RTX Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations BUSINESS OVERVIEW We are a global premier systems provider of high technology products and services to the aerospace and defense industries. Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries. We operate in three segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. Raytheon follows a fiscal calendar, while Collins and Pratt & Whitney use calendar quarter ends. Throughout this Form 10-Q, references to the quarters ended March 31, 2026 and 2025 for Raytheon correspond to its fiscal quarter ends of March 29, 2026 and March 30, 2025, respectively. The current status of significant factors affecting our business environment in 2026 is discussed below. For additional discussion, refer to the “Business Overview” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in our 2025 Annual Report on Form 10-K. Industry Considerations Our worldwide operations can be affected by industrial, economic, and political factors on both a regional and global level. Our operations include original equipment manufacturer (OEM) and extensive related aftermarket parts and services related to our aerospace operations. Our defense business serves both domestic and international customers primarily as a prime contractor or subcontractor on a broad portfolio of defense and related programs for government customers. Our business mix also reflects the combination of shorter cycles in our commercial aerospace spares contracts and certain service contracts in our defense business, and longer cycles in our aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture, or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization. Government legislation, policies, and regulations can impact our business and operations. Changes in environmental and climate change-related laws or regulations, including regulations on greenhouse gas emissions, carbon pricing, and energy taxes, could lead to new or additional investment in product designs and facility upgrades and could increase our operational and environmental compliance expenditures, including increased energy and raw materials costs and costs associated with manufacturing changes. In addition, government and industry-driven safety and performance regulations, restrictions on aircraft engine noise and emissions, government imposed travel restrictions, and government procurement practices can impact our businesses. Collins and Pratt & Whitney serve both commercial and government aerospace customers. Revenue passenger miles (RPMs), available seat miles, and the general economic health of airline carriers and airframers, as well as the financial strength and performance of airframers, are key barometers for our commercial aerospace operations. Performance in the general aviation sector is closely tied to the overall health of the economy and is positively correlated to corporate profits. Many of our aerospace customers are covered under long-term aftermarket service agreements at both Collins and Pratt & Whitney, which are inclusive of both spare parts and services. Our defense operations are affected by U.S. Department of War (DoW) budget and spending levels, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the global and national security threat environment. In addition, our defense businesses engage in both direct commercial sales, which generally require U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by and carried out at the direction of, the U.S. government. Changes in these budget and spending levels, policies, or priorities, which are subject to U.S. domestic and foreign geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions, or other restrictions. Other Matters Global, economic, and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, potential changes in U.S. government policy positions or priorities, including changes in DoW policies or priorities, geopolitical conflicts and strained intercountry relations, U.S. and non-U.S. tax law changes, foreign 28 Table of Content s currency exchange rates, sanctions, tariffs, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses. Legal Matters. As previously disclosed and described further in “Note 15: Commitments and Contingencies”, within Item 1 of this Form 10-Q under the headings “Thales-Raytheon Systems and Related Matters,” “DOJ Investigation and Contract Pricing Disputes,” and “Trade Compliance Matters”, in 2024 the Company resolved several outstanding legal matters. Pratt & Whitney Powder Metal Matter. As described further in “Note 15: Commitments and Contingencies,” within Item 1 of this Form 10-Q, in 2023, Pratt & Whitney determined that a rare condition in powder metal used to manufacture certain engine parts requires accelerated inspection of the PW1100G-JM (PW1100) Geared Turbofan (GTF) fleet, which powers the A320neo family of aircraft (A320neo) (herein referred to as the “Powder Metal Matter”). Global Supply Chain. We are dependent on a global supply chain and have experienced supply chain disruptions that resulted in delays and increased costs and adversely affected our performance. These disruptions impacted our ability to procure raw materials, including certain rare earth elements, microelectronics, and certain commodities on a timely basis and/or at expected prices, and are driven by supply chain market constraints and macroeconomic conditions, including inflation and labor market shortages. Current geopolitical conditions, including conflicts and other causes of strained intercountry relations, as well as sanctions and other trade restrictive activities, such as tariffs and export controls, are contributing to these issues. Furthermore, our suppliers and subcontractors have been impacted by these same issues. We have implemented actions and programs to mitigate some of the impacts but anticipate supply chain disruptions to continue. Economic Environment. The inflationary environment has increased material and component prices, labor rates, and supplier costs and has negatively impacted our