets to be considered held for disposal, we must have committed to a plan to dispose of the assets. Once deemed held for disposal, the assets are stated at the lower of the carrying amount or fair value. Income Taxes. Future income taxes represent the tax effects of transactions which are reported in different periods for tax and financial reporting purposes. These amounts consist of the tax effects of temporary differences between the tax and financial reporting balance sheets and tax carryforwards. Future income tax benefits and payables within the same tax-paying component of a particular jurisdiction are offset for presentation in the Consolidated Balance Sheet. I n the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded 73 Table of Contents the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest expense has also been recognized. We recognize accrued interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. State income tax amounts are included in income tax expense. We have elected to account for tax on Global Intangible Low-Taxed Income ( GILTI) as a period cost, as incurred. Revenue Recognition. A majority of our revenues are from long-term contracts associated with the design, development, manufacture, or modification of complex aerospace or defense equipment or related services. Collins and Pratt & Whitney primarily serve commercial and government customers in both the original equipment manufacturer (OEM) and aftermarket parts and services markets of the aerospace industry, while Raytheon primarily provides products and services to government customers in the defense industry. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. For certain contracts that meet the foregoing requirements, primarily contracts that are directly with a foreign government, we are required to obtain certain regulatory approvals. In these cases, we recognize revenue when obtaining regulatory approvals is considered probable based on all known facts and circumstances. A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while others contain multiple performance obligations, most commonly when a contract contains multiple distinct units (such as engines or certain aerospace components), or spans multiple phases of the product life-cycle such as production, maintenance, and support. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on its standalone selling price when available. If standalone selling price is not available, we estimate the standalone selling price of each performance obligation, which is generally based on an expected cost-plus-a-margin approach. We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including contractual discounts, contract incentive payments, estimates of award fees, flight hours, aircraft landings or other customer usage activities on long-term maintenance contracts, and other sources of variable consideration, when determining the transaction price of each contract. We account for consideration payable to a customer as a reduction of revenue. Consideration payable to a customer may include cash amounts we are obligated to pay or expect to pay a customer, as well as credits or other items that can be applied against amounts owed to us. In our Collins and Pratt & Whitney businesses, we may offer customer incentives to purchase our products, which may result in payments made to those customers. When reasonably able to estimate, we include variable consideration in the transaction price at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates are based on historical experience, anticipated performance, and our best judgment at the time. We also consider whether our contracts contain a significant financing component, which they generally do not. Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms. Performance obligations are satisfied as of a point-in-time for certain aerospace components, engines, and spare parts. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment. Since billing also typically occurs upon product shipment, we generally do not have Contract assets or Contract liabilities balances related to point-in-time sales. Performance obligations are satisfied over time if the customer receives the benefits as we perform work, if the customer controls the asset as it is being produced (continuous transfer of control), or if the product being produced for the customer has no alternative use and we have a contractual right to payment for performance to date. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace OEM and aftermarket contracts. Substantially all of our defense business revenue, which primarily relates to our Raytheon segment, and to a lesser extent Pratt & Whitney and Collins, is recognized over time because of the continuous transfer of control to our customers. For performance obligations satisfied over time, revenue is recognized on a percentage-of-completion basis generally using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which correspond with and best depict transfer of control to the customer. Contract costs can include labor, materials, subcontractors’ costs, or other direct costs and indirect costs. Our contracts with the U.S. government are typically subject to 74 Table of Contents the Federal Acquisition Regulation (FAR) and are priced based on estimated or actual costs of producing goods or providing services. The FAR provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts. The pricing for non-U.S. government contracts is based on the specific negotiations with each customer. Under the typical payment terms of our U.S. government fixed-price contracts, the customer pays us either performance-based payments (PBPs) or progress payments. PBPs are interim payments equal to a negotiated percentage of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments up to 80 - 90 % of costs incurred as the work progresses. Because the customer retains a portion of the contract price until completion of the contract, our U.S. government fixed-price contracts generally result in revenue recognized in excess of billings which we present as Contract assets on the Consolidated Balance Sheet. For our U.S. government cost-type contracts, the customer generally pays us for our costs incurred within a short period of time. For non-U.S. government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. Such advances are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract and to protect us from the other party failing to adequately complete some or all of its obligations under the contract. We recognize a liability for advance payments in excess of revenue recognized and present it as Contract liabilities on the Consolidated Balance Sheet. For certain of our long-term aftermarket contracts, revenue is recognized over the contract period. We generally account for such contracts as a series of daily performance obligations to stand ready to provide spare parts, product maintenance, and aftermarket services. These arrangements include the sale of spare parts with integral services to our customers, and are generally classified as Services sales, with the corresponding costs classified in Cost of sales - services, within the Consolidated Statement of Operations. Revenue is primarily recognized on a percentage-of-completion basis using costs incurred to date relative to total estimated costs at completion to measure progress, as sufficient historical evidence indicates that the cost of performing services under the contract is incurred on an other-than-straight-line basis. For some of our long-term aftermarket contracts, we receive payment prior to delivery of products and services, resulting in a contract liability balance, while for others, we deliver products or services in advance of payment, resulting in a contract asset balance. Contracts are often modified to account for changes in contract specifications or requirements. We consider contract modifications to exist when the modification either creates new or changes existing enforceable rights and obligations. Contract modifications for goods or services that are not distinct are accounted for as part of the existing contract either on a cumulative catch-up basis or prospective basis depending on the nature of the modification. Loss provisions on contracts are recognized to the extent that estimated contract costs exceed the estimated consideration from the products or services contemplated under the contractual arrangement. For new commitments, we generally record loss provisions at contract signing except for certain contracts under which losses are recorded upon receipt of the purchase order that obligates us to perform. For existing commitments, anticipated losses on contractual arrangements are recognized in the period in which losses become evident. In estimating losses, products contemplated under contractual arrangements include firm quantities of product sold under contract and, in the commercial engine and wheels and brakes businesses, future highly-probable sales of replacement parts required by regulation that are expected to be sold subsequently for incorporation into the original equipment. In our commercial engine and wheels and brakes businesses, when the OEM product is sold for a loss, but the combined OEM and aftermarket arrangement for each individual sales campaign is profitable, we record OEM product losses at the time of product delivery. We review our Estimates at Completion (EACs) at least annually or when a change in circumstances warrants a modification to a previous estimate. For significant contracts, we review our EACs more frequently. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many inputs, and requires significant judgment by management on a contract by contract basis. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed delays or reductions in scheduled deliveries, technical requirements, customer activity levels, such as flight hours or aircraft landings, and related variable consideration. Management must make assumptions and estimates regarding contract revenues and costs, including estimates of labor productivity and availability, the complexity and scope of the work to be performed, the availability and cost of materials including any impact from changing costs or inflation, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from our customer, overhead cost rates, and current and past maintenance cost and frequency driven by estimated aircraft and engine utilization and estimated useful lives of components, among others. In particular, fixed-price development programs involve significant management judgment, as development contracts by nature have elements that have not been done before and thus, are highly subject to future unexpected cost changes. Cost estimates may also include the estimated cost of satisfying our industrial cooperation agreements, sometimes in the form of either offset obligations or in-country industrial 75 Table of Contents participation (ICIP) agreements, required under certain contracts. These obligations may or may not be distinct depending on their nature. If cash is paid to a customer to satisfy our offset obligations, it is recorded as a reduction in the transaction price. Changes in estimates of net sales, cost of sales, and the related impact to operating profit on contracts recognized over time are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based on a performance obligation’s percentage-of-completion in the current period. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. Our EAC adjustments also include the establishment of, and changes to, loss provisions for our contracts accounted for on a percentage-of-completion basis. Net EAC adjustments had the following impact on our operating results: (dollars in millions, except per share amounts) 2025 2024 2023 Total net sales $ ( 208 ) $ ( 144 ) $ ( 452 ) Operating profit ( 386 ) ( 473 ) ( 648 ) Net income attributable to common shareowners (1) ( 305 ) ( 374 ) ( 512 ) Diluted earnings per share attributable to common shareowners (1) $ ( 0.22 ) $ ( 0.28 ) $ ( 0.36 ) (1) Amounts reflect a U.S. statutory tax rate of 21%, which approximates our tax rate on our EAC adjustments. In addition to the amounts included in the table above, during the fourth quarter of 2024, as a result of obtaining critical licenses and further regulatory approvals, we restarted work under certain contracts with a Middle East customer and began recognizing revenue on these contracts. As a result, Raytheon recognized a net operating profit benefit of $ 0.1 billion primarily related to reserve and contract loss provision adjustments. 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, herein referred to as “Raytheon Contract Termination,” and recognized a $ 0.6 billion charge related to the impact of the termination. The charge included the write-off of remaining contract assets and the estimated settlement with the customer. The contract termination was completed and customer settlement occurred during the fourth quarter of 2024, in line with previously accrued amounts. In our Collins and Pratt & Whitney businesses, we incur contract fulfillment costs for engineering and development of aerospace products directly related to existing or anticipated contracts with customers. Such costs generate or enhance our ability to satisfy our performance obligations under these contracts. We capitalize these costs as contract fulfillment costs to the extent the costs are recoverable from the associated contract margin and customer funding, and subsequently amortize the costs to Cost of sales as the related performance obligations are satisfied. In instances where intellectual property does not transfer to the customer, we generally defer the customer funding of product engineering and development and recognize revenue when the related performance obligations are satisfied. Capitalized contract fulfillment costs were $ 2.7 billion and $ 2.5 billion as of December 31, 2025 and 2024, respectively, and are classified in Other assets, current in our Consolidated Balance Sheet and are included in Other current assets in our Consolidated Statement of Cash Flows. We regularly assess capitalized contract fulfillment costs for impairment. In 2024, we recognized impairment charges at Collins of approximately $ 0.2 billion due to a contract cancellation and $ 0.1 billion as a result of the impact of initiating alternative titanium sources. See “Russia Sanctions” above for further information regarding initiating alternative titanium sources. In view of the risks and costs associated with developing new engines and the large up-front investments required that often require returns generated over the full estimated life of the engine, Pratt & Whitney has entered into certain collaboration arrangements in which sales, costs, and risks are shared. Sales generated from engine programs, spare parts sales, and aftermarket business under these collaboration arrangements are recorded consistent with our revenue recognition policies in our Consolidated Financial Statements. Amounts attributable to our collaborators for their share of sales are recorded as cost of sales in our Consolidated Financial Statements based upon the terms and nature of the arrangement. Costs associated with engine programs under collaborative arrangements are expensed as incurred. Under these arrangements, collaborators contribute their program share of engine parts, incur their own production costs, and make certain payments for shared or joint program costs. The reimbursement from collaborators of their share of program costs is recorded as a reduction of the related expense item at that time. As of December 31, 2025, the collaborators’ interests in all commercial engine programs ranged from 13 % to 49 %, inclusive of a portion of Pratt & Whitney’s interests held by other participants. Pratt & Whitney is the principal participant in all existing collaborative arrangements, with the exception of the Engine Alliance (EA), a joint venture with GE Aviation, which provides aftermarket support, spare parts, and service for the GP7000 engine for the Airbus A380 aircraft. There are no individually significant collaborative arrangements, and none of the collaborators individually have more than a 25 % share in an individual program where Pratt & Whitney is the principal participant. The following table illustrates the 76 Table of Contents Consolidated Statement of Operations classification and amounts attributable to transactions arising from the collaborative arrangements between participants for each period presented. (dollars in millions) 2025 2024 2023 Collaborator share of sales (1) : Cost of sales - products $ 3,819 $ 3,348 $ ( 181 ) Cost of sales - services 3,446 2,659 2,151 Collaborator share of program costs (reimbursement of expenses incurred): Cost of sales - products ( 272 ) ( 194 ) ( 205 ) Research and development ( 182 ) ( 213 ) ( 208 ) Selling, general, and administrative ( 121 ) ( 110 ) ( 114 ) (1) 2023 total cost of sales includes a net reduction of $ 2.6 billion related to our collaborators’ share of the Powder Metal Matter. Remaining Performance Obligations (RPO). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. Total RPO was $ 268 billion as of December 31, 2025. Of the total RPO as of December 31, 2025, we expect approximately 25 % will be recognized as revenue over the next 12 months. Approximately 50 % of our RPO relates to long-term commercial aerospace maintenance contracts at Pratt & Whitney, which are generally expected to be realized over a span of up to 20 years. Research and Development. Company-sponsored research and development costs, including those costs related to the Company’s portion in connection with cost-sharing arrangements, are charged to expense as incurred and recovery on these cost-sharing arrangements is recorded as a reduction to research and development expense as earned. Customer-sponsored research and development projects performed under contracts with customers are accounted for as contract costs and reported as cost of sales on the related revenue-generating contracts. Foreign Exchange. We conduct business in many different currencies and, accordingly, are subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of operations of many of our foreign subsidiaries are often measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. Dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average exchange rates during the respective periods. The aggregate effects of translating the balance sheets of these subsidiaries are deferred as a separate component of Accumulated other comprehensive loss in Shareowners’ equity on our Consolidated Balance Sheet. Foreign exchange transaction gains and losses are recorded in Other income (expense), net in our Consolidated Statement of Operations. Derivatives and Hedging Activity. We use derivative instruments, including swaps, forward contracts, and options, to help manage certain foreign currency, and from time to time to help manage interest rate and commodity price exposures. Derivative instruments are viewed as risk management tools by us and are not used for trading or speculative purposes. By their nature, all financial instruments involve market and credit risks. We enter into derivative and other financial instruments with major investment grade financial institutions and have policies to monitor the credit risk of those counterparties. We limit counterparty exposure and concentration of risk by diversifying counterparties. While there can be no assurance, we do not anticipate any material non-performance by any of these counterparties. We enter into transactions that are subject to enforceable master netting arrangements or similar agreements with various counterparties. While we have rights to offset multiple contracts with a single counterparty in an event of default, those obligations remain separate and distinct otherwise, and, as a result, the fair value of the derivative instruments in a loss position is not offset against the fair value of derivative instruments in a gain position in our financial statements. Derivatives used for hedging purposes may be designated and effective as a hedge of the identified risk exposure at the inception of the contract. All derivative instruments are recorded on the balance sheet at fair value. Derivatives used to hedge foreign currency denominated balance sheet items are reported directly in earnings along with offsetting transaction gains and losses on the items being hedged. Derivatives are also used to hedge foreign currency translation risk arising from the net investment in certain foreign operations. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases may be accounted for as cash flow hedges, as deemed appropriate. Changes in the fair value of derivatives that are designated and qualify as a hedge of the net investment in foreign operations, to the extent they are included in the assessment of effectiveness, are recorded in Foreign currency translation adjustments within Other comprehensive income (loss) (OCI) and are deferred until disposal of the underlying investment. Gains and losses representing components excluded from the assessment of effectiveness for net investment hedges are recognized on a straight-line basis in Other income (expense), net over the term of the hedges. To the extent that a previously-designated hedging 77 Table of Contents transa ction for cash flow hedges or net investment hedges are no longer an effective hedge, any ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period it occurs. To the extent the hedge accounting criteria are not met, the foreign currency forward contracts are utilized as economic hedges and changes in the fair value of these contracts are recorded currently in earnings in the period in which they occur. Additional information pertaining to foreign currency forward contracts and net investment hedging is included in “Note 13: Financial Instruments.” Environmental. Environmental investigatory, remediation, operating, and maintenance costs are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently-available facts with respect to each individual site, including existing technology, current laws and regulations, and prior remediation experience. Where no amount within a range of estimates is more likely, the minimum is accrued. For sites with multiple responsible parties, we consider our likely proportionate share of the anticipated remediation costs and the ability of the other parties to fulfill their obligations in establishing a provision for those costs. Liabilities with fixed or reliably determinable future cash payments are discounted. A portion of these costs is eligible for future recovery through the pricing of our products and services to the U.S. government. We regularly assess the probability of recovery of these costs, which requires us to make assumptions about the extent of cost recovery under our contracts and the amount of future contract activity with the U.S. government. We consider such recovery probable based on government contracting regulations and our history of receiving reimbursement for such costs, and accordingly have recorded the future recovery of these costs from the U.S. government within Other assets, current in the Consolidated Balance Sheet. Accrued environmental liabilities are not reduced by potential insurance reimbursements or potential recoveries from pursuing other parties. We also lease certain government-owned properties and generally are not liable for remediation of preexisting environmental contamination at these sites. As a result, we generally do not provide for these costs in our Consolidated Financial Statements. See “Note 17: Commitments and Contingencies” for additional details on the environmental remediation activities. Pension and Postretirement Obligations. U.S. GAAP requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit (PRB) plans. Funded status is measured at least annually in the fourth quarter and represents the difference between the plans’ projected benefit obligation (PBO) and the fair market value of the plans’ assets. Changes to our pension and PRB plans’ funded status can result from company actions, such as contributions, changes in plan provisions, or by gains and losses. Gains and losses are primarily a result of changes in assumptions and actual experience that differs from these assumptions. Major assumptions include the discount rate and expected return on plan assets (EROA). Other assumptions include actuarial and demographic assumptions including mortality rates, retirement age, and rate of increase in employee compensation levels. These gains or losses are recorded in Other comprehensive loss, net of tax, until they are amortized as a component of net periodic benefit (income) expense. A calculated “market-related value” of our plan assets is generally used to develop the amount of deferred asset gains or losses to be amortized. The market-related value of assets is generally equal to the fair value of assets adjusted to reflect the recognition, and subsequent amortization, of the difference between actual and expected asset returns over a five-year period. The market-related value of assets is used to calculate the expected return on assets included in the net periodic benefit (income) expense. The Company has elected to use the “corridor” approach in the amortization of gains and losses, which limits the expense recognition to the net outstanding gains and losses in excess of the greater of 10% of the PBO or 10% of the market-related value of assets. Gains and losses exceeding the corridor are amortized in net periodic benefit (income) expense over either the projected average remaining employee service period or the projected average remaining lifetime of inactive participants depending on the plan. Net periodic benefit (income) expense is classified between operating and non-operating, whereby only the service cost component is included in operating profit and the remaining components are included in Non-service pension income. Product Performance Obligations. We extend performance and operating cost guarantees beyond our normal service and warranty policies for extended periods on some of our products, particularly commercial aircraft engines. Liability under such guarantees is based upon future product performance and durability. We accrue for such costs that are probable and can be reasonably estimated. In addition, we incur discretionary costs to service our products in connection with product performance issues. The costs associated with these product performance and operating cost guarantees require estimates over the full terms of the agreements, and require management to consider factors such as the extent of future maintenance requirements, interval between flight and repair time, and the future cost of material and labor to perform the services. These cost estimates are largely based upon historical experience. See “Note 16: Guarantees” for further discussion. 78 Table of Contents Government Grants. We may receive grants from various federal, state, local, and foreign governments in exchange for compliance with certain conditions relating to our activities in a specific jurisdiction. Grants are often structured to encourage investment, job creation, job retention, employee training, and other related activities. We recognize government grants when there is reasonable assurance that the Company will comply with the conditions of the grant and the grant is received or is probable of receipt and the amount is determinable. Government grants are recorded as a reduction to the related expense or asset to which the grant relates or recorded in Other income (expense), net in our Consolidated Statement of Operations. Government grant transactions are not material to our financial position, results of operations, or liquidity. Accounting Pronouncements. In December 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2025-10; Accounting for Government Grants Received by Business Entities, which provides guidance on how companies should recognize, measure, and present government grants received. The new standard is effective for annual and interim reporting periods beginning after December 15, 2028. The standard allows for a modified prospective, modified retrospective, or retrospective transition. Early adoption is permitted. We are currently evaluating the impact of adopting this new pronouncement. In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software, which better aligns the accounting guidance to how software is developed by eliminating project stages from capitalization criteria. The new standard is effective for annual reporting periods beginning after December 15, 2027 and interim periods within those annual reporting periods. The standard allows for prospective, modified, or retrospective transition. Early adoption is permitted. We are currently evaluating the impact of adopting this new pronouncement. In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires a tabular disclosure of the amounts of specified natural expense categories included in each relevant expense caption. Additionally, the amendments require the disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, on a prospective basis. Early adoption is permitted. We are currently evaluating the impact on our disclosures of adopting this new pronouncement. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance income tax reporting disclosures and require disclosure of specific categories in the tabular rate reconciliation. We adopted this standard for the annual period ending December 31, 2025 on a prospective basis. We updated our income tax disclosures to comply with the requirements. See “Note 12: Income Taxes.” The adoption of the standard did not have an impact on our financial position, results of operations, or liquidity. Other new pronouncements issued but not effective until after December 31, 2025 are not expected to have a material impact on our results of operations, financial condition, or liquidity. NOTE 2: ACQUISITIONS AND DISPOSITIONS Dispositions. On July 21, 2025, we completed the sale of the actuation and flight control business within our Collins segment for gross proceeds of $ 1.8 billion. Cash received of $ 1.6 billion, net of cash transferred, included amounts attributable to continuing service agreements supporting the buyer post-closing. The sale resulted in a pre-tax gain of $ 0.2 billion, which was recorded in Other income (expense), net within the Consolidated Statement of Operations. On October 6, 2025, we completed the sale of the Simmonds Precision Products business within our Collins segment for gross proceeds of approximately $ 0.8 billion, resulting in an aggregate pre-tax gain of $ 0.1 billion, recognized in Other income (expense), net within the Consolidated Statement of Operations. On March 29, 2024, we completed the sale of our Cybersecurity, Intelligence and Services (CIS) business within our Raytheon segment for proceeds of approximately $ 1.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction and other related costs, of $ 0.4 billion, primarily recognized in Other income (expense), net within the Consolidated Statement of Operations. On October 31, 2024, we completed the sale of our Goodrich Hoist & Winch business within our Collins segment for proceeds of approximately $ 0.5 billion in cash, resulting in a pre-tax gain, net of transaction and other related costs, of $ 0.1 billion, primarily recognized in Other income (expense), net within the Consolidated Statement of Operations. 79 Table of Contents NOTE 3: GOODWILL AND INTANGIBLE ASSETS Goodwill. Changes in our goodwill balances for the year ended December 31, 2025 were as follows: (dollars in millions) Balance as of December 31, 2024 Acquisitions and Divestitures Foreign Currency Translation and Other Balance as of December 31, 2025 Collins Aerospace $ 32,223 $ ( 255 ) $ 808 $ 32,776 Pratt & Whitney 1,563 — — 1,563 Raytheon 18,986 — 1 18,987 Total Segments 52,772 ( 255 ) 809 53,326 Eliminations and other 17 — — 17 Total $ 52,789 $ ( 255 ) $ 809 $ 53,343 The Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. We completed our annual goodwill impairment testing as of October 1, 2025 and determined that no adjustments to the carrying value of goodwill were necessary. We assessed all of our reporting units using qualitative factors to determine whether it was more likely than not that any individual reporting unit’s fair value is less than its carrying value (step 0) and determined that no further testing was required. Intangible Assets. Identifiable intangible assets are comprised of the following: 2025 2024 (dollars in millions) Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Amortized: Collaboration assets $ 6,234 $ ( 2,374 ) $ 6,159 $ ( 1,996 ) Exclusivity assets 3,980 ( 258 ) 3,692 ( 361 ) Developed technology and other 1,192 ( 758 ) 1,197 ( 698 ) Customer relationships 29,338 ( 13,989 ) 29,388 ( 12,401 ) 40,744 ( 17,379 ) 40,436 ( 15,456 ) Indefinite-lived: Trademarks and other 8,480 — 8,463 — Total $ 49,224 $ ( 17,379 ) $ 48,899 $ ( 15,456 ) We also completed our annual indefinite-lived intangible assets impairment testing using a qualitative approach as of October 1, 2025 and determined that no adjustments to the carrying value of these assets were necessary. Amortization of intangible assets was $ 2.1 billion, $ 2.2 billion, and $ 2.1 billion in 2025, 2024, and 2023, respectively. The following is the expected amortization of intangible assets for 2026 through 2030: (dollars in millions) 2026 2027 2028 2029 2030 Amortization expense $ 1,992 $ 1,896 $ 1,795 $ 1,637 $ 1,628 80 Table of Contents NOTE 4: EARNINGS PER SHARE (dollars in millions, except per share amounts; shares in millions) 2025 2024 2023 Net income attributable to common shareowners $ 6,732 $ 4,774 $ 3,195 Basic weighted average number of shares outstanding 1,341.4 1,332.1 1,426.0 Stock awards and equity units (share equivalent) 15.0 11.5 9.4 Diluted weighted average number of shares outstanding 1,356.4 1,343.6 1,435.4 Earnings Per Share attributable to common shareowners: Basic $ 5.02 $ 3.58 $ 2.24 Diluted 4.96 3.55 2.23 The computation of diluted earnings per share (EPS) excludes the effect of the potential exercise of stock awards, including stock appreciation rights and stock options, when the average market price of the common stock is lower than the exercise price of the related stock awards during the period because the effect would be anti-dilutive. In addition, the computation of diluted EPS excludes the effect of the potential release or exercise of stock awards when the awards’ assumed proceeds exceed the average market price of the common shares during the period. For 2025, 2024, and 2023, there were 1.4 million, 4.8 million, and 9.6 million stock awards excluded from the computation, respectively. NOTE 5: ACCOUNTS RECEIVABLE, NET Accounts receivable, net consisted of the following: (dollars in millions) 2025 2024 U.S. government contracts (including foreign military sales) $ 1,775 $ 1,132 Other customers 13,266 10,133 Allowance for expected credit losses ( 340 ) ( 289 ) Total accounts receivable, net $ 14,701 $ 10,976 The changes in the allowance for expected credit losses related to accounts receivable were as follows: (dollars in millions) 2025 2024 2023 Balance as of January 1 $ 289 $ 316 $ 452 Current period provision, net of recoveries 64 ( 14 ) ( 92 ) Write-offs ( 12 ) ( 7 ) ( 42 ) Other, net ( 1 ) ( 6 ) ( 2 ) Balance as of December 31 $ 340 $ 289 $ 316 NOTE 6: CONTRACT ASSETS AND LIABILITIES Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billings. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of December 31, 2025 and 2024 were as follows: (dollars in millions) 2025 2024 Contract assets, net $ 17,092 $ 14,570 Contract liabilities ( 21,615 ) ( 18,616 ) Net contract liabilities $ ( 4,523 ) $ ( 4,046 ) Contract assets, net increased $ 2.5 billion during 2025 primarily due to sales in excess of billings on certain contracts at Pratt & Whitney, partially offset by an increase in the allowance for expected credit losses due to a customer bankruptcy recorded at Pratt & Whitney in the second quarter of 2025. Contract liabilities increased $ 3.0 billion during 2025 primarily due to billings in excess of sales on certain contracts at Pratt & Whitney and Raytheon. 81 Table of Contents In 2025, 2024, and 2023, we recognized revenue of $ 8.1 billion, $ 7.2 billion, and $ 5.3 billion related to our Contract liabilities at January 1, 2025, January 1, 2024, and January 1, 2023, respectively. Contract assets, net consisted of the following at December 31: (dollars in millions) 2025 2024 Revenue recognized in advance of customer billings $ 35,023 $ 30,226 Progress payments ( 17,931 ) ( 15,656 ) Total contract assets, net $ 17,092 $ 14,570 For U.S. government contracts that provide progress payments, the U.S. government has title to the asset related to unbilled amounts. The changes in the allowance for expected credit losses related to contract assets were as follows: (dollars in millions) 2025 2024 2023 Balance as of January 1 $ 491 $ 197 $ 319 Current period provision, changes in estimates, and recoveries, net 185 294 210 Write-offs and other — — ( 332 ) Balance as of December 31 $ 676 $ 491 $ 197 NOTE 7: INVENTORY, NET (dollars in millions) 2025 2024 Raw materials $ 4,673 $ 4,164 Work-in-process 4,554 4,493 Finished goods 4,137 4,111 Total inventory, net $ 13,364 $ 12,768 Raw materials, work-in-process, and finished goods are net of total valuation reserves of $ 2.3 billion and $ 2.1 billion as of December 31, 2025 and 2024, respectively. NOTE 8: FIXED ASSETS, NET Fixed assets, net, consisted of the following: (dollars in millions) Estimated Useful Lives 2025 2024 Land $ 710 $ 695 Buildings and improvements 10 - 45 years 9,188 8,615 Machinery, tools, and equipment 3 - 20 years 21,572 19,738 Assets under construction 3,865 3,735 Fixed assets, gross 35,335 32,783 Accumulated depreciation ( 18,467 ) ( 16,694 ) Fixed assets, net $ 16,868 $ 16,089 Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the improvement. Depreciation expense related to Fixed assets, net is recorded predominantly utilizing the straight-line method and was $ 1.9 billion in 2025 and $ 1.8 billion in 2024 and 2023. NOTE 9: BORROWINGS AND LINES OF CREDIT As of December 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 December 31, 2025, there were no borrowings outstanding under this agreement. In addition, at December 31, 2025, approximately $ 0.6 billion was available under short-term lines of credit primarily with global banks at our international subsidiaries. 82 Table of Contents 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 December 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 December 31, 2025 and 2024, we had no commercial paper borrowings outstanding. During 2025 and 2024, we had no new borrowings or repayments of commercial paper with maturities greater than 90 days. During 2023, we had no new borrowings, and $ 0.2 billion of repayments of commercial paper with maturities greater than 90 days. On October 24, 2023, we entered into a senior unsecured bridge credit agreement (Bridge Loan) with various banks permitting aggregate borrowings of up to $ 10.0 billion, to fund an accelerated share repurchase (ASR) and pay related fees and expenses. The $ 10.0 billion Bridge Loan was paid in full and terminated in the fourth quarter of 2023 upon receipt of proceeds from the $ 4.0 billion term loan facilities, the $ 6.0 billion of long-term debt issuances, and cash on hand. During 2025 and 2024, we made the following repayments of long-term debt: Date Description of Notes Aggregate Principal Balance (in millions) December 17, 2025 3 Month SOFR plus 1.225 % Term Loan due 2026 $ 1,100 August 18, 2025 3.950 % notes due 2025 1,500 May 7, 2025 3 Month SOFR plus 1.225 % term loan due 2025 750 December 24, 2024 3 Month SOFR plus 1.225 % term loan due 2025 500 December 15, 2024 3.150 % notes due 2024 300 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 Long-term debt consisted of the following as of December 31: (dollars in millions) 2025 2024 3 Month SOFR plus 1.225 % term loan due 2025 $ — $ 750 3.950 % notes due 2025 (1) — 1,500 5.000 % notes due 2026 (1) 500 500 2.650 % notes due 2026 (1) 719 719 3 Month SOFR plus 1.225 % term loan due 2026 900 2,000 5.750 % notes due 2026 (1) 1,250 1,250 3.125 % notes due 2027 (1) 1,100 1,100 3.500 % notes due 2027 (1) 1,300 1,300 7.200 % notes due 2027 (1) 382 382 7.100 % notes due 2027 135 135 6.700 % notes due 2028 285 285 7.000 % notes due 2028 (1) 185 185 4.125 % notes due 2028 (1) 3,000 3,000 5.750 % notes due 2029 (1) 500 500 7.500 % notes due 2029 (1) 414 414 2.150 % notes due 2030 (€ 500 million principal value) (1) 587 520 2.250 % notes due 2030 (1) 1,000 1,000 6.000 % notes due 2031 (1) 1,000 1,000 1.900 % notes due 2031 (1) 1,000 1,000 2.375 % notes due 2032 (1) 1,000 1,000 5.150 % notes due 2033 (1) 1,250 1,250 6.100 % notes due 2034 (1) 1,500 1,500 5.400 % notes due 2035 (1) 446 446 83 Table of Contents (dollars in millions) 2025 2024 6.050 % notes due 2036 (1) 410 410 6.800 % notes due 2036 (1) 117 117 7.000 % notes due 2038 148 148 6.125 % notes due 2038 (1) 575 575 4.450 % notes due 2038 (1) 750 750 5.700 % notes due 2040 (1) 553 553 4.875 % notes due 2040 (1) 600 600 4.700 % notes due 2041 (1) 425 425 4.500 % notes due 2042 (1) 3,500 3,500 4.800 % notes due 2043 (1) 400 400 4.200 % notes due 2044 (1) 300 300 4.150 % notes due 2045 (1) 850 850 3.750 % notes due 2046 (1) 1,100 1,100 4.050 % notes due 2047 (1) 600 600 4.350 % notes due 2047 (1) 1,000 1,000 4.625 % notes due 2048 (1) 1,750 1,750 3.125 % notes due 2050 (1) 1,000 1,000 2.820 % notes due 2051 (1) 1,000 1,000 3.030 % notes due 2052 (1) 1,100 1,100 5.375 % notes due 2053 (1) 1,250 1,250 6.400 % notes due 2054 (1) 1,750 1,750 Other (including finance leases) 146 232 Total principal long-term debt 37,777 41,146 Other (fair market value adjustments, (discounts)/premiums, and debt issuance costs) ( 77 ) ( 68 ) Total long-term debt 37,700 41,078 Less: current portion 3,412 2,352 Long-term debt, net of current portion $ 34,288 $ 38,726 (1) We may redeem these notes, in whole or in part, at our option pursuant to their terms prior to the applicable maturity date. The weighted-average interest rate related to total debt was 4.5 % at December 31, 2025 and 2024. The average maturity of our long-term debt at December 31, 2025 is approximately 12 years. The schedule of principal payments required on long-term debt for the next five years and thereafter is: (in millions) 2026 $ 3,412 2027 2,928 2028 3,490 2029 922 2030 1,593 Thereafter 25,432 Total $ 37,777 NOTE 10: EMPLOYEE BENEFIT PLANS We sponsor various domestic and foreign employee benefit plans, which are discussed below. Employee Savings Plans. We sponsor various employee savings plans. Our contributions to employer sponsored defined contribution plans were $ 1.4 billion, $ 1.4 billion, and $ 1.3 billion for 2025, 2024, and 2023, respectively. 84 Table of Contents Our domestic employee savings plan uses an Employee Stock Ownership Plan (ESOP) for certain employer matching contributions. Prior to the third quarter of 2024, the ESOP held stock that was purchased using external borrowings. As ESOP debt service payments were made, common stock was released from an unallocated ESOP account. ESOP debt was either prepaid or re-amortized to either increase or decrease the number of shares released so that the value of released shares equaled the value of plan benefit. It was also the Company’s option to contribute additional common stock or cash to the ESOP. Shares of common stock were allocated to participants’ ESOP accounts at fair value on the date earned. Cash dividends on unallocated common stock held by the ESOP were used for debt service payments. Cash dividends on allocated shares are either reinvested or paid directly in cash to the participant, according to the participant’s election. Participants chose to have their ESOP dividends reinvested or distributed to their accounts in cash. Common stock allocated to ESOP participants was included in the average number of common shares outstanding for both basic and diluted EPS. At December 31, 2024, all 23 million common shares related to this leveraged ESOP have been allocated to employees. During the third quarter of 2024, remaining unallocated ESOP shares were fully allocated to participant accounts through matching contributions, and we began funding the ESOP match in shares on a non-leveraged basis. Under the new non-leveraged basis, treasury shares are utilized to fund the matching contributions, and participants receive units from the ESOP in the amount of their matching contribution at fair value on the date earned. Once shares are contributed to the participants’ ESOP accounts, they have a right to dividend payments and are included in the average number of common shares outstanding for both basic and diluted EPS. In the fourth quarter of 2024, we expanded the funding of our matching contributions in shares under the ESOP to additional participants who previously received matching contributions in cash. In 2025 and 2024, we used the ESOP to make matching contributions of $ 0.6 billion and $ 0.4 billion, respectively, which was equivalent to 4 million and 3 million shares, respectively. Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. Our largest plans are generally closed to new participants. We also sponsor both funded and unfunded PRB plans that provide health care and life insurance benefits to eligible retirees. Our plans use a December 31 measurement date consistent with our fiscal year. At December 31, 2023, we merged our remaining Raytheon Company domestic defined benefit pension plans into the RTX Consolidated Pension Plan (the Plan). This plan merger did not impact participants’ benefit formulas. In December 2025, we completed a buy-out conversion of a group annuity contract previously purchased by the Plan from The Prudential Insurance Company of America (Prudential) transferring approximately $ 2.3 billion of gross pension obligations from the Plan to Prudential. In connection with the contract purchase, Fiduciary Counselors Inc. acted as independent fiduciary for the Plan. Upon completion of the buy-out conversion, Prudential assumed the obligation and administrative responsibility for retirement benefits owed to approximately 60,000 Plan retirees and beneficiaries, which represents approximately one-third of retirees and beneficiaries in the Plan. The transaction resulted in no change to the amounts of benefits payable and did not diminish the Plan’s funded status. In connection with the transaction, we recognized a one-time, non-cash pension settlement charge of $ 0.3 billion in the fourth quarter of 2025, recorded in Non-service pension income, within the Consolidated Statement of Operations. 85 Table of Contents Pension (dollars in millions) 2025 2024 Change in Benefit Obligation: Beginning balance $ 46,322 $ 49,592 Service cost 169 189 Interest cost 2,343 2,385 Actuarial loss (gain) 1,253 ( 2,013 ) Total benefits paid (1) ( 3,530 ) ( 3,633 ) Net settlement, curtailment, and special termination benefits ( 2,479 ) 9 Plan amendments 100 36 Business combinations and divestitures 1 ( 23 ) Other (2) 275 ( 220 ) Ending balance $ 44,454 $ 46,322 Change in Plan Assets: Beginning balance $ 46,414 $ 48,945 Actual return on plan assets 4,237 1,092 Employer contributions (1) 210 235 Total benefits paid (1) ( 3,530 ) ( 3,633 ) Settlements ( 2,479 ) ( 3 ) Other (2) 262 ( 222 ) Ending balance $ 45,114 $ 46,414 (1) Includes benefit payments paid directly by the company. (2) The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the United Kingdom and Canada, and participant contributions. Pension PRB (dollars in millions) 2025 2024 2025 2024 Funded Status: Fair value of plan assets $ 45,114 $ 46,414 $ 330 $ 314 Benefit obligations ( 44,454 ) ( 46,322 ) ( 890 ) ( 898 ) Funded status of plan $ 660 $ 92 $ ( 560 ) $ ( 584 ) Amounts Recognized in the Consolidated Balance Sheet Consist of: Non-current assets $ 2,339 $ 1,819 $ — $ — Current liabilities ( 169 ) ( 195 ) ( 59 ) ( 61 ) Non-current liabilities ( 1,510 ) ( 1,532 ) ( 501 ) ( 523 ) Net amount recognized $ 660 $ 92 $ ( 560 ) $ ( 584 ) Amounts Recognized in Accumulated Other Comprehensive Loss Consist of: Net actuarial loss (gain) $ 5,431 $ 4,926 $ ( 232 ) $ ( 296 ) Prior service credit ( 822 ) ( 1,044 ) — ( 1 ) Net amount recognized $ 4,609 $ 3,882 $ ( 232 ) $ ( 297 ) The majority of our pension obligations relate to our U.S. Internal Revenue Service (IRS) qualified pension plans, which comprise 86 % of our pension PBO as of both December 31, 2025 and 2024. Our nonqualified domestic pension plans, which provide supplementary benefits to certain employees in excess of the IRS qualified plan limits, comprise 3 % of our pension PBO as of both December 31, 2025 and 2024. Our international plans comprise 11 % of our pension PBO as of both December 31, 2025 and 2024. In addition to the pension and PRB non-current liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes other immaterial pension and PRB-related liabilities. 86 Table of Contents Information for pension plans with accumulated benefit obligations in excess of plan assets: (dollars in millions) 2025 2024 Projected benefit obligation $ 3,311 $ 3,260 Accumulated benefit obligation 3,284 3,239 Fair value of plan assets 1,634 1,537 The accumulated benefit obligation for all defined benefit pension plans was $ 44.2 billion and $ 46.1 billion at December 31, 2025 and 2024, respectively. Information for pension plans with projected benefit obligations in excess of plan assets: (dollars in millions) 2025 2024 Projected benefit obligation $ 3,406 $ 3,298 Accumulated benefit obligation 3,368 3,272 Fair value of plan assets 1,726 1,571 The components of the net periodic pension income are as follows: (dollars in millions) 2025 2024 2023 Operating expense Service cost $ 169 $ 189 $ 222 Non-operating expense Interest cost 2,343 2,385 2,507 Expected return on plan assets ( 3,682 ) ( 3,747 ) ( 3,753 ) Amortization of prior service credit ( 140 ) ( 170 ) ( 158 ) Recognized actuarial net loss (gain) 21 20 ( 378 ) Net settlement, curtailment, and special termination benefits loss 275 13 6 Non-service pension income ( 1,183 ) ( 1,499 ) ( 1,776 ) Total net periodic pension income $ ( 1,014 ) $ ( 1,310 ) $ ( 1,554 ) Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss in 2025 and 2024 are as follows: (dollars in millions) 2025 2024 Net actuarial loss arising during the period $ 698 $ 642 Amortization of actuarial loss ( 21 ) ( 20 ) Current year prior service cost 100 36 Amortization of prior service credit 140 170 Net settlement and curtailment ( 275 ) ( 12 ) Other (1) 85 1 Total recognized in other comprehensive loss 727 817 Net recognized in net periodic pension income and other comprehensive loss $ ( 287 ) $ ( 493 ) (1) The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the United Kingdom and Canada. The Actuarial loss arising in 2025 was primarily due to a decrease in discount rates during 2025, partially offset by actual asset returns greater than our expected return on assets. The Actuarial loss arising in 2024 was primarily due to actual asset returns less than our expected return on assets, partially offset by an increase in discount rates during 2024. 