ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide information to the reader in understanding our consolidated financial statements and notes thereto included in Item 8. “Financial Statements and Supplementary Data” of this Form 10-K, the changes in certain key items in those financial statements between select periods, and the primary factors that accounted for those changes. In addition, we discuss certain accounting principles, policies, and critical estimates that affect our financial statements. Our discussion also contains some additional context regarding our business, including industry considerations and the business environment, as well as certain forward-looking statements related to future events and expectations. This MD&A should be read in conjunction with the other sections of this Form 10-K, including Item 1A. “Risk Factors.”
BUSINESS OVERVIEW
We are a global premier systems provider of high technology products and services to the aerospace and defense industries. We operate in three principal business segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. Unless the context otherwise requires, the terms “we,” “our,” “us,” “the Company,” and “RTX” mean RTX Corporation and its subsidiaries.
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) (formerly referred to as the U.S. Department of Defense) budget and spending levels, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the global and national security threat environment. In addition, our defense businesses engage in both direct commercial sales, which generally require U.S. government licenses and approvals, as well as foreign military sales, which are government-to-government transactions initiated by, and carried out at the direction of, the U.S. government. Changes in these budget and spending levels, policies, or priorities, which are subject to U.S. domestic and foreign geopolitical risks and threats, may impact our defense businesses, including the timing of and delays in U.S. government licenses and approvals for sales, the risk of sanctions, or other restrictions.
Other Matters
Global, economic, and political conditions, changes in raw material and commodity prices and supply, labor availability and costs, inflation, interest rates, potential changes in U.S. government policy positions, including changes in DoW policies or priorities, geopolitical conflicts and strained intercountry relations, U.S. and non-U.S. tax law changes, foreign currency exchange rates, sanctions, tariffs, energy costs and supply, levels of air travel, the financial condition of commercial airlines, and the impact from natural disasters and weather conditions create uncertainties that could impact our businesses.
Legal Matters. As previously 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,” within Item 8 of this Form 10-K, for additional information.
Table of Contents
Pratt & Whitney Powder Metal Matter. As described further in “Note 17: Commitments and Contingencies,” within Item 8 of this Form 10-K, 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. 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 2025 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 remain uncertain, we are continuing to evaluate the potential future impacts of the imposition of the announced 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 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 government through the end of the government’s fiscal year, with the exception of the Department of Homeland Security, which remains subject to a continuing resolution.
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
Table of Contents
development costs, restoring immediate deductibility of certain capital expenditures, and changes in the computations of U.S. taxation on international earnings. See “Note 12: Income Taxes,” within Item 8 of this Form 10-K, for additional information.
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 targeting specific industries, entities, and individuals in the U.S. and other jurisdictions in which we operate, including certain members of the Company’s management team and Board of Directors. These government measures, among other limitations, restrict transactions involving various Russian banks and financial institutions and impose enhanced export controls limiting transfers of various goods, software, and technologies to and from Russia, including broadened export controls specifically targeting the aerospace sector. These measures have adversely affected, and could continue to adversely affect, the Company and/or our supply chain, business partners, or customers; however, based on information available to date, we do not currently expect these issues will have a material adverse effect on our financial results. We will continue to monitor future developments, including additional sanctions and other measures, that could adversely affect the Company and/or our supply chain, business partners, or customers.
In February 2023, China announced sanctions against Raytheon Missiles & Defense (RMD) (a former RTX business segment which became part of the Raytheon business during the third quarter of 2023), and previously announced it may take measures against RTX, in connection with certain foreign military sales to Taiwan. The Chinese sanctions against RMD included a fine equal to twice the value of the arms that RMD sold to Taiwan since September 2020. Since that time, China has announced additional sanctions against the Raytheon business and a Collins joint venture. If China were to impose additional sanctions, enforce announced sanctions, or take other regulatory action against RTX, our suppliers, affiliates, or partners, it could potentially disrupt our business operations. Any impact of these or other potential sanctions or other actions by China, is uncertain.
We have direct commercial sales contracts for products and services to certain foreign customers, for which U.S. government review and approval have been pending. The U.S. government’s approval of these sales is subject to a range of factors, including its foreign policies related to these customers, which are subject to continuing review and potential changes. Likewise, regulatory approvals previously granted for prior sales can be paused or revoked if the products and services have not yet been delivered to the customer. In addition, certain programs require approvals by foreign governments, and those approvals may not be obtained on a timely basis or at all or may be revoked. If we ultimately do not receive all of the regulatory approvals, or those approvals are revoked, it could have a material effect on our financial results.
We continue to closely monitor potential impacts to RTX’s business, customers, suppliers, employees, and operations in Israel, the Middle East, and the region at large due to continued regional instability and tensions.
See Item 1A. “Risk Factors” within Part I of this Form 10-K for further discussion.
Table of Contents
FINANCIAL SUMMARY
We use the following key financial performance measures to manage our business on a consolidated basis and by business segment, and to monitor and assess our results of operations:
• Net sales: a metric that measures our revenue for the current year;
• Operating profit: a measure of our profit for the year, before non-operating expenses (income), net and income tax expense;
• Operating profit margin: a measure of our Operating profit as a percentage of Total net sales; and
• Operating cash flow: a measure of the amount of cash generated by our business operations.
(dollars in millions)
Total net sales
Operating profit
Operating profit margin
Operating cash flow
In order to better assess the underlying performance of our business, we also focus on the change in organic net sales on both a consolidated basis and business segment basis, and the change in organic operating profit on a business segment basis, which allows for better year-over-year comparability. See “Results of Operations” below for our definition of the organic change in Net sales and Operating profit, which are non-Generally Accepted Accounting Principles (non-GAAP) measures that are not defined measures under U.S. Generally Accepted Accounting Principles (GAAP) and may be calculated differently by other companies.
We also focus on backlog as a key financial performance measure of our forward-looking sales growth. Total backlog was $268 billion and $218 billion as of December 31, 2025 and 2024, respectively. Backlog, which is equivalent to our remaining performance obligations (RPO) for our sales contracts, represents the aggregate dollar value of firm orders for which products have not been provided or service has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity (IDIQ) type contracts). Backlog generally increases with bookings and/or orders and generally decreases as sales are recognized on these bookings and is affected by changes in foreign exchange rates, as well as contract cancellations and terminations, and cost underruns on cost-type contracts.
In addition, we maintain a strong focus on program execution and the prudent management of capital and investments in order to maximize operating income and cash. We focus on adjusted earnings per share (EPS) and measures to assess our cash generation and the efficiency and effectiveness of our use of capital, such as free cash flow, both of which are non-GAAP measures that are not defined measures under U.S. GAAP and may be calculated differently by other companies.
Considered together, we believe these metrics are strong indicators of our overall performance and our ability to create shareowner value. We also use these and other performance metrics for executive compensation purposes.
A discussion of our results of operations and financial condition follows below in “Results of Operations”, “Segment Review”, and “Liquidity and Financial Condition”.
RESULTS OF OPERATIONS
As described in our “Cautionary Note Concerning Factors That May Affect Future Results” of this Form 10-K, our 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-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
Table of Contents
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
(dollars in millions)
Total net sales
The factors contributing to the total change year-over-year in Total net sales are as follows:
(dollars in millions)
Organic (1)
Acquisitions and divestitures, net
Other
Total change
(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 $8.9 billion organically in 2025, primarily due to higher organic sales of $4.8 billion at Pratt & Whitney, $2.6 billion at Collins, and $1.7 billion at Raytheon.
The $1.2 billion decrease in net sales related to Acquisitions and divestitures, net in 2025 was primarily driven by the sale of the actuation and flight control business within our Collins segment completed in the third quarter of 2025, the sale of the Simmonds Precision Products business within our Collins segment completed in the fourth quarter of 2025, the sale of the Cybersecurity, Intelligence and Services (CIS) business within our Raytheon segment completed in the first quarter of 2024, and the sale of the Goodrich Hoist & Winch business within our Collins segment completed in the fourth quarter of 2024.
Net sales increased $7.8 billion organically in 2024, primarily due to higher organic sales of $4.4 billion at Pratt & Whitney, $2.1 billion at Collins, and $1.7 billion at Raytheon.
The $1.3 billion decrease in net sales related to Acquisitions and divestitures, net in 2024 was primarily driven by the sale of our CIS business within our Raytheon segment completed in the first quarter of 2024.
