RTX RTX · USD

NOTE 20: SEGMENT FINANCIAL DATAOur operations, for the periods presented herein, are classified into three principal segments: Collins Aerospace (Collins), Pratt & Whitney, and Raytheon. Our segments are generally based on the management structure of the businesses and the grouping of similar operating companies, where each management organization has general operating autonomy over diversified products and services. Collins Aerospace is a leading global provider of technologically advanced aerospace and defense products. Collins’ solutions include aftermarket services for civil and military aircraft manufacturers, commercial airlines, and regional, business, and general aviation, as well as for defense and commercial space operations. Aftermarket services include spare parts, overhaul and repair, engineering and technical support, training and fleet management solutions, asset management services, and information management services. Collins designs, manufactures, and supplies electric power generation, management and distribution systems, environmental control systems, flight control systems, air data and aircraft sensing systems, engine control systems, engine components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft cargo systems, evacuation systems, landing systems (including landing gear, wheels, and braking systems), communication, navigation, surveillance systems, fire and ice detection and protection systems, integrated avionics, and propeller systems. Collins also designs, manufactures, and supports complete cabin interiors, including seating, oxygen systems, food and beverage preparation, storage and galley systems, lavatory, and wastewater management systems. Collins’ solutions support human space exploration with environmental control and power systems and extravehicular activity suits. Collins also provides connected aviation solutions and services through worldwide voice and data communication networks, airport systems and integrations, and air traffic management solutions. Collins supports government and defense customer missions by providing systems solutions for connected battlespace, test and training range systems, crew escape systems, and simulation and training. Pratt & Whitney is among the world’s leading suppliers of aircraft engines for commercial, military, business jet, and general aviation customers.

NOTE 17: COMMITMENTS AND CONTINGENCIESExcept as otherwise noted, while we are unable to predict the final outcome, based on information currently available, we do not believe that resolution of any of the following matters will have a material adverse effect upon our competitive position, results of operations, financial condition, or liquidity.Environmental. Our operations are subject to environmental regulation by federal, state, and local authorities in the United States and regulatory authorities with jurisdiction over our foreign operations. We have accrued for the costs of environmental remediation activities, including but not limited to investigatory, remediation, operating and maintenance costs, and performance guarantees, and periodically reassess these amounts. We do not expect any additional liability to have a material adverse effect on our results of operations, financial condition, or liquidity. As of both December 31, 2025 and 2024, we had $0.8 billion reserved for environmental remediation. Additional information pertaining to environmental matters is included in “Note 1: Basis of Presentation and Summary of Accounting Principles.”Commercial Aerospace Financing and Other Commitments. We had commercial aerospace financing commitments and other contractual commitments of approximately $13 billion and $14 billion as of December 31, 2025 and 2024, respectively, on a gross basis before reduction for our collaboration partners’ share. Aircraft financing commitments, in the form of debt or lease financing, are provided to certain commercial aerospace customers. The extent to which the financing commitments will be utilized is not currently known, since customers may be able to obtain more favorable terms from other financing sources. We may also arrange for third-party investors to assume a portion of these commitments. The majority of financing commitments are collateralized arrangements. We may also pay deposits on behalf of our customers to secure production slots with the airframers (pre-delivery payments). Our financing commitments with customers are contingent upon maintenance of certain levels of financial condition by our customers. Associated risks on these commitments are mitigated due to the fact that interest rates are variable during the commitment term and are set at the date of funding based on current market conditions, the fair value of the underlying collateral, and the creditworthiness of our customers.