87 Table of Contents The table below reflects the total benefit payments expected to be paid from the pension plans or from corporate assets. (dollars in millions) Pension 2026 $ 3,906 2027 3,470 2028 3,428 2029 3,427 2030 3,410 2031-2035 16,229 Assumptions used in determining the pension benefit obligation and net periodic pension income are presented in the following table as weighted-averages: Pension Benefit Obligation Net Periodic Pension Income 2025 2024 2025 2024 2023 Discount rate PBO 5.3 % 5.6 % 5.6 % 5.1 % 5.5 % Interest cost (1) N/A N/A 5.3 % 5.0 % 5.3 % Service cost (1) N/A N/A 5.6 % 5.0 % 5.4 % Salary scale 4.4 % 4.4 % 4.4 % 4.4 % 4.4 % Expected return on plan assets N/A N/A 7.1 % 7.1 % 7.1 % Interest crediting rate 5.0 % 5.0 % 5.0 % 5.0 % 4.4 % (1) The discount rates used to measure the service cost and interest cost applies to our significant plans. The PBO discount rate is used for the service cost and interest cost measurements for non-significant plans. The weighted-average discount rates used to measure pension liabilities are generally based on yield curves developed using high-quality corporate bonds as well as plan specific expected cash flows. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components of net periodic pension income by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows. In determining the EROA assumption, we consider the target asset allocation of plan assets, as well as economic and other indicators of future performance. We consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions. Return projections are validated using a simulation model that incorporates yield curves, credit spreads, and risk premiums to project long-term prospective returns. Other assumptions include actuarial and demographic assumptions including mortality rates and retirement age. Plan Assets. The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, on average, investment strategies generally target a mix o f 26 % to 46 % of growth seeking assets and 54 % to 74 % of income generating and hedging assets using a wide set of diversified asset types, fund strategies, and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, private equity, and real estate. Investments in private equity are primarily via limited partnership interests in buy-out strategies. The real estate strategy is principally concentrated in directly held U.S. core investments with some smaller investments in international, value-added, and opportunistic strategies. Within the income generating assets, the fixed income portfolio consists of mainly government and broadly diversified high quality corporate bonds. The plans have continued pension risk management techniques designed to reduce their interest rate risk. Specifically, the plans have incorporated liability hedging programs that include the adoption of a risk reduction objective as part of the long-term investment strategy. Under this objective the interest rate hedge is intended to increase as funded status improves. The hedging programs incorporate a range of assets and investment tools, each with varying interest rate sensitivities. The investment portfolios currently hedge approximatel y 80 % of the pension plan liabilities’ interest‑rate sensitivity, with the exact level varying based on the plan’s funded status. The hedging assets portfolio also includes an enhanced alpha strategy that invests in equity, fixed income, derivatives, and foreign currency. 88 Table of Contents The fair values of pension plan assets at December 31, 2025 and 2024 by asset category are as follows: (dollars in millions) Quoted Prices in Active Markets For Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Not Subject to Leveling (7) Total Asset Category: Public Equities Global Equities $ 5,781 $ 9 $ — $ — $ 5,790 Global Equity Commingled Funds (1) — 650 — — 650 Other Public Equities — — — 2,531 2,531 Private Equities (2) — — — 4,987 4,987 Fixed Income Securities Governments 5,078 1,882 — — 6,960 Corporate Bonds — 8,846 — — 8,846 Structured Products — 14 — — 14 Other Fixed Income — — — 10,875 10,875 Real Estate (3) — — 1,249 1,555 2,804 Other (4) — 480 — 130 610 Cash & Cash Equivalents (5) — 162 — 110 272 Subtotal $ 10,859 $ 12,043 $ 1,249 $ 20,188 $ 44,339 Other Assets & Liabilities (6) 775 Total at December 31, 2025 $ 45,114 Public Equities Global Equities $ 6,195 $ 13 $ — $ — $ 6,208 Global Equity Commingled Funds (1) — 624 — — 624 Other Public Equities — — — 2,431 2,431 Private Equities (2) — — — 4,985 4,985 Fixed Income Securities Governments 4,462 801 — — 5,263 Corporate Bonds 1 11,343 — — 11,344 Structured Products — 27 — — 27 Other Fixed Income — — — 11,259 11,259 Real Estate (3) — — 1,481 1,557 3,038 Other (4) — 513 — 113 626 Cash & Cash Equivalents (5) — 341 — 79 420 Subtotal $ 10,658 $ 13,662 $ 1,481 $ 20,424 $ 46,225 Other Assets & Liabilities (6) 189 Total at December 31, 2024 $ 46,414 (1) Represents commingled funds that invest primarily in common stocks. (2) Represents limited partnership investments with general partners that primarily invest in equity and debt. (3) Represents investments in real estate including commingled funds and directly held properties. (4) Primarily represents insurance contracts. (5) Represents short-term commercial paper, bonds, and other cash or cash-like instruments. (6) Represents receivables, payables, and certain individually immaterial international plan assets that are not leveled. (7) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets. Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps, and currency forward 89 Table of Contents contracts. The fair market value of the plans’ derivatives through direct or separate account investments was approximately ($ 8 ) million and ($ 120 ) million as of December 31, 2025 and 2024, respectively. We review our assets at least quarterly to ensure we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. We employ a broadly diversified investment manager structure that includes diversification by active and passive management, style, capitalization, country, sector, industry, and number of investment managers. With the exception of certain cash investment vehicles, no individual investment represented more than 5% of the plan assets as of December 31, 2025. The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed due to the following: (dollars in millions) Balance, December 31, 2023 $ 1,467 Realized losses ( 136 ) Unrealized gains relating to instruments still held in the reporting period 27 Purchases, sales, and settlements, net 123 Balance, December 31, 2024 1,481 Realized gains 4 Unrealized (losses) relating to instruments still held in the reporting period ( 66 ) Purchases, sales, and settlements, net ( 170 ) Balance, December 31, 2025 $ 1,249 Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Mortgages have been valued on the basis of their future principal and interest payments discounted at prevailing interest rates for similar investments. Investment contracts are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations. Real estate investments are valued on a quarterly basis using discounted cash flow models which consider long-term lease estimates, future rental receipts, and estimated residual values. Valuation estimates are supplemented by third-party appraisals on an annual basis. The fair market value of assets related to our PRB benefits was $ 0.3 billion as of December 31, 2025 and 2024, respectively. The assets are primarily invested in mutual funds held within Voluntary Employees’ Beneficiary Association (VEBA) trusts and are valued using quoted prices in active markets (Level 1). We have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined benefit and defined contribution plan obligations in excess of qualified plan limits. These assets are included in Other assets in our Consolidated Balance Sheet. The fair value of marketable securities held in trusts as of December 31 was as follows: (dollars in millions) 2025 2024 Marketable securities held in trusts $ 750 $ 786 NOTE 11: LEASES We enter into lease agreements for the use of real estate space, vehicles, IT equipment, and certain other equipment, including engines, under both operating and finance leases. The majority of our lease agreements are accounted for as operating leases. Operating lease expense was $ 495 million, $ 422 million, and $ 463 million for 2025, 2024, and 2023, respectively. Finance leases are not considered significant to our Consolidated Balance Sheet, Consolidated Statement of Operations, or Consolidated Statement of Cash Flows. Leases under which we are the lessor are generally short-term leases that support our commercial aerospace customers during engine maintenance events. Our commercial aerospace customers have varying forms of aftermarket maintenance coverage that often provide a level of support for leased engines as part of the revenue arrangement. As such, leases where we are the lessor are not considered significant to our Consolidated Balance Sheet, Consolidated Statement of Operations, or Consolidated Statement of Cash Flows. In 2025, 2024, and 2023, we entered into sale and leaseback transactions for the sale of new engines and related maintenance. We subsequently lease back the engines sold for a limited timeframe and account for them as operating leases. The proceeds 90 Table of Contents received as a result of sales of new engines are classified primarily in Other operating activities, net within our Consolidated Statement of Cash Flows. The net gains as a result of these transactions were not material. Supplemental cash flow information related to operating leases were as follows: (dollars in millions) 2025 2024 2023 Operating cash flows used in the measurement of operating lease liabilities $ 466 $ 417 $ 421 Operating lease right-of-use assets obtained in exchange for operating lease obligations 429 707 373 Future lease payments related to our operating lease liabilities as of December 31, 2025 are as follows: (dollars in millions) 2026 $ 492 2027 419 2028 339 2029 228 2030 197 Thereafter 754 Total undiscounted lease payments 2,429 Less imputed interest ( 377 ) Total discounted lease payments $ 2,052 Our lease liabilities recognized in our Consolidated Balance Sheet were as follows as of December 31: (dollars in millions) 2025 2024 Operating lease liabilities, current (included in Other accrued liabilities) $ 450 $ 367 Operating lease liabilities, non-current 1,602 1,632 Total operating lease liabilities $ 2,052 $ 1,999 The weighted-average remaining lease term related to our operating leases was 9 years and 10 years as of December 31, 2025 and 2024, respectively. The weighted-average discount rate related to our operating leases was 4.3 % as of December 31, 2025 and 2024. NOTE 12: INCOME TAXES Income Before Income Taxes. The sources of income before income taxes are: (dollars in millions) 2025 2024 2023 United States (1) $ 5,126 $ 3,016 $ 938 Foreign 3,607 3,178 2,898 Income before income taxes $ 8,733 $ 6,194 $ 3,836 (1) 2023 includes the impacts of the Powder Metal Matter. 91 Table of Contents Provision for Income Taxes. The income tax expense for the years ended December 31 are as follows: (dollars in millions) 2025 2024 2023 Current: United States: Federal $ 59 $ 443 $ 213 State 99 179 70 Foreign 717 606 575 875 1,228 858 Future: United States: Federal 706 ( 13 ) ( 411 ) State 71 71 ( 53 ) Foreign 12 ( 105 ) 62 789 ( 47 ) ( 402 ) Income tax expense $ 1,664 $ 1,181 $ 456 Prior to 2022, research and experimental expenditures were generally deductible in the period incurred. A provision enacted in the Tax Cuts and Jobs Act of 2017 (TCJA) related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. In September and December 2023, the IRS issued interim guidance, retroactive to 2022, clarifying the capitalization requirements for certain types of research and experimental expenditures, which resulted in fewer costs being subject to capitalization. On July 4, 2025, “An Act to Provide for Reconciliation Pursuant to Title II of the H. Con. Res. 14” (the Act) was enacted. The Act allows for the immediate deductibility of research and experimental expenditures performed in the United States and certain U.S. territories. These legislative changes have impacted our federal and state current and deferred income tax provisions in the above table. Reconciliation of Effective Income Tax Rate. The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, prospectively as of January 1, 2025. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows: 2025 (dollars in millions) Amount Rate Statutory U.S. Federal Income Tax Rate $ 1,834 21.0 % State and Local Income Tax, net of federal income tax effect (1) 168 1.9 Foreign Tax Effects ( 17 ) ( 0.2 ) Effect of Cross-Border Tax Laws 96 1.1 U.S. Federal Research and development tax credit ( 182 ) ( 2.1 ) Nontaxable or Nondeductible Items 51 0.6 Worldwide Changes in Prior Year Unrecognized Tax Benefits (2) ( 83 ) ( 0.9 ) Other (3) ( 203 ) ( 2.3 ) Effective income tax rate $ 1,664 19.1 % (1) State and local taxes include current and deferred income taxes exclusive of changes in prior year uncertain tax positions. (2) Includes Federal, State, and Foreign income tax effects related to prior year uncertain tax positions. (3) Includes Federal income tax benefits related to legal entity reorganizations. 92 Table of Contents 2024 2023 (dollars in millions) Amount Rate Amount Rate Statutory U.S. federal income tax rate $ 1,301 21.0 % $ 805 21.0 % Tax on international activities 6 0.1 ( 27 ) ( 0.7 ) Disposals of businesses 126 2.0 — — U.S. research and development credit ( 188 ) ( 3.0 ) ( 168 ) ( 4.4 ) U.S. federal audit settlements and statute lapse ( 277 ) ( 4.5 ) ( 59 ) ( 1.5 ) State income tax, net 187 3.0 17 0.4 Foreign Derived Intangible Income ( 126 ) ( 2.0 ) ( 142 ) ( 3.7 ) Non-deductible legal charges (1) 148 2.4 5 0.1 Other 4 0.1 25 0.7 Effective income tax rate $ 1,181 19.1 % $ 456 11.9 % (1) 2024 includes the impact of certain non-deductible legal charges related to the Resolution of Certain Legal Matters. See “Note 17: Commitments and Contingencies” for additional information. Although the 2025 and 2024 effective tax rates are the same, the 2025 effective rate reflects a lower U.S. tax benefit associated with Foreign Derived Intangible Income resulting from the Act. Both periods include tax benefits associated with certain legal entity reorganizations and the tax effects of dispositions. The 2024 effective tax rate includes tax benefits of $ 0.3 billion 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. Also included in the 2024 effective tax rate is a $ 0.2 billion tax charge related to U.S. federal income taxes owed by the Company resulting from a favorable non-U.S. tax ruling Otis received in 2024. The ruling Otis received reduces U.S. foreign tax credits previously claimed by the Company in pre-separation tax years. This item is subject to a tax matters agreement entered into with Carrier and Otis in connection with the separations of those businesses in 2020. Accordingly, the Company recorded a pre-tax benefit of $ 0.2 billion for a portion of the indemnity owed by Otis to the Company for the reduction in foreign taxes in the pre-separation years. Additionally, the Company is indemnified by Otis for the associated interest related to the Otis non-US ruling. The 2023 effective tax rate includes a deferred tax benefit of $ 0.7 billion associated with the $ 2.9 billion Powder Metal Matter pre-tax charge. Income Taxes Paid. We made net income tax payments of $ 1.6 billion in 2025, further disaggregated as follows: (dollars in millions) 2025 Federal (1) $ 856 State 102 Foreign (2) 649 Total income taxes paid (net of refunds) $ 1,607 (1) Includes Internal Revenue Code Section 965 installment payments (2) Foreign payments are spread across various jurisdictions, none of which are individually significant 93 Table of Contents Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2025 and 2024 are as follows: (dollars in millions) 2025 2024 Future income tax benefits: Insurance and employee benefits $ 865 $ 897 Warranty provisions 226 221 Capitalization of research and experimental expenditures 1,839 2,208 Other basis differences 982 1,060 Powder Metal Matter 226 455 Tax loss and other carryforwards 1,094 1,055 Tax credit carryforwards 963 800 Valuation allowances ( 1,431 ) ( 1,439 ) Total future income tax benefits $ 4,764 $ 5,257 Future income taxes payable: Goodwill and Intangible assets $ 5,399 $ 5,675 Fixed assets 1,712 1,614 Inventory and contract balances 572 193 Other basis differences 629 627 Total