The increase in Other net sales of $5.3 billion in 2024 was primarily driven by the absence of the net sales charge of $5.4 billion associated with the Powder Metal Matter recognized in the third quarter of 2023.
See “Segment Review” below for further information by segment.
% of Total Net Sales
(dollars in millions)
Net sales
Products
Services
Total net sales
Refer to “Note 20: Segment Financial Data” within Item 8 of this Form 10-K for the composition of external net sales by products and services by segment.
Net products sales increased $4.6 billion in 2025 compared to 2024, primarily due to increases in external products sales of $2.2 billion at Pratt & Whitney, $1.2 billion at Collins, and $1.2 billion at Raytheon.
Net services sales increased $3.3 billion in 2025 compared to 2024, primarily due to increases in external services sales of $2.7 billion at Pratt & Whitney, $0.5 billion at Collins, and $0.1 billion at Raytheon.
Net products sales increased $10.0 billion in 2024 compared to 2023, primarily driven by the absence of the net sales charge of $5.3 billion associated with the Powder Metal Matter, and increases in external product sales of $2.4 billion at Pratt & Whitney, $1.2 billion at Collins, and $1.0 billion at Raytheon.
Net services sales increased $1.8 billion in 2024 compared to 2023, primarily due to increases in external services sales of $2.0 billion at Pratt & Whitney, including the absence of a services sales charge of $0.1 billion associated with the Powder Metal Matter, and a $0.4 billion increase at Collins, partially offset by a decrease in external services of $0.7 billion at Raytheon, primarily driven by the sale of our CIS business completed in the first quarter of 2024.
Table of Contents
Our sales to major customers were as follows:
% of Total Net Sales
(dollars in millions)
Sales to the U.S. government (1)
Foreign military sales through the U.S. government
Foreign government direct commercial sales
Commercial aerospace and other commercial sales (2)
Total net sales
(1) Excludes foreign military sales through the U.S. government.
(2) 2023 includes the reduction in sales from the Powder Metal Matter.
Cost of Sales
(dollars in millions)
Total cost of sales
Percentage of net sales
The factors contributing to the change year-over-year in Total cost of sales are as follows:
(dollars in millions)
Organic (1)
Acquisitions and divestitures, net
Restructuring
FAS/CAS operating adjustment
Acquisition accounting adjustments
Other
Total change
(1) See “Results of Operations” for definition of organic. A reconciliation of this measure to reported U.S. GAAP amounts is provided in the table above.
The organic increase in total cost of sales in 2025 of $7.1 billion was primarily due to the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above. The $1.1 billion decrease in cost of sales related to Acquisitions and divestitures, net in 2025 was primarily due to the net sales decreases related to Acquisitions and divestitures, net noted above.
The decrease in Other cost of sales of $0.6 billion in 2025 was primarily driven by the absence of charges recorded in 2024, including a $0.5 billion charge recorded in the second quarter of 2024 at Raytheon related to the termination of a fixed price development contract with a foreign customer (herein referred to as “Raytheon Contract Termination”) and $0.2 billion of charges recorded in the first quarter of 2024 at Collins related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that were no longer recoverable as a result of initiating alternative titanium sources.
The organic increase in total cost of sales in 2024 of $6.2 billion was primarily due to the organic net sales increases at Pratt & Whitney, Collins, and Raytheon noted above.
The $1.2 billion decrease in cost of sales related to Acquisitions and divestitures, net in 2024 was primarily driven by the sale of our CIS business within our Raytheon segment completed in the first quarter 2024 .
The increase in Other cost of sales of $3.2 billion in 2024 was primarily driven by the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact. In addition, the increase in Other cost of sales includes a $0.5 billion charge related to the Raytheon Contract Termination recorded in the second quarter of 2024, and $0.2 billion of charges recorded in the first quarter of 2024 at Collins related to the recognition of unfavorable purchase commitments and an impairment of contract fulfillment costs that are no longer recoverable as a result of initiating alternative titanium sources.
Restructuring actions relate to ongoing cost reduction efforts including workforce reductions and the consolidation of facilities.
For discussion on FAS/CAS operating adjustment, see the “FAS/CAS operating adjustment” subsection under the “Segment Review” section below. For discussion on Acquisition accounting adjustments, see the “Acquisition accounting adjustments” subsection under the “Segment Review” section below.
Table of Contents
% of Total Net Sales
(dollars in millions)
Cost of sales
Products
Services
Total cost of sales
Net products cost of sales increased $3.0 billion in 2025 compared to 2024, primarily driven by increases in external products cost of sales at Pratt & Whitney and Collins, each driven by the products sales changes noted above. The increase was partially offset by the absence of a $0.5 billion charge recorded in the second quarter of 2024 at Raytheon related to the Raytheon Contract Termination and charges of $0.2 billion recorded in the first quarter of 2024 at Collins as a result of initiating alternative titanium sources.
Net services cost of sales increased $2.5 billion in 2025 compared to 2024, primarily due to an increase in external services cost of sales at Pratt & Whitney, driven by the services sales change noted above.
Net products cost of sales increased $7.3 billion in 2024 compared to 2023, primarily due to the absence of the Powder Metal Matter charge recorded in the third quarter of 2023, which resulted in a $2.5 billion net reduction in cost of sales primarily reflecting our partners’ 49% share of the impact. In addition, net product cost of sales includes increases in external products cost of sales at Pratt & Whitney, Collins, and Raytheon all driven by the products sales changes noted above, a $0.5 billion charge related to the Raytheon Contract Termination in the second quarter of 2024, and $0.2 billion of charges at Collins as a result of initiating alternative titanium sources recorded in the first quarter of 2024.
Net services cost of sales increased $1.2 billion in 2024 compared to 2023, primarily due to increases in external services cost of sales at Pratt & Whitney and Collins, partially offset by a decrease in external services cost of sales at Raytheon, all driven by the services sales changes noted above.
Research and Development
(dollars in millions)
Company-funded
Percentage of net sales
Customer-funded (1)
Percentage of net sales
(1) Included in Cost of sales in our 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.
The decrease in company-funded research and development of $0.1 billion in 2025 compared to 2024, was primarily driven by lower spending on military and commercial programs at Collins and Pratt & Whitney, partially offset by higher expenses on development programs at Raytheon.
The increase in company-funded research and development of $0.1 billion in 2024 compared to 2023, was primarily driven by increased spending on commercial program development at Collins and Pratt & Whitney, partially offset by lower expenses on development programs at Raytheon.
The increase in customer-funded research and development of $0.2 billion in 2025 compared to 2024, was primarily driven by higher development spend on various military and commercial programs at Collins and increased spending at Pratt & Whitney on military development programs, partially offset by lower spending on customer-funded expenses at Raytheon on military development programs, specifically related to the Next Generation Interceptor (NGI) program.
The increase in customer-funded research and development of $0.3 billion in 2024 compared to 2023, was primarily driven by higher development spend on various military and commercial programs at Collins and increased spending at Pratt & Whitney on military programs primarily driven by the F135 Engine Core Upgrade (ECU), partially offset by lower expenses at Raytheon primarily related to the NGI program.
Table of Contents
Selling, General, and Administrative
(dollars in millions)
Selling, general, and administrative
Percentage of net sales
Selling, general, and administrative expenses increased $0.3 billion in 2025 compared to 2024, primarily driven by higher employee-related costs and higher restructuring costs related to ongoing cost reduction efforts driven by various workforce reductions initiated in 2025 at Collins.
Selling, general, and administrative expenses in 2024 were relatively consistent compared to 2023.
We are continuously evaluating our cost structure and have implemented restructuring actions in an effort to keep our cost structure competitive. Therefore, the amounts reflected above include the beneficial impact of previous restructuring actions on Selling, general, and administrative expenses.
Other Income (Expense), Net
(dollars in millions)
Other income (expense), net
Other income (expense), net includes equity earnings in unconsolidated entities, royalty income, foreign exchange gains and losses, and other ongoing and non-recurring items.