performance, including our productivity expectations. Due to the nature of our government and commercial aerospace businesses, and their respective customer and supplier contracts, we are not always able to offset cost increases by increasing our contract value or pricing, in particular on our fixed-price contracts. Increasing material, component, and labor prices could subject us to losses in our fixed price contracts in the event of cost overruns. In addition, higher interest rates have increased the cost of borrowing and tightened the availability of capital. Among other things, these effects can constrain our customers’ purchasing power and decrease orders for our products and services and impact the ability of our customers to make payments and our suppliers to perform. Moreover, changes in the macroeconomic environment, including volatility with respect to global trade policy, interest rates, and financial markets, can lead to economic uncertainty, an economic downturn or recession and impact the demand for our products and services as well as our supply chain. We continue to pursue strategic and operational initiatives to help address these macroeconomic pressures, including our digital transformation, operational modernization, cost reduction, and advanced technology programs, and we apply our Customer Oriented Results and Excellence (CORE) operating platform to the execution of these initiatives. However, the impact of these pressures and corresponding initiatives is uncertain and subject to a range of factors and future developments. The global trade environment is highly dynamic. Since February 2025, the U.S. government has imposed tariffs on imports from all countries with which the U.S. engages in trade. In response, certain countries have announced, and in some cases imposed, tariffs, and non-tariff countermeasures on goods that are imported from the U.S. Our businesses and suppliers import goods subject to U.S. imposed tariffs, as well as goods subject to counter tariffs imposed by other countries. In February 2026, the U.S. Supreme Court ruled that U.S. tariffs imposed under the International Emergency Economic Powers Act (IEEPA) on goods imported into the U.S. were unauthorized. The Company is the importer of record for certain products that were previously subject to tariffs under IEEPA and paid approximately $0.5 billion of IEEPA tariffs since their inception. The U.S. Court of International Trade (CIT) has ordered the U.S. Customs and Border Protection (CBP) to refund the collected IEEPA tariffs. The administrative process for seeking refunds of IEEPA tariffs previously paid remains under development and the CIT’s order may be subject to U.S. government challenge. Accordingly, there is uncertainty regarding our ability to obtain refunds for IEEPA tariffs previously paid, and as such we have not recorded an anticipated recovery of IEEPA tariffs paid as of March 31, 2026. We will continue to monitor developments, including actions by the CIT and CBP to establish and execute on a refund process and take appropriate actions when or if they become available. Further, following the Supreme Court’s ruling invalidating IEEPA tariffs, the U.S. government imposed new and revised tariffs under various available regimes. We continue to pursue available options to mitigate the impact of tariffs and countermeasures, including (i) utilizing available exemptions or exclusions to tariffs, such as trade agreements, treaties or other statutory relief, (ii) evaluating operational and supply chain changes, and (iii) where feasible, increasing the prices of our goods and services. Our results for the quarter ended March 31, 2026, reflect our best estimate of the impact of the tariffs then in effect. As the duration, extent and enforceability of the tariffs and counter tariffs in effect remain uncertain, we are continuing to evaluate the potential future impacts of the imposition of tariffs to our business and financial condition. Based on current conditions, we do not believe that the tariffs announced by the U.S. or counter tariffs or other actions taken by other countries will have a material adverse effect upon our results of operations, financial condition, or cash flows. However, the actual financial impacts of tariffs are dependent upon various factors, most notably, the scope of goods covered by tariffs, the value of our imports subject to tariffs, the rate of tariffs 29 Table of Content s applied, the timing and duration of tariffs, the enforceability of tariffs and counter-tariffs, the implementation of tariff and non-tariff countermeasures by countries subject to U.S. tariffs, and our and our suppliers’ ability to mitigate the impacts of tariffs. Changes in any of these factors and actual tariff costs incurred could significantly affect the estimates inherent in our financial statements, including those used in our estimates-at-completion (EACs), and estimates supporting the recoverability of our inventories, contract fulfillment costs, deferred tax assets, intangible assets and goodwill, and could have a material effect on our results of operations and cash flows in the periods recognized and paid. U.S. Government’s Budget, Tax Legislation and Executive Orders. On February 3, 2026, Congress passed and the President signed a spending package to end a U.S. government shutdown. The spending package funds the majority of the government through the end of the government’s fiscal year. 