future income tax payable $ 8,312 $ 8,109 Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts. Changes to valuation allowances consisted of the following: (dollars in millions) 2025 2024 2023 Balance at January 1 $ 1,439 $ 1,465 $ 842 Additions charged to income tax expense 68 228 170 Reductions credited to income tax expense ( 67 ) ( 239 ) ( 58 ) Other adjustments (1) ( 9 ) ( 15 ) 511 Balance at December 31 $ 1,431 $ 1,439 $ 1,465 (1) 2023 includes the addition of the indefinite-lived tax loss carryforwards now disclosed in connection with Organisation for Economic Co-operation and Development (OECD) Pillar Two. Tax Credit, Loss and Other Carryforwards. At December 31, 2025, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows: (dollars in millions) Tax Credit Carryforwards Tax Loss and Other Carryforwards Expiration period: 2026-2030 $ 56 $ 295 2031-2035 52 90 2036-2045 156 1,714 Indefinite 699 3,773 Total $ 963 $ 5,872 The Company intends to repatriate certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts. 94 Table of Contents Unrecognized Tax Benefits. In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. At December 31, 2025, we had gross tax-effected unrecognized tax benefits of $ 1,227 million, of which $ 1,218 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2025, 2024, and 2023 is as follows: (dollars in millions) 2025 2024 2023 Balance at January 1 $ 1,263 $ 1,442 $ 1,515 Additions for tax positions related to the current year 125 84 89 Additions for tax positions of prior years 19 164 5 Reductions for tax positions of prior years ( 47 ) ( 13 ) ( 141 ) Settlements ( 133 ) ( 414 ) ( 26 ) Balance at December 31 $ 1,227 $ 1,263 $ 1,442 Gross interest expense related to unrecognized tax benefits $ 68 $ 127 $ 62 Total accrued interest balance at December 31 256 255 233 We conduct business globally and, as a result, RTX or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2014. In connection with certain Internal Revenue Service (IRS) audits, the Company has previously filed protests with respect to certain IRS proposed adjustments for RTX (formerly United Technologies Corporation) tax years 2017 and 2018, pre-acquisition Rockwell Collins tax years 2016, 2017, and 2018, and pre-merger Raytheon Company tax years 2017, 2018, and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015, and 2016 filed prior to the Raytheon merger. The Company is in the process of disputing these adjustments at the Appeals Division of the IRS. The Company expects resolution at the Appeals Division for the RTX and Rockwell tax years within the next twelve months. The timing of any resolution at the Appeals Division for the Raytheon Company tax years is uncertain. During the quarter ended March 31, 2025, the Company received an unfavorable decision from the Appeals Committee of the Kingdom of Saudi Arabia (KSA) General Secretariat of the Tax Committees (GSTC) assessing taxes and delay fines. The Company appealed this decision and on December 2, 2025, the GSTC issued a final decision with respect to income tax and withholding tax assessments substantially reversing its prior assessment. NOTE 13: FINANCIAL INSTRUMENTS We enter into derivative instruments primarily for risk management purposes, including derivatives designated as hedging instruments and those utilized as economic hedges. We operate internationally and in the normal course of business, are exposed to fluctuations in interest rates, foreign exchange rates, and commodity prices. These fluctuations can increase the costs of financing, investing, and operating the business. We have used derivative instruments, including swaps, forward contracts, and options, to manage certain foreign currency, interest rate, and commodity price exposures. The present value of the aggregate notional principal of our outstanding foreign currency hedges was $ 26 billion and $ 17 billion at December 31, 2025 and 2024, respectively. 95 Table of Contents The following table summarizes the fair value and presentation in the Consolidated Balance Sheet for derivative instruments as of December 31: (dollars in millions) Balance Sheet Location 2025 2024 Derivatives designated as hedging instruments: Foreign exchange contracts Other assets, current $ 357 $ 177 Other accrued liabilities 254 350 Derivatives not designated as hedging instruments: Foreign exchange contracts Other assets, current $ 79 $ 10 Other accrued liabilities 11 101 At December 31, 2025, all derivative contracts accounted for as cash flow hedges will mature b y May 2036. Cash receipts or payments on derivatives designated as cash flow hedges are recorded in Other operating activities, net within the Consolidated Statement of Cash Flows. The Company utilizes the critical terms match method for cash flow hedges in assessing derivatives for hedge effectiveness. Gains or losses attributable to cash flow hedging contract activity are primarily recorded as a component of Products sales when reclassified from Accumulated other comprehensive loss. The Company enters into forward exchange contracts to partially hedge its net investment in certain foreign subsidiaries denominated in EUR and CAD. The Company assesses the effectiveness of its net investment hedges using the spot method. Cash receipts or payments on derivatives designated as net investment hedges are recorded as investing cash flows within the Consolidated Statement of Cash Flows. As of December 31 2024, we had € 320 million of our € 500 million principal value of euro-denominated long-term debt designated as a net investment hedge against our investments in European businesses. After March 31, 2025, this was no longer designated as a net investment hedge and subsequent effects are reflected within Other income (expense), net. The effect of cash flow hedging relationships on Accumulated other comprehensive loss and on the Consolidated Statement of Operations in 2025 and 2024 are presented in “Note 18: Equity.” The hedged items and derivatives designated as hedging instruments are highly effective. The effect of derivatives not designated as hedging instruments and related items is included within Other income (expense), net, on the Consolidated Statement of Operations and is not significant. Cash receipts or payments related to the settlement of derivatives not designated as hedging instruments are recorded as investing cash flows within the Consolidated Statement of Cash Flows. NOTE 14: FAIR VALUE MEASUREMENTS The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Consolidated Balance Sheet: December 31, 2025 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 750 $ 676 $ 74 $ — Derivative assets 436 — 436 — Derivative liabilities 265 — 265 — December 31, 2024 (dollars in millions) Total Level 1 Level 2 Level 3 Recurring fair value measurements: Marketable securities held in trusts $ 786 $ 721 $ 65 $ — Derivative assets 187 — 187 — Derivative liabilities 451 — 451 — Valuation Techniques. Our derivative assets and liabilities include foreign exchange contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk, and our counterparties’ credit risks. 96 Table of Contents As of December 31, 2025, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks. The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Consolidated Balance Sheet at December 31: 2025 2024 (dollars in millions) Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt (excluding finance leases) $ 37,627 $ 35,733 $ 40,991 $ 37,956 The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Consolidated Balance Sheet at December 31: 2025 (dollars in millions) Total Level 1 Level 2 Level 3 Long-term debt (excluding finance leases) $ 35,733 $ — $ 34,800 $ 933 2024 (dollars in millions) Total Level 1 Level 2 Level 3 Long-term debt (excluding finance leases) $ 37,956 $ — $ 35,180 $ 2,776 The fair value of our Short-term borrowings approximates the carrying value due to their short-term nature and is classified as level 3 within the fair value hierarchy. NOTE 15: VARIABLE INTEREST ENTITIES Pratt & Whitney holds a 61 % program share interest in the International Aero Engines AG (IAE) collaboration with MTU Aero Engines AG (MTU) and Japanese Aero Engines Corporation (JAEC), and a 49.5 % ownership interest in IAE. IAE’s business purpose is to coordinate the design, development, manufacturing, and product support of the V2500 engine program through involvement with the collaborators. Additionally, Pratt & Whitney, JAEC, and MTU are participants in the International Aero Engines, LLC (IAE LLC) collaboration, whose business purpose is to coordinate the design, development, manufacturing, and product support for the PW1100G-JM engine for the Airbus A320neo family of aircraft. Pratt & Whitney holds a 59 % program share interest and a 59 % ownership interest in IAE LLC. IAE and IAE LLC retain limited equity with the primary economics of the programs passed to the participants. As such, we have determined that IAE and IAE LLC are variable interest entities with Pratt & Whitney as the primary beneficiary. IAE and IAE LLC have, therefore, been consolidated. Other collaborators participate in Pratt & Whitney’s program share interest in IAE and IAE LLC. Pratt & Whitney’s net program share interest in IAE and IAE LLC, after considering its sub-collaborator share, is 57 % and 51 %, respectively. The carrying amounts and classification of assets and liabilities for variable interest entities in our Consolidated Balance Sheet as of December 31, 2025 and 2024 are as follows: (dollars in millions) 2025 2024 Current assets $ 14,703 $ 10,315 Non-current assets 1,191 1,060 Total assets $ 15,894 $ 11,375 Current liabilities $ 16,265 $ 13,595 Non-current liabilities 116 140 Total liabilities $ 16,381 $ 13,735 NOTE 16: GUARANTEES We extend a variety of financial, market value, and product performance guarantees to third parties. These instruments expire on various dates through 2062. Additional guarantees of project performance for which there is no stated value also remain 97 Table of Contents outstanding. A portion of our third party guarantees are subject to indemnification for our benefit for any liabilities that could arise. As of December 31, 2025 and 2024, the following financial guarantees were outstanding: December 31, 2025 December 31, 2024 (dollars in millions) Maximum Potential Payment Carrying Amount of Liability Maximum Potential Payment Carrying Amount of Liability Commercial aerospace financing arrangements $ 106 $ — $ 274 $ — Third party guarantees 248 — 79 1 We have made residual value and other guarantees related to various commercial aerospace customer financing arrangements. The estimated fair market values of the guaranteed assets equal or exceed the value of the related guarantees, net of existing reserves. Collaboration partners’ share of these financing guarantees was $ 0.1 billion at December 31, 2025 and 2024. We also have obligations arising from sales of certain businesses and assets, including those from representations and warranties and related indemnities for environmental, health and safety, tax, and employment matters. The maximum potential payment related to these obligations is not a specified amount, as a number of the obligations do not contain financial caps. The carrying amount of liabilities related to these obligations were $ 0.1 billion at December 31, 2025 and 2024. These primarily relate to environmental liabilities, which are included in our total environmental liabilities as further discussed in “Note 17: Commitments and Contingencies.” We accrue for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. We also provide service and warranty policies on our products and extend performance and operating cost guarantees beyond our normal service and warranty policies on some of our products, particularly commercial aircraft engines. In addition, we incur discretionary costs to service our products in connection with specific product performance issues. Liabilities for performance and operating cost guarantees are based upon future product performance and durability, and are largely estimated based upon historical experience. Adjustments are made to accruals as claims data and historical experience warrant. The changes in the carrying amount of service and product warranties and product performance guarantees for the years ended December 31 were as follows: (dollars in millions) 2025 2024 2023 Balance as of January 1 $ 993 $ 1,091 $ 1,109 Warranties and performance guarantees issued 294 216 305 Settlements ( 261 ) ( 247 ) ( 308 ) Other 9 ( 67 ) ( 15 ) Balance as of December 31 $ 1,035 $ 993 $ 1,091 Product and service guarantees incurred in connection with long-term production contracts and certain aftermarket arrangements are generally accounted for within the contract estimates at completion. NOTE 17: COMMITMENTS AND CONTINGENCIES Except as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, financial condition, or liquidity. Environmental. Our operations are subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. We have accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs, and performance guarantees, and periodically reassess these amounts. We do not expect any additional liability to have a material adverse effect on our results of operations, financial condition, or liquidity. As of both December 31, 2025 and 2024, we had $ 0.8 billion reserved for environmental remediation. Additional information pertaining to environmental matters is included in “Note 1: Basis of Presentation and Summary of Accounting Principles.” Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $ 13 billion and $ 14 billion as of December 31, 2025 and 2024, respectively, on a gross basis before reduction for our collaboration partners’ share. Aircraft financing commitments, in the form of debt or 98 Table of Contents lease financing, are provided to certain commercial aerospace customers. The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other financing sources. We may also arrange for third-party investors to assume a portion of these commitments. The majority of financing commitments are collateralized arrangements. We may also pay deposits on behalf of our customers to secure production slots with the airframers (pre-delivery payments). Our financing commitments with customers are contingent upon maintenance of certain levels of financial condition by our customers. Associated risks on these commitments are mitigated due to the fact that interest rates are variable during the commitment term and are set at the date of funding based on current market conditions, the fair value of the underlying collateral, and the creditworthiness of our customers. As a result, the fair value of these financing commitments is expected to equal the amounts funded. We also have other contractual commitments to make payments to secure certain contractual rights to provide product on new aircraft platforms. The estimated amount and timing of these payments, which are generally based on future sales or engine flight hours, are reflected in “Other commercial aerospace commitments” in the table below. Payments made on these contractual commitments are included within intangible assets as exclusivity assets and are amortized over the term of underlying economic benefit. We have entered into certain collaboration arrangements, which may include participation by our collaboration partners in these commitments. In addition, in connection with our 2012 agreement to acquire Rolls-Royce’s ownership and collaboration interests in IAE, additional payments are due to Rolls-Royce contingent upon each hour flown through June 2027 by the V2500-powered aircraft in service as of the acquisition date. These flight hour payments, which are considered in “Other commercial aerospace commitments” below, will be capitalized as collaboration intangible assets as payments are made. The following is the expected maturity of our commercial aerospace industry commitments as of December 31, 2025: (dollars in millions) Committed 2026 2027 2028 2029 2030 Thereafter Commercial aerospace financing commitments $ 3,874 $ 1,687 $ 1,357 $ 830 $ — $ — $ — Other commercial aerospace commitments 9,242 752 628 660 645 511 6,046 Collaboration partners’ share ( 5,325 ) ( 1,018 ) ( 854 ) ( 655 ) ( 273 ) ( 215 ) ( 2,310 ) Total commercial aerospace commitments $ 7,791 $ 1,421 $ 1,131 $ 835 $ 372 $ 296 $ 3,736 Other Financing Arrangements. We have entered into standby letters of credit and surety bonds with financial institutions to meet various bid, performance, warranty, retention, guarantee, and advance payment obligations for us or our affiliates. We enter into these agreements to assist certain affiliates in obtaining financing on more favorable terms, making bids on contracts and performing their contractual and other obligations. The stated values of these letters of credit agreements and surety bonds totaled $ 4.2 billion as of December 31, 2025. Offset / Industrial Participation Obligations. We have entered into industrial cooperation agreements, sometimes