NOTE 12: INCOME TAXESIncome Before Income Taxes. The sources of income before income taxes are:(dollars in millions)202520242023United States (1)$5,126 $3,016 $938 Foreign3,607 3,178 2,898 Income before income taxes$8,733 $6,194 $3,836 (1) 2023 includes the impacts of the Powder Metal Matter.Provision for Income Taxes. The income tax expense for the years ended December 31 are as follows:(dollars in millions)202520242023Current:United States:Federal$59 $443 $213 State99 179 70 Foreign717 606 575 875 1,228 858 Future:United States:Federal706 (13)(411)State71 71 (53)Foreign12 (105)62 789 (47)(402)Income tax expense$1,664 $1,181 $456 Prior to 2022, research and experimental expenditures were generally deductible in the period incurred. A provision enacted in the Tax Cuts and Jobs Act of 2017 (TCJA) related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. In September and December 2023, the IRS issued interim guidance, retroactive to 2022, clarifying the capitalization requirements for certain types of research and experimental expenditures, which resulted in fewer costs being subject to capitalization. On July 4, 2025, “An Act to Provide for Reconciliation Pursuant to Title II of the H. Con. Res. 14” (the Act) was enacted. The Act allows for the immediate deductibility of research and experimental expenditures performed in the United States and certain U.S. territories. These legislative changes have impacted our federal and state current and deferred income tax provisions in the above table.Reconciliation of Effective Income Tax Rate. The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, prospectively as of January 1, 2025. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:2025(dollars in millions)AmountRateStatutory U.S. Federal Income Tax Rate$1,834 21.0 %State and Local Income Tax, net of federal income tax effect (1)168 1.9 Foreign Tax Effects(17)(0.2)Effect of Cross-Border Tax Laws961.1 U.S. Federal Research and development tax credit(182)(2.1)Nontaxable or Nondeductible Items51 0.6 Worldwide Changes in Prior Year Unrecognized Tax Benefits(2)(83)(0.9)Other (3)(203)(2.3)Effective income tax rate$1,664 19.1 %(1) State and local taxes include current and deferred income taxes exclusive of changes in prior year uncertain tax positions.

NOTE 19: STOCK-BASED COMPENSATIONRTX’s long-term incentive plans authorize various types of market and performance-based incentive awards that may be granted to officers and key employees. The RTX Corporation Long-Term Incentive Plan (LTIP), was last amended on October 29, 2025. A total of 231 million shares have been authorized for issuance pursuant to awards under the LTIP including shares assumed from predecessor plans and adjustments associated with the separation of Carrier and Otis. As of December 31, 2025, approximately 101 million shares remain available for awards under the LTIP. The LTIP does not contain aggregate annual award limits, however, it sets an annual award limit per participant. The LTIP will expire after all authorized shares have been awarded or on May 2, 2034, whichever is sooner.Under the LTIP, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights (SARs) and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and restricted stock units (RSUs) held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to performance goals.We measure the cost of share-based payments for restricted share units, stock options, stock appreciation rights, and awards with market-based conditions at fair value on the grant date. For awards that include performance conditions, compensation expense is recorded based on the estimated number of awards that are expected to vest at the end of the performance period. The cost of all share-based payments are recognized in the Consolidated Statement of Operations, net of expected forfeitures, as follows:(dollars in millions)202520242023Total compensation cost recognized$519 $437 $425 The cash received and the related tax benefit realized on exercised stock options for 2025, 2024 and 2023 were not material.

NOTE 11: LEASESWe enter into lease agreements for the use of real estate space, vehicles, IT equipment, and certain other equipment, including engines, under both operating and finance leases. The majority of our lease agreements are accounted for as operating leases. Operating lease expense was $495 million, $422 million, and $463 million for 2025, 2024, and 2023, respectively. Finance leases are not considered significant to our Consolidated Balance Sheet, Consolidated Statement of Operations, or Consolidated Statement of Cash Flows.Leases under which we are the lessor are generally short-term leases that support our commercial aerospace customers during engine maintenance events. Our commercial aerospace customers have varying forms of aftermarket maintenance coverage that often provide a level of support for leased engines as part of the revenue arrangement. As such, leases where we are the lessor are not considered significant to our Consolidated Balance Sheet, Consolidated Statement of Operations, or Consolidated Statement of Cash Flows.In 2025, 2024, and 2023, we entered into sale and leaseback transactions for the sale of new engines and related maintenance. We subsequently lease back the engines sold for a limited timeframe and account for them as operating leases. The proceeds received as a result of sales of new engines are classified primarily in Other operating activities, net within our Consolidated Statement of Cash Flows. The net gains as a result of these transactions were not material.