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 provides for several corporate tax changes including, but not limited to, restoring full expensing of domestic research and development costs, restoring immediate deductibility of certain capital expenditures, and changes in the computations of U.S. taxation on international earnings. The Act also provides a supplementary $156.2 billion to the DoW for obligations through 2029, which includes $24.4 billion for the Golden Dome for America project. The project, outlined in a January 27, 2025 Executive Order, calls for the development and deployment of a next-generation missile defense shield. On May 20, 2025, the DoW announced a draft architecture and implementation plan for the system. With next generation technologies across land, sea and space that build upon existing, proven defense capabilities, RTX’s portfolio is well-positioned to play a role in delivering reliable solutions for the Golden Dome for America initiative. Whether this Executive Order or corresponding funding will have a material impact on our business or results of operations will depend on a variety of factors, including actual awards, award timelines, mission priorities, and future budget determinations. The Act also includes $25.4 billion in funding to enhance DoW resources for munitions and supply chain resiliency. As a leading munitions manufacturer, RTX is strategically situated to play a key role in supporting this initiative. The President has also issued multiple executive orders, including one intended to reform the DoW’s defense acquisition processes and promote expedited and streamlined acquisitions. Following issuance of those orders, the Secretary of War issued a memorandum and released the DoW’s Acquisition Transformation Strategy, which is aligned with the executive orders and seeks to overhaul the existing defense acquisition system through process changes that prioritize speed, flexibility, and rigorous execution. A subsequent executive order was issued that may limit corporate distributions, share repurchases, and executive compensation incentives during periods of defense contractor underperformance, insufficient prioritization, investment or production speed under their U.S. government contracts. We are monitoring how these executive orders and related actions will be implemented and any potential future impacts to our business. While those impacts are uncertain, a limitation on our ability to issue distributions or engage in share repurchases related to the defense contractor performance executive order could adversely affect the market price of our common stock. Geopolitical Matters. In response to Russia’s invasion of Ukraine, the U.S. government and the governments of various jurisdictions in which we operate, have imposed broad economic sanctions and export controls targeting specific industries, entities, and individuals in Russia. The Russian government has implemented similar counter-sanctions and export controls, including targeting certain members of the Company’s management team and Board of Directors. Similarly, in February 2023, China announced sanctions against Raytheon Missiles & Defense (RMD) (a former RTX business segment which became part of the Raytheon business during the third quarter of 2023), and previously announced it may take measures against RTX, in connection with certain foreign military sales to Taiwan. Since that time, China has announced additional sanctions against the Raytheon business and a Collins joint venture. We do not currently expect these measures to have a material adverse effect on our financial results, but we will continue to monitor future developments, including additional measures that could adversely affect the Company and/or our supply chain, business partners, or customers. We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S. government review and approval have been pending. The U.S. government’s approval of these sales is subject to a range of factors, including its foreign policies related to these customers, which are subject to continuing review and potential changes. Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer. In addition, certain programs require approvals by foreign governments, and those approvals may not be obtained on a timely basis or at all or may be revoked. If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results. We continue to closely monitor impacts to RTX’s business, customers, suppliers, employees, and operations in Israel, the Middle East, and the region at large due to the conflict in Iran and increased regional instability and tensions. RTX has employees, facilities, and operations in the Middle East and we reassess operations regularly, based upon the security situation. Our and our suppliers’ operations in the region have not been impacted in any material respect, although we could experience 30 Table of Content s future delivery delays of certain products as the conflict continues. We also continue to monitor uncertainties related to energy costs and availability, and associated impacts to our commercial airline customers. Given the volatile nature of the situation, the potential impacts to RTX are subject to change. See Part I, Item 1A, “Risk Factors” in our 2025 Annual Report on Form 10-K for further discussion of these items. CRITICAL ACCOUNTING ESTIMATES Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Condensed Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. See “Critical Accounting Estimates” within Item 7 and “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of our 2025 Annual Report on Form 10-K, which describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the quarter ended March 31, 2026. RESULTS OF OPERATIONS As described in our “Cautionary Note Concerning Factors That May Affect Future Results” of this Form 10-Q, our interim period results of operations and period-to-period comparisons of our results, particularly at a segment level, may not be indicative of our future operating results. The following discussions of comparative results among periods, including the discussion of segment results, should be viewed in this context. We provide the organic change in Net sales and Cost of sales for our consolidated results of operations as well as the organic change in Net sales and Operating profit for our segments. We believe that these non-Generally Accepted Accounting Principles (non-GAAP) measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. The organic change in Net sales, Cost of sales, and Operating profit excludes acquisitions and divestitures, net, and the effect