in the form of either offset agreements or ICIP agreements, as a condition to obtaining orders for our products and services from certain customers in foreign countries. At December 31, 2025, the aggregate amount of these agreements, both agreed to and anticipated to be agreed to, had an outstanding notional value of approximately $ 13 billion. These agreements are designed to return economic value to the foreign country by requiring us to engage in activities supporting local defense or commercial industries, promoting a balance of trade, developing in-country technology capabilities, or addressing other local development priorities. Offset agreements may be satisfied through activities that do not require a direct cash payment, including transferring technology, providing manufacturing, training, and other consulting support to in-country projects, and the purchase by third parties (e.g., our vendors) of supplies from in-country vendors. These agreements may also be satisfied through our use of cash for activities such as subcontracting with local partners, purchasing supplies from in-country vendors, providing financial support for in-country projects, and making investments in local ventures. Such activities may also vary by country depending upon requirements as dictated by their governments. We typically do not commit to offset agreements until orders for our products or services are definitive. The amounts ultimately applied against our offset agreements are based on negotiations with the customers and typically require cash outlays that represent only a fraction of the notional value in the offset agreements. Offset programs usually extend over several or more years and may provide for penalties in the event we fail to perform in accordance with offset requirements. Historically, we have not been required to pay any penalties of significance. Government Oversight. In the ordinary course of business, the Company and its subsidiaries and our properties are subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. For example, we are now, and believe that, in light of the current U.S. government contracting and overall enforcement environment, we will continue to be the subject of one or more U.S. government investigations. Our contracts with the U.S. government are also subject to audits. Agencies that oversee contract performance include: the Defense 99 Table of Contents Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), the Inspectors General of the U.S. Department of War (DoW) (formerly referred to as the U.S. Department of Defense), and other departments and agencies, the Government Accountability Office (GAO), the Department of Justice (DOJ), and Congressional Committees. Other areas of our business operations may also be subject to audit and investigation by these and other agencies. From time to time, agencies investigate or conduct audits to determine whether our operations are being conducted in accordance with applicable requirements. Such investigations and audits may be initiated due to a number of reasons, including as a result of a whistleblower complaint. Such investigations and audits could result in administrative, civil, or criminal liabilities, including the imposition of repayment obligations, fines, treble or other damages, forfeitures, disgorgement, restitution, or penalties, the suspension of government export licenses, and/or suspension or debarment from future U.S. government contracting. They could also result in deferred prosecution agreements, administrative orders, consent agreements, guilty plea agreements, and/or imposition of an independent compliance monitor. U.S. government investigations often take years to complete. In particular, in 2024 the Company entered into a deferred prosecution agreement (DPA) (DPA-1) with the 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 (DPA-2) 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 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 Raytheon Company and the Company engage an independent compliance monitor satisfactory to the DOJ and SEC). A single independent compliance monitor was selected to oversee Raytheon Company’s and the Company’s compliance with their respective obligations under the DPAs and the SEC Administrative Order, and that monitor is expected to be in place by the end of the first quarter. In 2024, the Company also 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). 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. As noted above, the U.S. government reserves the right to suspend or debar a contractor from receiving new government contracts for fraudulent, criminal, or other seriously improper conduct. The U.S. government could also void any contracts found to be tainted by fraud. Like many defense contractors, we have received audit reports recommending the reduction of certain contract prices because, for example, cost or pricing data or cost accounting practices used to price and negotiate those contracts may not have conformed to government regulations. Some of these audit reports recommend that certain payments be repaid, delayed, or withheld, and may involve substantial amounts. We have made voluntary refunds in those cases we believe appropriate, have settled some allegations and, in some cases, continue to negotiate and/or litigate. The Company may be, and in some cases has been, required to make payments into escrow of disputed liabilities while the related litigation is pending. If the litigation is resolved in the Company’s favor, any such payments will be returned to the Company with interest. Our final allowable incurred costs for each year are also subject to audit and have, from time to time, resulted in disputes between us and the U.S. government, with litigation resulting at the Court of Federal Claims (COFC) or the Armed Services Board of Contract Appeals (ASBCA), or their related courts of appeals. In addition, the DOJ has, from time to time, convened grand juries to investigate possible irregularities by us. We also provide products and services to customers outside of the U.S., and those sales are subject to local government laws, regulations, and procurement policies and practices. Our compliance with such local government regulations or any applicable U.S. government regulations (e.g., Arms Export Control Act (AECA), Export Administration Regulations (EAR), Foreign Corrupt Practices Act (FCPA), and ITAR) may also be investigated or audited. In addition, we accrue for liabilities associated with those matters that are probable and can be reasonably estimated. The most likely liability amount to be incurred is accrued based upon a range of estimates. Where no amount within a range of estimates is more likely, then we accrue the minimum amount. Other than as specifically disclosed in this Form 10-K, we do not expect these audits, investigations or disputes to have a material effect on our results of operations, financial condition, or liquidity, either individually or in the aggregate. Pratt & Whitney Powder Metal Matter. In 2023, Pratt & Whitney determined that a rare condition in powder metal used to manufacture certain engine parts requires accelerated inspection of the PW1100 GTF fleet, which powers the A320neo. This determination was made pursuant to Pratt & Whitney’s safety management system. On August 4, 2023, Pratt & Whitney issued a special instruction (SI) to operators of PW1100 GTF powered A320neo aircraft, which required accelerated inspections and engine removals covering an initial subset of operational engines, no later than 100 Table of Contents September 15, 2023. During the third quarter of 2023, through its safety management system, Pratt & Whitney continued its engineering and industrial assessment, which resulted in an updated fleet management plan for the remaining PW1100 fleet. This updated plan requires a combination of part inspections and retirements for some high pressure turbine and high pressure compressor parts made from affected raw material. Guidance to affected operators was released via service bulletins (SB) and SI in November 2023, and this guidance has been reflected in airworthiness directives issued by the Federal Aviation Administration (FAA). Consistent with previous information, the actions are resulting in significant incremental shop visits. As a result of this matter, Pratt & Whitney expects aircraft on ground levels for the PW1100 powered A320neo fleet to remain elevated through 2026. As a result of anticipated increased aircraft on ground levels and expected compensation to customers for this disruption, as well as incremental maintenance costs resulting from increased inspections and shop visits, Pratt & Whitney recorded a pre-tax operating profit charge in the third quarter of 2023 of $ 2.9 billion, reflecting Pratt & Whitney’s net 51 % program share of the PW1100 program. This amount reflected our best estimate of expected customer compensation for the estimated duration of the disruption as well as the EAC adjustment impact of this matter to Pratt & Whitney’s long-term maintenance contracts. The incremental costs to the business’s long-term maintenance contracts include the estimated cost of additional inspections, replacement of parts, and other related impacts. The charge recorded in the third quarter of 2023 resulted in a net increase in Other accrued liabilities of $ 2.8 billion, which principally related to our 51 % share of an accrual for expected customer compensation. At December 31, 2025 and 2024, we had other accrued liabilities of $ 0.7 billion and $ 1.7 billion, respectively, related to expected compensation to customers. The decrease in the accrual in 2025 and 2024 was primarily due to customer compensation in the form of credits issued and cash paid to customers during the period. Other engine models within Pratt & Whitney’s fleet contain parts manufactured with affected powder metal, but we do not currently believe there will be any resultant significant financial impact with respect to these other engine models at this time. The financial impact of the powder metal issue is based on historical experience and is subject to various assumptions and judgments, most notably, the number and expected timing of shop visits, inspection results and scope of work to be performed, turnaround time, availability of parts, available capacity at overhaul facilities, and outcomes of negotiations with impacted customers. While these assumptions reflect our best estimates at this time, they are subject to variability. Potential changes to these assumptions and actual incurred costs could significantly affect the estimates inherent in our financial statements and could have a material effect on the Company’s results of operations for the periods in which they are recognized. Legal Proceedings. The Company and its subsidiaries are subject to various contract pricing disputes, government investigations, and litigation matters across jurisdictions, updates to certain of which are set forth below. Cost Accounting Standards Claims As previously disclosed, in April 2019, a Divisional Administrative Contracting Officer (DACO) of the United States DCMA asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 1.7 billion plus interest ($ 1.5 billion at December 31, 2025). The claim is based on Pratt & Whitney’s alleged noncompliance with Cost Accounting Standards (CAS) from January 1, 2007 to March 31, 2019, due to its method of allocating independent research and development costs to government contracts. Pratt & Whitney believes that the claim is without merit and filed an appeal to the ASBCA on June 7, 2019. On September 30, 2024, a DCMA DACO issued a second claim against Pratt & Whitney that similarly alleges that Pratt & Whitney was noncompliant with CAS due to its method of allocating independent research and development costs to government contracts from April 1, 2019 to December 31, 2023. The second claim demands payment of $ 1.1 billion plus interest ($ 410 million at December 31, 2025 ) . Pratt & Whitney believes the second claim is without merit and filed an appeal to the ASBCA on October 15, 2024. As previously disclosed, in December 2013, a DCMA DACO asserted a claim against Pratt & Whitney to recover alleged overpayments of approximately $ 177 million plus interest ($ 209 million at December 31, 2025). The claim is based on Pratt & Whitney’s alleged noncompliance with CAS from January 1, 2005 to December 31, 2012, due to its method of determining the cost of collaborator parts used in the calculation of material overhead costs for government contracts. In 2014, Pratt & Whitney filed an appeal to the ASBCA. An evidentiary hearing was held and completed in June 2019. On November 22, 2021, the ASBCA issued its written decision sustaining in part and denying in part Pratt & Whitney’s appeal. The ASBCA rejected the DCMA’s asserted measure of the cost of collaborator parts, and ruled substantially in Pratt & Whitney’s favor on other liability issues. The ASBCA remanded the appeal to the parties for resolution of damages issues, which could require further proceedings at the ASBCA. On December 23, 2021, the DCMA filed a motion with the ASBCA seeking partial reconsideration of the November 22, 2021 decision. The motion for reconsideration was denied on August 29, 2022. On December 23, 2022, the government filed an appeal to the United States Court of Appeals for the Federal Circuit (CAFC). On December 5, 2025, the CAFC issued an opinion which dismissed in part the government’s appeal for lack of jurisdiction, reversed in part the ASBCA’s November 22, 2021 decision with respect to the enforceability of a provision within a 2006 agreement between DCMA and Pratt & Whitney, and remanded the case to the ASBCA for further proceedings. We continue to believe that the 101 Table of Contents ASBCA’s rejection of the DCMA’s asserted measure of the cost of collaborator parts is well supported in fact and law. In December 2018, a DCMA DACO issued a second claim against Pratt & Whitney that similarly alleges that its method of determining the cost of collaborator parts does not comply with the CAS for calendar years 2013 through 2017. This second claim, which asserts the same measure of the cost of collaborator parts rejected by the ASBCA’s November 22, 2021 decision, demands payment of $ 269 million plus interest ($ 187 million at December 31, 2025). Pratt & Whitney appealed this second claim to the ASBCA in January 2019. In December 2023, a DCMA DACO issued a third claim against Pratt & Whitney that similarly alleges that its method of determining the cost of collaborator parts does not comply with the CAS for calendar years 2018 through 2022. This third claim, which asserts the same measure of the cost of collaborator parts rejected by the ASBCA’s prior decision, demands payment of $ 277 million plus interest ($ 105 million at December 31, 2025). Pratt & Whitney appealed this third claim to the ASBCA at the end of December 2023. Although subject to further litigation at the ASBCA and potentially further appellate proceedings, we continue to believe that the November 22, 2021 decision in the first claim will apply with equal legal effect to the second and third claims. Accordingly, we believe that the amounts demanded by the DCMA as set forth in the three claims are without legal basis and that any damages owed to the U.S. government for the three claims will not have a material adverse effect on our results of operations, financial condition, or liquidity. Thales-Raytheon Systems and Related Matters As previously disclosed, on October 15, 2024, Raytheon Company entered into DPA-1 with the DOJ and on October 16, 2024, the Company became subject to an administrative order issued by the 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, TRS, since 2012 in connection with certain Middle East contracts. Pursuant to DPA-1, among other terms, the DOJ will defer, for a period of three years , criminal prosecution of Raytheon Company related to one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of conspiracy to violate the AECA by failing to make related disclosures of certain payments that qualified as fees, commissions and/or political contributions under Part 130 of ITAR. If Raytheon Company and the Company fully comply with all of their respective obligations under DPA-1 during its three-year term (commencing on the effective date of DPA-1 and ending three years from the date on which the monitor is engaged), the DOJ will move for dismissal with prejudice of the deferred charges against Raytheon Company. Under DPA-1, the SEC Administrative Order, and DPA-2 discussed in “DOJ Investigation and Contract Pricing Disputes” below, Raytheon Company and the Company 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 Raytheon Company and the Company engage an independent compliance monitor satisfactory to the DOJ and SEC). A single independent compliance monitor was selected to oversee Raytheon Company’s and the Company’s compliance with their respective obligations under DPA-1, the SEC Administrative Order, and DPA-2 discussed in “DOJ Investigation and Contract Pricing Disputes” below, and that monitor is expected to be in place by the end of the first quarter. During the fourth quarter of 2024, the Company paid $ 384 million in the aggregate for DPA-1 and the SEC Administrative Order which was consistent with amounts accrued. The Company does not believe that these matters will have a material adverse effect on our results of operations, financial condition, or liquidity. DOJ Investigation and Contract Pricing Disputes As previously disclosed, on October 16, 2024, Raytheon Company entered into DPA-2 and a 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. Pursuant to DPA-2, among other terms, the DOJ will defer, for a period of three years , criminal prosecution of Raytheon Company related to two counts of major fraud against the United States by Raytheon Company involving two legacy contracts. If Raytheon Company and the Company fully comply with all of their respective obligations in DPA-2 during its three-year term (commencing on the effective date of DPA-1 and ending three years from the date on which the monitor is engaged), the DOJ will move for dismissal with prejudice of the deferred charges against Raytheon Company. Under DPA-2 as well as DPA-1 and the SEC Administrative Order discussed in “Thales-Raytheon Systems and Related Matters” above, Raytheon Company and the Company 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 Raytheon Company and the Company engage an independent compliance monitor satisfactory to the DOJ and SEC). A single independent compliance monitor was selected to oversee Raytheon Company’s and the Company’s compliance with their respective obligations under DPA-2 as well as DPA-1 and the SEC Administrative Order discussed in “Thales-Raytheon Systems and Related Matters” above, and that monitor is expected to be in place by the end of the first quarter. During the fourth quarter of 2024, the Company paid $ 580 million in the aggregate for DPA-2 and the FCA Settlement Agreement which was consistent with amounts accrued plus interest. The Company does not believe that these matters will have a material adverse effect on our results of operations, financial condition, or liquidity. 