The increase in Other income (expense), net of $0.5 billion in 2025 compared to 2024 was primarily due to a $0.2 billion gain on sale of the actuation and flight control business in the third quarter of 2025, a $0.1 billion gain on sale of the Simmonds Precision Products business in the fourth quarter of 2025, and $0.1 billion of gains related to the increase in fair value on investments in 2025. The increase in Other income (expense), net in 2025 compared to 2024 also benefited from the absence of a $0.9 billion charge related to the Resolution of Certain Legal Matters in 2024, partially offset by the absence of a prior year benefit of $0.4 billion gain on sale of the CIS business net of transaction and other related costs, a $0.2 billion benefit from a tax related indemnity receivable, a $0.1 billion gain on sale of Collin’s Goodrich Hoist & Winch business, and an insurance recovery at Pratt & Whitney of approximately $0.1 billion.
The decrease in Other income (expense), net of $0.2 billion in 2024 compared to 2023, was primarily due to a $0.9 billion charge during the second quarter of 2024 related to the Resolution of Certain Legal Matters. This was partially offset by a $0.4 billion gain on sale of Raytheon’s CIS business in the first quarter of 2024, a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024, a $0.1 billion gain on sale of Collins’ Goodrich Hoist & Winch business in the fourth quarter of 2024, and an insurance recovery at Pratt & Whitney of approximately $0.1 billion in the fourth quarter of 2024.
Operating Profit
(dollars in millions)
Operating profit
Operating profit margin
The increase in Operating profit of $2.8 billion in 2025 compared to 2024 was primarily driven by an increase in the organic operating performance of our segments of $1.5 billion, a $0.2 billion gain on sale of the actuation and flight control business in 2025, and a $0.1 billion gain on sale of the Simmonds Precision Products business in the fourth quarter of 2025. The increase in Operating profit in 2025 compared to 2024 also benefited from the absence of 2024 charges, including a $0.9 billion charge related to the Resolution of Certain Legal Matters, a $0.6 billion charge related to the Raytheon Contract Termination, and charges of $0.2 billion at Collins as a result of initiating alternative titanium sources. These increases were partially offset by the absence of prior year benefits including a $0.4 billion gain on sale of the CIS business, net of transaction and other related costs and a $0.2 billion benefit from a tax related indemnity receivable.
The increase in Operating profit of $3.0 billion in 2024 compared to 2023 was primarily driven by the absence of the $2.9 billion of charges associated with the Powder Metal Matter recorded in the third quarter of 2023. In addition, the increase in Operating profit was driven by the increased operating performance of our segments of approximately $1.5 billion, a $0.4 billion gain on sale of the CIS business recorded in the first quarter of 2024, and a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024. The above items were partially offset by a $0.9 billion charge in the second quarter of 2024 related to the Resolution of Certain Legal Matters, a $0.6 billion charge in the second quarter of 2024
Table of Contents
related to the Raytheon Contract Termination, and the $0.3 billion change in our FAS/CAS operating adjustment which is described below in “Segment Review.”
Non-service Pension Income
(dollars in millions)
Non-service pension income
The change in Non-service pension income of $0.3 billion in 2025 compared to 2024 was primarily driven by a $0.3 billion settlement charge recorded in fourth quarter of 2025 associated with the annuity buy-out conversion. See “Note 10: Employee Benefit Plans” within Item 8 of this Form 10-K for further discussion.
The change in Non-service pension income of $0.3 billion in 2024 compared to 2023 was primarily driven by the decrease in the recognized actuarial net (gain) loss as a result of the merger of the remaining Raytheon Company qualified pension plans into the RTX Consolidated Pension Plan at December 31, 2023.
Interest Expense, Net
(dollars in millions)
Interest expense
Interest income
Other non-operating expense (income) (1)
Interest expense, net
Total average interest expense rate - average outstanding borrowings during the year:
Total average interest expense rate - outstanding borrowings as of December 31:
(1) Primarily consists of the gains or losses on assets associated with certain of our nonqualified deferred compensation and employee benefit plans, the gains or losses on liabilities associated with certain of our nonqualified deferred compensation plans, and non-operating dividend income.
Interest expense, net decreased $0.1 billion in 2025 compared to 2024, primarily driven by debt repayments in 2025.
Interest expense, net increased $0.4 billion in 2024 compared to 2023. The increase in Interest expense of $0.3 billion was primarily due to long-term debt issuances and term loan borrowings in 2023, partially offset by the reversal of interest accruals as a result of the conclusion of the examination phases of certain RTX and Rockwell Collins tax audits in the first quarter of 2024.
Income Taxes
Effective income tax rate
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.
For additional discussion of income taxes and the effective income tax rate, see “Income Taxes” within Critical Accounting Estimates below, and “Note 12: Income Taxes” within Item 8 of this Form 10-K.
Table of Contents
Net Income Attributable to Common Shareowners
(dollars in millions, except per share amounts)
Net income attributable to common shareowners
Diluted earnings per share
Net income attributable to common shareowners for 2025 includes the following:
• acquisition accounting adjustments of $1.6 billion, net of tax, which had an unfavorable impact on diluted earnings per share (EPS) of $1.15;
• a pension settlement charge of $0.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.15; and
• restructuring charges of $0.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.14.
Net income attributable to common shareowners for 2024 includes the following:
• acquisition accounting adjustments of $1.6 billion, net of tax, which had an unfavorable impact on diluted EPS of $1.20;
• a charge related to the Resolution of Certain Legal Matters of $0.9 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.65;
• a charge of $0.4 billion, net of tax, related to the Raytheon Contract Termination, which had an unfavorable impact on diluted EPS of $0.33;
• benefit recognized as a result of the conclusion of the examination phases of the RTX and Rockwell Collins tax audits of $0.3 billion, net of tax, which had a favorable impact on diluted EPS of $0.21;
• a gain on sale of the CIS business, net of transaction and other related costs, of $0.2 billion, net of tax, which had a favorable impact on diluted EPS of $0.18;
• charges related to initiating alternative titanium sources at our Collins segment of $0.2 billion, which had an unfavorable impact on diluted EPS of $0.13;
• restructuring charges of $0.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.12;
• a charge of $0.1 billion, net of tax, related to a customer bankruptcy, which had an unfavorable impact on diluted EPS of $0.09; and
• a charge of $0.1 billion, net of tax, related to impairment of contract fulfillment costs in the fourth quarter of 2024, due to a contract cancellation at our Collins segment, which had an unfavorable impact on diluted EPS of $0.09.
Net income attributable to common shareowners for 2023 includes the following:
• charge associated with the Powder Metal Matter of $2.2 billion, net of tax and partner share, which had an unfavorable impact on diluted EPS of $1.55;
• acquisition accounting adjustments of $1.6 billion, net of tax, which had an unfavorable impact on diluted EPS of $1.09;
• restructuring charges of $0.2 billion, net of tax, which had an unfavorable impact on diluted EPS of $0.13; and
• charges related to a customer insolvency of $0.1 billion, net of tax and noncontrolling interest, which had an unfavorable impact on diluted EPS of $0.08.
SEGMENT REVIEW
For a detailed description of our businesses, see “Business Segments” within Item 1. “Business” of this Form 10-K.
Segments are generally based on the management structure of the businesses and the grouping of similar operations, based on capabilities and technologies, where each management organization has general operating autonomy over diversified products and services. Segment Total net sales and Operating profit (loss) include intercompany sales and profit, which are ultimately eliminated within Eliminations and other, which also includes certain smaller non-reportable segments. Segment results exclude certain acquisition accounting adjustments, the FAS/CAS operating adjustment, and certain corporate expenses, as further discussed below.
We present a FAS/CAS operating adjustment outside of segment results, which 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. 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.
Table of Contents
Given the nature of our business, we believe that Total net sales and Operating profit (loss) (and the related operating profit (loss) margin percentage), which we disclose and discuss at the segment level, are most relevant to an understanding of management’s view of our segment performance, as described below.
We provide the organic change in Net sales and Operating profit (loss) for our segments as discussed above in “Results of Operations.” We believe that these non-GAAP measures are useful to investors because they provide transparency to the underlying performance of our business, which allows for better year-over-year comparability. For Pratt & Whitney only, Other also includes the transactional impact of foreign exchange hedging at Pratt & Whitney Canada due to its significance to Pratt & Whitney’s overall operating results.
Total Net Sales. Total net sales by segment were as follows:
(dollars in millions)
Collins Aerospace
Pratt & Whitney (1)
Raytheon
Total segment
Eliminations and other
Consolidated
(1) 2023 includes the reduction in sales from the Powder Metal Matter.