of foreign currency exchange rate translation fluctuations and other significant non-operational items and/or significant operational items that may occur at irregular intervals (Other). Additionally, the organic change in Cost of sales and Operating profit excludes restructuring costs, the FAS/CAS operating adjustment, and acquisition accounting adjustments. Restructuring costs generally arise from severance related to workforce reductions and facility exit costs. We are continuously evaluating our cost structure and implement restructuring actions in an effort to keep our cost structure competitive. The FAS/CAS operating adjustment represents the difference between the service cost component of our pension and postretirement benefit (PRB) expense under the Financial Accounting Standards (FAS) requirements of U.S. GAAP and our pension and PRB expense under U.S. government Cost Accounting Standards (CAS), primarily related to our Raytheon segment. Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant, and equipment fair value adjustment acquired through acquisitions, the amortization of customer contractual obligations related to loss making or below market contracts acquired, and goodwill impairment, if applicable. Net Sales Quarter Ended March 31, (dollars in millions) 2026 2025 Net sales $ 22,076 $ 20,306 The factors contributing to the change year-over-year in total net sales for the quarter ended March 31, 2026 are as follows: (dollars in millions) Quarter Ended March 31, 2026 Organic (1) $ 2,077 Acquisitions and divestitures, net (370) Other 63 Total change $ 1,770 (1) See “Results of Operations” for definition of organic. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above. Net sales increased $2.1 billion organically in the quarter ended March 31, 2026, primarily due to higher organic net sales of $0.8 billion at Pratt & Whitney, $0.7 billion at Collins, and $0.6 billion at Raytheon. 31 Table of Content s The decrease in net sales due to Acquisitions and divestitures, net of $0.4 billion for the quarter ended March 31, 2026 was driven by divestitures within our Collins segment of the actuation and flight control business and the Simmonds Precision Products business completed in 2025. See “Segment Review” below for further information by segment. Quarter Ended March 31, % of Total Net Sales (dollars in millions) 2026 2025 2026 2025 Net Sales Products $ 15,765 $ 14,591 71.4 % 71.9 % Services 6,311 5,715 28.6 % 28.1 % Total net sales $ 22,076 $ 20,306 100 % 100 % Refer to “Note 17: Segment Financial Data” within Item 1 of this Form 10-Q for the composition of external net sales by products and services by segment. Net products sales increased $1.2 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 primarily due to increases in external products sales of $0.6 billion at Raytheon, $0.3 billion at Pratt & Whitney, and $0.3 billion at Collins. Net services sales increased $0.6 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 primarily due to increases in external services sales of $0.6 billion at Pratt & Whitney. Our sales to major customers were as follows: Quarter Ended March 31, % of Total Net Sales (dollars in millions) 2026 2025 2026 2025 Sales to the U.S. government (1) $ 7,970 $ 7,732 36.1 % 38.1 % Foreign military sales through the U.S. government 1,781 1,471 8.1 % 7.2 % Foreign government direct commercial sales 1,547 1,352 7.0 % 6.7 % Commercial aerospace and other commercial sales 10,778 9,751 48.8 % 48.0 % Total net sales $ 22,076 $ 20,306 100 % 100 % (1) Excludes foreign military sales through the U.S. government. Cost of Sales Quarter Ended March 31, (dollars in millions) 2026 2025 Total cost of sales $ 17,482 $ 16,190 Percentage of net sales 79.2 % 79.7 % The factors contributing to the change year-over-year in total cost of sales for the quarter ended March 31, 2026 are as follows: (dollars in millions) Quarter Ended March 31, 2026 Organic (1) $ 1,590 Acquisitions and divestitures, net (326) Restructuring (73) FAS/CAS operating adjustment 12 Other 89 Total change $ 1,292 (1) See “Results of Operations” for definition of organic. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above. Total cost of sales increased $1.6 billion organically for the quarter ended March 31, 2026, primarily driven by the organic net sales increases at Raytheon, Pratt & Whitney, and Collins noted above. 32 Table of Content s The decrease in total cost of sales due to Acquisitions and divestitures, net of $0.3 billion for the quarter ended March 31, 2026, was driven by the divestitures within our Collins segment of the actuation and flight control business and the Simmonds Precision Products business completed in 2025. Other cost of sales increased $0.1 billion in the quarter ended March 31, 2026, primarily driven by unfavorable foreign exchange rate impacts. The decrease in restructuring costs in the quarter ended March 31, 2026, relates primarily to higher workforce reductions initiated in the quarter ended March 31, 2025 at Collins. For discussion on FAS/CAS operating adjustment, see the “FAS/CAS operating adjustment” subsection under the “Segment Review” section below. For discussion on Acquisition accounting adjustments, see the “Acquisition accounting adjustments” subsection under the “Segment Review” section below. Quarter Ended March 31, % of Total Net Sales (dollars in millions) 2026 2025 2026 2025 Cost of sales Products $ 13,000 $ 12,283 58.9 % 60.5 % Services 4,482 3,907 20.3 % 19.2 % Total cost of sales $ 17,482 $ 16,190 79.2 % 79.7 % Net products cost of sales increased $0.7 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, primarily driven by increases in external products cost of sales at Raytheon, Pratt & Whitney, and Collins, each driven by the products sales changes noted above. Net services cost of sales increased $0.6 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, primarily due to increases in external services cost of sales at Pratt & Whitney, driven by the services sales changes noted above. Research and Development