102 Table of Contents Trade Compliance Matters From time to time, we identify, investigate, remediate, and voluntarily disclose violations or potential violations of the ITAR and EAR to the relevant regulators. In May 2024, the DOS Office of Defense Trade Controls Compliance (DTCC) informed the Company of its intent to seek administrative penalties for alleged violations of the AECA and the ITAR. The DTCC informed us that it considers certain of our voluntary disclosures, primarily identified in connection with the integration of Rockwell Collins and, to a lesser extent, Raytheon Company, filed since 2019 to reflect deficiencies warranting a civil penalty. On August 29, 2024, the Company entered into a CA with the DOS to resolve these matters. The CA settles certain AECA and ITAR compliance matters with the DTCC and the Directorate of Defense Trade Controls. The CA has a three-year term and provides for: (i) a civil penalty of $ 200 million, $ 100 million of which is suspended on the condition that such amount is applied to DTCC-approved remedial compliance measures; (ii) the appointment of an external Special Compliance Officer (SCO) to oversee compliance with the CA, the AECA, and the ITAR; (iii) an external audit of the Company’s AECA and ITAR compliance program; and (iv) implementation of additional remedial compliance measures related to AECA and ITAR compliance. The $ 100 million portion of the settlement that is not subject to suspension, which was accrued by the Company in the second quarter of 2024, will be paid in installments, with $ 34 million paid in September 2024, $ 33 million paid in August 2025, and $ 33 million due by August 29, 2026. As previously disclosed, the Company has determined that there is a probable risk of liability for potential penalties related to other export compliance matters which have been voluntarily disclosed to the cognizant regulators, but which are not subject to the CA. We have accrued $ 218 million in the aggregate as of December 31, 2025 for these matters and the matters being resolved pursuant to the CA. We are currently unable to estimate the timing or outcome of the other voluntarily disclosed export compliance matters that are not subject to the CA. However, the Company does not believe these matters will have a material adverse effect on our results of operations, financial condition, or liquidity. Powder Metal Disclosure Litigation and SEC Investigation Following the Company’s disclosures of a rare condition in powder metal used to manufacture certain Pratt & Whitney engine parts, two sets of civil actions were filed against RTX. First, two putative federal securities class action lawsuits were filed in the United States District Court for the District of Connecticut against the Company and certain current and former executives of the Company. The lawsuits allege that defendants violated federal securities laws by making material misstatements and omitting material facts relating to Pratt & Whitney’s GTF engine fleet, including the impact of the powder metal issue on the fleet, in various regulatory filings. The lawsuits were consolidated, and on September 12, 2025, the Court granted the defendants’ motion to dismiss the consolidated case. On October 14, 2025, plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Second Circuit. Second, multiple shareholder derivative lawsuits have been filed against current and former officers and directors of the Company in the United States District Court for the District of Delaware. The complaints in these actions allege that the defendants caused the Company to make materially false and misleading statements relating to Pratt & Whitney’s GTF engines, and failed to maintain an adequate system of oversight, disclosure controls and procedures, and internal controls over financial reporting. Based on the information available to date, we do not believe that either matter will have a material adverse effect on our results of operations, financial condition, or liquidity. The Company has received subpoenas from the SEC seeking engineering, operational, organizational, accounting, and financial documents and witness testimony in connection with an investigation relating to the Company’s disclosures in 2023 of issues arising from Pratt & Whitney’s use of powder metal in manufacturing various engine parts, its identification of certain risks associated with those manufacturing processes, and corrective actions identified by Pratt & Whitney to mitigate those risks. The Company is continuing to cooperate with the SEC’s ongoing investigation. At this time, we are unable to predict the timing or outcome of this SEC investigation. Where appropriate, we have recorded loss contingency accruals for the above-referenced matters. Unless noted above, loss contingency accruals are immaterial individually or in the aggregate. Other. As described in “Note 16: Guarantees,” we extend performance and operating cost guarantees beyond our normal warranty and service policies for extended periods on some of our products. We have accrued our estimate of the liability that may result under these guarantees and for service costs that are probable and can be reasonably estimated. We also have other commitments and contingent liabilities related to legal proceedings, self-insurance programs, and matters arising out of the normal course of business. We accrue contingencies based upon a range of possible outcomes. If no amount within this range is a better estimate than any other, then we accrue the minimum amount. In the ordinary course of business, the Company and its subsidiaries are also routinely defendants in, parties to, or otherwise subject to many pending and threatened legal actions, claims, disputes, and proceedings. These matters are often based on alleged violations of contract, product liability, warranty, regulatory, environmental, health and safety, employment, intellectual property, tax, and other laws. In some instances, claims for substantial monetary damages are asserted against the Company and 103 Table of Contents its subsidiaries and could result in fines, penalties, compensatory or treble damages, or non-monetary relief. We do not believe that these matters will have a material adverse effect upon our results of operations, financial condition, or liquidity. NOTE 18: EQUITY Accelerated Share Repurchases. On October 24, 2023, we entered into accelerated share repurchase (ASR) agreements with certain financial institution counterparties to repurchase shares of our common stock for an aggregate purchase price of $ 10 billion. The ASR agreements provided for the repurchase of our common stock based on the average of the daily volume-weighted average prices of our common stock during the term of such ASR agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. Pursuant to the ASR agreements, we made aggregate payments of $ 10 billion on October 26, 2023, and received initial deliveries of approximately 108.4 million shares of our common stock at a price of $ 78.38 per share, which, on that date, represented approximately 85 % of the shares expected to be repurchased. The aggregate purchase price was recorded as a reduction to Shareowners’ equity, consisting of an $ 8.5 billion increase in Treasury stock and a $ 1.5 billion decrease in Common stock. We funded the payments with borrowings under a bridge credit agreement, which was repaid with the proceeds from term loan facilities, proceeds from issuances of long-term debt in the fourth quarter of 2023, and cash on hand. See “Note 9: Borrowings and Lines of Credit” for additional information. The shares associated with the remaining portion of the aggregate purchase price have been settled over two tranches. In July 2024, the first tranche was settled upon final delivery to us of 0.4 million shares of common stock. In September 2024, with respect to the second tranche, we owed 2.2 million shares of common stock that we elected to cash settle for $ 261 million. The cash payment required as a result of the second tranche settlement was due to the significant increase in the price of our common stock during the ASR term. The final average price under the ASR was $ 94.28 per share. Accumulated Other Comprehensive Loss. A summary of the changes in each component of Accumulated other comprehensive loss, net of tax is provided below: (dollars in millions) Foreign Currency Translation (1) Defined Benefit Pension and Postretirement Plans Unrealized Hedging (Losses) Gains Accumulated Other Comprehensive Loss Balance at December 31, 2022 $ ( 1,005 ) $ ( 782 ) $ ( 231 ) $ ( 2,018 ) Other comprehensive income (loss) before reclassifications, net 562 ( 1,041 ) 278 ( 201 ) Amounts reclassified, pre-tax — ( 568 ) 80 ( 488 ) Tax benefit (expense) 3 365 ( 80 ) 288 Balance at December 31, 2023 $ ( 440 ) $ ( 2,026 ) $ 47 $ ( 2,419 ) Other comprehensive income (loss) before reclassifications, net ( 506 ) ( 674 ) ( 291 ) ( 1,471 ) Amounts reclassified, pre-tax — ( 173 ) 63 ( 110 ) Tax benefit (expense) ( 3 ) 194 54 245 Balance at December 31, 2024 $ ( 949 ) $ ( 2,679 ) $ ( 127 ) $ ( 3,755 ) Other comprehensive income (loss) before reclassifications, net 1,454 ( 910 ) 278 822 Amounts reclassified, pre-tax ( 18 ) 118 6 106 Tax benefit (expense) 5 167 ( 63 ) 109 Balance at December 31, 2025 $ 492 $ ( 3,304 ) $ 94 $ ( 2,718 ) (1) The amount of foreign currency translation recognized in Other Comprehensive Income (loss) (OCI) includes gains (losses) relating to net investment hedges, as further discussed in “Note 13: Financial Instruments”. Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net gains or losses recognized during each period presented. During the fourth quarter of 2025, an actuarial loss of $ 0.3 billion ($ 0.2 billion after tax) was recognized in connection with a settlement resulting from the annuity buy-out conversion. These costs are recorded as components of net periodic benefit (income) expense for each period presented. See “Note 10: Employee Benefit Plans” for additional details. 104 Table of Contents NOTE 19: STOCK-BASED COMPENSATION RTX’s long-term incentive plans authorize various types of market and performance-based incentive awards that may be granted to officers and key employees. The RTX Corporation Long-Term Incentive Plan (LTIP), was last amended on October 29, 2025. A total of 231 million shares have been authorized for issuance pursuant to awards under the LTIP including shares assumed from predecessor plans and adjustments associated with the separation of Carrier and Otis. As of December 31, 2025, approximately 101 million shares remain available for awards under the LTIP. The LTIP does not contain aggregate annual award limits, however, it sets an annual award limit per participant. The LTIP will expire after all authorized shares have been awarded or on May 2, 2034, whichever is sooner. Under the LTIP, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights (SARs) and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and restricted stock units (RSUs) held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year , remain eligible to vest based on actual performance relative to performance goals. We measure the cost of share-based payments for restricted share units, stock options, stock appreciation rights, and awards with market-based conditions at fair value on the grant date. For awards that include performance conditions, compensation expense is recorded based on the estimated number of awards that are expected to vest at the end of the performance period. The cost of all share-based payments are recognized in the Consolidated Statement of Operations, net of expected forfeitures, as follows: (dollars in millions) 2025 2024 2023 Total compensation cost recognized $ 519 $ 437 $ 425 The cash received and the related tax benefit realized on exercised stock options for 2025, 2024 and 2023 were not material. Additionally, the future income tax benefit recognized and the tax benefits realized on vesting of performance share units (PSU’s), restricted stock awards and RSUs were not material for the respective periods. At December 31, 2025, there was $ 340 million of total unrecognized compensation cost related to non-vested equity awards granted under long-term incentive plans. This cost is expected to be recognized ratably over a weighted-average period of 2.3 years. A summary of the transactions under our long-term incentive plans for the year ended December 31, 2025 follows. Stock Options Stock Appreciation Rights Performance Share Units Restricted Stock and RSUs (shares and units in thousands) Shares Average Price (1) Shares Average Price (1) Units Average Price (2) Units Average Price (2) Outstanding at: December 31, 2024 1,255 $ 83.18 25,746 $ 84.13 2,701 $ 95.26 8,903 $ 94.32 Granted (3) 74 128.78 1,777 128.78 830 136.65 2,832 132.59 Exercised / earned (3) ( 348 ) 78.37 ( 8,031 ) 80.26 ( 945 ) 100.31 ( 3,054 ) 97.02 Cancelled ( 5 ) 128.78 ( 225 ) 102.38 ( 73 ) 111.22 ( 327 ) 111.46 December 31, 2025 976 $ 88.11 19,267 $ 89.65 2,513 $ 106.57 8,354 $ 105.50 (1) Weighted-average exercise price per share. (2) Weighted-average grant date fair value per share. (3) Performance Share Units includes an adjustment for actual performance achieved on the 2022 award of 86 thousand units. The weighted-average grant date fair value of stock options and stock appreciation rights granted during 2025, 2024, and 2023 was $ 36.37 , $ 21.72 , and $ 24.66 , respectively. The weighted-average grant date fair value of PSU’s, which vest upon achieving certain performance metrics, granted during 2025, 2024, and 2023 was $ 136.10 , $ 93.48 , and $ 96.39 , respectively. The total fair value of awards vested during 2025, 2024, and 2023 was $ 437 million, $ 447 million, and $ 273 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during 2025, 2024, and 2023 was $ 553 million, $ 245 million, and $ 46 million, respectively. The total intrinsic value (which is the stock price at vesting multiplied by the number of underlying shares) of PSU’s and other restricted awards vested was $ 520 million, $ 506 million, and $ 263 million during 2025, 2024, and 2023, respectively. 