Operating Profit (Loss). Operating profit (loss) by segment was as follows:
(dollars in millions)
Collins Aerospace
Pratt & Whitney (1)
Raytheon
Total segment
Eliminations and other
Corporate expenses and other unallocated items (2)
FAS/CAS operating adjustment
Acquisition accounting adjustments
Consolidated
(1) 2023 includes the impacts from the Powder Metal Matter.
(2) 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” within Item 8 of this Form 10-K for additional information.
Included in segment Operating profit (loss) are Estimate at Completion (EAC) adjustments, which relate to changes in Operating profit and margin due to revisions to total estimated revenues and costs at completion. These changes may reflect improved or deteriorated operating performance, as well as changes in facts and assumptions related to contract options, contract modifications, incentive and award fees associated with program performance, customer activity levels, and other customer-directed changes. For a full description of our EAC process, refer to “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of this Form 10-K. Given that we have thousands of individual contracts, and given the types and complexity of the assumptions and estimates we must make on an on-going basis and the nature of the work required to be performed under our contracts, we have both favorable and unfavorable EAC adjustments in the ordinary course.
We had the following net EAC adjustments for the periods presented:
(dollars in millions)
Net EAC adjustments
The change in net EAC adjustments of $0.1 billion in 2025 compared to 2024 was primarily due to favorable changes in net EAC adjustments at Raytheon, partially offset by unfavorable changes in net EAC adjustments at Pratt & Whitney. The change at Raytheon benefited from the absence of a $53 million unfavorable adjustment in the third quarter of 2024, with the remaining change spread across numerous individual programs. The unfavorable changes at Pratt & Whitney were spread across numerous programs, with no individual or common significant driver.
The change in net EAC adjustments of $0.2 billion in 2024 compared to 2023 was primarily due to favorable changes in net EAC adjustments at Pratt & Whitney and Raytheon, partially offset by unfavorable changes in net EAC adjustments at Collins.
Table of Contents
The change at Pratt was primarily driven by the absence of a $0.1 billion unfavorable impact recorded in the third quarter of 2023 as a result of increased cost to our aftermarket contracts resulting from the Powder Metal Matter. The change at Collins was spread across numerous individual programs, with no individual or common significant driver. The change at Raytheon was primarily due to improvement in net EAC adjustments related to certain fixed price development contracts.
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. Additionally, during the second quarter of 2024, Raytheon recognized a $0.6 billion charge related to the impact of the Raytheon Contract 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.
Significant EAC adjustments, when they occur, are discussed in each business segment’s discussion below.
Backlog and Bookings. Total backlog was approximately $268 billion and $218 billion as of December 31, 2025 and 2024, respectively. Our backlog by segment, which excludes intercompany backlog, was as follows at December 31:
(dollars in billions)
Collins Aerospace
Pratt & Whitney
Raytheon
Total backlog
Total backlog includes commercial backlog of $161 billion and $125 billion as of December 31, 2025 and 2024, respectively, and defense backlog of $107 billion and $93 billion as of December 31, 2025 and 2024, respectively.
Backlog, which is equivalent to our RPO for our sales contracts, represents the aggregate dollar value of firm orders for which products have not been provided or service has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., IDIQ type contracts). Backlog generally increases with bookings and/or orders and generally decreases as sales are recognized on these bookings and is affected by changes in foreign exchange rates, as well as contract cancellations and terminations, and cost underruns on cost-type contracts as discussed further below.
We believe bookings are an important measure of future performance for our defense businesses. Our defense operations consist primarily of our Raytheon business and operations in the defense businesses within our Collins and Pratt & Whitney segments. Defense bookings were approximately $61 billion in both 2025 and 2024 and $51 billion in 2023.
Defense bookings generally represent the dollar value of new external defense contracts awarded to us during the reporting period and include firm orders for which funding has not been appropriated. Defense bookings exclude unexercised contract options and potential orders under ordering-type contracts (e.g., IDIQ type contracts). We reflect contract cancellations and terminations, as well as the impact of changes in foreign exchange rates, directly as an adjustment to backlog in the period in which the cancellation or termination occurs and the impact is determinable. Contract cancellations and terminations also include contract underruns on cost-type programs.
Collins Aerospace
% Change
(dollars in millions)
2025 compared with 2024
2024 compared with 2023
Net sales
Operating profit
Operating profit margins
2025 Compared with 2024
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating profit
(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.
Table of Contents
2024 Compared with 2023
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating profit
(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.
2025 Compared with 2024
The organic net sales increase of $2.6 billion in 2025 compared to 2024 primarily relates to higher commercial aerospace aftermarket sales of $1.4 billion, higher defense sales of $0.7 billion and higher commercial OEM sales of $0.5 billion. The increase in commercial aftermarket sales was driven by higher volume across all aftermarket sales channels. The increase in defense sales was due to higher volume across multiple programs and platforms. The increase in commercial OEM sales was primarily driven by higher volume on widebody and narrowbody.
The organic operating profit increase of $0.5 billion in 2025 compared to 2024 was primarily due to higher commercial aerospace operating profit of $0.3 billion, principally driven by the higher sales volume discussed above, partially offset by the impact of tariffs and unfavorable commercial OEM mix. Defense operating profit increased $0.1 billion in 2025 compared to 2024 due to higher sales volume. Lower research and development expenses were partially offset by higher selling, general and administrative expenses.
The decrease in net sales due to Acquisitions/Divestitures, net from 2025 compared to 2024 primarily relates to the sale of the actuation and flight control business completed in 2025, the sale of Simmonds Precision Products completed in 2025, and the sale of the Goodrich Hoist & Winch business completed in 2024.
The increase in Other operating profit of $0.5 billion in 2025 compared to 2024 primarily relates to higher net gains on the sale of businesses, as referenced above, of $0.3 billion in 2025 as compared to $0.1 billion in 2024. The increase is also driven by the absence of $0.2 billion of charges recorded in 2024 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, and the absence of a $0.2 billion charge related to the impairment of contract fulfillment costs due to a contract cancellation recognized in 2024.
The increase in restructuring costs from 2025 compared to 2024 relates to ongoing cost reduction efforts driven by various workforce reductions initiated in 2025.
2024 Compared with 2023
The organic net sales increase of $2.1 billion in 2024 compared to 2023 primarily relates to higher commercial aerospace aftermarket sales of $1.2 billion, higher defense sales of $0.8 billion, and higher commercial aerospace OEM sales of $0.1 billion. The increase in commercial aerospace sales was principally driven by continued growth in commercial air traffic, which has resulted in an increase in flight hours and increased OEM volume primarily within widebody and regional aircraft, partially offset by decreased OEM volume in narrowbody aircraft. The defense sales increase was primarily due to higher volume across multiple programs and platforms.
The organic operating profit increase of $0.6 billion in 2024 compared to 2023 was primarily due to higher commercial aerospace operating profit of $0.4 billion, principally driven by the higher aftermarket sales volume discussed above, partially offset by unfavorable OEM mix. Defense operating profit increased $0.3 billion 2024 compared to 2023 due to the higher volume discussed above, partially offset by higher space program costs. The above increases were partially offset by $0.1 billion of higher research and development costs.
The decrease in Other operating profit of $0.3 billion in 2024 compared to 2023 was primarily driven by $0.2 billion of charges in the first quarter of 2024, 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, $0.2 billion impairment of contract fulfillment costs in the fourth quarter of 2024 due to a contract cancellation, and the absence of net favorable customer settlements recorded in 2023. These decreases in Other operating profit were partially offset by a $0.1 billion net gain on the sale of the Goodrich Hoist & Winch business in the fourth quarter of 2024.
Restructuring actions relate to ongoing cost reduction efforts driven by various workforce reductions.
Defense Bookings – In 2025, Collins recorded $12 billion in defense bookings, comprised of a number of smaller individual bookings under $0.5 billion.
Table of Contents
Pratt & Whitney
% Change
(dollars in millions)
2025 compared with 2024
2024 compared with 2023
Net sales
Operating profit (loss)
Operating profit (loss) margins
NM = Not meaningful
2025 Compared with 2024
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating profit
(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.
2024 Compared with 2023
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating profit (loss)
(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.
2025 Compared with 2024
The organic net sales increase of $4.8 billion in 2025 compared to 2024 was primarily driven by higher commercial aftermarket sales of $2.9 billion primarily driven by higher volume. Also contributing to the organic net sales increase was higher commercial OEM sales of $0.9 billion driven by favorable mix and higher volume. Military sales increased $1.0 billion, primarily due to higher production volume on the F135 program.