Quarter Ended March 31, (dollars in millions) 2026 2025 Company-funded $ 627 $ 637 Percentage of net sales 2.8 % 3.1 % Customer-funded (1) $ 1,228 $ 1,200 Percentage of net sales 5.6 % 5.9 % (1) Included in Cost of sales in our Condensed Consolidated Statement of Operations. Research and development spending is subject to the variable nature of program development schedules and, therefore, year-over-year fluctuations in spending levels are expected. Selling, General, and Administrative Quarter Ended March 31, (dollars in millions) 2026 2025 Selling, general, and administrative $ 1,476 $ 1,448 Percentage of net sales 6.7 % 7.1 % Selling, general, and administrative expenses increased for the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, primarily driven by increased employee compensation costs, partially offset by lower restructuring costs. Other Income, Net Quarter Ended March 31, (dollars in millions) 2026 2025 Other income, net $ 64 $ 4 Other income, net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, and other ongoing and non-recurring items. 33 Table of Content s The increase in Other income, net of $0.1 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, was primarily due to gains related to the increase in fair value on investments in the quarter ended March 31, 2026. Operating Profit Quarter Ended March 31, (dollars in millions) 2026 2025 Operating profit $ 2,555 $ 2,035 Operating profit margin 11.6 % 10.0 % The increase in Operating profit of $0.5 billion for the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 was primarily driven by an increase in the organic operating performance of our segments of approximately $0.4 billion and a decrease in restructuring charges of $0.1 billion. Non-service Pension Income Quarter Ended March 31, (dollars in millions) 2026 2025 Non-service pension income $ (355) $ (366) Interest Expense, Net Quarter Ended March 31, (dollars in millions) 2026 2025 Interest expense $ 406 $ 502 Interest income (24) (51) Other non-operating expense (income) (1) 8 (8) Interest expense, net $ 390 $ 443 Average interest expense rate 4.5 % 4.5 % (1) Primarily consists of the gains or losses on assets associated with certain of our nonqualified deferred compensation and employee benefit plans, the gains or losses on liabilities associated with certain of our nonqualified deferred compensation plans, and non-operating dividend income. The decrease in Interest expense of $0.1 billion for the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, was primarily driven by long-term debt repayments. Income Taxes Quarter Ended March 31, 2026 2025 Effective income tax rate 14.4 % 17.0 % The lower effective tax rate for the quarter ended March 31, 2026 compared to quarter ended March 31, 2025 was primarily driven by a higher tax benefit from stock based compensation in the current quarter as well as a lower forecasted annualized effective tax rate for 2026 principally due to a higher Foreign Derived Deduction Eligible Income (FDDEI) benefit from the U.S. tax legislation enacted in 2025. Net Income Attributable to Common Shareowners Quarter Ended March 31, (dollars in millions, except per share amounts) 2026 2025 Net income attributable to common shareowners $ 2,059 $ 1,535 Diluted earnings per share $ 1.51 $ 1.14 Net income attributable to common shareowners for the quarter ended March 31, 2026 includes the following: • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) of $0.27. Net income attributable to common shareowners for the quarter ended March 31, 2025 includes the following: • acquisition accounting adjustments of $0.4 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.27; and • restructuring charges of $0.1 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.07. 34 Table of Content s SEGMENT REVIEW Our operations, for the periods presented herein, are classified into three principal segments: Collins, Pratt & Whitney, and Raytheon. Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. Total segment net sales and segment operating profit include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments. Segment Operating Profit excludes certain acquisition accounting adjustments, the FAS/CAS operating adjustment, and certain corporate expenses, as further discussed below. Given the nature of our business, we believe that total net sales and operating profit (and the related operating profit margin percentage), which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our segment performance, as described below. We provide the organic change in Net sales and Operating profit for our segments as discussed above in “Results of Operations.” We believe that these non-GAAP measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. For Pratt & Whitney only, Other also includes the transactional impact of foreign exchange hedging at Pratt & Whitney Canada due to its significance to Pratt & Whitney’s overall operating results. Total Net Sales. Total net sales by segment were as follows: Quarter Ended March 31, (dollars in millions) 2026 2025 Collins Aerospace $ 7,602 $ 7,217 Pratt & Whitney 8,173 7,366 Raytheon 6,945 6,340 Total segment 22,720 20,923 Eliminations and other (1) (644) (617) Consolidated $ 22,076 $ 20,306 (1) Includes the operating results of certain smaller operations. Operating Profit. Operating profit by segment was as follows: Quarter Ended March 31, (dollars in millions) 2026 2025 Collins Aerospace $ 1,307 $ 1,088 Pratt & Whitney 710 580 Raytheon 841 678 Total segment 2,858 2,346 Eliminations and other (1) 38 12 Corporate expenses and other unallocated items (42) (38) FAS/CAS operating adjustment 172 185 Acquisition accounting adjustments (471) (470) Consolidated $ 2,555 $ 2,035 (1) Includes the operating results of certain smaller operations. Included in segment Operating profit are EAC adjustments, which relate to changes in Operating profit and margin due to revisions to total estimated revenues and costs at completion. These changes may reflect improved or deteriorated operating performance, as well as changes in facts and assumptions related to contract options, contract modifications, incentive and award fees associated with program performance, customer activity levels, and other customer-directed changes. For a full description of our EAC process, refer to “Note 4: Changes in Contract Estimates at Completion” within Item 1 of this Form 10-Q. Given that we have thousands of individual contracts, and given the types and complexity of the assumptions and estimates we must make on an on-going basis, and the nature of the work required to be performed under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course. 