105 Table of Contents The following table summarizes information about equity awards outstanding that are vested and expected to vest as well as equity awards outstanding that are exercisable at December 31, 2025: Equity Awards Vested and Expected to Vest Equity Awards That Are Exercisable (shares in thousands; aggregate intrinsic value in millions) Awards Average Price Aggregate Intrinsic Value Remaining Term (3) Awards Average Price Aggregate Intrinsic Value Remaining Term (3) Stock Options (1) 973 $ 88.04 $ 93 4.89 726 $ 82.84 $ 73 3.81 Stock Appreciation Rights (1) 19,175 89.53 1,800 5.23 13,098 83.07 1,314 3.92 Performance Share Units (2) 2,476 106.37 454 1.04 Restricted Stock and RSUs (2) 8,060 105.28 1,478 1.49 (1) Average price is weighted-average exercise price per share. (2) Average price is weighted-average grant date fair value per share. (3) Weighted-average contractual remaining term in years. The fair value of each option award is estimated on the date of grant using a binomial lattice model. The following table indicates the assumptions used in estimating fair value for awards granted during 2025, 2024, and 2023. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows: 2025 2024 2023 Expected volatility 25.9 % 24.7 % 26.2 % Weighted-average volatility 26 % 25 % 26 % Expected term (in years) 7.0 6.9 6.7 Expected dividend yield 2.0 % 2.6 % 2.3 % Risk-free rate 4.1 % - 4.4 % 4.1 % - 5.4 % 3.6 % - 4.8 % Expected volatilities are based on the returns of our stock, including implied volatilities from traded options on our stock for the binomial lattice model. We use historical data to estimate equity award exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant. NOTE 20: SEGMENT FINANCIAL DATA Our operations, for the periods presented herein, are classified into three principal segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. Our segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. Collins Aerospace is a leading global provider of technologically advanced aerospace and defense products. Collins’ solutions include aftermarket services for civil and military aircraft manufacturers, commercial airlines, and regional, business, and general aviation, as well as for defense and commercial space operations. Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, asset management services, and information management services. Collins designs, manufactures, and supplies electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft cargo systems, evacuation systems, landing systems (including landing gear, wheels, and braking systems), communication, navigation, surveillance systems, fire and ice detection and protection systems, integrated avionics, and propeller systems. Collins also designs, manufactures, and supports complete cabin interiors, including seating, oxygen systems, food and beverage preparation, storage and galley systems, lavatory, and wastewater management systems. Collins’ solutions support human space exploration with environmental control and power systems and extravehicular activity suits. Collins also provides connected aviation solutions and services through worldwide voice and data communication networks, airport systems and integrations, and air traffic management solutions. Collins supports government and defense customer missions by providing systems solutions for connected battlespace, test and training range systems, crew escape systems, and simulation and training. Pratt & Whitney is among the world’s leading suppliers of aircraft engines for commercial, military, business jet, and general aviation customers. Pratt & Whitney designs, manufactures, and services large engines for widebody, narrowbody, and large regional aircraft for commercial customers and for fighter, bomber, tanker, and transport aircraft for military customers. Pratt & Whitney also designs, manufactures, and services small engines powering regional airlines, general and business aviation, and 106 Table of Contents helicopters. Pratt & Whitney produces, sells, and services military and commercial auxiliary power units. Pratt & Whitney provides fleet management services and aftermarket maintenance, repair, and overhaul services in all of these product segments. Raytheon is a leading provider of defensive and offensive threat detection, tracking and mitigation capabilities for U.S. and foreign government and commercial customers. Raytheon designs, develops, and provides advanced capabilities in integrated air and missile defense, smart weapons, missiles, advanced sensors and radars, interceptors, space-based systems, hypersonics, and missile defense across land, air, sea, and space. Raytheon provides air-to-air and air-to-ground sensors, command and control and weapons including the Advanced Medium Range Air-to-Air Missile (AMRAAM), StormBreaker smart weapon, Long Range Stand Off Weapon (LRSO), and the Early Warning Radar. Raytheon also provides advanced naval sensors, command and control and weapons including classified naval radars, the Next Generation Jammer (NGJ), shipboard missiles including the Tomahawk and Standard Missile 6 (SM-6), air-to-air missiles such as the AIM-9X SIDEWINDER missile, and integrated systems such as the SPY-6 radar. In addition, Raytheon provides advanced systems and products that span layered land and integrated air and missile defense, including the Patriot air and missile defense system, the Lower Tier Air and Missile Defense Sensor (LTAMDS), the National Advanced Surface-to-Air Missile System (NASAMS), Javelin, Excalibur, Stinger, and High-Energy Lasers. Raytheon also provides technologically advanced sensors, satellites, and interceptors, including the AN/TPY-2 radar, and Standard Missile 3 (SM-3). Raytheon delivers integrated space solutions including sensors, mission orchestration, satellite control, and software. Raytheon also focuses on the development and early introduction of next-generation technologies and systems, including hypersonics, counter-hypersonics, next-generation radars, sensor experimentation, and electro-optical/infrared (EO/IR) advancements, and aligns products that use shared technologies, including fire control radars, surveillance radars, EO/IR, space-qualified satellite components, and electronics. Segment Information. RTX’s chief operating decision maker (CODM) is our Chairman and Chief Executive Officer. The CODM uses segment operating profit as a profitability measure to assess actual and forecasted segment performance to make decisions regarding incentive compensation and the allocation of capital and other investments. Total net sales and operating profit (loss) by segment include inter-segment sales which are generally recorded at cost-plus a specified fee or at a negotiated fixed price. These pricing arrangements may result in margins different than what the purchasing segment realizes on the ultimate third-party sales. We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and PRB expense under the Financial Accounting Standards (FAS) requirements of U.S. GAAP and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS) primarily related to our Raytheon segment. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related Raytheon pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis. 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. Segment information for the years ended December 31 are as follows: 2025 (dollars in millions) Net Sales Research and Development Other Segment Items (1) Operating Profit (Loss) Operating Profit (Loss) Margins Collins Aerospace $ 30,196 $ ( 1,301 ) $ ( 23,972 ) $ 4,923 16.3 % Pratt & Whitney 32,916 ( 1,034 ) ( 29,286 ) 2,596 7.9 % Raytheon 28,043 ( 483 ) ( 24,333 ) 3,227 11.5 % Total segment 91,155 ( 2,818 ) ( 77,591 ) 10,746 11.8 % Eliminations and other (2) ( 2,552 ) 54 Corporate expenses and other unallocated items — ( 248 ) FAS/CAS operating adjustment — 753 Acquisition accounting adjustments — ( 2,005 ) Consolidated $ 88,603 $ 9,300 10.5 % (1) Includes Cost of sales, Selling, General, and Administrative expenses, and Other income (expense), net. (2) Includes the operating results of certain smaller operations. 107 Table of Contents 2024 (dollars in millions) Net Sales Research and Development Other Segment Items (1) Operating Profit (Loss) Operating Profit (Loss) Margins Collins Aerospace $ 28,284 $ ( 1,408 ) $ ( 22,741 ) $ 4,135 14.6 % Pratt & Whitney 28,066 ( 1,086 ) ( 24,965 ) 2,015 7.2 % Raytheon 26,713 ( 452 ) ( 23,667 ) 2,594 9.7 % Total segment 83,063 ( 2,946 ) ( 71,373 ) 8,744 10.5 % Eliminations and other (2) ( 2,325 ) ( 48 ) Corporate expenses and other unallocated items (3) — ( 933 ) FAS/CAS operating adjustment — 833 Acquisition accounting adjustments — ( 2,058 ) Consolidated $ 80,738 $ 6,538 8.1 % (1) Includes Cost of sales, Selling, General, and Administrative expenses, and Other income (expense), net. (2) Includes the operating results of certain smaller operations. (3) 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 and Summary of Accounting Principles” for additional information. 2023 (dollars in millions) Net Sales Research and Development Other Segment Items (1) Operating Profit (Loss) Operating Profit (Loss) Margins Collins Aerospace $ 26,253 $ ( 1,317 ) $ ( 21,111 ) $ 3,825 14.6 % Pratt & Whitney (3) 18,296 ( 1,001 ) ( 18,750 ) ( 1,455 ) ( 8.0 ) % Raytheon 26,350 ( 500 ) ( 23,471 ) 2,379 9.0 % Total segment 70,899 ( 2,818 ) ( 63,332 ) 4,749 6.7 % Eliminations and other (2) ( 1,979 ) ( 42 ) Corporate expenses and other unallocated items — ( 275 ) FAS/CAS operating adjustment — 1,127 Acquisition accounting adjustments — ( 1,998 ) Consolidated $ 68,920 $ 3,561 5.2 % (1) Includes Cost of sales, Selling, General, and Administrative expenses, and Other income (expense), net. (2) Includes the operating results of certain smaller operations. (3) Includes the impact of the Powder Metal Matter Total Assets Capital Expenditures Depreciation & Amortization (dollars in millions) 2025 2024 2025 2024 2023 2025 2024 2023 Collins Aerospace (1) $ 71,680 $ 72,372 $ 793 $ 786 $ 628 $ 873 $ 841 $ 724 Pratt & Whitney (1) 52,482 44,307 994 968 1,025 786 784 736 Raytheon (1) 44,795 44,936 644 771 637 542 520 544 Total segment 168,957 161,615 2,431 2,525 2,290 2,201 2,145 2,004 Corporate, eliminations, and other 2,122 1,246 196 100 125 94 80 126 Acquisition accounting adjustments 2,083 2,139 2,081 Consolidated $ 171,079 $ 162,861 $ 2,627 $ 2,625 $ 2,415 $ 4,378 $ 4,364 $ 4,211 (1) Total assets include acquired intangible assets and the property, plant, and equipment fair value adjustment. Related amortization expense is included in Acquisition accounting adjustments. Geographic External Sales by Origin and Long-Lived Assets. Geographic external sales are attributed to the geographic regions based on their location of origin. U.S. external sales include export sales to commercial customers outside the U.S., as well as sales to the U.S. government, commercial and affiliated customers, which are known to be for resale to customers outside the U.S. Long-lived assets are Fixed assets, net attributed to the specific geographic regions. 108 Table of Contents External Net Sales Long-Lived Assets (dollars in millions) 2025 2024 2023 2025 2024 United States (1) $ 74,778 $ 67,701 $ 57,539 $ 13,791 $ 13,041 International Europe 5,438 5,493 4,849 1,135 1,189 Asia Pacific 2,864 2,587 2,182 899 834 Middle East and North Africa 348 486 492 101 98 Other regions 5,175 4,471 3,858 942 927 Consolidated $ 88,603 $ 80,738 $ 68,920 $ 16,868 $ 16,089 (1) 2023 external net sales includes the reduction in sales from the Powder Metal Matter. Disaggregation of Revenue. We also disaggregate our contracts from customers by geographic region based on customer location, by type of customer, and by sales type. Our geographic region based on customer location uses end user customer location where known or practical to determine, or in instances where the end user customer is not known or not practical to determine, uses “ship to” location as the customer location. In addition, for our Raytheon segment, we disaggregate our contracts from customers by contract type. We believe these categories best depict how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. Segment sales disaggregated by geographic region based on customer location for the years ended December 31 are as follows: 2025 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total United States $ 14,136 $ 13,636 $ 19,313 $ 206 $ 47,291 Europe 6,852 7,669 4,275 3 18,799 Asia Pacific 3,779 7,625 2,377 1 13,782 Middle East and North Africa 1,076 821 1,724 — 3,621 Other regions 1,742 3,165 203 — 5,110 Consolidated net sales 27,585 32,916 27,892 210 88,603 Inter-segment sales 2,611 — 151 ( 2,762 ) — Business segment sales $ 30,196 $ 32,916 $ 28,043 $ ( 2,552 ) $ 88,603 2024 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total United States $ 13,668 $ 13,025 $ 19,224 $ 170 $ 46,087 Europe 6,634 6,376 2,962 3 15,975 Asia Pacific 3,185 5,461 2,245 2 10,893 Middle East and North Africa 840 650 1,968 — 3,458 Other regions 1,602 2,552 171 — 4,325 Consolidated net sales 25,929 28,064 26,570 175 80,738 Inter-segment sales 2,355 2 143 ( 2,500 ) — Business segment sales $ 28,284 $ 28,066 $ 26,713 $ ( 2,325 ) $ 80,738 109 Table of Contents 2023 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total United States $ 13,185 $ 11,403 $ 20,187 $ 106 $ 44,881 Europe 6,423 5,433 1,642 3 13,501 Asia Pacific 2,625 4,227 2,196 1 9,049 Middle East and North Africa 684 539 2,014 — 3,237 Other regions 1,377 2,095 181 — 3,653 Powder Metal Matter — ( 5,401 ) — — ( 5,401 ) Consolidated net sales 24,294 18,296 26,220 110 68,920 Inter-segment sales 1,959 — 130 ( 2,089 ) — Business segment sales $ 26,253 $ 18,296 $ 26,350 $ ( 1,979 ) $ 68,920 Segment sales disaggregated by type of customer for the years ended December 31 are as follows: 2025 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Sales to the U.S. government (1) $ 7,061 $ 6,778 $ 19,237 $ 203 $ 33,279 Foreign military sales through the U.S. government 436 1,786 4,480 — 6,702 Foreign government direct commercial sales 1,230 792 4,099 2 6,123 Commercial aerospace and other commercial sales 18,858 23,560 76 5 42,499 Consolidated net sales 27,585 32,916 27,892 210 88,603 Inter-segment sales 2,611 — 151 ( 2,762 ) — Business segment sales $ 30,196 $ 32,916 $ 28,043 $ ( 2,552 ) $ 88,603 (1) Excludes foreign military sales through the U.S. government. 2024 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Sales to the U.S. government (1) $ 6,850 $ 6,086 $ 19,142 $ 168 $ 32,246 Foreign military sales through the U.S. government 384 1,528 3,853 — 5,765 Foreign government direct commercial sales 1,242 712 3,361 2 5,317 Commercial aerospace and other commercial sales 17,453 19,738 214 5 37,410 Consolidated net sales 25,929 28,064 26,570 175 80,738 Inter-segment sales 2,355 2 143 ( 2,500 ) — Business segment sales $ 28,284 $ 28,066 $ 26,713 $ ( 2,325 ) $ 80,738 (1) Excludes foreign military sales through the U.S. government. 2023 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Sales to the U.S. government (1) $ 6,357 $ 5,206 $ 19,965 $ 100 $ 31,628 Foreign military sales through the U.S. government 304 1,442 3,228 — 4,974 Foreign government direct commercial sales 1,110 515 2,620 4 4,249 Commercial aerospace and other commercial sales (2) 16,523 11,133 407 6 28,069 Consolidated net sales 24,294 18,296 26,220 110 68,920 Inter-segment sales 1,959 — 130 ( 2,089 ) — Business segment sales $ 26,253 $ 18,296 $ 26,350 $ ( 1,979 ) $ 68,920 (1) Excludes foreign military sales through the U.S. government. (2) Includes the reduction in sales from the Powder Metal Matter. 110 Table of Contents The largest contributor to our Commercial aerospace and other commercial sales is Airbus. Sales to Airbus primarily relate to Pratt & Whitney and Collins products, and prior to discounts and incentives were approximately 14 %, 14 %, and 17 % of total net sales in 2025, 2024, and 2023, respectively. Total net sales in 2023 includes the reduction in sales from the Powder Metal Matter. Segment sales disaggregated by sales type for the years ended December 31 are as follows: 2025 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Products $ 21,467 $ 18,467 $ 24,063 $ 174 $ 64,171 Services 6,118 14,449 3,829 36 24,432 Consolidated net sales 27,585 32,916 27,892 210 88,603 Inter-segment sales 2,611 — 151 ( 2,762 ) — Business segment sales $ 30,196 $ 32,916 $ 28,043 $ ( 2,552 ) $ 88,603 2024 (dollars in millions) Collins Aerospace Pratt & Whitney Raytheon Other Total Products $ 20,272 $ 16,316 $ 22,872 $ 152 $ 59,612 Services 5,657 11,748 3,698 23 21,126 Consolidated net sales 25,929 28,064 26,570 175 80,738 Inter-segment sales 2,355 2 143 ( 2,500 ) — Business segment sales $ 28,284 $ 28,066 $ 26,713 $ ( 2,325 ) $ 80,738 2023 (dollars in millions) Collins Aerospace Pratt & Whitney (1) Raytheon Other Total Products $ 19,034 $ 8,579 $ 21,847 $ 111 $ 49,571 Services 5,260 9,717 4,373 ( 1 ) 19,349 Consolidated net sales 24,294 18,296 26,220 110 68,920 Inter-segment sales 1,959 — 130 ( 2,089 ) — Business segment sales $ 26,253 $ 18,296 $ 26,350 $ ( 1,979 ) $ 68,920 (1) Includes the reduction in sales from the Powder Metal Matter. Raytheon segment sales disaggregated by contract type for the years ended December 31 are as follows: (dollars in millions) 2025 2024 2023 Fixed-price $ 16,647 $ 14,515 $ 13,164 Cost-type 11,245 12,055 13,056 Consolidated net sales 27,892 26,570 26,220 Inter-segment sales 151 143 130 Business segment sales $ 28,043 $ 26,713 $ 26,350 111 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.