The organic operating profit increase of $0.4 billion in 2025 compared to 2024 reflects higher commercial aerospace operating profit of $0.5 billion and higher military operating profit of $0.2 billion. Higher commercial aftermarket volume and favorable commercial OEM mix more than offset the impacts of unfavorable aftermarket mix and higher tariffs and production costs. The increase in military operating profit was driven by the higher sales volume discussed above, as well as favorable mix and the absence of an unfavorable EAC adjustment of approximately $50 million in the fourth quarter of 2024, partially offset by higher production costs. These increases were partially offset by higher selling and general administrative expenses of $0.2 billion and the absence of a fourth quarter 2024 insurance recovery of approximately $0.1 billion.
The increase in Other operating profit in 2025 compared to 2024 primarily relates to a customer bankruptcy charge of $0.1 billion in 2025 compared to a $0.2 billion charge in 2024.
2024 Compared with 2023
The organic net sales increase of $4.4 billion in 2024 compared to 2023 primarily reflects higher commercial OEM sales of $1.7 billion primarily driven by favorable mix on higher volume and higher commercial aftermarket sales of $1.6 billion primarily driven by higher volume. Military sales increased $1.1 billion, primarily due to higher sustainment and production volume across multiple platforms.
The Other net sales decrease of $5.4 billion in 2024 compared to 2023 was primarily relates to the absence of a charge recognized in the third quarter of 2023 related to the Powder Metal Matter.
The organic operating profit (loss) increase of $0.6 billion in 2024 compared to 2023 reflects higher commercial aerospace operating profit of $0.4 billion driven by favorable mix on higher large commercial OEM volume which was partially offset by higher OEM production costs. Commercial aerospace operating profit also benefited from higher commercial aftermarket volume, which was partially offset by the impact of a shift in aftermarket mix towards higher GTF volume as well as two favorable contract matters in 2023 totaling $0.1 billion that did not repeat in 2024. The increase in military operating profit of $0.2 billion was driven by the increases from the sales volume discussed above, as well as favorable sustainment mix, partially offset by higher production costs. Military operating profit also benefited from the absence of an unfavorable EAC adjustment
Table of Contents
of approximately $60 million in the fourth quarter of 2023, which was partially offset by an unfavorable EAC adjustment of approximately $50 million in the fourth quarter of 2024. Higher research and development expenses and selling, general, and administrative expenses were partially offset by an insurance recovery of approximately $0.1 billion in the fourth quarter of 2024.
The change in Other operating profit (loss) of $2.9 billion in 2024 compared to 2023 reflects the absence of a charge recognized in the third quarter of 2023 related to the Powder Metal Matter of $2.9 billion and a $0.2 billion charge related to a customer insolvency in the second quarter of 2023, partially offset by a $0.2 billion charge related to a customer bankruptcy in the fourth quarter of 2024.
Restructuring actions relate to ongoing cost reduction efforts including workforce reductions and the consolidation of facilities.
Defense Bookings – In 2025, Pratt & Whitney recorded $9 billion in defense bookings. In addition to a number of smaller individual bookings, Pratt & Whitney booked $2.9 billion for F135 production and $2.4 billion for F135 sustainment.
Raytheon
% Change
(dollars in millions)
2025 compared with 2024
2024 compared with 2023
Net sales
Operating profit
Operating profit margins
Defense Bookings
2025 Compared with 2024
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating Profit
(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.
2024 Compared with 2023
Factors Contributing to Total Change
(dollars in millions)
Organic (1)
Acquisitions /
Divestitures, net
Restructuring
Costs
Other
Total Change
Net sales
Operating Profit
(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.
2025 Compared with 2024
The organic net sales increase of $1.7 billion in 2025 compared to 2024 was primarily due to higher net sales of $1.6 billion from land and air defense systems programs driven by higher net sales on Patriot programs, international National Advanced Surface-to-Air Missile System (NASAMS) programs, and Lower Tier Air and Missile Defense Sensor (LTAMDS) programs. Also contributing to the increase was higher net sales of $0.7 billion from naval power programs primarily due to higher net sales on Evolved SeaSparrow Missile (ESSM) programs, SPY-6 radar programs, and certain classified programs. These increases were partially offset by lower net sales of $0.3 billion within air and space defense systems, primarily driven by lower development program volume partially offset by higher net sales on advanced medium-range air-to-air missile (AMRAAM) programs. Additionally, the organic net sales increase was partially offset by the absence of $0.3 billion of sales recognized in the fourth quarter of 2024 associated with the restart of certain contracts with a Middle East customer.
The increase in Other net sales of $0.1 billion in 2025 compared to 2024 was primarily driven by the absence of $0.1 billion charge related to Raytheon Contract Termination initiated in the second quarter of 2024.
The organic operating profit increase of $0.6 billion in 2025 compared to 2024 was primarily due to a favorable change in mix and other performance of $0.3 billion, a favorable change in net EAC adjustments of $0.2 billion and higher volume of approximately $0.1 billion. The favorable change in mix and other performance was primarily driven by increased production
Table of Contents
on Patriot programs. The favorable change in net EAC adjustments was spread across numerous programs and benefited from the absence of a $53 million unfavorable adjustment in the third quarter of 2024 related to cost increases on a classified program. The increase in volume was principally driven by the higher net sales discussed above.
The decrease in net sales and operating profit due to Acquisitions / Divestitures, net in 2025 compared to 2024 primarily relates to the sale of the CIS business completed in the first quarter of 2024.
The increase in Other operating profit of $0.1 billion in 2025 compared to 2024 was primarily due to the absence of a $0.6 billion charge related to the Raytheon Contract Termination initiated in the second quarter of 2024, partially offset by the absence of a $0.4 billion gain on sale of the CIS business in the first quarter of 2024, and a $0.1 billion net benefit primarily related to reserve and contract loss provision adjustments recognized in the fourth quarter of 2024 as a result of restarting work under certain contracts with a Middle East customer.
2024 Compared with 2023
The organic net sales increase of $1.7 billion in 2024 compared to 2023 was primarily due to higher net sales of $1.4 billion from land and air defense systems programs driven by higher net sales on certain international Patriot programs, certain international NASAMS programs, and Counter-Unmanned Aircraft Systems (C-UAS) programs. Also contributing to the increase was higher net sales of $0.4 billion from advanced technology programs primarily driven by higher volume on classified programs and on a development program. Additionally, the organic net sales increase includes $0.3 billion of sales associated with the restart of certain contracts with a Middle East customer. These increases were partially offset by lower net sales of $0.5 billion from air and space defense systems programs primarily due to the completion of certain programs, and the timing of a prior year program award.
The decrease in Other net sales in 2025 compared to 2024 was primarily driven by $0.1 billion related to the Raytheon Contract Termination initiated in the second quarter of 2024.
The organic operating profit increase of $0.4 billion in 2024 compared to 2023 was primarily due to higher volume of $0.2 billion primarily driven by the net sales increases noted above and an improvement in net EAC adjustments of $0.2 billion. The change in net EAC adjustments was primarily due to improvement in net EAC adjustments related to certain fixed price development contracts. Included in the change in net EAC adjustments was a benefit from the absence of a $51 million unfavorable adjustment in 2023 related to significant contract options exercised, which was offset by a $53 million unfavorable EAC adjustment in the third quarter of 2024 related to cost increases on a classified program.
The decrease in net sales and operating profit due to Acquisitions / Divestitures, net in 2024 compared to 2023 primarily relates to the sale of the CIS business completed in the first quarter of 2024.
The decrease in Other operating profit in 2024 compared to 2023 was primarily driven by $0.6 billion related to the Raytheon Contract Termination initiated in the second quarter of 2024, partially offset by a $0.4 billion gain on the sale of the CIS business in the first quarter of 2024, and a $0.1 billion net benefit primarily related to reserve and contract loss provision adjustments recognized in the fourth quarter of 2024 as a result of restarting work under certain contracts with a Middle East customer.