35 Table of Content s We had the following net EAC adjustments for the periods presented: Quarter Ended March 31, (dollars in millions) 2026 2025 Total net EAC adjustments $ (162) $ (158) Significant EAC adjustments, when they occur, are discussed in each business segment’s discussion below. Backlog and Bookings. Total backlog was $271 billion and $268 billion as of March 31, 2026 and December 31, 2025, respectively. Total backlog includes commercial backlog of $162 billion and $161 billion as of March 31, 2026 and December 31, 2025, and defense backlog of $109 billion and $107 billion as of March 31, 2026 and December 31, 2025, respectively. We believe bookings are an important measure of future performance for our defense businesses. Our defense operations consist primarily of our Raytheon segment and operations in the defense businesses within our Collins and Pratt & Whitney segments. Defense bookings were approximately $14 billion and $9 billion for the quarters ended March 31, 2026 and 2025, respectively. Bookings are impacted by the timing and amounts of awards in a given period, which are subject to numerous factors, including: the desired capability by the customer and urgency of customer needs, customer budgets and other fiscal constraints, political and economic and other environmental factors, the timing of customer negotiations, and the timing of customer and governmental approvals and notifications. In addition, due to these factors, quarterly bookings tend to fluctuate from period to period, particularly on a segment basis. Collins Aerospace Quarter Ended March 31, (dollars in millions) 2026 2025 Change Net sales $ 7,602 $ 7,217 5 % Operating profit 1,307 1,088 20 % Operating profit margins 17.2 % 15.1 % Quarter Ended March 31, 2026 Compared with Quarter Ended March 31, 2025 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 728 $ (383) $ — $ 40 $ 385 Operating profit 107 (33) 122 23 219 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $0.7 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 primarily relates to higher commercial aerospace OEM sales of $0.3 billion, higher commercial aerospace aftermarket sales of $0.2 billion, and higher defense sales of $0.2 billion. The increase in commercial OEM sales was primarily driven by higher volume on narrowbody and widebody programs and the increase in commercial aftermarket sales was driven by higher provisioning and parts and repair volume. The increase in defense sales was primarily due to higher volume across multiple programs and platforms . The organic operating profit increase of $0.1 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 was primarily due to the commercial and defense sales volume increases as discussed above, partially offset by the impact of higher tariffs and unfavorable commercial OEM mix. Operating profit also benefited from lower research and development expenses. The decrease in net sales and operating profit due to acquisitions / divestitures, net in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 relates to the divestiture of the actuation and flight control business and the Simmonds Precision Products business completed in 2025. The decrease in restructuring costs during the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 relates primarily to higher workforce reductions initiated in the quarter ended March 31, 2025. Defense Bookings – In the quarter ended March 31, 2026, Collins recorded $3 billion in defense bookings, comprised of a number of smaller individual bookings under $0.5 billion. 36 Table of Content s Pratt & Whitney Quarter Ended March 31, (dollars in millions) 2026 2025 Change Net sales $ 8,173 $ 7,366 11 % Operating profit 710 580 22 % Operating profit margins 8.7 % 7.9 % Quarter Ended March 31, 2026 Compared with Quarter Ended March 31, 2025 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 770 $ — $ — $ 37 $ 807 Operating profit 111 — 9 10 130 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $0.8 billion in the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, was driven by a $0.7 billion increase in commercial aftermarket sales, primarily reflecting higher volume. Military sales increased $0.1 billion primarily due to higher F135 production volume. These increases were partially offset by lower commercial OEM sales volume. The organic operating profit increase of $0.1 billion in the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025 was primarily driven by higher commercial aerospace operating profit of $0.1 billion. This increase resulted from higher commercial aftermarket volume as discussed above, partially offset by lower commercial OEM operating profit contribution due to higher operational costs, including tariffs. Organic operating profit also benefited from higher military operating profit driven by the sales volume discussed above. These increases were partially offset by higher selling, general, and administrative expenses. Defense Bookings – In the quarter ended March 31, 2026, Pratt & Whitney recorded $4 billion in defense bookings. In addition to a number of smaller individual bookings, Pratt & Whitney booked $3.4 billion for F135 production. Raytheon Quarter Ended March 31, (dollars in millions) 2026 2025 Change Net sales $ 6,945 $ 6,340 10 % Operating profit 841 678 24 % Operating profit margins 12.1 % 10.7 % Defense Bookings $ 6,635 $ 4,396 51 % Quarter Ended March 31, 2026 Compared with