NOTE 2: ACQUISITIONS AND DISPOSITIONSDispositions. On July 21, 2025, we completed the sale of the actuation and flight control business within our Collins segment for gross proceeds of $1.8 billion. Cash received of $1.6 billion, net of cash transferred, included amounts attributable to continuing service agreements supporting the buyer post-closing. The sale resulted in a pre-tax gain of $0.2 billion, which was recorded in Other income (expense), net within the Consolidated Statement of Operations.On October 6, 2025, we completed the sale of the Simmonds Precision Products business within our Collins segment for gross proceeds of approximately $0.8 billion, resulting in an aggregate pre-tax gain of $0.1 billion, recognized in Other income (expense), net within the Consolidated Statement of Operations. On March 29, 2024, we completed the sale of our Cybersecurity, Intelligence and Services (CIS) business within our Raytheon segment for proceeds of approximately $1.3 billion in cash, resulting in an aggregate pre-tax gain, net of transaction and other related costs, of $0.4 billion, primarily recognized in Other income (expense), net within the Consolidated Statement of Operations.On October 31, 2024, we completed the sale of our Goodrich Hoist & Winch business within our Collins segment for proceeds of approximately $0.5 billion in cash, resulting in a pre-tax gain, net of transaction and other related costs, of $0.1 billion, primarily recognized in Other income (expense), net within the Consolidated Statement of Operations.

Our Cybersecurity ProgramGiven the nature of our business and the cybersecurity risks we face, we have a robust cybersecurity program for identifying, assessing, and managing cybersecurity risks, which include material risks from cybersecurity threats, to our internal systems, our products, services and programs for customers, and our supply chain. Our cybersecurity program is made up of two components: our enterprise cybersecurity program and our cybersecurity program for our products and services.Enterprise Cybersecurity. Our enterprise cybersecurity program aligns with the National Institute of Standards and Technology (NIST) standards. Our program includes processes and controls for the deployment of new IT systems by the Company and controls over new and existing system operation. We monitor and conduct regular testing of these controls and systems, including vulnerability management through active discovery and testing to regularly assess patching and configuration status. In addition, we require our employees and contract workers to complete annual cybersecurity training, and we regularly conduct simulated phishing and cyber-related communications to educate individuals on the latest threats. Product and Services Cybersecurity. Our product development processes apply development, security, and operations principles aligned with applicable government and commercial standards, and include vulnerability scanning and static and dynamic composition analysis. We regularly assess our product development processes, product cyber maturity, and the teams providing our secure services in relation to cybersecurity. In addition, we strive to meet all security requirements mandated by government and commercial customers and adhere to regulatory guidance and standards for system security engineering. Many of our products also undergo industry audits and regulatory compliance certifications, and our products delivered to the U.S. Department of War (DoW) (formerly referred to as the U.S. Department of Defense) must comply with DoW risk management requirements.Cybersecurity for Systems used in Support of U.S. Government Customers. With respect to products and services provided to, and IT systems used in connection with programs for, the U.S. government, our cybersecurity program aligns with the NIST standards and meets the requirements of 32 CFR Part 117 and other applicable U.S. government guidance.

NOTE 18: EQUITYAccelerated Share Repurchases. On October 24, 2023, we entered into accelerated share repurchase (ASR) agreements with certain financial institution counterparties to repurchase shares of our common stock for an aggregate purchase price of $10 billion. The ASR agreements provided for the repurchase of our common stock based on the average of the daily volume-weighted average prices of our common stock during the term of such ASR agreements, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR agreements. Pursuant to the ASR agreements, we made aggregate payments of $10 billion on October 26, 2023, and received initial deliveries of approximately 108.4 million shares of our common stock at a price of $78.38 per share, which, on that date, represented approximately 85% of the shares expected to be repurchased. The aggregate purchase price was recorded as a reduction to Shareowners’ equity, consisting of an $8.5 billion increase in Treasury stock and a $1.5 billion decrease in Common stock. We funded the payments with borrowings under a bridge credit agreement, which was repaid with the proceeds from term loan facilities, proceeds from issuances of long-term debt in the fourth quarter of 2023, and cash on hand. See “Note 9: Borrowings and Lines of Credit” for additional information.The shares associated with the remaining portion of the aggregate purchase price have been settled over two tranches. In July 2024, the first tranche was settled upon final delivery to us of 0.4 million shares of common stock. In September 2024, with respect to the second tranche, we owed 2.2 million shares of common stock that we elected to cash settle for $261 million. The cash payment required as a result of the second tranche settlement was due to the significant increase in the price of our common stock during the ASR term. The final average price under the ASR was $94.28 per share.Accumulated Other Comprehensive Loss.