Defense Backlog and Bookings – Backlog was $75 billion at December 31, 2025 compared to $63 billion at December 31, 2024. In 2025, Raytheon recorded $40 billion in defense bookings. In addition to a number of smaller individual bookings, Raytheon booked $2.5 billion on several contracts to provide Guidance Enhanced Missiles (GEM-T) and Patriot launchers for international customers and the U.S. Army, $2.1 billion to provide AMRAAM to the U.S. Air Force, U.S. Navy, and international customers, $1.5 billion for low-rate initial production (LRIP) of LTAMDS for the U.S. Army and Poland, $1.2 billion for Iron Dome Tamir production for an international customer, $1.2 billion to provide Patriot systems for Spain, $1.1 billion for AIM-9X Sidewinder Block II short-range air-to-air missiles for the U.S. Navy and international customers, $901 million to provide Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA), $647 million for a SPY-6 Hardware Production and Sustainment contract for the U.S. Navy, $581 million for Next Generation Jammer Mid-Band (NGJ-MB) for the U.S. Navy and the Royal Australian Air Force, $556 million to provide NASAMS to an international customer, $529 million to provide Patriot systems for the Netherlands, $517 million to provide Stinger missiles to the U.S. Army and international customers, $513 million to provide Tomahawk to the U.S. Navy, and $5.9 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.
Table of Contents
Corporate expenses and other unallocated items consists of costs not considered part of management’s evaluation of reportable segment operating performance, including certain unallowable costs and reserves.
Net Sales
Operating Profit
(dollars in millions)
Eliminations and other
Corporate expenses and other unallocated items
The increase in eliminations and other net sales of $0.2 billion in 2025 compared to 2024 was primarily due to an increase in intersegment eliminations, principally driven by Collins. The change in eliminations and other operating profit of $0.1 billion in 2025 compared to 2024 was primarily due to gains related to the increase in fair value on investments recognized in 2025.
The increase in eliminations and other net sales of $0.3 billion in 2024 compared to 2023 was primarily due to an increase in intersegment eliminations, principally driven by Collins. Eliminations and other operating profit in 2024 was relatively consistent with 2023.
The change in corporate expenses and other unallocated items of $0.7 billion in 2025 compared to 2024 was primarily due to the absence of a $0.9 billion charge related to the Resolution of Certain Legal Matters recorded in the second quarter of 2024 related to the Resolution of Certain Legal Matters, partially offset by higher selling, general and administrative expenses of $0.1 billion in 2025 and the absence of a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024.
The change in corporate expenses and other unallocated items of $0.7 billion in 2024 compared to 2023 was primarily due to a
$0.9 billion charge related to the Resolution of Certain Legal Matters recorded in the second quarter of 2024, partially offset by
a $0.2 billion benefit from a tax related indemnity receivable recorded in the third quarter of 2024.
FAS/CAS operating adjustment
The segment results of Raytheon include pension and PRB expense as determined under U.S. government CAS, which we generally recover through the pricing of our products and services to the U.S. government. The difference between our CAS expense and the FAS service cost attributable to these segments under U.S. GAAP is the FAS/CAS operating adjustment. The FAS/CAS operating adjustment results in consolidated pension expense in operating profit equal to the service cost component of FAS expense under U.S. GAAP. The segment results of Collins and Pratt & Whitney generally include FAS service cost.
The CAS expense calculation is different from the FAS requirements and calculation methodology. While the ultimate liability for pension costs under FAS and CAS is similar, the pattern of cost recognition is different. Our CAS pension expense is comprised primarily of CAS service cost and amortization amounts resulting from demographic or economic experience different than expected, changes in assumptions, or changes in plan provisions. Unlike FAS, CAS expense is only recognized for plans that are not fully funded on a CAS basis. Consequently, if plans become or cease to be fully funded under CAS due to our asset or liability experience, our CAS expense will change accordingly.
The components of the FAS/CAS operating adjustment were as follows:
(dollars in millions)
FAS service cost (expense)
CAS expense
FAS/CAS operating adjustment
The change in our FAS/CAS operating adjustment of $0.1 billion in 2025 compared to 2024 was driven by a decrease in CAS expense, primarily due to increases in the applicable CAS discount rates and reductions in administrative expenses paid by the pension plans.
The change in our FAS/CAS operating adjustment of $0.3 billion in 2024 compared to 2023 was driven by a decrease in CAS
expense, primarily due to the recognition of historical CAS gain/loss experience.
Acquisition accounting adjustments
Acquisition accounting adjustments include the amortization of acquired intangible assets related to acquisitions, the amortization of the property, plant, and equipment fair value adjustment acquired through acquisitions, the amortization of
Table of Contents
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:
(dollars in millions)
Amortization of acquired intangibles
Amortization of property, plant, and equipment fair value adjustment
Amortization of customer contractual obligations related to acquired loss-making and below-market contracts
Acquisition accounting adjustments
Acquisition accounting adjustments related to acquisitions in each segment were as follows:
(dollars in millions)
Collins Aerospace
Pratt & Whitney
Raytheon
Acquisition accounting adjustments
LIQUIDITY AND FINANCIAL CONDITION
(dollars in millions)
Cash and cash equivalents
Total debt
Total equity
Total capitalization (total debt plus total equity)
Total debt to total capitalization
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 December 31, 2025, we had cash and cash equivalents of $7.4 billion, of which 33% 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. In March 2025, our Moody’s Investors Service outlook improved from Baa1/negative to Baa1/stable. In June 2025, our S&P Global rating was affirmed and our outlook was revised from BBB+/negative to BBB+/stable. Though the Company expects to continue having adequate access to funds, declines in our credit ratings or Company outlook could result in higher borrowing costs.
As of 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.
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. We had no commercial paper borrowings outstanding at December 31, 2025.
During 2025, 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
August 18, 2025
3.950% notes due 2025
May 7, 2025
3 Month SOFR plus 1.225% term loan due 2025
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.
The Company offers voluntary supply chain finance (SCF) programs with global financial institutions which enables our suppliers, at their sole discretion, to sell their receivables from the Company to the financial institutions at a rate that leverages our credit rating, which might be beneficial to them. Our suppliers’ participation in the SCF programs does not impact or change our terms and conditions with those suppliers, and therefore, we have no economic interest in a supplier’s decision to participate in the programs. In addition, we do not pay for any of the costs of the programs incurred by those suppliers that choose to participate, and have no direct financial relationship with the financial institutions, as it relates to sales of receivables made by those suppliers. As such, the SCF programs do not impact our working capital, cash flows, or overall liquidity.
We believe our cash on hand and future operating cash flows will be sufficient to meet our future operating cash needs. Further, we continue to have access to the commercial paper markets and our existing credit facilities, and our ability to obtain debt or equity financing, as well as the availability under committed credit lines, provides additional potential sources of liquidity should they be required.
Cash Flow - Operating Activities
(dollars in millions)
Net cash flows provided by operating activities
2025 Compared with 2024 Operating Activities
Included within Net income for 2024 was a $0.9 billion charge related to the Resolution of Certain Legal Matters and a $0.4 billion, net of tax, charge related to the Raytheon Contract Termination. During 2024, we paid a combined $1.5 billion related to the Resolution of Certain Legal Matters and the Raytheon Contract Termination.
The $3.4 billion increase in cash flows provided by operating activities in 2025 compared to 2024 was primarily driven by higher net income after adjustments to reconcile to net cash provided by operating activities driven by our segment performance, an increase in accounts payable and accrued liabilities due to the timing of collaborator payables, and the benefit of lower inventory growth. These increases were partially offset by an increase in accounts receivable due to higher volume and timing of collections.
The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables, primarily related to customer facilitated programs. The activity pursuant to these agreements is generally dependent on underlying delivery volumes within our commercial OEM programs. Factoring activity resulted in a $0.1 billion decrease in cash provided by operating activities in 2025 compared to 2024 .
Table of Contents
2024 Compared with 2023 Operating Activities
Net income in 2024 included charges of $0.9 billion related to the Resolution of Certain Legal Matters and $0.4 billion related to the Raytheon Contract Termination, net of tax. Net income in 2023 included a $2.2 billion charge related to the Powder Metal Matter, net of tax. The Powder Metal Matter also had the effect of increasing Other accrued liabilities by $2.8 billion in 2023. Utilization of Other accrued liabilities in 2024 related to this matter were $1.0 billion and represent cash paid and credits issued to customers. During 2024, we also paid a combined $1.5 billion related to the Resolution of Certain Legal Matters and the Raytheon Contract Termination.