Quarter Ended March 31, 2025 Factors Contributing to Total Change (dollars in millions) Organic (1) Acquisitions / Divestitures, net Restructuring Costs Other Total Change Net sales $ 588 $ — $ — $ 17 $ 605 Operating Profit 172 — (4) (5) 163 (1) See “Segment Review” above for definition of organic. A reconciliation of these measures to reported U.S. GAAP amounts is provided in the table above. The organic net sales increase of $0.6 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 was primarily due to higher net sales of $0.5 billion from land and air defense systems programs driven by higher net sales on Patriot programs. Also contributing to the increase was higher net sales of $0.3 billion from naval power programs primarily driven by higher volume on Standard Missile programs. The organic operating profit increase of $0.2 billion in the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 was primarily due to a favorable change in mix and other performance of approximately $0.1 billion, and higher volume of approximately $0.1 billion. The favorable change in mix and other performance was primarily driven by increased production on Patriot programs. The increase in volume was principally driven by higher net sales described above. Operating profit also benefited from a favorable change in net EAC adjustments spread across numerous programs. 37 Table of Content s Defense Backlog and Bookings – Backlog was $74 billion as of March 31, 2026 and $75 billion as of December 31, 2025. In the quarter ended March 31, 2026, Raytheon recorded $7 billion in defense bookings. In addition to a number of smaller individual bookings, Raytheon booked $628 million to provide Patriot systems for the Netherlands and $1.6 billion on a number of classified contracts. Corporate and Eliminations and other Eliminations and other reflects the elimination of sales, other income, and operating profit transacted between segments, as well as the operating results of certain smaller operations. Corporate expenses and other unallocated items consist of costs not considered part of management’s evaluation of reportable segment operating performance, including certain unallowable costs and reserves. Net Sales Operating Profit Quarter Ended March 31, Quarter Ended March 31, (dollars in millions) 2026 2025 2026 2025 Eliminations and other $ (644) $ (617) $ 38 $ 12 Corporate expenses and other unallocated items — — (42) (38) FAS/CAS operating adjustment We present a FAS/CAS operating adjustment outside of segment results, which represents the difference between the service cost component of our pension and PRB expense under the FAS requirements of U.S. GAAP and our pension and PRB expense under U.S. government CAS, primarily related to our Raytheon segment. While the ultimate liability for pension and PRB costs under FAS and CAS is similar, the pattern of cost recognition is different. Over time, we generally expect to recover the related Raytheon pension and PRB liabilities through the pricing of our products and services to the U.S. government. Collins and Pratt & Whitney generally record pension and PRB expense on a FAS basis . The components of the FAS/CAS operating adjustment were as follows: Quarter Ended March 31, (dollars in millions) 2026 2025 FAS service cost (expense) $ (28) $ (30) CAS expense 200 215 FAS/CAS operating adjustment $ 172 $ 185 Acquisition accounting adjustments Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant, and equipment fair value adjustment acquired through acquisitions, the amortization of customer contractual obligations related to loss making or below market contracts acquired, and goodwill impairment, if applicable. These adjustments are not considered part of management’s evaluation of segment results. The components of Acquisition accounting adjustments were as follows: Quarter Ended March 31, (dollars in millions) 2026 2025 Amortization of acquired intangibles $ (479) $ (480) Amortization of property, plant, and equipment fair value adjustment (8) (9) Amortization of customer contractual obligations related to acquired loss-making and below-market contracts 16 19 Acquisition accounting adjustments $ (471) $ (470) 38 Table of Content s Acquisition accounting adjustments related to acquisitions in each segment were as follows: Quarter Ended March 31, (dollars in millions) 2026 2025 Collins Aerospace $ (202) $ (200) Pratt & Whitney (83) (66) Raytheon (186) (204) Total segment (471) (470) Eliminations and other — — Acquisition accounting adjustments $ (471) $ (470) LIQUIDITY AND FINANCIAL CONDITION (dollars in millions) March 31, 2026 December 31, 2025 Cash and cash equivalents $ 6,818 $ 7,435 Total debt 37,413 37,904 Total equity 67,997 67,102 Total capitalization (total debt plus total equity) 105,410 105,006 Total debt to total capitalization 35 % 36 % We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities, and the timing of such activities. Our principal source of liquidity is cash flows from operating activities. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, customer financing requirements, investments in and divestitures of businesses, dividends, common stock repurchases, pension funding, access to the commercial paper markets, adequacy of available bank lines of credit, redemptions of debt, and the ability to attract long-term capital at satisfactory terms. At March 31, 2026, we had cash and cash equivalents of $6.8 billion, of which approximatel y 30% was held by RTX’s foreign subsidiaries. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The Company intends to repatriate certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. Taxes associated with the future remittance of these earnings have been recorded. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, RTX will continue to permanently reinvest these earnings. Our ability to access global debt markets and the related cost of these borrowings depends on the strength of our credit rating and market conditions. Our S&P Global rating remains at BBB+/stable. In February 2026, our Moody’s Investors Service outlook improved from Baa1/stable to Baa1/positive. Though the Company expects to continue having adequate access to funds, declines in our credit ratings or Company outlook could result in higher borrowing costs. As of March 31, 2026, we had a revolving credit agreement with various banks permitting aggregate borrowings of up to $5.0 billion, which expires in August 2028. As of March 31, 2026, there were no borrowings outstanding under this agreement. From time to time, we use commercial paper borrowings for general corporate purposes, including short-term funding related to potential acquisitions, pension contributions, debt refinancing, dividend payments, and repurchases of our common stock. The commercial paper notes have original maturities of not more than 364 days from the date of issuance. As of March 31, 2026, our maximum commercial paper borrowing limit was $5.0 billion as the commercial paper is backed by our $5.0 billion revolving credit agreement. At March 31, 2026, we had no commercial paper borrowings outstanding. We made the following repayment of long-term debt during the quarter ended March 31, 2026: Date Description of Notes Aggregate Principal Balance (in millions) February 27, 2026 5.000% notes due 2026 $ 500 We have an existing universal shelf registration statement, which we filed with the SEC on September 18, 2025, for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement. 39 Table of Content s We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required or appropriate. Cash Flow - Operating Activities Quarter Ended March 31, (dollars in millions) 2026 2025 Net cash flows provided by operating activities $ 1,855 $ 1,305 Cash flows provided by operating activities increased by $0.6 billion for the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025, primarily due to higher net income after adjustments to reconcile to net cash provided by operating activities, driven by our segment performance. The change in net working capital was relatively consistent year over year, as a decrease in accounts receivable was partially offset by a decrease in accounts payable and accrued liabilities and an increase in net contract asset and contract liabilities. The decrease in accounts receivable, including collaborator receivables, was primarily due to the timing of collections. The decrease in accounts payable and accrued liabilities was driven by the timing of payments, including collaborator payables, changes in accrued employee compensation driven by incentive compensation payments and tax payments, partially offset by higher material purchases. The change in net contract asset and contract liability activity resulted from lower billings relative to revenue recognition during the period, primarily at Pratt & Whitney. The Company enters into various factoring agreements with third-parties to sell certain of its receivables, primarily related to customer facilitated programs. The activity in these agreements is generally dependent on underlying delivery volumes within our commercial OEM programs. Factoring activity resulted in a $0.2 billion increase in cash provided by operating activities during the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025. We made tax payments, net of refunds of $0.3 billion and $0.1 billion in the quarters ended March 31, 2026 and 2025, respectively. While the timing of cash flows are subject to a number of variables, for the Powder Metal Matter we estimate the accrual for expected customer compensation to be utilized consistent with the timing of execution of the fleet management plan, the period of increased aircraft on ground levels, and contractual terms with customers. We currently estimate a full year 2026 cash impact related to the Powder Metal Matter of approximately $0.7 billion, which includes the impact of customer credits applied and the timing of partner recovery. Cash Flow - Investing Activities Quarter Ended March 31, (dollars in millions) 2026 2025 Net cash flows used in investing activities $ (608) $ (678) Our investing activities primarily include capital expenditures, cash investments in customer financing assets, investments in and dispositions of businesses, payments related to our collaboration intangible assets and contractual rights to provide product on new aircraft platforms, and settlements of derivative contracts not designated as hedging instruments. The change in cash flows used in investing activities in the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, was primarily related to higher receipts from settlements of derivative contracts of $0.1 billion. Cash Flow - Financing Activities Quarter Ended March 31, (dollars in millions) 2026 2025 Net cash flows used in financing activities $ (1,840) $ (1,056) Our financing activities primarily include the issuance and repayment of commercial paper and other short-term and long-term debt, payment of dividends, and stock repurchases. The $0.8 billion change in cash flows used in financing activities in the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, was primarily driven by higher long-term debt repayments of $0.5 billion. Refer to “Note 8: Borrowings and Lines of Credit” within Item 1 of this Form 10-Q for additional information on debt repayments. 40 Table of Content s At March 31, 2026, management had remaining authority to repurchase approximately $0.6 billion of our common stock under the October 21, 2023 share repurchase program. Under the 2023 program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase (ASR) programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program in connection with the surrender of shares to cover taxes on vesting of restricted stock. Our ability to repurchase shares is subject to applicable law. Item 3. Quantitative and Qualitative Disclosures About Market Risk There has been no significant change in our exposure to market risk during the quarter ended March 31, 2026. For discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our 2025 Form 10-K.