Additionally, a favorable impact from accounts receivable collections, including the related impact of factoring as discussed below, and a favorable change in accounts payable and other accrued liabilities driven by timing of payments and an increase in material purchases, partially offset by the net change in contract assets and contract liabilities, primarily at Pratt & Whitney, due to sales in excess of billings, contributed to an increase in net cash flows provided by operating activities in 2024 compared to 2023. Excluding the charges discussed above, higher net income after adjustments for depreciation and amortization, deferred income tax benefit, stock compensation cost, net periodic pension and other postretirement income, and gain on sale of CIS business, net of transaction costs also contributed to an increase in net cash flows provided by operating activities in 2024 compared to 2023, primarily driven by the operating performance of our segments.
The Company enters into various factoring agreements with third-party financial institutions to sell certain of its receivables, primarily related to customer facilitated programs. The activity pursuant to these agreements is generally dependent on underlying delivery volumes within our commercial OEM programs. Factoring activity resulted in a $0.9 billion increase in cash provided by operating activities in 2024, compared to 2023.
Operating Activities
We make both required and discretionary contributions to our pension plans. Required contributions are primarily determined by Employee Retirement Income Security Act of 1974 (ERISA) funding rules, which require us to fully fund our U.S. qualified pension plans over a rolling fifteen-year period as determined annually based on the calculated funded status at the beginning of each year per the Pension Protection Act of 2006 and subsequent amendments. The funding requirements are primarily based on the year’s expected service cost and amortization of other previously unfunded liabilities, which are dependent upon many factors, including returns on invested assets, the level of market interest rates, and actuarial assumptions.
Global pension and PRB cash funding requirements are expected to be approximately $0.3 billion in 2026, which includes benefit payments to be paid directly by the Company. We can contribute cash or RTX shares to our plans at our discretion, subject to applicable regulations. As of December 31, 2025, the total investment by the U.S. qualified pension plans in RTX shares was less than 1% of total plan assets.
Our domestic defined contribution plan uses an Employee Stock Ownership Plan (ESOP) for certain employer matching contributions. In the fourth quarter of 2024, we expanded the use of ESOP shares to fund our matching contributions to additional participants who had previously received matching contributions in cash.
We made net income tax payments of $1.6 billion, $1.2 billion, and $1.5 billion in 2025, 2024, and 2023, respectively. See “Note 12: Income Taxes” within Item 8 of this Form 10-K for further discussion.
Included in cash flows from operating activities are payments related to our operating lease obligations. See “Note 11: Leases” within Item 8 of this Form 10-K for actual and expected payments on operating lease obligations.
In addition, the majority of our cash flows for purchase obligations are classified as cash flows from operating activities. We expect future payments related to our purchase obligations to be approximately $47 billion, of which $29 billion is payable in 2026. Purchase obligations include current amounts committed for the purchase of goods and services under legally enforceable contracts or purchase orders, and do not represent our entire anticipated purchases in the future. Approximately 50% of our purchase obligations described above represent purchase orders for products to be delivered under firm contracts with the U.S. government for which we have full recourse under customary contract termination clauses.
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. In both 2025 and 2024, we utilized $1.0 billion of the accrual through cash payments and credits issued to 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 cash paid, customer credits applied and the timing of partner recovery.
Table of Contents
Cash Flow - Investing Activities
(dollars in millions)
Net cash flows used in investing activities
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 and designated net investment hedges.
2025 Compared with 2024 Investing Activities
The $0.3 billion change in cash flows used in investing activities in 2025 compared to 2024 primarily related to higher receipts from settlements of derivative contracts of $0.3 billion. Also contributing to the change was a $0.1 billion increase in net proceeds received from divestitures. In 2025, we received $1.2 billion from the actuation and flight control business divestiture and $0.7 billion from the sale of the Simmonds Precision Products business as compared to $1.3 billion from the CIS divestiture and $0.5 billion from the Goodrich Hoist & Winch divestiture in 2024.
2024 Compared with 2023 Investing Activities
The $1.5 billion change in cash flows used in investing activities in 2024 compared to 2023 primarily related to the cash proceeds from the sale of our CIS business within our Raytheon segment and the sale of our Goodrich Hoist & Winch business within our Collins segment of approximately $1.3 billion and $0.5 billion, respectively.
Investing Activities
There were no significant acquisitions in 2025, 2024, or 2023. For information on dispositions of businesses in 2025, 2024, or 2023, see above and “Note 2: Acquisitions and Dispositions” within Item 8 of this Form 10-K.
In 2025, 2024, and 2023 our intangible assets increased by $0.5 billion, $0.6 billion, and $0.8 billion, respectively, primarily related to collaboration payment commitments made under our 2012 agreement to acquire Rolls-Royce’s collaboration interests in International Aero Engines AG (IAE) and exclusivity payments made on contractual commitments included within intangible assets. At December 31, 2025, we had commercial aerospace financing and other contractual commitments, including exclusivity and collaboration payment commitments, of approximately $13.1 billion, on a gross basis before reduction for our collaboration partners’ share. Refer to “Note 17: Commitments and Contingencies” within Item 8 of this Form 10-K for further details on our commercial aerospace financing and other contractual commitments.
As discussed in “Note 13: Financial Instruments” within Item 8 of this Form 10-K, 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.
Cash Flow - Financing Activities
(dollars in millions)
Net cash flows used in financing activities
Our financing activities primarily include the issuance and repayment of commercial paper and other short-term and long-term debt, payment of dividends, and share repurchases.
2025 Compared with 2024 Financing Activities
The $0.9 billion increase in cash flows used in financing activities in 2025 compared to the 2024 was primarily driven by higher year-over-year long-term debt repayments of $0.9 billion. Refer to “Note 9: Borrowings and Lines of Credit” within Item 8 of this Form 10-K for additional information on debt repayments. Additionally, lower share repurchases were more than offset by higher dividends paid in 2025 as compared to 2024.
2024 Compared with 2023 Financing Activities
Table of Contents
The $2.1 billion increase in cash flows used in financing activities in 2024 compared to 2023 was primarily driven by higher year-over-year long-term debt repayments of $1.9 billion. Prior year long-term debt proceeds of $12.9 billion were partially offset by lower year-over-year share repurchases of $12.4 billion, primarily related to the prior year ASR.
Financing Activities
Included in cash flows from financing activities are principal payments related to our long-term debt. A summary of our long-term debt commitments, including interest payments which are included in cash flows provided by operating activities, as of December 31, 2025 was as follows:
Payments Due by Period
(dollars in millions)
Thereafter
Long-term debt—principal
Long-term debt—future interest
At December 31, 2025, management had remaining authority to repurchase approximately $0.6 billion of our common stock under the October 21, 2023 share repurchase program. Under the 2023 program, shares may be purchased on the open market, in privately negotiated transactions, under accelerated share repurchase programs, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. We may also reacquire shares outside of the program in connection with the surrender of shares to cover taxes on vesting of restricted stock. Our ability to repurchase shares is subject to applicable law.
Our share repurchases were as follows for the years ended December 31:
(dollars in millions; shares in thousands)
Shares
Shares
Shares
Shares of common stock repurchased (1)
ASR Tranche 1 settlement - shares received (2)
ASR Tranche 2 settlement - financing cash paid (2) (3)
Total shares of common stock repurchased
(1) Relates to share repurchases that were settled in cash during the year.
(2) Includes the settlement of the ASR first and second tranches in the third quarter of 2024.
(3) Excludes the change in fair value of the stock price from trade date to settlement date of $3 million, which is classified as an operating cash flow in our Consolidated Statement of Cash Flows.
Pursuant to the ASR agreements entered into in 2023, 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 approximately 0.4 million shares of common stock. In September 2024, with respect to the second tranche, we owed approximately 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.
On February 6, 2026, the Board of Directors declared a dividend of $0.68 per share payable March 19, 2026 to shareowners of record at the close of business on February 20, 2026.
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 Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. The most significant areas involving management judgments and estimates are described below. Actual results in these areas could differ from management’s estimates.
Long-Term Contract Accounting. We recognize revenue on an over-time basis for substantially all defense contracts and certain long-term aerospace aftermarket contracts. We measure progress toward completion of these contracts on a percentage-of-completion basis, generally using costs incurred to date relative to total estimated costs at completion. Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment. 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
Table of Contents
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 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)
Total net sales
Operating profit
Net income attributable to common shareowners (1)
Diluted earnings per share attributable to common shareowners (1)
(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. Additionally, during the second quarter of 2024, Raytheon recognized a $0.6 billion charge related to the impact of the Raytheon Contract 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.
Costs incurred for engineering and development of certain aerospace products under contracts with customers are capitalized as contract fulfillment costs, to the extent recoverable from the associated contract margin and customer funding, and subsequently amortized as the products are delivered to the customer. The estimation of contract costs, and margin, considered as part of this recoverability assessment requires significant judgment. 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 “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of this Form 10-K for further discussion.
Income Taxes. Management believes that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits, which may be realized over an extended period of time. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided.
In assessing the need for a valuation allowance, we consider available positive and negative evidence including past operating results, projections of future taxable income, the feasibility of ongoing tax planning strategies, and the realizability of tax loss carryforwards. Our projections of future taxable income include estimates and assumptions regarding our volume, pricing, and costs, as well as the timing and amount of reversals of taxable temporary differences. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, changes to statutory tax rates, and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would
Table of Contents
reduce such amounts through an increase to tax expense in the period in which that determination is made or when tax law changes are enacted. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to tax expense in the period in which that determination is made.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. Significant judgment is required when assessing our income tax positions and in determining our tax expense and benefits. Management assesses our tax positions based on an evaluation of the facts, circumstances, applicable tax laws, including regulations, case law, and other interpretive guidance, as well as any other relevant information. Adjustments to our tax positions are made as new information becomes available or when our assessments change. See “Note 1: Basis of Presentation and Summary of Accounting Principles” and “Note 12: Income Taxes” within Item 8 of this Form 10-K for further discussion.
Goodwill and Intangible Assets. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets acquired in business combinations consist of patents, trademarks/tradenames, developed technology, customer relationships, and other intangible assets. The fair value for acquired customer relationship intangibles is determined as of the acquisition date based on estimates and judgments regarding expectations for the future after-tax cash flows arising from the follow-on revenue from customer relationships that existed on the acquisition date over their estimated lives, including the probability of expected future contract renewals and revenue, less a contributory assets charge, all of which is discounted to present value. The fair value of the trademark and tradename intangible assets are determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the tradename and discounted to present value using an appropriate discount rate. See “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of this Form 10-K for further details.
Also included within intangible assets are exclusivity assets, which are payments made to secure certain contractual rights to provide products on new commercial aerospace platforms. At December 31, 2025, our exclusivity assets, net of accumulated amortization, were approximately $3.7 billion, and our remaining estimated commitments, net of collaborator share, were approximately $5.5 billion. We assess the recoverability of these intangibles, which is dependent upon our assumptions around the future success and profitability of the underlying aircraft platforms, including the associated aftermarket revenue streams, and the related future cash flows.
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 impairment test compares carrying values of the reporting units and indefinite-lived intangible assets to their estimated fair values. If the carrying value exceeds the fair value, then the carrying value is reduced to fair value. In testing 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 for goodwill, we primarily utilize a combination of discounted cash flows and market-based valuation methodologies. For the quantitative assessments of indefinite-lived intangible assets, fair value is primarily based on the relief from royalty method. These quantitative assessments incorporate significant assumptions that include 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.
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.
The Company continuously monitors and evaluates relevant events and circumstances that could unfavorably impact our significant assumptions used in testing goodwill, including changes to U.S. treasury rates and equity risk premiums, tax rates, recent market valuations from transactions by comparable companies, volatility in the Company’s market capitalization, and general industry, market, and macro-economic conditions. It is possible that future changes in such circumstances, or in the inputs and assumptions used in estimating the fair value of our reporting units, could require the Company to record a non-cash impairment charge.
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. As noted above, our indefinite-lived intangible assets impairment analysis involves significant assumptions that are subject to variability. Material changes in these assumptions could occur and result in impairments in future periods.
Table of Contents
Contingent Liabilities. As described in “Note 17: Commitments and Contingencies” within Item 8 of this Form 10-K, contractual, regulatory, and other matters in the normal course of business may arise that subject us to claims or litigation, including with respect to matters relating to technical issues on programs, government contracts, performance and operating cost guarantees, employee benefit plans, legal, and environmental, health, and safety matters. In particular, the design, development, production, and support of aerospace technologies is inherently complex and subject to risk. Technical issues associated with these technolog ies may arise in the normal course and may result in financial impacts, including increased warranty provisions, customer contract settlements, and changes in contract performance e stimates. These impacts could be material to the Company’s results of operations, financial condition, and liquidity. Additionally, we have significant contracts with the U.S. government, subject to government oversight and audit, which may require significant adjustment of contract prices. We accrue for liabilities associated with these matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. Estimating our liability based on both the likelihood of any adverse judgments or outcomes, and the costs associated with these matters, requires significant judgment. The inherent uncertainty related to the outcome of these matters could result in amounts materially different from any provisions made with respect to their resolution.
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 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, primarily 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.
Employee Benefit Plans. We sponsor domestic and foreign defined benefit pension and PRB plans. Assumptions used to calculate our funded status are determined based on company data and appropriate market indicators. They are evaluated annually at December 31 and when significant events require a mid-year remeasurement. A change in any of these assumptions
Table of Contents
or actual experience that differs from these assumptions are subject to recognition in pension and postretirement net periodic benefit (income) expense reported in the Consolidated Financial Statements.
Assumptions used in the accounting for these employee benefit plans require judgment. Major assumptions include the discount rate and expected return on planned assets (EROA). Other assumptions include actuarial and demographic assumptions including mortality rates, retirement age, and rate of increase in employee compensation levels.
The weighted-average discount rates used to measure pension and PRB liabilities are generally based on yield curves developed using high-quality corporate bonds which are subject to macroeconomic factors, 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.
The following table shows the sensitivity of our pension and PRB plan liabilities and net periodic benefit income to a 25 basis point change in the discount rates for benefit obligations, interest cost, and service cost as of December 31, 2025:
(dollars in millions)
Increase in Discount
Rate of 25 bps
Decrease in Discount
Rate of 25 bps
Projected benefit obligation increase (decrease)
Net periodic benefit income increase (decrease)
The discount rate sensitivities assume no change in the shape of the yield curve that will be applied to the projected cash outflows for future benefit payments in order to calculate interest and service cost. A flattening of the yield curve results in a narrowing of the spread between interest and obligation discount rates and would decrease our net periodic benefit income. Conversely, a steepening of the yield curve would result in an increase in the spread between interest and obligation discount rates and would increase our net periodic benefit income.
The EROA is the average rate of earnings expected over the long-term on assets invested to fund anticipated future benefit payment obligations. 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. Differences between actual asset returns in a given year and the EROA do not necessarily indicate a change in the assumption is required, as the EROA represents the expected average returns over a long-term horizon.
Net periodic benefit income is also sensitive to changes in the EROA. An increase or decrease of 25 basis points in the EROA would have increased or decreased our 2025 net periodic benefit income by approximately $130 million.
Refer to “Note 10: Employee Benefit Plans” within Item 8 of this Form 10-K for discussion of current and prior year discount rate and EROA assumptions.
ACCOUNTING STANDARDS
For a discussion of recent accounting pronouncements, see the Accounting Pronouncements section in “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of this Form 10-K.
COMMITMENTS AND CONTINGENCIES
Refer to “Note 17: Commitments and Contingencies” within Item 8 of this Form 10-K for discussion on contractual commitments and contingencies.
GOVERNMENT MATTERS
As described above in “Critical Accounting Estimates—Contingent Liabilities,” our contracts with the U.S. government are subject to audits. Such audits may recommend that certain contract prices should be reduced to comply with various government regulations, or that certain payments be delayed or withheld. We are also the subject of one or more investigations and legal proceedings initiated by the U.S. government with respect to government contract matters. In addition, as described in “Note 1: Basis of Presentation and Summary of Accounting Principles” within Item 8 of this Form 10-K, in 2024, the Company entered into a deferred prosecution agreement (DPA) with the Department of Justice (DOJ) and the Company settled an administrative proceeding with 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, Thales-Raytheon Systems (TRS) since 2012, in connection with certain Middle East contracts. The Company also entered into a DPA and a FCA settlement
Table of Contents
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. 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 U.S. 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 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. See “Note 17: Commitments and Contingencies” within Item 8 of this Form 10-K for further discussion of these and other government matters.
